If this article had a subtitle it might be something like “How did OTs get off track when they were on course to be the core of an alternative to the ponderous traditional acquisition system that makes fielding new capabilities cost too much and take too long.” But that would be too long for a subtitle so I rejected it.
A number of years ago I was invited to lecture on Other Transactions to Army War College senior fellows engaged in professional military education at a civilian institution. One of the examples of using OTs which I presented, not one that I recommended, was to structure the OT identically to a standard procurement contract except that the flow down provisions to non-traditional, commercial subcontractors would not impose burdensome FAR and DFARS clauses. One of the officers attending the lecture interjected that he had worked on the Future Combat Systems (FCS) program and that is exactly how the OT agreement was structured. More recently what the officer told me about FCS has been confirmed both by a senior civilian government official as well as a retired Admiral who worked on the industry side of the program.
The FCS program started as joint DARPA-Army program using OT contracting. In 2003 it transitioned to full Army management as a major acquisition program. It was in fact the Army’s largest acquisition program of record. Boeing was brought in as the lead system integrator and the Army-Boeing OT agreement was negotiated to look like a procurement contract.
FCS Misinformation. The FCS myth, perhaps more accurately calumny was brought home to me in 2008. I sat in the Office of the Director, Defense Procurement and Acquisition Policy and heard him vehemently exclaim that the three most wasteful acquisition programs in the Department’s history were OT programs. He rattled off the name of three programs. His statement was remarkable both for its vehemence and its inaccuracy. Two of the three programs he mentioned were standard FAR-system programs conducted under DOD’s rules for major acquisition programs of record. The third was FCS. I found it remarkable that the director was unable to name three major programs conducted as OTs; and, that he would misstate facts just to defame OTs which is what it seemed to me he was doing.
The FCS was a troubled program in several respects. It was both huge and complex. Ultimately it stressed the Army’s management capabilities. The program was additionally burdened because its lead system integrator, Boeing, was then the poster-child of bad defense ethics. A company official engaged in employment negotiations with a senior Air Force official who had responsibility for overseeing the negotiation of a major contract with Boeing.
In 2005 the Senate Armed Services Committee held hearings on the FCS program. Minor as far as the program’s troubles were concerned but important for the future of OTs was the testimony of two witnesses from so-called public interest groups. Each testified that the OT agreement under which FCS operated put the program at risk since as an OT it lacked the many “protections” of a procurement contract. No testimony from witnesses familiar with FCS countered their testimony. A witness from the Government Accountability Office who testified made no mention of the FCS OT agreement as contributing to the program’s problems.
Eventually committee chairman Senator McCain prevailed upon the Army to reform the FCS program under a procurement contract. This constituted a surrender to a business as usual mentality but did nothing to solve the program’s troubles since they were unrelated to the form of the contract. In 2009 the program was cancelled with the government incurring substantial termination liability.
The negative shadow the FCS controversy cast over OTs continues to this day. Sometimes it is merely a distant backdrop causing unease. At other times it is expressly mentioned. Just recently a magazine article asserted that the Army was wary of using OTs. It quoted a former government official, now heading an industry lobbying group, saying that Army fears were “justified” in light of its FCS experience.
Unease or fear about OTs seems to have contributed to senior procurement officials purposely remaining uninformed about OT contracting. The 2017 Other Transactions for Prototypes Guide was issued by a Director, Procurement and Acquisition Policy who told Senate Armed Services Committee staffers she had not included more forward leaning provisions in the Guide because she was not sufficiently knowledgeable about OTs to answer questions if asked. She only issued the Guide because the former Secretary of Defense insisted a revised Guide be issued while he was still in office; the USD (AT&L) rather than DPAP actually had authority to issue the Guide. Currently at least one service deputy assistant secretary (procurement) never has anything positive to say about OTs and immediately changes the subject when they are brought up.
The IDA Report. The Army commissioned the Institute for Defense Analyses to conduct a major study of management of the FCS program. The IDA review incorporated the use of Other Transactions contracting as part of its study. FCS was conducted under section 845, Public Law 103-160, as amended, predecessor statute to the current 10 U.S.C. 2371b. Interestingly the report not only commented on the risks and benefits of the prototype OT but projected the possibility that Congress might provide production OT authority as it in fact has done under subsection (f) of section 2371b.
According to the IDA study:
The Army-Boeing agreement, although based on Other Transactions Authority, incorporates numerous standard defense contracting clauses, including termination rights, dispute resolution, cost accounting, and auditing, that are commonly viewed as protecting the government’s interests. The Army and Boeing’s conservative approach in creating the agreement defuses concern that use of an agreement based on OT authority has created special risks for the FCS program…The FCS agreement provides for flexibility in instituting a “One-team” government-industry team structure, in the definition of program deliverables and program change management, and in allowing Boeing to use commercial subcontracts while protecting the government’s interests.
The report included a chart illustrating the many standard clauses incorporated into the agreement. The study noted that in its early phase the program had not been particularly effective in bringing non-traditional suppliers into the program. Most of the subcontracts had gone to traditional defense companies and contained all the standard FAR and DFARS formats and clauses. The report then discussed the potential use of OT authority for production:
Our assessment identifies several potential benefits of using the flexibility afforded by OT agreements for FCS production and associated support to the Army in sustaining and employing a complex system-of-systems. In addition, there may be a savings in time and administrative costs in continuing with an OT agreement into the production phase… [depending] on such factors as the eventual degree of involvement of non-traditional suppliers in the program, and whether the Army decides on a single agreement with Boeing for production or decides to break-out production work with separate agreements for major subcontractors.
Dispelling the shadow of FCS. The pall cast by the FCS controversy and the misinformation about it perpetuated by senior procurement officials continues to exist as the comments in the recent magazine article referred to above indicate. Moreover, even government and industry officials who consider themselves advocates of OTs are affected. Many OT advocates think they are a fine way to interest innovative, nontraditional companies in defense business. Others think they are useful only to form consortia. The potential of OTs as a niche authority is appreciated. Their potential to constitute the core of an alternative acquisition system is missed.
OTs are available to engage in basic, applied and advanced research and development; conduct prototype projects; and, to transition successful prototypes to production. Thus they can be an alternative to the slow and costly traditional system. If exercised by a rapid acquisition and fielding agency they could field new capabilities in months or a few years rather than decades as under the traditional or “deliberate” system. They can be used to engage in collaborations with private industry in developments that are important to DOD in domains such as space, information systems, autonomous operations and many others.
It is time to cast off the shadow of FCS and the campaign of calumny and misinformation surrounding it. It is time to acknowledge and exploit the full potential of OTs!
written by Richard L. Dunn