Other Transactions (OT) Guide
Federal Procurement Reporting
The Government team must continue to record Research OTs in the Defense Assistance Awards Data System (DAADS). The Government team must continue to report Prototype OTs in the Federal Procurement Data System-Next Generation. Research OTs must identify the 9th position of the award number as a “3”, and Prototype 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.
Effective performance reporting addresses cost, schedule and technical progress. It compares the work accomplished and actual cost to the work planned and the estimated cost and explains any variances. There is not a “one-size-fits-all” approach. There could be little, if any, performance reporting required if the agreement price is fixed and financing is provided by fixed payable milestones. However, if this is not the case, performance reporting should be considered.
- The awardee is responsible for managing and monitoring each project and all sub-awardees. The solicitation and resulting agreement should identify the frequency and type of performance reports necessary to support effective management. If an awardee is teaming with other sub-awardees (e.g. consortium, joint venture) for the project, the Government team should consider if performance reporting on all sub-awardees would be appropriate.
- The Government team should consider whether reports required of the OT awardee are important enough to warrant establishment of line items or separate payable milestones or if reporting requirements should be incorporated as a part of a larger line item or payable milestone. In either case, an appropriate amount should be withheld if a report is not delivered.
OT Agreement Close-Out
This section applies only when the OT agreement uses amounts generated from the awardee’s financial or cost records as the basis for payment, and/or requires resource sharing to be provided by non-Federal parties pursuant to statute. Under those circumstances the agreement should stipulate that Federal funds and the OT awardee’s resource shared amount, if any, are to be used for costs that a reasonable and prudent person would incur in carrying out the project.
Except as provided in 10 U.S.C. §2371b, audits and access to financial records are subject to negotiation. Generally, fixed amount agreements should not require any type of audit provisions. When audits may be necessary, the Government team has the flexibility to use outside independent auditors in certain situations and determine the scope of the audits. A possible exception is for agreements that provide for reimbursement of incurred costs related to a milestone the performer was unable to complete due to early termination of the agreement or effort if milestone payments involve high-dollar amounts.
Resource-sharing in a transaction occurs when a portion of the total cost of the project is to be paid out of funds provided by sources other than the Federal Government. Contributions can be in cash or non-cash form, and costs can be either direct or indirect, so long as contributions are allowable, allocable, reasonable, and consistently accounted for by the awardee. This may include labor, materials, equipment, usage rights in Intellectual Property, and facilities costs, as well as independent R&D costs that may be reimbursed later by DoD through overhead rates on other awarded efforts. Forfeiture of fee, profit, or cost of money would not be consistent with general cost principles and should not be included in any resource-shared arrangement.
Costs incurred before OT Award
If resource-sharing is used, then the non-Federal amounts counted as provided, or to be provided, by parties other than the Federal Government may not include costs that were incurred before the date on which the OT agreement becomes effective. Costs offered as a resource-share that were incurred for a project after the beginning of negotiations, but prior to the date the OT agreement becomes effective, may be counted as non-Federal amounts if and to the extent that the Agreements OfficerA warranted individual with authority to enter into, administer, or terminate OTs. To be appointed as an AO, the individual must possess a level of responsibility, business acumen, and judgment that enables them to operate in the relatively unstructured environment of OTs. AOs need not be Contracting Officers, unless required by the Component’s appointment process. determines in writing that: (1) the party other than the Federal Government incurred the costs in anticipation of the OT agreement; and (2) it was appropriate for the entity to incur the costs before the OT agreement became effective in order to ensure the successful implementation of the OT agreement.
Evaluating reasonable usage cost
The Government team should understand and evaluate the nature of the performer’s share. Resource sharing should generally consist of labor, materials, equipment, software, and facilities costs (including allocable indirect costs). Any part of the resource share that includes an amount for a fully depreciated asset should be limited to a reasonable usage charge. In determining the reasonable usage charge, the Government team should consider the original cost of the asset, total estimated remaining useful life at the time of negotiations, the effect of any increased maintenance charges or decreased efficiency due to age, and the amount of depreciation previously charged to procurement contracts A contract awarded pursuant to the Federal Acquisition Regulation. and subcontracts. In determining the amount of resource sharing, the agreement should not count, as part of the awardee’s share, the cost of Government-funded research, prior independent R&D, or indirect costs that are not allocable to the agreement.
Resource Share schedule and monitoring
Generally, the Government’s payments or financing should be representative of its share as the work progresses, rather than front loading Government contributions. OTs that require resource sharing should generally provide for adjustment of Government or private sector investment or some other remedy if the other party is not able to make its required investment. Such other transactions should address the procedures for verifying resource share contributions, the conditions that will trigger an adjustment, and the procedures for making the adjustment.
Project payment structures are negotiable. The agreement must clearly identify the basis and procedures for payment.
Well-structured, payable milestones can serve the dual purpose of meeting cash flow needs of the performer and as a management tool to verify observable achievements on the critical path to project success. Failure to achieve milestone/technical goals forces a management analysis and decision. There is not one uniform clause or set of procedures for payable milestones. Payable milestone procedures vary, depending on the inherent nature of the agreement and as such, may be non-consecutive; conditional; contingency-based; incrementally funded; included as priced options within the prototype project; or designed in any other manner, or combination of manners, that are appropriate under the circumstances of the individual effort. It is important to note that optional milestones do not become part of the project agreement terms unless exercised and funded by the Government.
Both OT statutes allow for advance payments and the Government team should exercise business judgment when determining when to allow advance payments. Some instances in which advance payments may be beneficial include reducing financing costs for large, up-front expenditures and ensuring sufficient cash flow for small companies. If advanced payments are used, the Government team should address interest earned, including whether to establish an interest-bearing account.
Provisional Indirect Rates on Interim Payments
When the agreement provides for interim reimbursement based on amounts generated from the awardee’s financial or cost records, any indirect rates used for the purpose of that interim reimbursement should be no higher than the awardee’s provisionally approved indirect rates, when such rates are available.
Legally Responsible Party
The Government team should ensure that the OT agreement is entered into with an entity or entities that can execute the agreement and legally bind the entity or entities. That entity may be a single company, joint venture, partnership, consortium or team (through its members or authorized agent), or a prime contractor with subcontract relationships, among others. Consortia can be structured in a wide variety of ways. Consortia members may be technical performers, financial contributors, potential end users of products and technologies developed by the consortia, or otherwise interested in the project or projects being funded.
OTs can allow DoD to collaboratively design projects with contractors to execute the most effective solution to a problem. Rather than prescribing a particular requirement or project solution, DoD may choose to simply highlight a problem and invite industry to propose solutions to address that problem. DoD can then collaboratively design a project proposal/statement of work with industry to solve the DoD’s problem.
Certain types of information submitted to the Department in a process having the potential for award of an OT are exempt from disclosure requirements of 5 U.S.C. §552 [the Freedom of Information Act(FOIA)] for a period of five years from the date the Department receives the information. Specifically, 10 U.S.C. §2371(i), as amended, provides that disclosure of this type of information is not required, and may not be compelled, under FOIA during that period if a party submits the information in a competitive or noncompetitive process having the potential for an award of an OT.
Such information includes the following:
- A proposal, proposal abstract, and supporting documents.
- A business plan submitted on a Business Proprietary basis.
- Technical information submitted on a controlled basis as outlined in DoDI 5230.24.
Notice to Offerors. The Government team should include a notice in solicitations that requires potential offerors to mark business plans and technical information that are to be protected for five years from FOIA disclosure with a legend identifying the documents as being submitted on a confidential basis.
- To the extent that the OT involves classified information, the Government team shall ensure that the agreement is conducted as required by the National Industrial Security Policy outlined in, DoD 5220.22-M and DD Form 441.
- To the extent that the OT involves DoD controlled unclassified information, the Government team should ensure that the offeror complies with DoDI 8582.01 and DoDM 5200.01 Volume 4; that the offeror implements the security requirements in NIST SP 800-171 for safeguarding the offeror’s unclassified internal information system; and reports cyber incidents that affect the controlled unclassified information directly to DoD at DIBNet portal.
- To the extent that the OT will involve National Security, the Government team shall ensure the agreement is conducted as required to allow for the ability to exclude suppliers on the National Security System Restricted List
While bid protests are rare for OTs, agencies should be mindful of the possibility. Agency-level protests are possible if the agency choses to include language in its solicitation describing the procedures. While not required, agencies may want to include such language to encourage any issues to be handled internally and quickly. GAO has limited jurisdiction to review OT decisions and protests to GAO regarding OT awards are rare. Protests to the U.S. Court of Federal Claims are also possible but are rare occurrence.
Case Study: TRANSCOM
United States Transportation Command (TRANSCOM) formulated an acquisition strategy to migrate its legacy infrastructure into a cloud environment. In May 2017, the Department of the Army awarded a Prototype OT to migrate six distinctive applications in a native cloud environment by either re-hosting, re-factoring, or re-developing methodologies.
Implementation and Execution:
Upon successful migration of the initial six applications, the Government modified the Prototype OT instrument to include migration of an entire enclave to recognize potential efficacy of such an approach with a Period of Performance of August 2017 through March 2018. During the Period of Performance for the enclave requirement, the Government entered into negotiations for the follow-on Production OT, predicated upon migrating individual applications. The Government awarded the Production OT in February 2018, which was ultimately protested. While the protestor did not compete for the initial Prototype OT, the Government Accountability Office (GAO) found the protestor did have standing. GAO sustained the protest as:
- The Prototype OT did not include language addressing the possibility of follow-on production work in the agreement between the vendor and the Government.
- The work under the initial Prototype OT was not successfully completed prior to award of the follow-on Production OT.
Outcomes and Lessons Learned:
- Follow-on Production Award without competition: Solicitations and Awards of Prototype OTs shall include notice that a follow-on Production OT is possible.
- Define Successful Completion. Any Prototype OT shall contain a provision that sets forth the conditions under which that prototype agreement must be successfully completed. Unless success is defined otherwise, the Prototype OT must be entirely completed prior to moving into a Production OT.
- Acquisition Strategy should address Prototyping while in Production phased approach: Modifications to Prototype OTs can increase risk regarding the Government’s ability to move forward into production. In an effort to remove subjectivity from this forward schedule movement, project teams should try to outline a phased approach at the inception of a requirement, if possible. Project teams may elect to establish entry and exit criteria to facilitate expectations with vendors. Doing so will help streamline project ability to move successfully complete aspects to production.
- Acquisition Strategy should establish Success Metrics: Objective and transparent technical assessment of existing systems is necessary to set project expectations. The Government should identify the metrics as part of its Acquisition Strategy that will determine success of prototyping for a new requirement or technology.