The Federal Acquisition Regulation (FAR), a widely known regulation governing the federal government’s procurement process, can be time-consuming. FAR-based contracts can be challenging to implement due to strict terms and agency-specified supplements. This is where the Other Transaction Authority, or OTA, comes into play.
Let’s learn more about the role of OTA in government contracting and its benefits for agencies and contractors.
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What Is an OTA?
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An OTA is a legally binding instrument that the Department of Defense (DOD) uses to implement research and development and prototyping activities.
Due to their adjustable nature, OTAs don’t follow a standard format or include strict fine-print conditions like FAR. They aren’t standard procurement contracts, grants or cooperative agreements.
Moreover, OTA-based contracts aren’t subject to FAR compliance but are still legal.
Benefits of Using OTA-based Contracts
OTA-based contracts offer benefits to nontraditional defense contractors and commercial entities wanting to engage in GovCon activities.
Below are some of the benefits that come with using OTAs:
- OTAs use business practices per U.S. Code 2302
- OTAs help prevent government intrusion and red tape
- OTAs have a threshold of $500 million (although this cap can be adjusted through a special approval process), making it faster and less expensive to implement than FAR-based contracts
- OTAs reduce the overall costs of research projects
- OTAs allow the streamlining of ideas and products from commercial and nontraditional defense contractors
- OTAs offer agencies and contractors the opportunity to negotiate on clauses such as intellectual property and data rights
Uses of OTA in Government Contracting
According to the 10 U.S.C. 4021 of Section 845 of the 2016 National Defense Authorization Act, the DOD can award OTAs to contractors for the following purposes:
Research
The research purpose, also known as the “science and technology OTA,” is used for fundamental, applied and advanced research projects. The goal of research OTAs is to encourage dual-use research and development and take advantage of economies of scale.
Defense contractors engage in research-based OTAs to:
- Adopt commercial practices or standards
- Collaborate with nontraditional defense contractors
- Expand into the commercial sector
In November 2020, Parsons Corporation won a research-based OTA valued at $250 million from the DOD. The OTA tasked Parsons with supporting the agency’s research and development efforts on sensors, radars, directed energy and more.
Prototype
The prototype purpose is utilized for projects encompassing the development of weapons and systems. A prototype must accomplish one of these three goals:
- Enhance systems, materials and related components proposed by the DOD
- Reinforce the effectiveness of military missions
- Boost the DOD’s systems, components, materials and platforms
Contractors executing a prototype OTA may produce either physical or virtual solutions, depending on the proposed development. The government then uses this prototype to test and evaluate functionalities in military technology, systems, concepts and end items.
Among the significant prototype OTAs in 2024 is the Space Development Agency’s combined $2.5 billion OTA awarded to L3Harris Technologies, Lockheed Martin and Sierra Space.
The three chosen vendors were tasked with creating over 50 satellite prototypes capable of missile tracking and warning. These prototypes will be installed in Tranche 2 of the Proliferated Warfighter Space Architecture’s tracking layer.
Production
The production purpose serves as a noncompetitive follow-up to a successfully awarded prototype OTA.
Government agencies expecting production OTAs must inform prototype OTA recipients in advance of changes and potential new requirements. Therefore, solicitation documents and the prototype OTA must include provisions for a possible follow-on production purpose.
In January 2020, the Defense Innovation Unit (DIU) awarded a C3 AI standalone prototype OTA that covered the demonstration of its artificial intelligence suite in developing generative modeling applications for hypersonic missile trajectories.
The DIU’s prototype OTA was followed by a production OTA from the Missile Defense Agency (MDA) in 2021. C3 AI was tasked with advancing MDA’s enterprise artificial intelligence capabilities to generate large datasets in data-deprived environments for a wide spectrum of missile defense technology efforts.
Guidelines for OTA in Government Contracting
While OTAs are deemed to be less rigid than FAR-based agreements, commercial companies still need to understand a few regulations to apply for or execute.
Here are important guidelines for OTAs in government contracting.
Eligibility for Winning
Any commercial entity or academic institution can apply or compete for OTA-based contracts, given that they are a nontraditional defense contractor. An entity is qualified as a nontraditional defense contractor if:
- It is a small business cleared of Cost Accounting Standards (CAS) requirements
- It performs contracts exclusively under commercial practices and policies
- It works exclusively on firm-fixed-price contracts with adequate price competition
- It has less than $50 million in efforts covered by CAS during the previous cost-accounting cycle
Traditional defense contractors may apply and execute OTAs if they partner with nontraditional defense contractors or provide financial cost-sharing. That said, the soliciting board may implement some exceptions if the use of OTAs for traditional defense contractors is justified to advance government missions.
Solicitation Methods
The solicitation methods for OTAs differ depending on the purpose or scope of the project. Below are some of the most widely used solicitation procedures for OTAs.
Request for Prototype Proposals/ Requests for White Papers
Companies may solicit research OTAs through requests for prototype proposals or requests for white papers. Both solicitation methods involve all evaluation criteria that may impact the OTA contract, such as price and prototyping capabilities.
Broad Agency Announcement
Solicitation boards may issue broad agency announcements to identify the scope and areas of interest for a specific prototype. This announcement enables the government to gather information from all interested parties and evaluate the best one to perform the prototyping requirements.
Research Announcements
Research announcements are the most common form of solicitation for research OTAs. They outline the problems for which the government seeks solutions, specifically non-procurement instruments.
Compensation Types Suitable for OTAs
The compensation styles suitable for research OTAs include firm-fixed-price, cost-reimbursement and hybrid contracts.
Firm-fixed-price OTAs are suitable for minor research and development projects with clearly defined objectives and cost estimates for budget negotiations.
Meanwhile, cost-reimbursement OTAs are deemed the most popular for all OTAs because they reimburse all expenses incurred during the working periods as long as they are within a reasonable margin.
Awarding Structures
OTAs are granted to commercial contractors either by these two awarding structures:
Direct Awards
In a direct awards structure, commercial entities eligible for OTAs can submit requests for proposals and openly compete with other interested contractors.
Consortia-facilitated Awards
An advantage of an OTA awarded through consortia is that the agreements are tailored to specific and unique research and prototyping requirements. Only members of the consortia are allowed to bid for the contracts presented in a consortia-facilitated awarding structure.
Frequently Asked Questions
How Did OTAs Begin?
The origins of OTAs date back to the ratification of the National Aeronautics and Space Act of 1958.
More than 30 years later, in 1989, the Advanced Research Projects Agency was the first organization to be granted the Other Transaction Authority, with expanded prototype authority by 1993. However, it wasn’t until 2015 that the OTA was permanently codified under 10. U.S. Code 4022.
Which agencies use OTAs?
The U.S. Congress authorizes these agencies to use OTAs:
- Department of Defense
- National Aeronautics and Space Administration
- DHS Domestic Nuclear Detection Office
- DOE Advanced Research Projects Agency-Energy
- Federal Aviation Administration
- U.S. Department of Transportation
- U.S. Department of Homeland Security
- Transportation Security Administration
- U.S. Department of Health and Human Services
- U.S. Department of Energy
- National Institutes of Health
Does A Mean ‘Authority’ or ‘Agreement’?
Both are used in OTAs, although they refer to two slightly different things.
An Other Transaction Authority is the lawful capability of government agencies to engage in contracts that deliver commercial solutions and services to the government.
On the other hand, an Other Transaction Agreement is a contract that stipulates the requirements, deliverables, intellectual property and data rights of an agency exercising its Other Transaction Authority.
You might also want to read: Beginner’s Guide to Becoming a Government Contractor
