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Innovation in a Box: Solutions for Rapid Contracting

The Pentagon. Image: Creative Commons.

The need to bridge the public and private sectors to promote technological innovation is readily apparent to anyone who works in the defense sector. For the past fifty years, the Department of Defense (DoD) has had a reciprocal R&D relationship with the private sector. Initially, DoD spent heavily in R&D however over time, the private sector to include Silicon Valley has come to dominate total R&D spending. Today, the DoD relies on the scientific prowess of the private sector to efficiently develop world-class technology systems.

Other Transaction Authority (OTA) agreements, originally developed to help the U.S. compete in the 1950’s era space race, have become an increasingly popular option for Program Managers seeking to access private-sector technologies for Pentagon requirements. Consortiums, typically run and managed by non-profits, are the dominant means for implementing OTAs and have played an important part in helping DoD foster mutually beneficial relationships with private organizations. Yet, there is there more than DoD customers and non-traditional customers alike should expect from their Consortiums and their managers?

The OTA contracting method offers an alternative process for the DoD to access vendors, previously not involved in the defense industrial base. These contracts allow private companies to retain more of their IP rights and via the consortium manager, alleviate many of the contracting overhead burdens that a new vendor to DoD might normally encumber. OTAs are intended to attract these nontraditional companies to the government contracting realm—that is, companies without a history of traditionally working with DoD. And in general, OTAs succeed in accomplishing this.

In 2015, $1 out of every $38 that DoD obligated toward R&D was spent through OTAs. In three years, that ratio became $1 out of every $7. In short, the use of OTAs has exploded in the defense community. The most common OTA solicitation and awarding process is the consortium-led model, as opposed to the Defense Innovation Unit’s Commercial Solutions Opening method, in which prototype OTA agreements are awarded to one or several companies responding to a publicly posted opportunity. Most recent OTA-delegated award dollars have flowed through consortia, pools of for-profit companies, non-profit organizations, and academic institutions that are organized and directed against customer requirements by the consortium manager. In 2019, 60 percent of total OTA obligations flowed through approximately two dozen consortia, and that share is expected to keep growing.

Members of a consortium typically pay a small fee to retain their membership benefits and their ability to bid on solicitation sent to the consortium by DoD. Different consortiums tend to specialize in the technology areas mandated by the sponsoring Government agency. Defense-oriented consortia usually consist of recognizable names in the field, such as Boeing or Lockheed Martin, as well as numerous new entrants known as non-traditionals such as many household Silicon Valley tech companies.

These consortia tend to average around 60-65% nontraditional companies. Any member can bid on opportunities presented by managers of the consortium, fostering competition between the members. Academic institutions also play an important role in these bidding opportunities. University involvement in consortia helps to bridge understanding between the public sector and academia, providing universities with research opportunities that support their faculty and students, while the government benefits from the intellectual know-how of universities. It is this expertise which has the potential to shape academic research priorities with the demanding technological standards put forward by DoD.

OT consortia build and manage pathways between multiple organizations, thanks to their clear-cut organizational structure, oversight processes, and ability to facilitate communication between members working together on a contract. Through the use of consortia, the government is also less likely to engage in redundant spending, because the collaborative nature inherent to consortia helps ensure that each contractor carries out a clearly designated function. Yet, there is more to be done.

Opportunity 1 – Establishing and Tracking Metrics

A common critique of OTAs is that there are insufficient metrics available for the purpose of evaluating who the OT contracts are being awarded to and to what degree that funding supports the transition of DoD R&D priorities to Programs of Record. The data should be captured by the consortium managers that execute the OTAs but is stifled due to outdated DoD IT systems and inconsistent standards on what is deemed important information. This creates a transparency issue that makes it difficult for consortium managers to work with their customers to determine what metrics for success, beyond total dollars on contract, look like and how to track and present them.

That most OTA dollars flow through consortia further complicates evaluation of OTAs For instance, the Federal Procurement Data System has not been set up to track OTA projects and the dollars that flow through a consortium, meaning DoD cannot always access certain information, such as which individual contractors within a consortium are covering which part of the project and how much money they are awarded. While consortium managers almost certainly collect and track this data, more can be done to depict this data and ensure DoD customers understand its importance.

Opportunity 2 – Optimizing Consortium Membership

One particular subject that merits further study is the dynamic between larger and smaller members within a consortium. No publicly available data exists on the distribution of OTA funds to non-traditional versus traditional consortium members. It would be beneficial to ensure that the industry savvy of the established, defense industry companies within a consortia does not prevent the smaller, truly nontraditional companies from delivering on their capabilities.

While larger companies may act as a sort of “benevolent prime” to the smaller companies, the standard fee to maintain membership does not help even the playing field. While the membership fee, amounting to several thousand dollars per consortium, is negligible for larger companies, it is a risk for small commercial businesses who have not yet scored their first big contract with DoD, have to make every dollar count. This could render it difficult to allocate spare cash to consortia membership fees. OTA consortia already waive the membership fee for academic institutions, and consortium managers should consider taking this policy a step further by reducing membership costs for nontraditional companies which already meet other important membership criteria.

Opportunity 3 – Training for Sponsors

One of the main benefits of OT-focused consortia is that they reduce the administrative burden on the government. Yet, they do not eliminate the need for the government to develop a more trained OTA workforce, starting with DoD agencies seeking to use OTAs. Between 2009 and 2016, when the majority of consortia were managed by the Army Contracting Command, the Navy and the Air Force continued to rely on the Army to perform the legwork of executing OTAs. This caused their own internal workforce’s ability to do OTAs to atrophy or simply not develop at all. The fact that they relied on consortia models and agreements originally intended to support Army acquisition further complicated Navy and the Air Force’s OT contract rollout. The Defense Acquisition University can immediately help here but updating their official training for OT authorities.

Fortunately, DoD appears to recognize the need for a trained OTA-specialized workforce, and the balance of Army managed OTAs is starting to equalize with other Services. The continued success of OTAs hinges on healthy relationships between knowledgeable consortium managers and contract Agreements Officers which starts with ensuring both parties are trained in the same best practices for OT utilization and consortium management.

The renewed and expansive use of OTs, kick-started by the reforms in the 2016 NDAA have fostered an explosion in nontraditional engagement by DoD. This has resulted in a significant amount of Federal funding placed on contract in an expedited manner. Yet there is always more to improve on, especially with regard to consortium managed OTAs. By establishing and monitoring readily available metrics for OT performance, reducing barriers to nontraditional participation and training the workforce supporting OT deployments, DoD has an opportunity to provide a highly capable solution for Program Managers to meet their requirements. It has the potential to truly be innovation in a box.

Olivia Letts is an Associate with One Defense. Stephen Rodriguez is Managing Partner at One Defense and a Senior Advisor at the Atlantic Council.