Origins and Evolution of Other Transactions:  Part 2

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written by Richard L. Dunn        

“Costs too much, takes too long” – what is the problem? As pointed out in Part 1, the Federal government does not actually need contracting statutes to enter into and perform contracts. However, we have statues and people whose careers are intimately connected with them. Contracting officials, particularly those with long business as usual experience, may have little insight or understanding of contracting outside the highly regulated purchasing system governed by FAR. Some doubt the need for fundamental reform and many are poorly equipped to provide leadership in innovative forms of contracting not controlled by detailed regulations. On occasion, they convey inaccurate information about OTs to subordinates or others who listen.

Context for Other Transactions legislation. One of the most persistent erroneous notions about OTs is that their primary purpose is to entice non-traditional contractors, firms that seldom or never perform government R&D contracts, to do business with the government. This confuses means with ends. It helps to understand the motivation behind DOD’s OT legislation by understanding the context, the times, when the original authority was enacted.

A few key events provide the setting: the 1986 report of the President’s Blue Ribbon Commission on Defense Management (Packard Commission); the Institute for Defense Analyses review of progress on Packard Commission recommendations (1988); private sector spending on R&D surpassing government spending on R&D; the Soviet withdrawal from Afghanistan and opening of the Berlin Wall, both in 1989; and, the decline of defense spending and shrinking of the defense industrial base in light of the end of the Cold War.

Packard Commission – The Packard Commission found fundamental problems with the acquisition system. “These problems are deeply entrenched and have developed over several decades from an increasingly bureaucratic and overly regulated process. As a result, all too many of our weapons systems cost too much, take too long to develop, and by the time they are fielded incorporate obsolete technology.” The Commission recommended emulating commercial practices and outlined key characteristics of such a contracting system. They also recommended that there be more emphasis on prototyping (fly before you buy) in what may have been an unspoken reference to the classified Have Blue stealth program or other successful prototype projects.

Institute for Defense Analyses – the IDA review of the Packard report after two years, in discussing acquisition recommendations, asked “Why was not more accomplished?” Part of the answer was that “laws impede implementation.” Legal uncertainty and complexity breed an overly cautious mentality in the acquisition workforce. The working level person “takes a very cautious approach. Implementation of Packard Commission goals will take substantial change at the grass roots level and such change will require extensive education and support from senior leadership.”

Striking events such as those in Afghanistan and Berlin marked fundamental changes in the national security topography as the Cold War sputtered to an end followed by the collapse of the Soviet Union. The defense industrial base and national economy also rapidly evolved. The defense industry had initially become specialized based on its near monopoly of the most advanced technologies after World War II – jet propulsion, microelectronics, nuclear power, and so forth. By the 1980’s the defense industry was divided from the broader national industrial base, not by technology, but by its high overhead, unique business practices imposed on it by government policies and regulations. As defense budgets declined, companies consolidated or went out of business. They were unable to diversify into the commercial sector because the burden of their government-compliant overhead made them non-competitive in that sector. Over the course of ten years, beginning in the early 1990’s, forty-four large defense contractors consolidated into just six companies.

Thus, at the end of the 1980’s, the national security topography was moving from a bi-polar world into a new complex environment. Unanticipated threats might emerge that required rapid responses with new capabilities. However, as the Packard Commission pointed out, defense systems “take too long” to develop. The defense budget was in decline but defense systems “cost too much.” This was the overriding challenge of the times. The increasing private sector spending on R&D and advances in technology in that sector were important but the imperative was fixing “costs too much, takes too long.”

Proposing and enacting OT legislation. I started my new job as DARPA General Counsel at the end of 1987. It quickly became apparent that the DOD General Counsel’s office had (1) an overly restrictive view of the Department’s R&D contracting authority, and (2) was opposed to obtaining new or expanded authority. Writing draft legislation to vest DARPA with authority to enter into cooperative agreements and other flexible agreements was personally satisfying but there was no immediate prospect that it would be enacted.

The House Appropriations Committee of Congress requested the Under Secretary of Defense (Acquisition), in conjunction with the Director of Defense Research and Engineering, and Director of DARPA to provide a report on an alternative management system for DARPA. The committee’s primary interest was to make sure DARPA could attract and compensate the best and brightest scientists and engineers. Details of the compensation study were contracted out. However, because of my experience in personnel and labor law I was tasked with overseeing the project. Other than the compensation study which was an appendix, I wrote the bulk of the report. Thus, the executive summary included this description of one recommendation in the report: “Legal authority to pursue DARPA technology objectives through innovative agreements and non-traditional means…”

Meanwhile, a group of retired general officers and former senior government officials sent a letter to DOD pointing out the slowness of DOD’s acquisition process, its failure to replicate the successes of an earlier era, harness the best and brightest and other deficiencies. This was the Schriever group headed by its leading light Bernard A. Schriever, best known as the father of DOD’s space and ICBM programs. He had written an extensive report for submission to the Packard Commission after consulting numerous experts with defense acquisition experience more recent than his own. The first paragraph of his report stated: “The conclusive evidence that a problem exists is: – the acquisition cycle has more than doubled since the 50’s; – costs have greatly increased and qualitative superiority is being threatened.”

The Schriever group letter bounced around the Pentagon and was eventually sent to DARPA for reply. It ended up on my desk. My reply said something like, can’t do exactly what you want to accomplish, but additional legislation might get us close! That started the dialogue. Bennie Schriever was a Cold War hero; he could call up Sam Nunn, chairman of the Senate Armed Services Committee and get a meeting. He did. He outlined his concerns and said DARPA was prepared to act. The DARPA director had a meeting with Nunn a week later where Schriever’s concerns were shared. The DARPA director said he was aware and concurred. So, in 1988 the legislative process began but too late for that year’s National Defense Authorization Act. During this time the report on an alternative management system for DARPA, including the recommendation for flexible agreements authority, was completed and released. In a technical sense, the DOD process supported seeking flexible agreement authority for DARPA.

Without going through all the details, there were some bumps along the way. “Not withstanding any other law” did not fly. But other transactions when explained in the NASA context did. Push back on the House side resulted in a throw away provision still in 10 U.S.C. 2371 today, namely no duplication of effort with other projects to the maximum extent practicable. The “feasible or appropriate” proviso versus standard instruments did not seem a problem to me given the R&D context of the legislation. Procurement lawyers embedded in business as usual that cannot distinguish R&D from buying goods and services would later stumble on this. Some still do!

From the very beginning the initial R&D authority was, in my view, the first in a series of steps leading to an alternative acquisition system. The alternative would eventually encompass R&D, prototyping, production and sustainment. However, R&D authority confined to DARPA did not seem much of a threat to anyone. The idea was that at each step along the way the new approach would prove its utility by performance.

On November 29, 1989 section 251 of Public Law 101-189, the National Defense Authorization Act of 1990 became law. It authorized DARPA to enter into cooperative agreements and transactions other than standard contracts and grants to accomplish advanced research projects. Amendments over the years in addition to expanding the authority beyond DARPA and making it permanent have changed some of the language with no indication of intent to change the original meaning. The first DARPA OT agreement with Gazelle Microcircuits was executed in April 1990. Amendments to the statute as well as early uses of OT authority by DARPA and the reaction of DOD and Congress to those uses will be discussed in Part 3.


***For more information consider attending, The Need for Speed: Rapid Fielding using Other Transactions, September 26-27, 2018 in Arlington VA.

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