Other Transaction (OT) Authority
Other Transaction (OT) Authority
An other transaction (OT) is a special vehicle used by federal agencies for
obtaining or advancing research and development (R&D) or prototypes. An OT is
not a contract, grant, or cooperative agreement, and there is no statutory or regulatory
definition of “other transaction.” Only those agencies that have been provided OT
authority may engage in other transactions.
OT authority originated with the National Aeronautics and Space
Administration (NASA) when the National Aeronautics and Space Act of 1958 was
enacted. Subsequently, seven other specific agencies have been given OT authority:
the Department of Defense (DOD), Federal Aviation Administration (FAA),
Department of Transportation (DOT), Department of Homeland Security (DHS),
Transportation Security Administration, Department of Health and Human Services,
and Department of Energy. Other federal agencies may use OT authority under
certain circumstances and if authorized by the Director of the Office of Management
and Budget (OMB).
Generally, the reason for creating OT authority is that the government needs to
obtain leading-edge R&D (and prototypes) from commercial sources, but some
companies (and other entities) are unwilling or unable to comply with the
government’s procurement regulations. The government’s procurement regulations
and certain procurement statutes do not apply to OTs, and, accordingly, other
transaction authority gives agencies the flexibility necessary to develop agreements
tailored to a particular transaction. The Competition in Contracting Act (CICA),
Contract Disputes Act, and Procurement Integrity Act are examples of three statues
that do not apply to OTs.
Evaluating OTs and the use of OT authority is a challenging undertaking.
Because the Federal Acquisition Regulation (FAR) and certain procurement statutes
do not apply to OTs means that the methods or mechanisms used to track contractor
performance and results also do not apply. Additionally, the types of activities,
functions, and outcomes associated with other transactions cannot be easily measured
for the purpose of evaluation. It does not appear that anyone has yet devised a
reliable method for conducting an evaluation that would yield quantifiable, objective
Evidence of congressional interest in the use of other transaction authority
includes the expansion of OT authority over the years (as noted above), and a 2008
congressional hearing on the Department of Homeland Security’s use of OT
This report will be updated as events warrant.
In troduction ......................................................1
Origin and Expansion of Other Transaction Authority.....................3
Agencies That Have OT Authority................................6
National Aeronautics and Space Administration......................7
Department of Defense.........................................8
Federal Aviation Administration.................................16
Department of Transportation...................................16
Department of Homeland Security................................17
Transportation Security Administration............................19
Department of Health and Human Services,
National Institutes of Health................................20
Department of Energy.........................................20
Applicability of the FAR and Procurement Statutes to Other Transactions....22
Evaluating the Use of OT Authority..................................27
Nontraditional Contractors .....................................28
Other Assessments of OTs .....................................31
Additional Considerations for Evaluating OTs......................34
Is OT Authority Used Appropriately?.............................35
List of Tables
Table 1. Statutes and Statutory Provisions That Do Not Apply
to Other Transactions..........................................23
Other Transaction (OT) Authority
An other transaction (OT) is a special type of vehicle or instrument used by
federal agencies for research and development purposes, and only those agencies that
have statutory authority to engage in OTs may do so. There is no statutory or
regulatory definition of “other transaction,” though, in practice, it is defined in the
negative: an OT is not a contract, grant, or cooperative agreement. While the
government may benefit from the work carried out pursuant to an other transaction,
an OT does not necessarily involve the purchase of goods or services.1 Using an OT,
the government may gain access to research or technology developed by, or in
concert with, one or more non-governmental entities, such as commercial firms.2
1 An executive agency uses a contract “when ... (1) the principal purpose of the instrument
is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use
of the United States Government; or (2) the agency decides in a specific instance that the
use of a procurement contract is appropriate.” (31 U.S.C. §6303.) (Italics added to aid in
identifying significant terms.) In addition to describing when a federal agency shall use a
contract, the Federal Grant and Cooperative Agreement Act (P.L. 95-224; 31 U.S.C.
§§6301-6308), which is popularly known as the Chiles Act, also describes when an agency
shall use a grant (31 U.S.C. §6304) or a cooperative agreement (31 U.S.C. §6305).
2 Although the word “commercial,” when used in discussing OT authority, does not appear
to have a generally agreed upon definition, several authors who have written about OTs
offer their own explanations or definitions. In one of is reports on DOD’s use of OT
authority, the Government Accountability Office (GAO) uses the term “commercial firm”
to identify a company that typically does not do business with DOD. (U.S. General
Accounting Office, DOD’s Guidance on Using Section 845 Agreements Could be Improved,
GAO-NSIAD-00-33, Apr. 2000, p. 4. GAO was renamed the U.S. Government
Accountability Office in 2004.) The DOD inspector general (IG), as reported by GAO,
“defined a commercial firm as one that had not performed research on cost-based contracts
or that had been subject to an audit by the Defense Contract Audit Agency within the past
3 years.” (Ibid., p. 14.) A broader definition may be found in a Public Contract Law
Journal article: “For purposes of this article, when the term ‘commercial’ is used, it
encompasses all entities that are not part of the Federal Government, including universities,
laboratories, and nonprofit entities.” (Diane M. Sidebottom, “Updating the Bayh-Dole Act:
Keeping the Federal Government on the Cutting Edge,” Public Contract Law Journal, vol.
30, no. 2 (winter 2001), p. 226.) The definitions of “commercial item” and “commercial
activity” found in the Federal Acquisition Regulation (FAR) and Office of Management and
Budget (OMB) Circular A-76, respectively, have specific applications. The FAR’s
definition of “commercial item” has to do with procedures that apply to the purchase of
commercial items. (FAR 2.101.) The definitions of “commercial activity” (and “inherently
governmental activity”) found in Circular A-76 are used to distinguish between activities
that can be subjected to competitive sourcing and those that cannot (U.S. Office of
Management and Budget, Circular No. A-76 (Revised), May 29, 2003, available at
Depending on the language of a particular statute, an agency may use OTs for
basic, applied, or advanced research projects; prototypes; or some other purpose.3
Alternatively, an agency also may use a contract for research and development
(R&D), which is covered by Part 35 of the Federal Acquisition Regulation (FAR),
but OTs provide certain advantages over contracts.4 Generally, the advantages derive
from the fact that OTs are not subject to the FAR and certain procurement statutes.5
Companies (and other entities) unwilling or unable to comply with government
procurement regulations and statutes might be less likely to engage in a contract than
an OT. By using an OT instead of a contract, an agency and its partners are able to
develop a flexible arrangement tailored to the project and the needs of the
participants: “Other Transactions are meant to present the Government and contractor
with a ‘blank page’ from which to begin when negotiating such instruments.”6
Additionally, OTs promote “a more collaborative working relationship,” which can
[http://www.whitehouse.gov/omb/circulars/a076/a76_rev2003.pdf], pp. A-2-A-3 and D-2.)
3 While testifying at a congressional hearing in 2008, the chief procurement officer (CPO)
of the Department of Homeland Security described, for example, how the Transportation
Security Administration (TSA) used OTs as a way to reimburse costs associated with certain
airport projects. (U.S. Congress, House Committee on Homeland Security, Subcommittee
on Emerging Threats, Cybersecurity and Science and Technology, “Other Transactionthnd
Authority: Flexibility at the Expense of Accountability?” 110 Cong., 2 sess., unpublished
hearing, Feb. 7, 2008, p. 4.)
4 The FAR is Title 48 of the Code of Federal Regulations (CFR). It is “the primary
regulation for use by all Federal Executive agencies in their acquisition of supplies and
services with appropriated funds.” (FAR, “Foreword.”) The FAR is available at
5 The FAR “applies to all acquisitions as defined in Part 2 of the FAR...” (FAR 1.104.) Part
2 does not include a definition of “other transaction.” Additionally, the definition of
“contract action” in the FAR specifically excludes other transactions: “‘Contract action’
means any oral or written action that results in the purchase, rent, or lease of supplies or
equipment, services, or construction using appropriated dollars over the micro-purchase
threshold, or modifications to these actions regardless of dollar value. Contract action does
not include grants, cooperative agreements, other transactions, real property leases,
requisitions from Federal stock, training authorizations, or other non-FAR based
transactions.” (FAR 4.601.) (First use of italics in original. Second use of italics added to
aid in identifying relevant language.)
6 Nancy O. Dix, Fernand A. Lavallee, and Kimberly C. Welch, “Fear and Loathing of
Federal Contracting: Are Commercial Companies Really Afraid To Do Business With the
Federal Government? Should They Be?” Public Contract Law Journal, vol. 33, no. 1 (fall
2003), p. 26. The benefit of OT authority is that it “... allows government and industry to
define their relationship through negotiations without the normal constraints. Under OT
authority, the program management approach, program objectives and criteria for measuring
progress, oversight and reporting requirements, price to the government, fee for industry,
and the statement of work are embodied in an Agreement reflecting the results of this
negotiation. Agreements are inherently more flexible than traditional contracting vehicles,
and could be changed simply by the mutual agreement of government and industry
participants.” (U.S. General Accounting Office, Acquiring Research by Nontraditional
Means, GAO/NSIAD-96-11, Mar. 1996, p. 3.)
be more conducive to R&D than the type of relationship established by a contract.7
After reviewing the origin and expansion of other transaction authority, this
report examines the advantages of other transactions, reviews the applicability of the
FAR and procurement statutes to OTs, discusses methods and challenges involved
in evaluating other transactions, presents suggestions for the use of OTs, and
concludes with a list of possible policy options.
Origin and Expansion of
Other Transaction Authority
The reasons for the introduction and passage of specific legislative provisions
that provide one or more agencies with OT authority may vary, or, in some cases,
may not have been articulated or disclosed. This section, although it incorporates
material published after several agencies already had received OT authority,
describes several factors that, taken collectively, might have played a significant role
in creating an environment favorable to the establishment of OT authority.
Over the years, the federal government’s position as a primary source of funding
for R&D has changed, and this change has had implications for how the federal
government obtains R&D. Testifying in 2002, a managing director from the
Government Accountability Office (GAO) noted that the federal government’s
financial contribution to R&D research had decreased over the years:
[T]he R&D landscape has changed considerably over the past several decades.
While the federal government had once been the main provider of the nation’s
R&D funds, accounting for 54 percent in 1953 and as much as 67 percent in
according to the National Science Foundation.
With most R&D being carried out in the private sector, “the federal government must
now increasingly compete with others to obtain the research and technology it9
needs.” Elaborating on how the government’s circumstances have changed, Diane
M. Sidebottom wrote the following:
[In the past,] ... the Government was a large customer of ... complex technologies
and was often the only customer for production quantities of some of the more
expensive inventions. While Government still has deep pockets, these pockets
are nowhere near as deep as they were in the past. Massive budget cutbacks
7 U.S. General Accounting Office, Acquiring Research by Nontraditional Means, p. 3.
8 U.S. General Accounting Office, Industry and Agency Concerns Over Intellectual Property
Rights, GAO-02-723T, May 10, 2002, p. 3.
9 U.S. General Accounting Office, Information on the Federal Framework and DOD’s
Other Transaction Authority, GAO-01-980T, July 17, 2001, p. 1.
across the board have put the Government in the interesting position of being just
another customer of technology and often not the largest customer at that. More
and more, the Government is relying on commercial off-the-shelf technologies
and leveraging the investment in technology that is being made privately by
commercial industry. The situation has changed so much that many corporations
are refusing to do business with the Government because its regulatory rules are
too onerous. The Government is finding that not only can it not acquire many of
the technologies it needs, but also many corporations will not even accept10
government dollars to help develop new technologies.
Despite the government’s ongoing need to take advantage of the commercial
sector’s leading-edge technology and research, statutory and regulatory procurement
requirements have served as a deterrent to working with the federal government.
While “[t]he name of the game now in corporate high-tech research is speed and
stealth,” the federal government “responds poorly to both ... largely because of the
myriad of regulatory and statutory requirements the agency must satisfy before the11
actual award and during its administration.” Although the government’s regulatory
and statutory requirements provide for, among other things, consistency, some would
argue, as the author of the following passage does, that standardization is not
necessarily conducive to R&D.
While, in theory, consistency ensures fairness and equal treatment, it does not
necessarily allow for different needs and situations. In the R&D arena, every
technology area has its own special peculiarities and problems that may require
multiple solutions. The commercial world largely recognizes this and negotiates
unique contracts and agreements to specifically address each situation. The
Government is usually unable to do that because of the regulatory framework
under which it works. The statutes and regulations are largely unchangeable,
leaving the Contracting Officer only a minimal amount of discretion. The
discretion that does exist is rarely used because innovation in contracting is
highly suspect in many government organizations. This inability to be flexible
and negotiate alternative solutions has turned off many companies, particularly
the high-tech ones. These corporations tend to employ innovative thinkers who
are unimpressed by the cookie-cutter approach of the Government’s system.
When confronted by such a system, they often will refuse the Government’s12
arrangement and find other methods of financing under more compatible terms.
Aside from the issues raised above, complying with government statutes and
regulations constitutes, for some companies, an unacceptable administrative burden.
The following passage focuses exclusively on Department of Defense (DOD)
contracting, but, nevertheless, it captures the scope of the task facing companies that
compete for government contracts:
Depending on such factors as the contract type and dollar value, a DOD contract
could incorporate more than 100 contract clauses. These clauses implement
10 Diane M. Sidebottom, “Intellectual Property in Federal Government Contracts: the Past,
the Present, and One Possible Future,” Public Contract Law Journal, vol. 33, no. 1 (fall
11 Ibid., p. 86.
12 Ibid., p. 87.
statutory or regulatory requirements covering such issues as financial
management and intellectual property, among others. While these requirements
are intended to protect the government’s or suppliers’ interests, concerns have13
been raised about the costs or impact of complying with the requirements.
Evidence of the extent to which some companies go to ensure proper compliance
with government regulations was uncovered by GAO in its study of government
contractors and government acquisition requirements. GAO’s review of eight
companies’ operations revealed that
[f]our companies ... have a separate administrative structure for government
sales, and two other companies ... have added employees to their administration
to handle their government contracts, in order to ensure compliance with the
acquisition requirements. The remaining two companies ... have subsidiaries that
they reportedly keep separated to avoid being burdened with requirements,14
especially cost accounting standards and cost and pricing data requirements.
Government requirements concerning intellectual property rights and cost
accounting standards, in particular, are often cited as barriers to companies that
otherwise might compete for government contracts. Although an extensive
discussion of intellectual property rights is beyond the scope of this report, the
following passage summarizes the government’s intellectual property rights: “In
general, the government obtains unlimited rights when technical data were developed
or created exclusively with government funds, government purpose rights when the
data were created with mixed funding, and limited rights when the data were created
exclusively at private expense.”15 After noting that intellectual property concerns
have affected the willingness of at least some companies to enter into government
contracts, GAO identified several specific concerns: “perceived poor definitions of
what technical data is needed by the government, issues with the government’s
ability to protect proprietary data adequately, and unwillingness on the part of
government officials to exercise the flexibilities available to them concerning
intellectual property rights.”16 An additional problem is that giving the government
13 U.S. General Accounting Office, DOD’s Guidance on Using Section 845 Agreements
Could Be Improved, GAO/NSIAD-00-33, Apr. 2000, pp. 5-6.
14 U.S. General Accounting Office, Impact on Company Structures and Operations,
GAO/NSIAD-94-20, Apr. 1994, p. 5.
15 U.S. General Accounting Office, DOD’s Guidance on Using Section 845 Agreements
Could Be Improved, p. 47. “Government purpose rights enable the government to allow
others to use the data for government purposes, while limited rights generally require the
government to obtain the contractor’s written permission before doing so. (Ibid.) Part 27
of the FAR “prescribes the policies, procedures, solicitation provisions, and contract clauses
pertaining to patents, data, and copyrights.” (FAR 27.000.) Several CRS reports address
various aspects of intellectual property rights. For example, see CRS Report RL32051,
Innovation and Intellectual Property Issues in Homeland Security, by John R. Thomas.
16 U.S. General Accounting Office, Industry and Agency Concerns Over Intellectual
Property Rights, p. 2.
“rights to certain information and data ... could decrease ... businesses’ competitive
On the one hand, the government’s cost accounting standards, coupled with the
Truth in Negotiations Act (TINA)18 and the FAR’s cost contract principles and
procedures (Part 31 of the FAR), “are among the government’s primary means of
attempting to assure itself that it acquires goods and services at a fair and reasonable
price on a cost-based contract.”19 Compliance with these statutory and regulatory
requirements and procedures may mean, for example, that a company has to disclose
certain information to the government and permit the government to audit its books.
While the thrust of these requirements is to protect the government, they can pose an
administrative burden to companies: “... many commercial companies cannot or will
not establish the separate accounting systems needed to perform government cost-
reimbursement contracts, grants, or cooperative agreements.”20 Furthermore, a
company might be concerned that “a false move [on its part] could result in liability
under the False Claims Act,” or it might be wary of “the risk attendant to the right of
the Federal Government to audit books and records for years after the contract is
complete and after the federal customer has accepted and paid for the goods or
Agencies That Have OT Authority
Although other transaction authority “as it currently exists began in 1989 with
Congress’s enactment of legislation authorizing the Defense Advanced Research
17 U.S. Government Accountability Office, Further Action Needed to Promote Successful
Use of Special DHS Acquisition Authority, GAO-05-136, Dec. 2004, pp. 24-25. “One
reason companies have reportedly declined to contract with the government is to protect
their intellectual property rights. Alternatively, insufficient intellectual property rights could
hinder the government’s ability to adapt developed technology for use outside of the initial
scope of the project. Limiting the government’s intellectual property rights may require a
trade-off. On the one hand, this may encourage companies to work with the government and
apply their own resources to efforts that advance the government’s interests. However, it
also could limit the government’s production options for items that incorporate technology
created under an other transaction agreement.” (U.S. Government Accountability Office,
Status and Accountability Challenges Associated with the Use of Special DHS Acquisition
Authority, GAO-08-471T, Feb. 7, 2008, p. 10.)
18 41 U.S.C. §254b; P.L. 87-653; 76 Stat. 528.
19 U.S. General Accounting Office, DOD’s Guidance on Using Section 845 Agreements
Could Be Improved, pp. 38-39.
20 Richard N. Kuyath, “The Untapped Potential of the Department of Defense’s ‘Other
Transaction’ Authority,” Public Contract Law Journal, vol. 24, no. 4 (summer 1995), p.
21 Nancy O. Dix, Fernand A. Lavallee, and Kimberly C. Welch, “Fear and Loathing of
Federal Contracting: Are Commercial Companies Really Afraid To Do Business With the
Federal Government? Should They Be?” p. 9.
Projects Agency (DARPA) to use other transactions,”22 the first agency that received
OT authority was the National Aeronautics and Space Administration (NASA). In
chronological order, the agencies that have OT authority, and the Congress in which
the applicable statute or statutes were enacted, are as follows:
!85th Congress: NASA
!101st Congress: DOD (OT authority for science and technology)
!103rd Congress: DOD (OT authority for prototypes)
!104th Congress: Federal Aviation Administration (FAA)
!105th Congress: Department of Transportation (DOT)
!107th Congress: Transportation Security Administration (TSA) and
the Department of Homeland Security (DHS)
!108th Congress: Department of Health and Human Services (HHS),
National Institutes of Health (NIH), and other agencies
!109th Congress: Department of Energy (DOE)
Most of what is known about the rationale for, and use of, other transactions is
based on DOD’s experiences with OT authority. Aside from NASA, DOD has had
OT authority longer than any other government agency, and NASA “has not
developed or used the instrument in the same way that has the Department of
Defense.”23 It does not appear that any of the other agencies that have received OT
authority have comparable experience using OTs. Additionally, several agencies’ OT
authority is based on DOD’s authority, and DOD figures prominently in the literature
on other transactions. Additionally, the history of DOD’s efforts to obtain OT
authority is well documented. Accordingly, the information regarding DOD’s OT
authority is more extensive, both in this section and throughout the report, than the
information presented for other agencies. The following information regarding the
expansion of OT authority to specific agencies is presented in chronological order.
The final section covers OT authority for other agencies.
National Aeronautics and Space Administration
Other transaction authority originated with the passage of the National
Aeronautics and Space Act of 1958,24 which authorized NASA to
22 Ibid., p. 25.
23 Ibid., pp. 23-24.
24 P.L. 85-569; 42 U.S.C. §2473; 72 Stat. 426, at 430. This statute came to be called the
“Space Act.” (John M. Logsdon, moderator, Legislative Origins of the National Aeronautics
and Space Act of 1958, Proceedings of an Oral History Workshop, Monographs in
... enter into and perform such contracts, leases, or other transactions as may be
necessary in the conduct of its work and on such terms as it may deem
appropriate, with any agency or instrumentality of the United States, or with any
State, Territory, or possession, or with any political subdivision thereof, or with25
any person, firm, association, corporation, or educational institution.
Relevant congressional documents from the 85th Congress do not indicate what
was meant by “other transaction” and do not explain why this term was included in
the Space Act.26 Reportedly, the former General Counsel for NASA, Paul Dembling,
coined the term “other transaction.”27 Although the conference report did not explain
the term or provide a rationale for “other transactions,” it included the following
statement: “The conferees adopted the Senate version of the provision authorizing
the Administration to enter into contracts, leases, and other agreements and
transactions, on the grounds that the omitted House provisions are covered by
Department of Defense
At DOD, OT authority originated with the passage of legislation during the 101st
Congress, which provided the Defense Advanced Research Projects Agency
(DARPA) OT authority for R&D projects.29 Subsequent legislation, which was
enacted during the 103rd Congress, provided DOD OT authority for prototypes.
Although the applicable statutes are comprehensive in terms of establishing
requirements for the use of OTs, neither statute defined “other transaction,” and the
latter statute did not define “prototype.”30
Aerospace History, Number 8 (Washington: National Aeronautics and Space
Administration, 1998), p. iii.)
25 42 U.S.C. §2473(c)(5).
26 U.S. Congress, Senate Special Committee on Space and Astronautics, National
Aeronautics and Space Act of 1958, report to accompany S. 3609, 85th Cong., 2nd sess.,
S.Rept. 1701 (Washington: GPO, 1958); U.S. Congress, House Select Committee on
Astronautics and Space Exploration, Comparison of H.R. 12575 As Passed the House (The
National Aeronautics and Astronautics Act of 1958) and As Passed the Senate (The Nationalthnd
Aeronautics and Space Act of 1958, committee print, 85 Cong., 2 sess., June 18, 1958
(Washington: GPO, 1958); U.S. Congress, Conference Committee, National Aeronauticsthnd
and Space Act of 1958, conference report to accompany H.R. 12575, 85 Cong., 2 sess.,
H.Rept. 2166 (Washington: GPO, 1958).
27 Nancy K. Sumption, “Meeting the Department of Defense’s Objectives,” Public Contract
Law Journal, vol. 28, no. 3 (spring 1999), p. 384.
28 U.S. Congress, Conference Committee, National Aeronautics and Space Act of 1958, p.
29 DARPA used to be known as the Advanced Research Projects Agency, or ARPA.
30 U.S. General Accounting Office, DOD’s Guidance on Using Section 845 Agreements
Could Be Improved, p. 6.
Prior to 1989, “DoD interpreted its authority to enter into R&D [research and
development] agreements as limited to procurement contracts and grants,” and,
according to department policy, it could use grants only for arrangements with
universities and nonprofit organizations.31 The other vehicles available to DARPA
— in particular, contracts — were inadequate, and some companies were reluctant
to enter into a contract with the government. The following passage describes some
problems DARPA encountered in using government contracts for R&D:
It became apparent in the late 1980s ... that the standard government contract and
standard DOD grant were inadequate for DARPA to carry out its advanced
research mission. For example, DARPA missed out on opportunities to contract
with some of the most innovative companies, including small start-ups and large
commercial companies, that developed some of the most promising new
technologies. Many of these companies lacked either the desire or the
government-required systems to perform a contract under the government
procurement regulations. In addition, when DARPA used a standard government
procurement contract to form a consortium, it created an awkward contractual32
relationship. DARPA needed a contractual vehicle that would allow it to set
up a multiparty agreement where consortium members would be equal. In 1988
DARPA concluded that it “needed additional flexibility in its approaches to
support advanced R&D.” DARPA turned toward the National Aeronautics and
Space Administration (NASA) for inspiration in obtaining a new statutory33
authority to fill the void discussed above.
Additionally, DARPA realized that R&D contracts “often result[ed] in no
deliverables, except reports, to the Government,” and the reports were of “little
direct value to DoD....”34 Instead, R&D contracts benefitted the government by
advancing research, or by showing whether a particular approach or line of inquiry
By the late 1980s, DARPA, DOD, and a group of retired military and
government officials shared an interest in providing DARPA with a new approach
for R&D work.
By 1988, Dr. Raymond Colladay, then director of DARPA, concluded that
DARPA needed additional flexibility in its approaches to supporting advanced
31 Kuyath, “The Untapped Potential of the Department of Defense’s ‘Other Transaction’
Authority,” p. 526.
32 DARPA needed to form consortia to address “the development of certain technologies,”
and using contracts for this purpose resulted in “awkward and inappropriate contractual
relationships.” A contract is not well suited for an arrangement in which “each consortium
member [is] equivalent to a co-prime contractor with the Government.” (Ibid., pp. 526-527.)
In the case of a government procurement that involves one or more subcontractors, a
government agency awards a contract to the prime contractor, and the prime contractor
awards a contract to one or more subcontractors.
33 Sumption, “Meeting the Department of Defense’s Objectives,” pp. 381-382.
34 Kuyath, “The Untapped Potential of the Department of Defense’s ‘Other Transaction’
Authority,” p. 527.
R&D. The House Appropriations Committee had directed that DARPA submit
a report to Congress on alternative management systems by early 1989. Among
other initiatives suggested in his report, Colladay advocated the creation of a new
and flexible R&D agreement authority for DARPA. The report was never sent
directly to Congress. However, the biennial review of Defense Agencies
required by the Goldwater-Nichols Act was performed during 1989. In October
which recommended that DoD prepare legislation that would give DARPA
authority to enter into innovative contractual agreements.
About the same time, a group of retired flag officers and other former
government officials lobbied Congress for additional authority for DARPA to
enter into innovative contractual agreements so that DARPA could contract with
the best and brightest companies in the research community. This group
included individuals well known to the administration and Capitol Hill, who
convinced Congress to add appropriate language to the Defense Authorization36
Bill for FY 1990.
Apparently, one or more of these efforts was successful as OT authority for
DARPA was included in S. 1352, which was incorporated into H.R. 2461 as an
amendment on August 4, 1989. The following passage is from the Senate report that
accompanied S. 1352:
The [Senate Armed Services] committee recognizes that the maturation of many
technologies funded by the Defense Advanced Research Projects Agency may
have significant commercial application. The committee applauds the efforts of
DARPA in this area and supports a broadening of this effort. Current law does
not authorize DARPA to enter into “cooperative agreement” or “other
transactions” as distinct from “grants” or “contracts.” Additionally, current law
does not allow for any proceeds of such arrangements to be applied to a fund for
the development of other advanced technologies. Accordingly, section 
clearly establishes the legal authority of DARPA to enter into cooperative
arrangements and other transactions. In granting the authority to enter into
“other transactions,” the committee enjoins the Department to utilize this unique
authority only in those instances in which traditional authorities are clearly not37
36 Ibid., pp. 527-528.
37 U.S. Congress, Senate Committee on Armed Services, National Defense Authorization Act
for Fiscal Years 1990 and 1991, report to accompany S. 1352, 101st Cong., 1st sess., S.Rept.
101-81 (Washington: GPO, 1989), pp. 126-127. The remainder of the section, “Cooperative
Research and Other Transactions Authority,” is as follows: “The legislation would also
permit DARPA to recoup the fruits of such arrangements, when there is a “dual use”
potential for commercial application, for reinvestment in the development of other
technologies with the potential for military utility. The committee further recommends the
authorization of $25 million for the establishment of a fund for this purpose with the
intention that DARPA should enter into such agreements on a cost-share basis with the
private sector under appropriate circumstances. The committee directs the Secretary to
ensure that a review of all DARPA activities is conducted on an annual basis with a view
towards terminating those arrangements which do not appear to have a reasonable
expectation of success. The committee directs that any cooperative agreement or other
Although H.R. 2461 did not include a provision similar to Section 222 of S.
1352 (prior to the incorporation of S. 1352 into H.R. 2461 by amendment), the
House Committee on Armed Services noted that, of two legislative proposals “raised
too late for thorough consideration by the committee” for inclusion in H.R. 2461, one
would authorize the Director of DARPA to enter into cooperative agreements
and the Secretary of Defense to provide ‘proceeds or other payments to the
United States arising out of such agreements’ to a fund set up in the Treasury for
such activities. Apparently, the National Aeronautics and Space Administration
has such authority, and similar authority was previously granted to the
Department of Defense for the semiconductor industry consortium,
SEMATECH, in sections 271-278 of the fiscal years 1988/1989 Defense38
Authorization Act (Public Law 100-180).
In another section of this report, the House Armed Services Committee discussed
DOD’s need for a robust technology base. Although OT authority was not mentioned
in this section, which is reproduced here, in part, OTs are related to the enhancement
of DOD’s technology base.39
U.S. forces rely on modern technology and industrial strength as fundamental
components of our deterrent by providing superior defense systems as force
multipliers against the larger number of weapons fielded by our adversaries.
Therefore, it is mandatory that the Department of Defense maintain a healthy
technology base that keeps pace with technology opportunity and the military’s
long range plan to defeat current and potential future threats to national security.
... the United States needs new initiatives to invigorate the technology base to
ensure that invention and innovation will remain in our industry, which has been
a cornerstone of our free enterprise system and national strength.
Distinguished scientific experts advised the committee that the component of
RDT&E [research, development, test, and evaluation] with greatest opportunity
to help maintain a strong defense industrial and technology base are the research
transaction entered into between DARPA and other parties be structured to achieve set
objectives for a limited duration. This authority should not be used to establish permanent
partnerships or other relationships involving continuing financial support from DARPA.”
(Ibid., p. 127.)
38 U.S. Congress, House Committee on Armed Services, National Defense Authorization Act
for Fiscal Years 1990-1991, report to accompany H.R. 2461, 101st Cong., 1st sess., H.Rept.
39 An article written in 2002 noted that “Other Transactions authority was created to further
three specific Department of Defense missions: (1) enhancing American military
technological superiority, (2) streamlining the acquisition process, and (3) integrating
civilian and military technology industries.” (David S. Bloch and James G. McEwen,
“‘Other Transactions’ with Uncle Sam: A Solution to the High-Tech Government
Contracting Crisis,” Texas Intellectual Property Journal, vol. 10, no. 2 (winter 2002), p.
... and the exploratory development ... categories. If defense is critically
dependent on the industrial technology base, then the Department of Defense
cannot expect to continue to survive with the research investments of the past,
but must re-invest its proportionate share in the common pool of technical
knowledge and human technical talent.
The committee intends both to correct trends and redirect certain efforts in the
fiscal year 1990 DoD technology base program to ensure a vigorous, modern and
advancing pool of technology that will be available to provide the needs of the
nation’s defense in the future. Furthermore, the committee intends to foster and
encourage linkages among the Department of Defense, industry and universities;
and to bolster the defense industrial base and provide greater opportunity to “spin40
off” technology into the civilian sector.”
The conference report accompanying H.R. 2461 noted that the House bill did
not contain a provision similar to the one found in S. 1352 which provided DARPA
OT authority, and stated that the House receded “with an amendment that would
establish ... authority [for other transactions and cooperative agreements] on a two-
year trial basis.”41
On November 29, 1989, the President signed H.R. 2461, which was enacted as
P.L. 101-189, National Defense Authorization Act for FY1990 and FY1991. Section
Section 2371. Section 251(a) authorized the “Secretary of Defense, in carrying out
advanced research projects through the Defense Advanced Research Projects Agency,
[to] enter into cooperative agreements and other transactions with any person, any
agency or instrumentality of the United States, any unit of State or local government,
any educational institution, and any other entity.” Several years after the passage of
P.L. 101-189, DOD’s Office of Inspector General (IG) summarized why DOD was
given OT authority:
Congress authorized the use of ‘other transactions’ to increase involvement in
DoD programs by commercial firms that traditionally have not entered into
contracts or agreements with the DoD. DoD officials requested the authority to
stimulate or support research and development by commercial firms and
consortia that were believed to be reluctant to conduct research for DoD because
they would be subject to the FAR and DOD procurement regulations. Congress
authorized the use of ‘other transactions’ and allowed DoD officials a
considerable degree of flexibility in negotiating terms and conditions. The intent
of ‘other transactions’ was to obtain research from traditionally non-DoD42
commercial firms and to capitalize on commercial firms’ research investments.
40 U.S. Congress, House Committee on Armed Services, National Defense Authorization Act
for Fiscal Years 1990-1991, pp. 127-128.
41 U.S. Congress, Conference Committee, Authorizing Appropriations for Fiscal Year 1990
for Military Activities of the Department of Defense, for Military Construction, and for
Defense Activities of the Department of Energy, to Prescribe Personnel Strengths for Such
Fiscal Year for the Armed Forces, and for Other Purposes, conference report to accompanystst
H.R. 2461, 101 Cong., 1 sess., H.Rept. 101-331 (Washington: GPO, 1989), p. 531.
42 U.S. Department of Defense, Office of the Inspector General, Award and Administration
In 1993, DARPA’s OT authority was expanded, through the enactment of P.L.
103-160, National Defense Authorization Act for FY1994, to include prototypes
relevant to weapons or weapon systems.43 (The authority was provided in Section
845. Hence, prototype OTs are also known as “Section 845” (or “845”) projects or
OTs.) Subsequent to the passage of P.L. 103-160, GAO wrote: “While the intent [of
the 1994 congressional authorization for OT prototypes] is never spelled out
explicitly in congressional documents, it is apparent that one major goal was to
improve DoD access to technologies that were being developed for the commercial
Notable changes to DOD’s OT authority were effected by P.L. 103-355 and P.L.
108-136. Section 1301 of P.L. 103-355, Federal Acquisition Streamlining Act of
1994, provided authority to the Secretary of Defense and the service secretaries to
enter into OTs for “carrying out basic, applied, and advanced research projects.”45
Under Section 1601 of P.L. 108-136,46 National Defense Authorization Act for
FY2004, the Secretary may use the procedures authorized in 10 U.S.C. §2371 and
Section 845 of P.L. 103-160 to procure “property or services for use ... in performing,
administering, or supporting biomedical countermeasures research and
The following is a summary of selected provisions of 10 U.S.C. §2371, which
governs R&D OTs:
!The Secretary of Defense and the Secretary of each military
department may, under the authority of 10 U.S.C. §2371, enter into
other transactions for the purpose carrying out basic, applied, and
advanced research projects. In using OT authority, the Secretary of
of Contracts, Grants, and Other Transactions Issued By the Defense Advanced Research
Projects Agency, Report No. 97-114, Mar. 28, 1997, p. 39. The authors of the RAND study
conducted for DOD considered factors that might contribute to the success of OTs. The
“research to date suggests that when at least one of the following conditions is met, OT
[authority] will likely be beneficial”: “When DoD desires access to technology that is
predominantly the result of commercial development, OT [authority] provides a mechanism
for nonintrusive, value-added protection. When there is considerable uncertainty regarding
both performance goals and what is technically achievable and affordable, OT [authority]
provides the necessary flexibility to manage high-risk projects. When DoD might benefit
from innovative business relationships with industry, or among industry participants, OT
[authority] provides the mechanism to define those relationships.” (Giles Smith, Jeffrey
Drezner, and Irving Lachow, Assessing the Use of “Other Transactions” Authority for
Prototype Projects (Santa Monica, CA: RAND Corporation, 2002), p. 33.)
43 10 U.S.C. §2371 note; 107 Stat. 1547, at 1721.
44 U.S. General Accounting Office, Acquiring Research by Nontraditional Means, pp. 5-6.
45 Sec. 1301(b) of P.L. 103-355.
46 10 U.S.C. §2370a note; 117 Stat. 1392, at 1680.
47 Sec. 1601(c) of P.L. 108-136.
Defense shall act through DARPA or any other DOD element the
!Advance payments may be permitted.48
!An “other transaction” “may include a clause that requires a person
or other entity to make payments to the Department of Defense or
any other department or agency of the Federal Government as a
condition for receiving support under the ... other transaction.”49
!The Secretary of Defense shall ensure, “to the maximum extent
practicable,” that an “other transaction” does not provide for
research that would duplicate research already being conducted by
!The Secretary of Defense shall ensure, to the extent that he or she
determines practicable, that funds provided for a transaction “do not
exceed the total amount provided by other parties to the ... other
transaction.”51 This provision does not apply to prototype OTs.52
!The Secretary of Defense shall ensure that a transaction “may be
used for a research project when the use of a standard contract, grant,
or cooperative agreement for such project is not feasible or
appropriate.”53 This provision does not apply to prototype OTs.54
The following is a summary of selected provisions of 10 U.S.C. §2371 note,
which governs prototype projects:
!Under 10 U.S.C. §2371 note, as amended by Section 855 of P.L.
109-364, the Director of DARPA, the Secretary of a military
department, or any other official designated by the Secretary of
Defense may, under the authority 10 U.S.C. §2371, “carry out
prototype projects that are directly relevant to weapons or weapon
systems proposed to be acquired or developed by the Department of
Defense, or to improvement of weapons or weapon systems in use
by the Armed Forces.”
!For prototype projects expected to cost at least $20 million but no
more than $100 million, the agency’s senior procurement executive
48 10 U.S.C. §2371(c).
49 10 U.S.C. §2371(d)(1).
50 10 U.S.C. §2371(e)(1)(A).
51 10 U.S.C. §2371(e)(1)(B).
52 10 U.S.C. §2371 note.
53 10 U.S.C. §2371(e)(2).
54 10 U.S.C. §2371 note.
(or, for DARPA or the Missile Defense Agency, the director of the
agency) is required to prepare a written determination that addresses
the items listed in Section 845(a)(2)(A) of P.L. 103-160. For
prototype projects expected to exceed $100 million, the Under
Secretary of Defense for Acquisition, Technology, and Logistics is
required to prepare a written determination that addresses the items
listed in Section 845(a)(2)(B).55
!“To the maximum extent practicable, competitive procedures shall
be used when entering into agreements to carry out projects....”56
! For a prototype project that has payments in excess of $5 million,
a clause shall be included in the agreement that provides for the
Comptroller General to examine certain records “of any party to the
agreement or any entity that participates in the performance of the
agreement.” Certain conditions apply to such reviews.57
!A prototype OT is to include at least one nontraditional defense
contractor who participates “to a significant extent in the prototype
project.”58 If none of the parties is a nontraditional defense
contractor, then the parties other than the federal government must
provide at least one-third of the total cost of the project, or the
agency’s senior procurement executive is to determine “in writing
that exceptional circumstances justify the use of a transaction that
provides for innovative business arrangements or structures that
would not be feasible or appropriate under a contract.”59
!A transaction involving a prototype project “that satisfies the
conditions set forth in ... [Section 845](d)(1)(B)(I) of P.L. 103-160,
as amended] may provide for the award of a follow-on production
contract to the participants in the transaction for a specific number
of units at specific target prices.” Competitive procedures do not
55 10 U.S.C. §2371 note; Sec. 845(a)(2) of P.L. 103-160, as amended. To aid in finding the
referenced text, citations for material from 10 U.S.C. §2371 note refer to Sec. 845 of P.L.
56 10 U.S.C. §2371 note; Sec. 845(b)(2) of P.L. 103-160, as amended.
57 10 U.S.C. §2371 note; Sec. 845(c) of P.L. 103-160, as amended.
58 A “nontraditional defense contractor” is “an entity that has not, for a period of at least one
year prior to the date that a transaction (other than a contract, grant, or cooperative
agreement) for a prototype project under the authority of this section is entered into, entered
into or performed with respect to — (1) any contract that is subject to full coverage under
the cost accounting standards prescribed pursuant to section 26 of the Office of Federal
Procurement Policy Act (41 U.S.C. 422) and the regulations implementing such section; or
(2) any other contract in excess of $500,000 to carry out prototype projects or to perform
basic, applied, or advanced research projects for a Federal agency, that is subject to the
Federal Acquisition Regulation.” (10 U.S.C. §2371 note.)
59 10 U.S.C. §2371 note; Sec. 845(d)(1) of P.L. 103-160, as amended.
have to be used if the conditions in Section 845(g)(2) of P.L. 103-
!41 U.S.C. §423 applies to agreements for prototype “other
transactions.” This section of the U.S. Code prohibits the disclosure
and acquisition of certain procurement information; addresses
certain circumstances under which a procurement officer might be
contacted regarding non-federal employment; prohibits a former
agency official from receiving compensation from a contractor under
certain circumstances; and provides for criminal and civil penalties
and administrative actions for violations of this section.61
Federal Aviation Administration
A reauthorization act for the FAA provided OT authority to the agency. As the
following excerpt from the conference report suggests, OT authority was part of a
package of reforms aimed at providing the FAA with additional authority:
Senate provision: The managers recognize that to provide reform of the FAA,
additional autonomy in decision-making in a number of areas is needed. For this
reason, the managers agreed to give the FAA authority in the regulatory,
personnel, and procurement areas. This change should result in a new way of62
doing business for the FAA, with less oversight by DOT.
Section 226 of P.L. 104-264, Federal Aviation Reauthorization Act of 1996,
amended Title 49 of the U.S. Code by adding a subsection to Section 106(l). Section
106(l)(6) states, in part, that the Administrator of the FAA has the authority to enter
into “... other transactions as may be necessary to carry out the functions of the
Administrator and the [Federal Aviation] Administration.” In using this authority,
the Administrator “may enter into ... other transactions with any Federal Agency (as
such term is defined in section 551(1) of title 5) or any instrumentality of the United
States, any State, territory, or possession, or political subdivision thereof, any other
governmental entity, or any person, firm, association, corporation, or educational
institution, on such terms and conditions as the Administrator may consider
Department of Transportation
Section 5102 of P.L. 105-178, Transportation Equity Act for the 21st Century,
amended Chapter 5 of Title 23 of the U.S. Code by adding a section (Section 502)
regarding surface transportation research. Section 5102 authorizes the Secretary of
60 10 U.S.C. §2371 note; Sec. 845 (g) of P.L. 103-160, as amended.
61 10 U.S.C. §2371 note; Sec. 845(h) of P.L. 103-160, as amended.
62 U.S. Congress, Conference Committee, Federal Aviation Authorization Act of 1996,
conference report to accompany H.R. 3539, 104th Cong., 2nd sess., H.Rept. 104-848
(Washington: GPO, 1996), p. 107.
63 Sec. 226 of P.L. 104-264; 110 Stat. 3213, at 3233.
Transportation to use, among other vehicles, other transactions for carrying out
research, development, and technology transfer activities with respect to “motor
carrier transportation; all phases of transportation planning and development ...; and
... the effect of State laws” on motor carrier transportation and transportation
planning and development. The Secretary may enter into other transactions with “the
National Academy of Sciences, the American Association of State Highway and
Transportation Officials, or any Federal laboratory, State agency, authority,
association, institution, for-profit or nonprofit corporation, organization, foreign
country, or person.”64
Neither the House Committee on Transportation and Infrastructure’s report nor
the Conference Committee’s report on H.R. 2400 (which was enacted as P.L. 105-
178) discussed why the Secretary of Transportation was given authority to enter into
Department of Homeland Security
Among the federal agencies that have other transaction authority, the
Department of Homeland Security is one of two agencies that was provided OT
authority in its authorizing legislation, P.L. 107-296 (H.R. 5005), Homeland Security
Act of 2002.66 (The other is the Transportation Security Administration (TSA).) The
committee report that accompanied H.R. 5005 does not include an explanation for
providing OT authority to DHS, but, under the heading “Research and Development
Projects,” the report provided the following description of acquisition procedures to
be used by the department:
This section gives the Secretary the authority to carry out a pilot program with
streamlined procedures for the acquisition of goods and services that the
Secretary determines are essential to the Department’s mission of fighting terror.
It would provide the Secretary with enhanced, but specifically defined,
flexibilities while maintaining adequate safeguards. The provisions are based on
procedures that are currently part of the Government’s acquisition system such
as micro purchases, simplified acquisition procedures, and special simplified
commercial item acquisitions. The procedures are in the current version of part
to use current government-wide authorities for its “normal” procurements.
64 Sec. 5102 of P.L. 105-178; 112 Stat. 423.
65 U.S. Congress, House Committee on Transportation and Infrastructure, Building Efficient
Surface Transportation and Equity Act of 1998, report to accompany H.R. 2400, 105th
Cong., 2nd sess., H.Rept. 105-467, part 1 (Washington: GPO, 1998), p. 223; U.S. Congress,st
Conference Committee, Transportation Equity Act for the 21 Century, conference reportthnd
to accompany H.R. 2400, 105 Cong., 2 sess., H.Rept. 105-550 (Washington: GPO, 1998).
66 116 Stat. 2135, at 2224; 6 U.S.C. §391.
67 U.S. Congress, House Select Committee on Homeland Security, Homeland Security Act
of 2002, report to accompany H.R. 5005, 107th Cong., 2nd sess., H.Rept. 107-609, Part 1
(Washington: GPO, 2002), p. 116.
The following is a summary of selected provisions of Section 831 of P.L. 107-
!After determining that the use of a contract, grant, or cooperative
agreement is neither feasible nor appropriate, the Homeland Security
Secretary may exercise the same authority that the Secretary of
Defense may exercise under 10 U.S.C. §2371 for the purpose of
carrying out basic, applied, and advanced R&D projects.68
!The Homeland Security Secretary also may carry out prototype
projects in accordance with Section 845 of P.L. 103-160 (10 U.S.C.
!GAO is required to produce annual reports on certain aspects of the
department’s use of OT authority and provide the report to the
appropriate congressional committees.70
!The Secretary may procure “the temporary or intermittent services
of experts or consultants (or organizations thereof) in accordance
with section 3109(b) of title 5, United States Code ....” If there is
an urgent homeland security need, the Secretary may procure
temporary or intermittent personal services for a period of one year
or less “without regard to the pay limitations” of 5 USC §3109.71
!“Nontraditional government contractor” has the same meaning as the
term “nontraditional defense contractor” as it is defined in Section
In addition to having OT authority, DHS’s Science and Technology Directorate
has established a commercialization initiative, which is headed by a Chief
68 Sec. 831(a)(1) of P.L. 107-296. 10 U.S.C. §2371(b) and (f) do not apply to the Homeland
Security Secretary’s use of OT authority. Subsection (b) identifies the DOD components
through which the Secretary of Defense may exercise OT authority, and Subsection (f)
establishes separate U.S. Treasury accounts for each military department and DARPA.
69 Sec. 831(a)(2) of P.L. 107-296. It seems unlikely that the limitation on DOD’s OT
authority for prototypes — the authority may be used only for weapons and weapon systems
— applies to DHS. “[I]t is reasonable to assume that Congress did not mean to limit the
DHS’s authority to weapon systems, but rather to technology relevant to the DHS’s
homeland security mission.” (Walter F. Zenner, Jeffrey L. Handwerker, and Joseph M.
Catoe, Fundamentals of Contracting with the Department of Homeland Security, Thomson
West, Briefing Papers, No. 03-4, March 2003, p. 9.)
70 Sec. 831(b) of P.L. 107-296. The initial GAO report was due no later than two years after
the effective date of the Homeland Security Act. (Ibid.)
71 Sec. 831(c) of P.L. 107-296. It is unclear how this provision relates to the use of other
transaction authority, particularly since essentially the same language is found in the
following section (Sec. 832) of this bill.
72 Sec. 831(d) of P.L. 107-296.
Commercialization Officer (CCO).73 A DHS publication describes this initiative as
follows: “The mission of S&T’s commercialization efforts is to identify, evaluate,
and commercialize technologies that meet the specific operational requirements of
DHS operating components and first responder communities. The commercialization
efforts actively reach out to the private sector to establish mutually beneficial
working relationships to facilitate cost-effective and efficient product development
efforts.”74 Reportedly, this initiative
would cut down S&T’s role — and funding — in research and development,
leaving industry with the task of fully developing products for DHS to purchase.
“Why would you pay so much for product development and technology
development?” [Thomas Cellucci, the Chief Commercialization Officer,75
reportedly] said. “We have something much more to offer the private sector.
We don’t need to pay them when you have a market this size.” ... [O]ne
contribution [Cellucci] said he can make is to move S&T away from a
development system that too closely resembles the Department of Defense’s
acquisition process, with significant sums dedicated to funding research better
left in the hands of companies. “We don’t have to reinvent the wheel,” he said.
“We’re utilizing the free market system. Why wouldn’t we leverage the skill, the
experience, the brain power of the private sector, who are experts in76
It is unclear what relationship, if any, exists between the department’s use of OT
authority and its commercialization initiative.
Transportation Security Administration
It is unclear why the Transportation Security Administration (TSA) was
provided OT authority. A committee report did not accompany H.R. 3150 (107th
Congress), which is where the applicable legislative provision originated, and the
73 U.S. Department of Homeland Security, High-Priority Technology Needs, version 2.0,
June 2008, available at [http://www.dhs.gov/xlibrary/assets/
High_Priority_Technology_Needs.pdf], p. 17.
75 According to a biography of Thomas Cellucci posted on the IEEE website for a homeland
security conference it sponsored, DHS appointed Thomas Cellucci to a five-year
“administrative appointment” as chief commercialization officer of DHS’s Science and
Technology Directorate in 2007. (“U.S. Department of Homeland Security, Science and
Technology Directorate, Thomas A. Cellucci, PhD, MBA, Chief Commercialization
Officer,” n.d., available at [http://www.ieeehomelandsecurityconference.org/biography/
Cellucci%20Bio-DHS_2%20_casual_.pdf].) The original name of this organization, IEEE,
was the Institute of Electrical and Electronics Engineers, Inc. (IEEE, “About IEEE,”
available at [http://www.ieee.org/web/aboutus/home/index.html].)) A news article reported
that Cellucci had a “limited-term administrative appointment.” (Ben Bain, “DHS Allows
Industry Liaison to Keep His Business Ties,” FCW.COM, Feb. 26, 2008, available at
[ h t t p : / / www.f c w.com/ onl i n e/ news/ 151749-1.ht ml ] . )
76 Rob Margetta, “S&T Official Working to Move Product Development Out of DHS, Into
Private Sector,” CQ Homeland Security, June 27, 2008, available at
conference report was silent on OT authority.77 It is possible, since the authorizing
statute exempted TSA from the FAR and applied the FAA’s acquisition management
system to TSA, that a decision was made to provide TSA with the same “personnel
and services” authority — which includes OT authority — that the FAA has.78
The source of TSA’s OT authority is Section 101(a) of P.L. 107-71, Aviation
and Transportation Security Act, which states that the head of TSA “shall have the
same authority as is provided to the Administrator of the Federal Aviation
Administration under subsection (l) and (m) of section 106 [of Title 49 of the U.S.
Code].”79 49 U.S.C. §106(l)(6) authorizes the FAA Administrator “to enter into and
perform such contracts, leases, cooperative agreements, or other transactions as may
be necessary to carry out the functions of the Administration and the
Department of Health and Human Services,
National Institutes of Health
Section 221 of P.L. 108-19980, Consolidated Appropriations Act for FY2004,
authorized the Director of the National Institutes of Health (NIH) to use certain funds
“to enter into transactions (other than contracts, cooperative agreements, or grants)”
to conduct research for the NIH Roadmap Initiative.81 The applicable committee82
report did not include any mention of this provision.
Department of Energy
Section 1007 of P.L. 109-58, Energy Policy Act of 2005, amended Section 646
of the Department of Energy Organization Act (42 U.S.C. §7256) by adding a
paragraph at the end of 42 U.S.C. §7256. The Conference Committee report did not
77 U.S. Congress, Conference Committee, Aviation and Transportation Security Act,
conference report to accompany S. 1447, 107th Cong., 1st sess., H.Rept. 107-296
(Washington: GPO, 2001).
78 49 U.S.C. §106(l).
79 115 Stat. 597, at 601. Thus, the TSA’s exemption from the FAR, which was terminated
as of June 23, 2008, has no bearing on the agency’s authority to engage in other transactions.
(Sec. 568 of P.L. 110-161; U.S. Department of Homeland Security, “Office of the Chief
Procurement Officer; Revision of Department of Homeland Security Acquisition
Regulation; Technical Amendments (HSAR Case 2008 — 001),” 73 Federal Register
80 118 Stat. 3, at 256.
81 Sec. 221(a) of P.L.108-199.
82 U.S. Congress, Conference Committee, “Making Appropriations for Agriculture, Rural
Development, Food and Drug Administration, and Related Agencies for the Fiscal Yearth
Ending September 30, 2004, and For Other Purposes,” report to accompany H.R. 2673, 108st
Cong., 1 sess., H.Rept. 108-401 (Washington: GPO, 2003).
include any discussion of Section 1007.83 The following is a summary of selected
provisions of Section 1007:
!The Secretary of Energy may exercise the same authority to enter
into other transactions as the Secretary of Defense has under 10
U.S.C. §2371, subject to the same terms and conditions that apply
to the Secretary of Defense.84
!In applying 10 U.S.C. §2371, the word “basic” is replaced by
“research”; the word “applied” is replaced by “development”; and
the terms “advanced research projects” and “advanced research” are
replaced by “demonstration projects.”85
!The Secretary is required to use competitive, merit-based selection
procedures for other transactions that she or he determines are
!In using OT authority for research, development, or a demonstration
project, the Secretary must provide written determination that the
use of a contract, grant, or cooperative agreement is neither feasible
!Any information that is developed pursuant to an OT and that would
be protected from disclosure under 5 U.S.C. §552(b)(4) may be
protected by the Secretary from disclosure for up to five years from
the date of development if the information was obtained from a
person other than a federal agency.
!“Nontraditional Government contractor” has the same meaning as
the term “nontraditional defense contractor” in 10 U.S.C. §2371
!The Secretary’s OT authority may be delegated only to other DOE
officials who were appointed by the President with the advice and
consent of the Senate. (These are known as “PAS” positions.)
With the enactment of P.L. 108-136,86 National Defense Authorization Act for
FY2004, other executive agencies are authorized, under certain conditions, to engage
in other transactions. Neither the House committee report nor the conference report
that accompanied H.R. 1588 (108th Congress), which was enacted as P.L. 108-136,
83 U.S. Congress, Conference Committee, Energy Policy Act of 2005, report to accompany
H.R. 6, 109th Cong., 1st sess. H.Rept. 109-190 (Washington: GPO, 2005).
84 Sec. 1007 of P.L. 109-58.
85 Sec. 1007 of P.L. 109-58.
86 41 U.S.C. §428a note; 117 Stat. 1392, at 1673.
includes a rationale for providing OT authority to other agencies under certain
circumstances.87 The conference report did note that the Senate receded with an
amendment “that would conform the authority provided to civilian agencies with the
existing authority under section 845 [of P.L. 103-160] and would clarify that the
Director of the Office of Management and Budget must authorize the use of this
authority by civilian agencies on a case-by-case basis.”88
The following is a summary of selected provisions of Section 1441:
!The head of an executive agency that engages in basic, applied,
advanced research, and development projects that are necessary to
the agency’s research and development and that have the potential
to facilitate defense against or recovery from terrorism or nuclear,
biological, chemical, or radiological attack may use OT authority.
The agency head may use the same authority as the Secretary of
Defense may exercise under 10 U.S.C. §2371, except for the
subsections having to do with DARPA (subsection (b)) and support
accounts (subsection (f)).
!The head of an executive agency may use OT authority for the
purpose of carrying out prototype projects which meet the
conditions listed above. This use of OT authority must be in
accordance with the requirements and conditions provided in Section
!The head of an executive agency may use OT authority under this
provision only if authorized by the Director of the Office of
Management and Budget.
Applicability of the FAR and Procurement Statutes
to Other Transactions
As noted above, OTs are are not subject to the FAR. Additionally, a significant
number of procurement statutes and the government’s cost accounting standards do
not apply to other transactions.89 However, an agency is “required to comply with
87 U. S. Congress, House Committee on Armed Services, National Defense Authorization
Act for Fiscal Year 2004, report to accompany H.R. 1588, 108th Cong., 1st sess., H.Rept.
108-106 (Washington: GPO, 2003); U.S. Congress, Conference Committee, National
Defense Authorization Act for Fiscal Year 2004, conference report to accompany H.R. 1588,thst
88 U.S. Congress, Conference Committee, National Defense Authorization Act for Fiscal
Year 2004, p. 778.
89 U.S. Government Accountability Office, Further Action Needed to Promote Successful
Use of Special DHS Acquisition Authority, GAO Report GAO-05-136, Dec. 2004, p. 1; Johnrd
Cibinic, Jr., and Ralph C. Nash, Jr., Formation of Government Contracts, 3 ed.
any other statute that applies to contractual transactions in general. To make this
determination, the terms of each statute must be analyzed closely. There is no
uniform guidance as to which statutes apply to these other transactions.”90
In 2000, the American Bar Association (ABA) published a monograph produced
by the Ad Hoc Working Group on Other Transactions, which addressed the question
of the applicability of procurement statutes to other transactions. The ABA’s Section
of Public Contract Law had convened the working group. The monograph, which
included analyses of 30 statutes, indicated which statutes apply to OTs and which do
not. The statutes and statutory provisions that do not apply to OTs may be found in
Table 1. Some of the statutes may apply only to DOD (the monograph focused on
DOD’s OT authority), but this analysis indicates the applicability of certain
procurement statutes to other agencies’ use of OT authority.
Table 1. Statutes and Statutory Provisions
That Do Not Apply to Other Transactions
Statute or StatutoryaPurpose of Statute or Statutory Provisionb
Competition in“To promote the use of competitive procedures and
Contracting Act (CICA)prescribe uniform Government-wide policies and
seq.; 41 U.S.C. §§253 etpublication, and submission of cost or pricing data.”
Contract Disputes Act“To create a comprehensive, fair, and balanced statutory
41 U.S.C. §§601 et seq.scheme of administrative and legal remedies for claims
under Government contracts.”
Procurement Protest“To provide a statutory basis for procurement protests by
System (Subtitle D ofinterested parties to the Comptroller General.”
Kinds of Contracts“To establish various restrictions on the terms and
Examination of records“To provide authority to the contracting agency to access
of contractora contractor’s records or plants in order to perform audits
Contracts: acquisition,“To provide authority for acquisition, construction, or
construction, orfurnishing of test facilities or equipment in connection
furnishing of testwith R&D contracts.”
facilities and equipment
[to R&D contractors]
10 U.S.C. §2353
(Washington: George Washington University Law School, Government Contracts Program,
90 Cibinic and Nash, Formation of Government Contracts, p. 20.
Statute or StatutoryaPurpose of Statute or Statutory Provisionb
Contracts:“To authorize the Military Departments to include
indemnificationprovisions in DOD R&D contracts indemnifying the
provisioncontractor for certain claims and losses.”
10 U.S.C. §2354
Prohibition against“To prohibit the award by the Department of Defense of
doing business withcontracts, or in some cases subcontracts, to firms that have
certain offerorsbeen debarred or suspended by another agency.”
10 U.S.C. §2393
Major weapon systems:“To provide warranty protection to the Government for
Contractor guaranteesmajor weapons systems it acquires.”
10 U.S.C. §2403
Prohibition on persons“To prevent persons convicted of fraud or any other
convicted of defensefelony arising out of a defense contract from further
contract related feloniesparticipating in contracts with the Department of Defense
and related criminalfor a specified statutory period.”
penalty as defense
10 U.S.C. §2408
Contractor employees:“To prohibit contractors from discharging, demoting, or
protection from reprisaldiscriminating against employees who disclose substantial
for disclosure of certainviolations of law related to contracts.”
10 U.S.C. §2409
Limitation on the use of“To prohibit recipients and requesters of Federal
appropriated funds tocontracts, grants, or cooperative agreements from using
influence certain Federalappropriated funds to pay any person to influence or to
contracting and financialattempt to influence executive or legislative decision-
transactionsmaking in connection with the awarding of any Federal
31 U.S.C. §1352contract or grant, the making of any Federal loan, or the
entering into of any cooperative agreement.”
Anti-Kickback Actc“To eliminate the practice of subcontractors paying
41 U.S.C. §§51-58kickbacks in the form of fees, gifts, gratuities, or credits to
higher tier subcontractors or prime contractors for the
purpose of securing the award of subcontracts or orders.”
Procurement Integrity“To ensure the ethical conduct of Federal agency
Actprocurements by prohibiting certain Government officials
41 U.S.C. §423from accepting compensation from or discussing future
employment with bidders or offerors, and prohibiting the
unauthorized receipt or disclosure of contractor bid and
proposal information or source selection information
before the award of a Federal agency procurement
Statute or StatutoryaPurpose of Statute or Statutory Provisionb
Walsh-Healey Act,c“To require all covered contracts to contain stipulations
41 U.S.C. §§35-45regarding minimum wages, maximum hours, safe and
sanitary working conditions, child labor, and convict labor
Drug-Free Workplace“To eliminate any connection between drug use or
Actdistribution and Federal contracts, cooperative
Buy American Act“To provide a preference for domestic products in
Bayh-Dole Act“To set forth Government’s policy regarding allocation of
35 U.S.C. §§200-212patent rights to inventions conceived or first actually
reduced to practice under contracts, grants, and
cooperative agreements with small business firms and
educational and other nonprofit organizations.”
Technical data“To provide for regulations to define the legitimate
provisions applicable tointerest of the U.S. and of a contractor or subcontractor in
DODtechnical data pertaining to an item or process.”
10 U.S.C. §§2320 and
Truth in Negotiations“To require the submission of cost or pricing data on
Actnegotiated contracts in excess of $500,000, as well as for
Cost Accounting“To provide for the promulgation of uniform standards for
Standardsallocating costs to Government contracts.”
41 U.S.C. §422
Cost Principles“To provide for the disallowance of certain costs under
10 U.S.C. §2324flexibly priced contracts and prescribe penalties for the
submission of claims for unallowable costs.”
Source: American Bar Association, Section of Public Contract Law, Ad Hoc Working Group on Other
Transactions, Department of Defense “Other Transactions”: An Analysis of Applicable Laws,
American Bar Association, 2000, p. 26.
a. The source of the name or descriptive information in this column is American Bar Association,
Section of Public Contract Law, Ad Hoc Working Group on Other Transactions, Department
of Defense “Other Transactions”: An Analysis of Applicable Laws, American Bar Association,
2000, pp. 27-29.
b. Ibid., pp. A-1-A-57.
c. This provision or statute may apply to prototype OTs, but it does not apply to OTs involving
research and development. (Ibid., pp. 30-31.)
As reported by GAO, DHS’s list of laws inapplicable to its OTs includes several
of the same statutes and statutory provisions listed in Table 1. They are as follows:
!Competition in Contracting Act
!Contract Disputes Act
!Procurement Protest System
!Limitation on the use of appropriated funds to influence certain
federal contracting and financial transactions
!Anti-Kickback Act of 1986
!Procurement Integrity Provisions
!Walsh Healey Act
!Drug-Free Workplace Act of 1988
!Buy American Act91
The DHS list included two statutes that are not found in Table 1: the Service
Contract Act (41 U.S.C. §351 et seq.) and the Fair Labor Standards Act of 1938 (29
As the ABA’s Ad Hoc Working Group noted, there is “no uniform guidance”
regarding the applicability of statutes to OTs. In the following passage, the working
group described some of the challenges involved in determining the applicability of
procurement statutes to OTs:
Although the Working Group considers its analyses to be correct, in a number
of cases the conclusions are somewhat tenuous. For example, in many cases it
is simply not clear from the text of the statute whether it applies only to
procurement contracts, or whether it applies more broadly. In such cases the
analysis turns on factors such as the placement of the statute in a particular
statutory scheme, its legislative history, etc. This uncertainty may lead to93
91 U.S. Government Accountability Office, Further Action Needed to Promote Successful
Use of Special DHS Acquisition Authority, p. 6.
93 American Bar Association, Section of Public Contract Law, Ad Hoc Working Group on
Other Transactions, Department of Defense “Other Transactions”: An Analysis of
Applicable Laws, American Bar Association, 2000, p. 26.
DOD and DHS also have acknowledged the challenge of determining whether
a statute applies, or does not apply, to an OT. In its OT guide for prototype projects,
DOD indicated that the list of statutes inapplicable to prototype OTs “is provided for
guidance only, and is not intended to be definitive.”94 In a report on DHS’s use of
OT authority, GAO noted that “DHS’s other transaction policy states that contracting
officers should review each statute [in the list of statutes considered to be
inapplicable to OTs] with regard [to] any particular arrangement using other
transactions and consult their General Counsel to determine its applicability.”95 DOD
and DHS also have advised their personnel that requirements or statutes that are not
tied to the type of instrument used probably would apply to an OT. DHS guidance
is as follows: “To the extent a particular statute is funding- or program-related (e.g.,
fiscal and property laws), or is not tied to the type of instrument used, it generally
will apply to an OT. OTCOs [other transactions contracting officers] should consult
with their General Counsel on these matters.”96
As noted by the ABA’s Ad Hoc Working Group (see above), a possible
implication of the uncertainty involved in determining which procurement statutes
do not apply to OTs is “unnecessary litigation.” Another possible implication of this
uncertainty is that it might lead to confusion for some OT participants. A business
(or other entity) that participates in OTs with two or more agencies might not
understand why their lists of inapplicable statutes are not the same. Possibly, a lack
of consistency could pose an administrative burden for an OT participant.
Evaluating the Use of OT Authority
The nature of other transaction authority contributes to the challenge of
evaluating OTs. Freed from adhering to the FAR and certain procurement statutes,
an agency can tailor an OT to the needs and circumstances of a particular project and
the participants, which means the usual methods or vehicles for monitoring
contractor performance — such as contract administration and audit services (Part
Additionally, aside from counting the number of traditional contractors, it is unclear
what features of other transactions can be readily measured or evaluated. As
discussed below, it is particularly challenging to evaluate the benefits of OTs.
94 Office of the Under Secretary of Defense for Acquisition, Technology and Logistics,
“Other Transactions” (OT) Guide for Prototype Projects, Jan. 2001, p. 41.
95 U.S. Government Accountability Office, Further Action Needed to Promote Successful
Use of Special DHS Acquisition Authority, p. 6.
96 U.S. Department of Homeland Security, Other Transaction Authority, Management
Directive 0771.1, July 8, 2005, p. 4-1. (Italics in original.) DOD’s language is slightly
different: “To the extent that a particular requirement is a funding or program requirement
or is not tied to the type of instrument used, it would generally apply to an OT, e.g., fiscal
and property laws. Each statute must be looked at to assure it does or does not apply to a
particular funding arrangement using an OT.” (Office of the Under Secretary of Defense
for Acquisition, Technology and Logistics, “Other Transactions” (OT) Guide for Prototype
Projects, p. 41.)
A key argument for using OTs is to attract nontraditional contractors who would
not otherwise work for, or with, the government. According to a GAO report, for
example, “DHS views the use of other transactions as key to attracting nontraditional
government contractors — typically high-technology firms that do not work with the
government — that can offer solutions to meet agency needs.”97 10 U.S.C. §2371
note requires that a prototype OT include at least one nontraditional defense
contractor and includes a definition of “nontraditional defense contractor.” Given the
emphasis on attracting nontraditional contractors, and since this is a relatively easily
quantifiable measure, some assessments of the use of OT authority report the number
and percentage of nontraditional contractors participating in OTs.
GAO reported in 2002 that the Secretary of Defense had “required a metric —
the number of participating nontraditional defense contractors — which is
measurable and directly related to each agreement.”98 DOD had considered other
metrics, “but concluded that the number of nontraditional contractors was the only
one that was quantifiable to Section 845 [prototype] outcomes.”99 (The GAO report
focused on prototype OTs.) DOD “[o]fficials believe that this metric is key because
involving firms that do not traditionally do business with DOD increases DOD’s
opportunity to leverage commercial technology investments and to take advantage
of commercial business processes, such as using an integrated team approach rather
than a traditional prime-subcontractor structure.”100
A couple of DOD documents have shown that, at least historically, the number
and percentage of traditional contractors have exceeded the number and percentage
of nontraditional contractors participating in OTs. During the period 1990 — 1998,
203 new contractors (25%) and 607 traditional contractors (75%) participated in
research OTs.101 The same report revealed that 60 new contractors (21%) and 224
traditional contractors (79%) participated in prototype OTs from 1994 through
of $5.7 billion expended on 209 prototype OTs went to traditional government
97 U.S. Government Accountability Office, Further Action Needed to Promote Successful
Use of Special DHS Acquisition Authority, p. 7.
98 U.S. General Accounting Office, DOD Has Implemented Section 845 Recommendations
But Reporting Can Be Enhanced, GAO-03-150, Oct. 2002, p. 2.
100 Ibid., p. 7.
101 U.S. Department of Defense, Office of the Inspector General, Cost Charged to Other
Transactions, Report No. 2000-065, Dec. 27, 1999, available at [http://www.dodig.osd.mil/
Audit/reports/fy00/00-065.pdf], pp. i and 3. Although the report did not include a definition
of “traditional contractor,” it identified new contractors as “contractors that had not done
cost-based research and development with DoD previously.” (Ibid., p. 5.)
contractors.103 Writing in the latter report, the IG stated that it had “found that other
transactions have not attracted a significant number of nontraditional contractors to
do business with the Government.... We find this trend disturbing, as other
transactions do not provide the government a number of significant protections,
ensure the prudent expenditure of taxpayer dollars, or prevent fraud.”104
In 2008, GAO reported that DHS officials had “confirmed that at least one
nontraditional contractor participated in each other transaction agreement, generally
as a partner to a traditional contractor,” adding that it (GAO) had not “assessed the
extent of the involvement of nontraditional contractors or what portion of the funding
they receive.”105 Upon completing its review of 53 DHS OTs (for the period
FY2004-FY2008), GAO reported that 44 involved nontraditional contractors.106 The
composition of project teams for phase one of DHS’s counter-man-portable air
defense systems (MANPADS) project shows a mix of traditional and nontraditional
contractors. The teams were as follows:
!Prime contractor: Northrop Grumman Systems Corporation. Other
principal team members: FedEx Corporation and Northwest Airlines
(both are nontraditional government contractors).
!Prime contractor: BAE Systems. Other principal team members:
Honeywell International’s Air Transport Systems and Delta Airlines
Technical Operations (both are nontraditional government
!Prime contractor: United Airlines, Inc. (nontraditional government
contractor). Other principal team members: Avisys, Inc. and ARINC
Some would argue, though, that the number of nontraditional contractors may
have limited applicability as a metric or evaluation factor. Statutory OT authority for
103 Robert J. Lieberman, deputy inspector general, Department of Defense, statement for the
record, House Committee on Government Reform, Subcommittee on Technology and
Procurement Policy, “The Services Acquisition Reform Act (SARA) of 2002,” Report No.
D-2002-064, Mar. 12, 2002, p. 11. The deputy inspector general did not attend the hearing,
which was held on Mar. 7, 2002. A letter included in this report notes that the Chairman of
the subcommittee had agreed to the request of the subcommittee’s ranking member to
include the deputy inspector general’s statement in the hearing record.
105 U.S. Government Accountability Office, Status and Accountability Challenges
Associated with the Use of Special DHS Acquisition Authority, GAO-08-471T, Feb. 7, 2008,
106 U.S. Government Accountability Office, Improvements Could Enhance Ability to Acquire
Innovative Technologies Using Other Transaction Authority, GAO-08-1088, Sept. 2008, p.
107 U.S. Government Accountability Office, Homeland Security: Further Action Needed to
Promote Successful Use of Special DHS Acquisition Authority, GAO-05-136, Dec. 2004, p.
the FAA, DOT, TSA, and HHS does not require, let alone mention, the inclusion of
nontraditional contractors in OTs. Additionally, for DOD, and the agencies whose
statutory authority is based upon DOD’s statute, the requirement to include a
nontraditional contractor applies only to prototype OTs.
Although a statutory definition of “nontraditional defense contractor” does exist,
it is unclear whether, and how, agencies with OT authority verify that a company is
a nontraditional contractor.108 GAO reported, in 2005, that DHS “relies on
contractors to self-certify their status as ... nontraditional government contractors
during agreement negotiation.”109 It is unclear whether DOD also permits self-
certification, or verifies the status of participants in OT prototypes.
In response to GAO’s statement that “84 of 97 agreements [for prototype OTs]
went to traditional defense contractors,” DOD officials noted that “the large number
of traditional defense contractors at the prime contract level reflects the fact that
Section 845 agreements are to be used on weapon or weapon systems-related
projects.”110 Another possible explanation for the lower than expected number of
nontraditional contractors, some might suggest, is that a group of traditional
contractors would need to recruit only a single nontraditional contractor for their
project in order for them to be eligible to participate in an other transaction.
In their study of DOD prototype OTs, Smith, Drezner, and Lachow encountered
the same phenomenon: few nontraditional contractors were participating in OTs.
Their research revealed, however, that “a major part of the new activity [that is,
companies new to working with DOD] [came] from segments of large firms where
the firm is a traditional supplier: names like 3M, Lucent, Motorola, Eastman Kodak,
Oracle, and others. But major segments of those firms, using corporate funds to
develop products for the commercial market, had previously been unwilling to work
for DoD under the traditional contracting process.”111 In other words, a company that
is a traditional contractor may have a segment or division that would be considered
a nontraditional contractor, but the division’s status as a nontraditional contractor is
masked because it carries the name of a company that is known to be a traditional
contractor. Authors of the RAND study advised that “[d]emonstrating that [new
companies are working with DOD] cannot be done by simply counting new names
on a list of contracts and instead requires a series of individual company studies.”112
108 As noted above, “nontraditional government contractor” (or “nontraditional contractor”)
has the same meaning as the term “nontraditional defense contractor” as it is defined in
Section 845(e) of P.L. 103-160.
109 U.S. Government Accountability Office, Further Action Needed to Promote Successful
Use of Special DHS Acquisition Authority, p. 4.
110 U.S. General Accounting Office, DOD’s Guidance on Using Section 845 Agreements
Could Be Improved, p. 14.
111 Smith, Drezner, and Lachow, Assessing the Use of “Other Transactions” Authority for
Prototype Projects, p. 17.
112 Ibid., p. 18.
Other Assessments of OTs
In 2001, RAND published the results of a study that assessed DOD’s use of OT
authority for prototype projects. The overarching question of the study, which had
been requested by DOD, was: “Have the results justified the authority to perform
projects without being required to comply with the historical accumulation of laws
and procedures?”113 In the following passage, the authors described the challenges
they encountered in their effort to measure the outcomes of OTs:
One important element of our research was to develop a set of metrics that would
measure the relative effects of OT on program outcomes and OT’s broader policy
goals. While attempting to accomplish this, we were unable to develop any
practical quantifiable metrics that others would find credible. The few
quantifiable metrics we uncovered are either misleading (e.g., the number of
nontraditional contractors) or unverifiable (e.g., cost avoidance). This result
affects both the kind of information we can present and the kind of conclusions
that can be drawn.
The reasons we did not find a practical approach to such metrics are classic in
the field of acquisition policy analysis. We cannot perform a statistical
comparison of a group of OT programs versus a group of conventional programs
because there are too many variables and too few programs. Furthermore, the
traditional metrics for such a comparison, and where we have a good historical
database are elements such as cost growth and schedule slip; those are
inappropriate for prototype programs that are inherently risky.
It is not practical to compare a single OT program with a counterpart conducted
under traditional contracting methods because we never have an analog program
that is remotely comparable. We do not have data on what the program would
have been like under traditional methods. And finally, most of the programs in
our rather small sample are still under way so we do not have true outcomes.
Thus, we rely largely on qualitative information in this analysis — the judgments
and opinions of experienced managers who have run both kinds of programs.
We are unable to analytically prove the validity of those judgments and opinions,
for all the reasons noted here. For those same reasons, critics are unable to
disprove the claimed benefits of OT agreements or to quantitatively demonstrate114
the superiority of another policy or process.
Having catalogued the methodological challenges inherent in conducting
quantitative research of OTs, the authors of the RAND study opted for a qualitative
approach, relying on the “judgments and opinions of experienced managers.” Their
assessment resulted in the following general conclusions:
!“Important new industrial resources are now participating in
DoD prototype projects because of the freedoms inherent in the
OT process.... The important new industrial capability is drawn
from segments of major firms that had been focusing exclusively on
113 Ibid., p. 6.
114 Ibid., pp. 9-10.
commercial projects but are now willing to apply their skills and
products to military prototypes.”
!“The benefits of OT are broader than just the addition of new
industrial resources. The flexibility of the OT process has been
used to: (a) achieve better use of industry resources through
innovative business arrangements and project designs; (b) improve
management of risks and uncertainties through freedom to modify
the program as it evolves; and (c) achieve better value through cost
sharing and reduction of transaction costs. Overall, more effort is
being devoted to product and less to process.”
!“Some risks to the government are incurred, but we believe the
immediate rewards substantially outweigh the risks. Risks arise
mainly through relaxing DoD demands for access to the firm’s
financial records, and ownership of intellectual property (patents and
data). However, such relaxation of DoD rights applies to only a few
of the OT prototype projects, mainly those involving products with
strong commercial market potential and where the firm contributes
a significant portion of the development resources. Even in those
few projects, we believe the risks to DoD are limited. Verification
of cost records becomes relatively unimportant when a firm is
contributing a large share of project costs. Less-than-complete
government ownership of intellectual property might lead to
increased costs in future phases of the project, but those risks are
limited. This is in part because the possible future costs should be
discounted to some degree as they are in the future, and in part
because they typically apply in areas where the technology is moving
fast and where the value of specific kinds of knowledge can rapidly
decay. Furthermore, if the flexibility in negotiating intellectual
property and financial audit clauses is removed from the OT
authority, most if not all of the new industrial resources would again
become unavailable to DoD.”115
Noting that “these benefits [of OTs] are impossible to quantify in an analytically
rigorous manner,” and that their “conclusions are mostly subjective and interpretive,”
the authors added that the conclusions “do, however, represent the views of a broad
cross section of DoD and industry project managers and agreement officers who have
been managing OT prototype projects. The rewards of creating and managing a more
efficient and effective program structure and management process have led those
participants to be uniformly enthusiastic about the OT process and also advocate for
its further use.”116
While the results of the RAND study are encouraging regarding the use of OT
authority, some would suggest that the conclusions are not robust and cannot be
generalized to other OTs. (The authors of the study did not attempt to generalize
115 Ibid., pp. viii-ix. (Boldface and italics in original.)
116 Ibid., pp. 9 and 31.
their results or conclusions.) As the authors noted, they were not able to use
quantitative data (that is, metrics), but, instead, used qualitative data. The sources
were “program managers and agreement officers in both government and industry,”
who probably are the most knowledgeable personnel about OTs, but who also are
stakeholders in the use of OT authority. Finally, the study focused on one federal
agency and included only prototype OTs.
Other reports that comment on the use of OT authority are similar to the RAND
report in that they do not include quantitative data and they present a generally
favorable assessment of other transactions. In 1996, GAO offered a generally
positive assessment of DOD’s use of other transactions (and cooperative
Cooperative agreements and other transactions appear to have provided DOD a
tool to leverage the private sector’s technological know-how and financial
investment. The instruments have attracted firms that traditionally did not
perform research for DOD by enabling more flexible terms and conditions than
the standard financial management and intellectual property provisions typically
found in DOD contracts and grants. Thus, the instruments have contributed to
reducing some of the barriers between the defense and civilian industrial bases.
These instruments also appear to be contributing to fostering new relationships
and practices within the defense industry, especially under projects being
undertaken by consortia. By sharing the costs of projects, DOD has partially
offset its own costs while generally enabling recipients to expand the scope of117
the projects undertaken.
Another GAO report noted that “DOD reported to Congress that Section 845
agreements provided numerous benefits, though DOD generally offered no quantified
measures of the reported benefits or the extent that such benefits were derived from118
individual agreements....” GAO also mentioned that its own work and work
conducted by the DOD IG had “found that Section 845 agreements have achieved
mixed results in attracting commercial firms at either the prime or subcontract
level.”119 Consistent with the reports on DOD’s use of OT authority, DHS’s chief
procurement officer testified that his department has a favorable view of OTs, but
interjected that it is “too soon” to assess the results. An excerpt from his testimony
is as follows:
Though the acquisition outcomes related to DHS’s use of other transaction
authority have not been formally assessed, the department estimates that at least
some of these agreements have resulted in time and cost savings. According to
an S&T contracting representative, all of its current agreements are for
development of prototypes, but none of the projects have yet reached production.
Therefore, it is too soon to evaluate the results. However, the department
believes that some of these agreements have reduced the time it takes to develop
its current programs, as compared to a traditional FAR-based contract. In
117 U.S. General Accounting Office, Acquiring Research by Nontraditional Means, pp. 3-4.
118 U.S. General Accounting Office, DOD’s Guidance on Using Section 845 Agreements
Could Be Improved, p. 12.
119 Ibid., p. 13.
addition, DHS has stated that its two cost-sharing agreements for development
of its Counter-MANPADS technology have resulted in savings of over $27
million and possibly more. However, the extent to which these savings accrue120
to the government or to the contractor is unclear.
It appears that a favorable consensus exists regarding the use of OT authority,
which seems to be based largely on the experiences and observations of individuals
who participate, or have participated, in OTs. Yet, because of the nature of OTs and
the types of work performed pursuant to them, it also appears that no one has been
able to devise, let alone conduct, a study that has the methodological features and
rigor sufficient for producing reliable and valid results.
Additional Considerations for Evaluating OTs
Evaluating how an agency uses OT authority and whether a particular OT was
successful could involve additional factors and issues, including how “success” is
defined or interpreted. A comprehensive evaluation would be a complex, challenging
undertaking, as demonstrated by the work done by RAND. The following questions
are examples of other possible avenues of inquiry regarding the use of OT authority:
!What does each company or organization bring to the project in
terms of technology, manufacturing, or engineering resources?
!Excluding government agencies, to what extent do OT participants’
resources reside in, or take advantage of, the commercial market?
!What methods, if any, are agencies using to detect fraud, waste, and
abuse in OTs?
!What unintended consequences, if any, have agencies experienced
as a result of using OTs?
!How do agencies and their OT partners address certain elements of
other transactions, including intellectual property rights, cost
accounting standards, and oversight?
!Does the acquisition workforce in agencies that have OT authority
have the requisite skills, training, and experience to develop and
120 U.S. Government Accountability Office, Status and Accountability Challenges
Associated with the Use of Special DHS Acquisition Authority, p. 7.
121 In the following passage, the Department of Homeland Security’s chief procurement
officer, while noting that OTs are useful, cautions that they are appropriate in only certain
situations and emphasizes the necessity of having capable personnel administer OTs: “OTs,
however, are not right for every situation, as the rights provided to the Government under
an OT differ significantly from those provided under a traditional contract. While OTs are
an extremely useful tool, they should only be used in appropriate situations by personnel
!Has the “[l]ack of [government] ownership of the intellectual
property resulting from OT development activities” adversely
affected innovation or cost “because of limits on licensing the
!For OTs that have been completed, did the terms and results of the
transactions match the rationale for, and expected benefits of, the
!Has OT authority enabled agencies to acquire research, technologies,
and prototypes that they would not have been able to acquire
Is OT Authority Used Appropriately?
For some agencies, the use of OT authority is permitted only if agency personnel
have determined that a contract, grant, or cooperative agreement will not work. For
example, under 10 U.S.C. 2371, DOD may use an OT “when the use of a standard
contract, grant, or cooperative agreement for such project is not feasible or
appropriate.”124 GAO has determined that its bid protest authority does not include
non-procurement vehicles (such as OTs), but it will review “a timely protest that an
agency is improperly using a cooperative agreement or other non-procurement
instrument ... where a procurement contract is required....”125 The purpose of the
that are knowledgeable of the advantages and disadvantages of OTs versus contracts and
who are able to make informed decisions regarding which method is anticipated to provide
better value to the Government.” (U.S. Congress, House Committee on Homeland Security,
Subcommittee on Emerging Threats, Cybersecurity and Science and Technology, “Other
Transaction Authority: Flexibility at the Expense of Accountability?” statement of Thomas
W. Essig, chief procurement officer, Department of Homeland Security, unpublishedthnd
hearing, 110 Cong., 2 sess., Feb. 7, 2008, p. 8.) Regarding the need for experienced,
skilled acquisition personnel to establish and administer other transactions, GAO wrote:
“The unique nature of other transaction agreements requires staff with experience in
planning and conducting research and development acquisitions, strong business acumen,
and sound judgment to enable them to operate in a relatively unstructured business
environment.” (U.S. Government Accountability Office, Improvements Could Further
Enhance Ability to Acquire Innovative Technologies Using Other Transaction Authority, p.
122 Smith, Drezner, and Lachow, Assessing the Use of “Other Transactions” Authority for
Prototype Projects, p. 3.
123 The source of some items in this list was the following: U.S. Congress, House
Committee on Homeland Security, Subcommittee on Emerging Threats, Cybersecurity, andth
Science and Technology, statement of L. Elaine Halchin, unpublished hearing, 110 Cong.,nd
124 10 U.S.C. §2371(e)(2).
125 U.S. Government Accountability Office, Exploration Partners, LLC, GAO bid protest
B-298804, Dec. 19, 2006, p. 5.
review is “to ensure that an agency is not attempting to avoid the requirements of
procurement statutes and regulations.”126
The Army’s Future Combat Systems (FCS) program is an example of a project
in which, initially, the use of OT authority was considered appropriate, but, as the
project progressed, questions arose, and, ultimately, the OT was replaced by a
contract. The project began in May 2003, when
the Army and Boeing entered into an ‘other transaction agreement’ for the
system development and demonstration phase of the FCS program.... The
Army’s rationale for using such an agreement was to encourage innovation and
to use its wide latitude in tailoring business, organizational, and technical127
relationships to achieve the program goals.
Concerned about the continued use of an OT for the FCS program, Senator John
McCain, then Chairman of the Subcommittee on Airland, Senate Armed Services
Committee, expressed his views at a hearing in 2005:
Since [the passage of the National Defense Authorization Act for 1994, which
extended OT authority to prototype projects], DOD officials and industry have
repeatedly requested that we extend “Other Transaction Authority” to production
contracts. Congress has consistently refused to do so, because we have taken the
view that with hundreds of millions or even billions of dollars at stake, the
taxpayer needs the protections built into the traditional procurement system.
While we recognize that there may be [a] need to continue doing business with
non-traditional contractors in the production phase of a program, we have
preferred to address this issue through targeted waivers that are limited to those
companies who need them. Now, the Army has put forward a program that uses
‘Other Transaction Authority’ for a $20 billion contract, a figure much greater128
than the Congress intended and [it is] unprecedented.
Initially, the Army continued to defend its use of OT authority, but eventually
concurred with the Senator McCain. As reported by Federal Contracts Report, the
Assistant Secretary of the Army for Acquisition, Logistics and Technology “defended
the Army’s use of OTA for FCS, explaining that DARPA initially used OTA to
define an FCS concept for the Army, and that the Army had continued to use OTA
because it ‘allows us to attract the best and brightest of our nation’s industry and their129
subcontractors in this endeavor.’” Several weeks later, following a meeting with
127 U.S. Government Accountability Office, Role of Lead Systems Integrator on Future
Combat Systems Program Poses Oversight Challenges, GAO-07-380, June 2007, p. 4.
128 Senator John McCain, “Opening Statement of Senator John McCain, Chairman,
Subcommittee on Airland, Army Transformation and the Future Combat System,” Mar. 16,
i n d e x . c f m? F u s e A c t i o n = P r e s s O f f i c e . F l o o r S t atements&ContentRecord_id=8E05F19E-3 5
129 “McCain Questions Army’s Use of OTA as FCS Contracting Vehicle,” Federal
Contracts Report, Mar. 22, 2005, available at [http://www.bna.com], p. 297.
the Secretary of the Army, Senator McCain issued the following press release, which
described the resolution of the issue:
In a March 31, 2005 letter to the Army Secretary, I outlined concerns about
whether taxpayers’ interests were adequately protected in the Army’s Future
Combat Systems (FCS) program. In a meeting today, the Army Secretary
indicated to me that he completely agreed with my concerns. In so doing, the
Army Secretary presented an aggressive strategy centered around reconstructing
the ‘other transaction authority’ (OTA) agreement supporting this multi-billion
dollar program. Most notably, the Army indicated that it would convert the OTA
to a FAR-based contract, with provisions typically used to protect taxpayers’130
interests and help prevent fraud, waste and abuse specifically included.
As reported by GAO, “[i]n March 2006, the Army definitized a FAR-based
contract with Boeing for the remainder of FCS development.... All of the work
performed from May 2003 through September 2005 is accounted for under the prior
other transaction agreement, and all work after September 2005 is included under the
It is unclear whether other OTs, if any, have been used when a contract (or
cooperative agreement or grant) should have been used. The visibility of the FCS
program may have aided in identifying the possible misuse of OT authority.
Evidence of congressional interest in the use of other transaction authority
includes a congressional hearing in 2008 on DHS’s use of OT authority and, since
the 104th Congress, the enactment of legislation that has provided OT authority to six
specific agencies. Additionally, under P.L. 108-136, most, if not all, federal agencies
may use OT authority under certain circumstances.
The inapplicability of the FAR, government cost accounting standards, and
certain procurement statutes to other transactions may contribute, in part, to
congressional interest in OT authority. Some might view the inapplicability of
requirements and procedures designed to safeguard the government’s interests and
provide for transparency as a cause for concern, although individual OTs might132
incorporate measures designed to protect the government. The challenges involved
130 Senator John McCain, “Statement from Senator John McCain on the Future Combat
Systems Program,” Apr. 5, 2005, available at [http://mccain.senate.gov/public/
131 U.S. Government Accountability Office, Role of Lead Systems Integrator on Future
Combat Systems Program Poses Oversight Challenges, p. 4.
132 For example, the Department of Homeland Security used firm-fixed price agreements
with payable milestones in 44 of the 53 other transactions GAO reviewed for its 2008 report
on DHS’s use of OT authority. The use of such agreements helps to mitigate financial and
in developing and implementing a methodologically rigorous evaluation program for
OTs, which was discussed above, might also contribute to congressional interest. In
addition to maintaining the status quo, other policy options include the following:
!Eliminate OT authority for some or all agencies that now have the
authority. While the elimination of this authority would address
some critics’ concerns, proponents might argue that the termination
of OT authority could affect the ability of agencies to obtain, or
advance, needed research, technologies, and prototypes.133
!Depending upon whether an agency’s statutory authority for using
OTs includes a sunset provision, add, or continue, a sunset
provision. Inclusion of a sunset provision could trigger a periodic
review of each applicable agency’s use of OT authority and the
associated benefits and challenges. On the other hand, agencies
whose statutory authority does not include a sunset provision might
argue that the possibility of not having their OT authority renewed
(via a subsequent sunset provision) could affect the willingness of
private sector partners to engage in OTs.
!Identify other agencies that might benefit from engaging in other
transactions, and provide OT authority to them. This option could
involve establishing a pilot program for one or more agencies. If
program risks because “the costs are fixed at the time the agreements are established.”
Another example from DHS is the department’s guidance on when to include financial audit
provisions in OTs. (Ibid., pp. 3 and 11.)
133 The following excerpt from a 2002 Texas Intellectual Property Law Journal article
summarizes one argument for OT authority: “... the need for new weapon systems has
increased: a modern generation of enemies (like Al Qaeda) requires different military
responses and the speed of technological innovation has meant that legacy systems become
obsolete at an increasingly rapid pace. In addition, the Department of Defense in recent
years has suffered from a declining budget, and thus has financial incentives to outsource
as much work as possible. This means that there are more outside contractors performing
functions once performed by the government. Thus, while the defense community is
growing smaller, the Department of Defense has become increasingly reliant on contractors,
and the commercial sector in general, to fulfill its needs. Within the world of defense
research and development, these same forces are at work. The need for new weapons
systems has required more government-sponsored research and development. At the same
time, as the number of government laboratories is reduced, there are fewer and fewer
internal sources to which the Department of Defense can turn for advanced weapons
systems. It is for this reason that the Department of Defense is increasingly interested in
attracting new commercial partners.... Simply put, the federal government can no longer
rely on traditional government contractors to perform all of the functions that it requires.
In order to cope with this new scenario, the Department of Defense has actively recruited
new contractors to produce its weapons systems — to fill the void left by the vanishing
traditional contractors.” (David S. Bloch and James G. McEwen, “‘Other Transactions’ with
Uncle Sam: A Solution to the High-Tech Government Contracting Crisis,” pp. 208-209.)
feasible, the pilot program could be designed to facilitate the
evaluation of the use of OT authority.
!Require all OTs to include at least one nontraditional contractor.
Part of the argument for OT authority is that the government needs
to be able to work with companies or organizations that are unable
or unwilling to comply with the FAR and certain procurement
statutes, which suggests that the inclusion of at least one
nontraditional contractor in each OT might be a reasonable
requirement. However, it is possible that this requirement could
preclude the government from engaging in OTs that do not attract
any nontraditional contractors.
!Develop accounting standards and intellectual property rights
regulations specifically for other transactions. Ideally, OT-specific
accounting standards would be less burdensome than the existing
cost accounting standards while helping to ensure that there is a
greater degree of accountability and transparency than might
currently exist. IP regulations developed specifically for OTs would
address the concerns of OT participants while helping to protect the
!Similar to the preceding option, develop a hybrid procurement
vehicle that would incorporate some of the safeguards found in the
FAR and certain procurement statutes (modified to be less
burdensome than current requirements and procedures), yet would
retain the desirable features of other transactions.
!Similar to the Commercial Activities Panel (CAP), which was
convened by GAO to examine the government’s competitive
sourcing policies and procedures, establish a panel to examine the
government’s use of other transaction authority.135
!Establish a government website where agencies would disclose OT
opportunities and provide information about established OTs.136
This website would be similar to two of the government’s
procurement websites: Federal Business Opportunities
134 Although some agencies with OT authority might already incorporate accounting
standards or IP rights provisions in their other transactions, this policy option might, if
implemented, ensure that all OTs include cost accounting standards and IP rights provisions.
135 See Commercial Activities Panel, Improving the Sourcing Decisions of the Government
(Washington: U.S. General Accounting Office, 2002), available at [http://archive.gao.gov/
136 The Department of Homeland Security has updated its own procurement database “to
include some information on other transaction agreements.” However, “the capacity to
capture information on nontraditional contractors is limited.” (U.S. Government
Accountability Office, Improvements Could Further Enhance Ability to Acquire Innovative
Technologies Using Other Transaction Authority, p. 3.)
(FedBizOpps), where agencies post solicitations; and the Federal
Procurement Data System (FPDS), where agencies post information
about contract actions.137 A related option would be to modify
FedBizOpps and FPDS to accommodate information regarding other
!Require agencies to submit reports on a regular basis to appropriate
congressional committees regarding their use of OT authority,
including benefits and challenges. While this option might ensure
that Congress is provided regularly with information regarding
agencies’ use of OTs, this requirement might impose a burden on
!Similar to a requirement found in 10 U.S.C. §2371 note, link the
level of approval authority for OTs within an agency to the expected
cost of the other transaction.
In 2002, DOD’s deputy inspector general offered a series of recommendations,
which are as follows:
!If civilian agencies receive OT authority, the “legislation [should] be
tailored so that the other transactions vehicle is only used to attract
companies which have not traditionally done business with the
Government and for technologies, research capabilities or other
processes which are needed by the federal agency and are not
available through traditional acquisition vehicles.”
!“For research other transactions ... the agency head [should] be
required to make a determination that an other transaction is
necessary to induce a nontraditional contractor to provide
technologies, research capabilities, or other processes which are
needed by the agency.”
!“Other transactions for prototype[s] should be limited to developing
items which are ripe for development as the result of research
conducted pursuant to a research other transaction.”
!“...[A]udit access rights [should] be given to the Government, to
include the Comptroller General, the agency Inspectors General, and
departmental contract audit agencies, such as the Defense Contract
!“If enacted, other transaction authority for civilian agencies should
be provided as a pilot program of limited duration to ascertain
whether it actually attracts significant numbers of nontraditional
government contractors, whether it results in the acquisition of
137 The two websites are [http://www.fbo.gov] and [https://www.fpds.gov], respectively.
needed technologies and services, and whether additional safeguards
should be enacted.”138
Other transaction authority originated in 1958, but it has been expanded greatly
in recent years, as seven specific agencies were also given statutory authority to
engage in OTs. Although little, if any, information is publicly available regarding
some agencies’ use of OT authority, articles and reports that comment on DOD’s and
DHS’s use of OTs indicate that both of these agencies consider OT authority to be
a valuable, useful tool. The authors of a RAND study appear to have reached the
same conclusion yet, at the same time, they acknowledge and describe the
methodological challenges involved in evaluating the use of OT authority. Thus,
while some embrace OTs as useful to the federal government, it does not appear that
anyone has yet devised a reliable method for conducting an evaluation that would
yield quantifiable, objective data.
138 Lieberman, “The Services Acquisition Reform Act (SARA) of 2002,” p. 12.