Other Transaction Authorities Show Their Potential in COVID-19 Response

6/12/2020

Other transaction authorities, or OTAs, have emerged as the unsung hero of the COVID-19 crisis. In a Washington Technology piece, Katherine Katina argues that a recent uptick in using OTAs has substantially benefitted both the defense and healthcare industry. For instance, she highlighted how the CARES Act removed the threshold on how many OTAs HHS can award, which would quicken its COVID-19 response mechanism. Katina also makes a good point on the efficacy of OTAs and its importance within the DOD, citing Ellen Lord’s April 5th memo relaxing approval authorities for combatant commands and other DOD offices.

OTAs have received much hopeful attention in recent years as a tool for reforming the defense acquisition process. Acquisition reform has been on the to-do list for decades, with little success. Richard Dunn, in a 2017 National Defense article, perfectly captured the delay as a cultural and bureaucratic problem. OTAs, enable DOD to sidestep these obstacles, providing a glimpse of the desired future of contracting. OTAs’ past success in cost savings, prototype production, and industrial cooperation have raised hopes for achieving critical improvements in bureaucratic efficiency and invigorating defense industry competition.

OTAs bypass much of the administrative burdens posed by Federal Acquisition Regulations (FAR). A past DOD report assessment once found it spent up to twenty percent on premiums unrelated to the procurement of goods and services (i.e., administrative and miscellaneous costs). With fewer regulatory requirements, OTAs could save millions of dollars.

Also, OTAs can have economic benefits. In her piece, Katina reasoned that the traditional contracting process is anachronistic. That is, it does not support the current era of rapid innovation in technology. Using OTAs encourage rapid innovation by facilitating competition and inclusivity by attracting many small, non-traditional companies to contract with DOD. As a result, OTAs can both strengthen the national technology innovation system and generate beneficial macroeconomic effects.

OTAs could also help the U.S. improve its R&D productivity relative to global competitors. With lower costs, fewer barriers, and focus on smaller firms – indeed, traditional contractors can cash in too - OTAs can propel American innovation forward. In 1960, American defense R&D made up one-third of global R&D. Today, however, it is roughly 3.7 percent of global R&D, an alarming decrease. Attracting those small and non-traditional businesses will be a boon to future research and prototype production. Therefore, it can lead to growth in capabilities both in the defense and commercial sector.

On the other hand, there are some drawbacks to using OTAs. First, some argue that traditional defense contractors have so far benefitted the most, according to a 2018 Federal News Network report. The report pointed out that of the 148 OTAs awarded, only $7.4 billion out of the $20.8 billion went to non-traditional contractors from FY2015-2017. But, in absolute terms, this is not a problem. Large defense contractors take in billions in revenue compared to smaller firms that may only take in millions. Plus, large contractors have a plethora of resources at their disposal, much more than the non-traditional firms. So, it is expected that they get a larger cut. The smaller firms that receive the other portion still benefit greatly and make a substantial profit proportional to their size and revenue levels.

Lastly, OTAs raise questions about oversight and accountability. Indeed, a lack of an effective oversight system for OTAs seems suspect for many. For instance, there is still insufficient programmatic data on OTAs. With little data to track progress, there is the concern of abuse and waste that accompanies using those authorities. For OTA usage to continue to grow, developing an efficient oversight process that is not burdensome and can keep the acquisition workforce accountable is a necessity. In brief, OTAs are an effective way to streamline critical contracts, especially as we continue to combat the COVID-19 crisis.

Topics: Acquisition, Defense Contracting, Health Affairs

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