DOD, DHS driving more OTAs

NOTE: This article first appeared on FCW.com.

Increasingly the Departments of Defense and Homeland Security are looking to "other transaction authority" agreements to acquire emerging technologies. Procurements made under OTA are exempt from many Federal Acquisition Regulation rules and are typically limited to research, prototypes and in certain cases follow-on production.

The authority dates back to the 1958 Space Act, passed in the wake of the Soviet Union's Sputnik launch, but in recent years it has heated up as the military and DHS have tried to leverage the innovation of tech startups that haven't typically looked to the federal market for growth.

According to contracting intelligence firm Deltek, OTA spending hit $4.3 billion in fiscal year 2018, up from $2.1 billion in 2017. Because of increased interest in OTA procurement, Deltek recently began breaking out OTA opportunities and spending as a separate category in its GovWin database.

Part of the reason for renewed interest in OTAs is the need to innovate on the defense side faster than our adversaries.

"When you read the National Defense Strategy from 2018, we're now transitioning from low-intensity conflict to a world where we're looking at peer competitors in a global technology race," Steven Mihalisko, principal research analyst at Deltek, told FCW. "The impetus to make sure military spending will keep the competitive edge is a driver for the use of OTAs."

There have been some regulatory hiccups for OTA adoption. DHS had to suspend obligations on its Silicon Valley Investment Program between February and June because Congress cancelled the agency's OTA spending in the appropriations bill that ended the 35-day partial government shutdown. That authority was only restored in a supplemental funding bill passed in June.

More significantly perhaps is the case of Transportation Command and REAN Cloud, in which a $950 million production award for cloud computing was scaled back to $65 million by the Government Accountability Office and then eliminated altogether in May 2018 as the result of a protest by Oracle.

Mihalisko said he's not that worried about the regulatory environment with regard to OTAs. He noted that DOD's OTA guidebook released in November 2018 clarified some of the issues at stake in the REAN Cloud procurement regarding the transition from prototype to follow-on production contracts.

"The benefits are still outweighing the risks," he said.

Defense officials appear to agree.

"We particularly are interested in small and medium-size businesses; an enormous amount of our innovation comes from small businesses," Ellen Lord, the undersecretary of defense for acquisition and sustainment, said at a May press conference. "So through a variety of different contracting mechanisms, we are trying to include them as well as traditionally commercial businesses. That is why you see the use of other transaction authorities. That is also why you see us using pathfinder projects to create secure software development environments that smaller companies could use," she said.

At the same time, Congress is making sure it keeps its eye on the ball. The House and Senate defense authorization bills for FY2020 both contain oversight mechanisms for OTAs.