10 U.S.C. 2371 “Other Transactions”: Beyond TIA’s

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Written by Richard L. Dunn (July 2017)

 

Containing legal authorities in conceptual boxes that accommodate organizational structures
and preexisting thinking is often bureaucratically convenient. It can also result in limitations that
adversely affect mission accomplishment. The Technology Investment Agreement is a box that
imposes unnecessary limitations and undermines DOD’s ability to be flexible and innovative.

 

The Department of Defense has issued regulations governing Technology Investment
Agreements (TIA’s). An inadequate understanding of 10 U.S.C. 2371, or a superficial reading of
the TIA regulations (32 C.F.R. Part 37), has resulted in confusion with some DOD personnel
concluding that TIA’s are the only authorized form of 10 U.S.C. 2371 Other Transactions (OT’s).
The TIA regulations clearly and repeatedly state that TIA’s (1) are assistance instruments only,
(2) are not exclusive to OT’s but may rely on the authority of 10 U.S.C. 2358 cooperative
agreements, and (3) that there are section 2371 transactions that are not TIA’s.

 

It has long been established that section 2371 may be used for assistance (“public purpose
of support or stimulation authorized by a law…”) but that the scope of 2371 is not restricted to
assistance, Interim Guidance for DARPA Research and Development Agreements (1990); DOD
“Other Transactions” Integrated Product Team, final report (1996). The Integrated Product Team
report included a graphic representation of a “tool kit” of instruments for various purposes. In
addition to the then new OT’s for prototypes (section 845/10 U.S.C. 2371b) OT’s were placed in
the categories of (1) Other Assistance, and (2) Instruments for Principal Purposes that are
Neither Acquisition nor Assistance. Here again some DOD personnel are confused since they
appear to think the Federal Grant and Cooperative Agreement Act (FGCA, 31 U.S.C. 6301 et
seq.) authorizes only the categories of procurement and assistance. See, however, Dunn,
Appropriate Contractual Instruments for R&D, The Government Contractor (2017).

 

A simple statement of fact found in the first sentence of a section of the Federal Acquisition
Regulation (FAR) governing R&D states: “The primary purpose of contracted R&D programs is
to advance scientific and technical knowledge and apply that knowledge to the extent necessary
to achieve agency and national goals.” (FAR 35.002). For DOD this is in distinction to the
principal purposes of procurement and assistance as delineated in the R&D context in FAR
35.003 and in the FGCA itself. For DOD which is mission-oriented, assistance plays a minor
part in its research and development efforts. This is in contrast to agencies like DOE which
supports national technical and economic development in the energy sector and agencies like
NIH which supports health research to combat disease nationally and world-wide. DOD has
programs in both areas but they are typically much less oriented toward outward support and
stimulation for general welfare and economic development but more narrowly directed at DOD-
specific problems and goals. They are not assistance; neither is procurement, just buying
things, their purpose. The result of successful R&D may well result in a down-stream
procurement of new capabilities but as FAR 35.002 states is unlike contracting for supplies and
services.

 

From what has been pointed out above, it can be seen that the TIA regulations are
applicable to only a small fraction of DOD’s “basic, applied and advanced research” (the
language of section 2371; “assistance” and “support and stimulate” are never mentioned). In
recent years section 2371 has hardly ever been used despite the fact that DARPA used it
vigorously in hundreds of agreements and billions of dollars in obligations in the early 1990’s
before the TIA regulations were issued. Congressional statements in report language and in
speeches on the floor of Congress commended DARPA on its use of the 2371 authority in the
Technology Reinvestment Project (TRP) and other programs. A number of TRP efforts resulted
in the development of prototypes and Congress encouraged these efforts by appropriating funds
knowing that they were used for that purpose. The TIA regulations have confused rather than
clarified how and why section 2371 should be used. The primary author of the regulations was
trying to reconcile OT regulations with the broader swath of assistance activities within DOD
many of which had little to do with R&D. The result was a compromise and in a number of
instances error.

 

The TIA regulations contain a number of erroneous or confusing statements. A few examples
will suffice. With respect to “cost share” (a term not used in the statute) TIA section 37.215 (b)
(1) says equal cost sharing to the maximum extent practicable is a statutory condition. It is not!
Just practicable is in the statute. The words maximum extent apply to avoidance of duplication
of effort. The regulations fail to capture the fact that the very first 2371 OT had no resource
sharing. Moreover, the Deputy Secretary of Defense testified before the Senate Armed Services
Committee and said DOD supported DARPA’s execution of that agreement. Thus DARPA’s
rationale for waiving resource sharing is entitled to deference. The TIA regulation mentions
cryptically that it is permissible to find cost sharing to be impracticable (37.215(c)).
Another issue relates to competition which the TIA section 37.400 requires to the maximum
extent practicable as a matter of policy. There is no statutory requirement. While competition is
often beneficial in an R&D context it can also be corrosive. The DARPA interim guidance from
1990 (mentioned above) discusses unsolicited proposals as well as appropriate interactions
with potential submitters of proposals.

 

The TIA regulations discuss reasons for considering projects as “assistance” which fall
outside the FGCA paradigm. While there are some exhortations to flexibility and innovation in
the regulations there are many compromises with business as usual. Aside from being outdated
and flawed the TIA regulations are simply not applicable to most 2371 OT projects. The TIA
regulations revert to the DOD Financial Management Manual in defining basic, applied and
advanced research. This is not a correct reading of the statute but follows FAR-based thinking.
In addition to RDT&E appropriations O&M appropriations have been found legally appropriate
for some 2371 projects. A basic fiscal law analysis needs to be applied to appropriation
availability and project purpose. Section 2371 covers a wide universe of basic, applied and
advanced research that can include demonstrations, prototyping, various forms of collaboration,
and drive new technologies, processes and concepts.

 

In short, most DOD contracted efforts involving basic, applied and advanced research and
development are suitable candidates for execution under section 2371. Rarely will the efforts
constitute “assistance” and be subject to TIA regulations. Rather they will be OT’s for purposes
other than procurement or assistance. Their main purpose of section 2371 OT’s is to advance
knowledge in science and technology and apply that knowledge to the needs of DOD operations
and warfighting capabilities without the encumbrance of extraneous restrictions and
unnecessary policies.

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