Contracting Cone

Other Transactions, or OTs, are legally binding instruments other than standard procurement contracts, grants, or cooperative agreements. DoD may use OTs to support research activities, prototype projects, and follow-on production when the statutory requirements are met. OTs can provide flexible business arrangements that help the Government access innovative technologies, commercial practices, nontraditional defense contractors, small businesses, nonprofit research institutions, and traditional defense contractors when the applicable participation, cost-sharing, or statutory conditions are satisfied.

DoD uses two primary OT authorities:

Research OTs — 10 U.S.C. § 4021
Prototype OTs — 10 U.S.C. § 4022

Research OTs under 10 U.S.C. § 4021 may be used for basic, applied, and advanced research projects. Prototype OTs under 10 U.S.C. § 4022 may be used for prototype projects that are directly relevant to enhancing mission effectiveness, improving platforms, systems, components, or materials, or improving the use of platforms, systems, components, or materials by the armed forces.

OTs provide opportunities to structure agreements using commercial-style terms and flexible business arrangements. They may reduce barriers to entry associated with traditional procurement contracts, including certain cost accounting, intellectual property, and contract administration requirements that can discourage nontraditional vendors from doing business with the Government.

OTs often use RDT&E funding, but the OT statutes do not prescribe a single required appropriation type. The proper funding source depends on the nature of the activity, the purpose of the effort, and the appropriation’s availability and limitations. OT agreements may use fixed-price, expenditure-based, payable milestone, or hybrid payment structures, depending on the agreement strategy.

Many laws and regulations that apply to procurement contracts do not automatically apply to OTs, including the FAR and many standard procurement contract requirements. However, OTs are not “anything goes” instruments. The Procurement Integrity Act applies, fiscal law still applies, and competitive practices should be used to the maximum extent practicable. OTs may also be subject to legal challenge; protests are not handled under FAR Part 33, but challenges may arise at the U.S. Court of Federal Claims, and GAO has limited jurisdiction to review whether an agency is improperly using OT authority instead of a procurement contract.

As defined in 10 U.S.C. § 3014, a nontraditional defense contractor is an entity that is not currently performing, and has not performed for at least the one-year period preceding the solicitation of sources by DoD, any DoD contract or subcontract subject to full coverage under the Cost Accounting Standards.

The following are the two primary types of DoD Other Transactions: