OT Consortia: Vulnerable to Protest?

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The Defense Ordnance Technology Consortium (DOTC) dating back nearly twenty years created a model of an Other Transactions consortium that has been replicated more than a two dozen times. Many people wrongly associate Other Transactions (OTs) only with this consortium model. This article addresses both (1) whether the DOTC model is properly called a consortium; and, (2) more critically, whether it is structured in a way that makes it vulnerable to a protest challenge, arguing that it is not really an OT but in reality is a procurement contract and should be solicited, awarded and performed in accordance with the procurement laws and regulations. Protest jurisdiction, as interpreted by GAO, is extremely limited with respect to non-procurement agreements such as OTs. GAO’s bid protest jurisdiction applies only to procurement contracts. GAO has held that OTs are not procurement contracts. Therefore, GAO generally dismisses OT protests, citing a lack of jurisdiction over non-procurement agreements. GAO will, however, review protests alleging that an agency is improperly using its other transaction authority, such as using an OT when a procurement contract is required to be used. 

The OT consortia under the DOTC-model, as practiced today, are a welcome advance over business as usual. They serve several purposes from moving money quickly on to contract, to attracting non-traditional performers, and constituting an outreach mechanism for program managers who may have limited market visibility. There are other virtues as well. Multi-party arrangements can be extremely useful but in current practice (following the DOTC-model) they seem to have obscured other potential uses of OTs with individual companies and have profoundly failed to optimize collaborative multi-party arrangements. 

It might be best to refer to the common consortia-model as “so-called” consortia. Many of the OT consortia currently in operation can more accurately be termed multiple award, task order (MATO) contracts. MATO contracts became prominent in the 1990’s with the Federal Acquisition Streamlining Act (FASA), which resulted in changes to Federal Acquisition Regulation (FAR) Part 16.5. A preference was created for indefinite delivery/indefinite quantity (ID/IQ) contracts to be structured as multi-party arrangements. 

In 2008, I met the contracting officer at Picatinny Arsenal involved in creating DOTC. She was charged by Arsenal leadership with creating an OT consortium. She had never heard of OTs and was not sure what a consortium was. She had no knowledge of multi-party OT agreements pioneered by DARPA until I described them in the class she attended. Once given her mission, she had worked diligently over many months. The result was, as described above, something that looked very much like a MATO contract but administered on behalf of the government by a contractor. We currently call those contractors Consortium Management Firms (CMF) but they look very much like support service contractors under FAR, in DOD sometimes called SETA contractors.

In the current model, the government solicits and awards an ostensible OT to a CMF that does not engage in research and development or prototyping but helps to create and administer the MATO arrangement. In most cases, there is no agreement among the companies that perform research, but merely individual agreements with the CMF with payments from the company to CMF. The CMF also taxes the flow-through of money from the government to the performer.  These arrangements not only misuse or misconstrue the term consortium but miss out on the power of true consortia. 

The Merriam Webster definition of a consortium is: “an agreement, combination, or group (as of companies) formed to undertake an enterprise beyond the resources of any one member.”  The definition from a legal dictionary is “a group of separate businesses or businesspeople joining together and cooperating to complete a project, work together to perform a contract or conduct an on-going business.”  What is often missing today is the association, the working together of different businesses with a common goal. Typically, current consortia have a relationship that flows from government funder/contracting office, through the CMF, to an individual performer awarded funding pursuant to a competitive request for project proposals limited to consortium members. There is no incentive for “members” of the consortium to work together or any proviso that any individual company will ever receive funding. The structure is like a MATO contract, maximizing competition rather than collaboration. Does an arrangement like this really fit within the definition of a consortium?  There is a role for CMFs in many types of consortia, but they work for the consortium rather than the government.

Many of the early OT projects were multi-party arrangements where companies cooperated on proposing and executing the project, often co-funding the project with the government. The DARPA led Technology Reinvestment Project (TRP), during the course of two fiscal years in the early 1990’s, funded 194 dual-use projects involving multiple parties (without using the term consortia) with $760M, which leveraged approximately $1B in private resources. Today’s consortia devote little effort to leveraging private investment. An exception is the National Shipbuilding Research Program modeled on an early DARPA multi-party, joint funding arrangement. 

Consortia can be structured in a variety of ways. The Strategic Institute OT Guide (available for sale here) describes some of them. They can be vertically integrated, horizontally integrated, or a hybrid. Competitors can work together on problems that are common across the industry. Consortia called “research joint ventures” became so common in the 1980’s that Congress created a limited form of anti-trust protection for them under the National Cooperative Research and Production Act.  A wide variety of research joint ventures have registered under the Act. Consortia can serve as outreach mechanisms to effectuate broad scope competitions or to encourage collaborative approaches.  

The current consortia are convenient for government organizations that want to obligate dollars quickly; and, want to off-load the burden of administering the MATO contract with hundreds of “members.”  They are, however, not necessarily the most efficient and effective way to apply government funding to solve important problems and create needed capabilities. They present potential industry partners with a conundrum: which of the many consortia that address overlapping technologies should a company join. Recent studies have shown significant overlap among technologies addressed by various DOD consortia. Joining requires an investment of time and money with no guaranteed return. 

Back to the basic question and title of this article, protest vulnerability. Consider the current OT consortium model…the CMF, which is in privity with the government, does not engage in research, prototyping or co-funding such activities. Typically, there is no privity between the government and sub-recipients that perform the research or prototyping. As pointed out above, the basic relationship between the government contracting office and CMF is that of support services contractor, something not necessarily contemplated by the OT statutes and something FAR regulates. If this view is correct, current OT consortia and their sub-agreements are potentially vulnerable to protest under GAO’s view of its protest authority. Will it happen? While possible, it is highly unlikely to happen at the solicitation and award stage of the basic OT agreement with the CMF. The only “interested parties” under GAO regulations and precedent would be other companies interested in gaining CMF OT awards. Such a protest would foul the water, including that in which they want to swim. However, lurking in the background is a disappointed subrecipient prepared to bring the whole system down because of losing an internal consortium competition. It might happen. 

How can this situation be fixed? The structure an OT should take is part of the planning and strategy process for executing an OT. It should not be driven by the desire of officials of a contracting office to attract money from external sponsors to pass through their organization or to off-load work on a contractor (CMF). Rather, a government team should be chartered to begin the planning and problem-solving process. See Section II, paragraphs D. 1 to 3, DOD Other Transactions Guide (Nov. 2018). Intellectual capital, expertise, key resources, and private funding can be arrayed in ways unique to domains or problem sets. The structure of an OT should be an outcome of planning and strategy, not a mindless repetition of what has been done before.  One way to start is to study past success stories. Methods that were successful in the past (and all but forgotten today) can spur new thinking and new approaches. 

Replicating the same model again and again is hardly innovative. The possible vulnerability of the widely replicated OT consortia model points out two key deficiencies:

  1. Top DOD leadership does not understand the potential of Other Transactions and has not insisted its potential be exploited; and
  2. There is a serious deficiency in OT knowledge and education in the acquisition workforce that limits the exploitation of the potential of OTs to contribute to DOD’s mission.

 

written by Richard L. Dunn

 

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