Contracting Cone

Prototype OTs (10 USC §4022)

Prototype OTs are appropriate for research and development and prototyping activities to enhance mission effectiveness of military personnel and supporting platforms, systems, components, or materials. Prototype OTs may be used to acquire a reasonable number of prototypes to test in the field before making a decision to purchase in quantity. Prototype OTs provide a streamlined path to award a non-competitive follow-on Production OT or FAR contract under 10 U.S.C. §4022(f). For OTs, a “prototype project” is defined as a project addressing:

- a proof of concept, model, or process – including a business process
- reverse engineering to address obsolescence
- a pilot or novel application of commercial technologies for defense purposes
- agile development activity
- the creation, design, development, demonstration of technical or operational utility
- any combination of the above

Competition

Although the Competition in Contracting Act (CICA) is not applicable to OTs, competition should be pursued to the maximum extent practicable to incentivize high quality and competitive pricing. Additionally, competitive procedures are required in order to leverage the authority for transition to follow-on production contracts or transactions without subsequent competition.

Award Criteria, Approval Thresholds, and Reporting

Prototype OT Award Criteria

Reference Source: 10 U.S.C. §4022(d)

One of the following conditions must be met to award a Prototype OT:

At least one non-traditional defense contractor or nonprofit research institute participates to significant extent

All significant participants are small businesses or non-traditional defense contractors

At least one third of total cost provided by sources other than the Federak Government

Senior Procurement Executive determines circumstances justify use of a transaction that provides for:

Innovative business arrangements not feasible or appropriate under a contract

Opportunity to expand defense supply base not practical or feasible under a contract

Reference Source: USD A&S/R&E Memo: Definitions and Requirements for OTs

Successful completion can occur prior to the conclusion of a prototype project to allow the government to transition any aspect of the prototype project determined to provide utility into production, while other aspects of the prototype project have yet to be completed. Prototype OTs shall contain a provision that sets forth the conditions for the prototype agreement to be successfully completed.

Additionally, the government shall include notice of the possibility of a follow-on production award in both the Prototype OT solicitation and the Prototype OT agreement.

Follow-on Production Award Criteria

Reference Source: 10 U.S.C. §4022(f)

The following conditions must be met in order to award a non-competitive follow-on Production OT or FAR contract:

Competitive procedures were used to award the Prototype OT

The prototype project in the transaction was “successfully completed”

Reference Source: USD A&S/R&E Memo: Definitions and Requirements for OTs

“Successful completion” of a prototype project requires written determination of the responsible approving official stating the efforts under a Prototype OT:

Met the key technical goals of a project;
Satisfied success metrics incorporated into the Prototype OT; or
Accomplished a particularly favorable or unexpected result that justifies the transition to production

Additionally, the government shall include notice of the possibility of a follow-on production award in both the Prototype OT solicitation and the Prototype OT agreement.

OT Approval Authorities and Thresholds

Reference Source: USD A&S/R&E Memo: Authority for Use of OTs for Prototype Projects

The following approval authorities and dollar thresholds (per individual OT award) are applicable to Prototype and Production OTs. The approval authorities above $100 million are non-delegable.

The value of each individual OT is considered separately for purposes of determining approval authority, rather than the total value of all OTs included in a prototype project or follow-on production effort. Any contractor cost sharing should be included in the OT value.

Separate approvals are required for Prototype OTs and follow-on Production OTs.

	Value of Individual Transaction
Organization	Up to $100M	$100M to $500M	Over $500M
CCMDs with Contracting Authority	Commanding Officer	USD (R&E) or USD (A&S)	USD (R&E) or USD (A&S)*
Defense Agencies (DA) and Field Activities (FA) with contracting authority; Defense Innovation Unit (DIU)	Director	USD (R&E) or USD (A&S)	USD (R&E) or USD (A&S)*
Military Departments	Senior Procurement Executive	Senior Procurement Executive	USD (R&E) or USD (A&S)*
DARPA and Missile Defense Agency	Director	Director	USD (R&E) or USD (A&S)*

* An Under Secretary must also make a written determination in accordance with 10 U.S.C. §4022(B). Additionally, the Congress shall be notified at least 30 days before this authority is exercised The Office of the Under Secretary making the written determination is responsible for Congressional notification.

Reporting

Reference Source: USD A&S Memo – Required and Recommended Use of eBusiness Tools When Awarding and
Administering Other Transactions

Prototype and Production OTs must be reported in the Federal Procurement Data System
When using a contract writing system (e.g., Standard Procurement System – Procurement DefenseDesktop (SPS/PD2)) to execute Prototype and Production OTs, AOs may utilize the automated Contract Action Report (CAR) process to propagate OT data into FPDS. Otherwise, to report Prototype and Production OTs, AOs must utilize the OT module within FPDS.
OTs awarded to a consortium should be reported in accordance with Appendix F.
Prototype and Production OTs must identify the 9th position of the award number as a “9.” The other positions of the award number and modifications will be assigned the same as procurement contracts. If the award supports a significant federal government or Department effort or initiative, Defense Pricing and Contracting will issue instruction for what identifier should be added to the ‘Description of Requirements’ field to easily track these actions when reporting to FPDS.
See Appendix A for all required and recommended eBusiness tools.
Reference Appendix F of the DoD OT Guide for OT Consortia Reporting Requirements.

Common Applications

Research and development activities to advance new technologies and processes and prototyping or models to evaluate feasibility or utility of a technology
Address obstacles to doing business with the government by non-traditional vendors to include intellectual property rights and compliance with cost accounting standards
Flexibility to tailor agreements to reach non-traditional vendors with innovative solutions
Negotiable funding arrangements, payment milestones, and length of agreement to achieve prototype project objectives

Pros	Cons
Reduce barriers to entry for non-traditional contractors; allows greater access to innovators that do not typically do business with the government	Executing OTs requires experienced and empowered staff; lack of standardized processes can challenge and intimidate inexperienced staff
Flexibility to tailor approaches for planning, evaluating, selecting, and negotiating terms and conditions	Government must assess and address risks without the process, precedent, and protections provided by the FAR
Cost accounting requirements are not required under an OT, enabling greater access to innovators
Flexibility to negotiate data rights and intellectual property, enabling greater access to innovators
OT implementation may include Commercial Solution Opening procedures, use of OT Consortia, and awarding stand-alone OT agreements
Path to a streamlined, non-competitive follow-on production contract or agreement
May leverage commercial solutions to prototype military applicability

Restrictions

Cost sharing requirements apply if no significant participation by non-traditional defense contractors
Limited to requirements that have a prototyping element
Agreement Officer authority required to award OTs
May not exceed $500M without USD R&E or USD A&S approval

Resources

10 U.S.C. §4022 Prototype OTs
DoD Other Transactions Guide v2.0, OUSD(A&S), Jul 2023
Authority for Use of Other Transactions for Prototype Projects Under 10 U.S.C. §2371b, USD(A&S), Nov 2018
Definitions and Requirements for Other Transactions Under Title 10 U.S.C. §2371b, USD(A&S/R&E), Nov 2018
Required and Recommended Use of eBusiness Tools When Awarding and Administering Other Transactions, USD A&S, Jul 2022
Implementation Guidance for Section 889(a)(1)(B) Prohibition on Contracting with Entities Using Certain Telecommunications and Video Surveillance Services or Equipment on Other Transactions for Prototype Projects, USD A&S, Aug 2020
Evaluating Price; Other Transactions (OTs), DCMA Commercial Item Pricing Group
Other Transactions – CON 0600, DAU
Neg-OTA-tion 101 – CON 2800V, DAU
OT Simulation – CON 2990V, DAU
Other Transaction Community of Practice (CoP), DAU
Acquisition Innovation/OT Resources, DARPA