I noticed the header on the Washington Post: Democracy Dies in Darkness. A recent story by Aaron Gregg made me wonder if democracy thrives better in the murk of misleading and false information. The story, Seeking the edge over geopolitical rivals, Pentagon exploits an obscure regulatory work around, apparently combines ignorance and bias to distort facts and paint a false picture of what is referred to as “so-called Other Transactions Authority…” I tend to be annoyed at the overuse of the term “fake news,” but this report makes me think there might be a place for it.
Gregg purports to know the purpose of Other Transactions Authority. According to him, it is to “prioritize small business or ‘nontraditional’ defense contractors.” I have never heard anyone use prioritize that way, but I get the drift of what he says. It is a common misunderstanding. It helps to know the original language of the two Other Transaction (OT) statutes, 10 U.S. Code 2371 and 10 U.S. Code 2371b. As originally enacted, subsection (a) of section 2371 read “may enter into…other transactions with any person, any agency or instrumentality of the United States, any unit of state or local government, any educational institution, and any other entity.” Any person…any other entity – comprehensive enough? There is nothing about traditional or non-traditional. When subsection (a) was amended for other reasons, leaving out these words, nothing in the legislative history suggests any change in meaning was intended. This language was also applicable to the original prototype authority, section 845, now codified as section 2371b. The original prototype authority was to be used for projects “directly relevant to weapons or weapons systems…” What companies might be expected to engage in such projects?
The confusion about non-traditional contractors came about as a result of an amendment in the National Defense Authorization Act of 2001. Yes, there was concern about attracting that part of the industrial base that did not do business with DOD. However, the legislative history made clear that the amendment had two purposes. One was to attract innovative firms that did not normally do research and prototyping business with DOD. The second prong was to increase the efficiency of defense contractors; not to exclude them. Why exclude defense firms from streamlined prototyping of weapons and weapons systems? The author, like so many others, apparently does not know the original language or the actual purpose of the 2001 amendment. This ignorance colors much of what is said in the rest of the piece.
Ignorance is not the only deficiency in this article. A reader is left with the impression they are trying to sensationalize and politicize OTs. DOD “under President Trump has made prolific use of such agreements…” It cites a Center for Strategic and International Studies (CSIS) report to support the view. The article says CSIS “found” DOD “use” of OTs has increased by about 350% up to $26.8B since President Trump took office. What CSIS found was that awards for OTs including all options reaching out years in the future had reached that figure. The article did not report that Rhys McCormick’s CSIS report also stated “…DOD will not ultimately exercise all the options in those recently signed OT awards nor necessarily obligate 100% of the value of those options that are exercised.” Is the Post’s bias showing? They fail to note that the CSIS report showed that the start of the recent upward trend in OT use, nearly a 200% increase, came in fiscal years 2015 to 2017 during President Obama’s administration. That figure is based on real obligations not a murky possibility if all options are exercised and all are fully funded sometime in the future. One other fact the article ignores: while $26.8B sounds like a large amount of money it is a tiny fraction of DOD’s acquisition budget.
Before getting down too far into the weeds of the Post’s misleading or clearly erroneous statements let me be clear: Outreach to innovative companies that do not typically do research and development or prototyping business with DOD (or other government agencies) is important. OTs facilitate their participation. However, their participation is a means to an end, not the overriding purpose of OTs. What is that overriding purpose? It is to create an alternative to the “costs too much, takes too long” traditional system. The traditional system which Gregg, the Project on Government Oversight, auditors and others apparently endorse is over-regulated, slow, and causes fear and dysfunction in the workforce. This has been noted by the Commission on Government Procurement (1972), the Packard Commission (1986), Defense Science Board (1994) and others. A DOD sponsored study by Coopers & Lybrand found DOD pays an 18% cost premium for just some of its unique but non-value added requirements (1994). A later GAO review found subsequent “acquisition reform” had not made a serious dent in the cost premium. More recently, the Defense Science Board (2009) found that speed was counter cultural to the traditional system and recommended an alternative. In 2018, congressional testimony from commissioners of the section 809 panel asserted that the traditional system is getting worse not better. When the Washington Post and others attack OTs, they are attacking the means to getting better capabilities to our fighting forces faster and more affordably than the traditional system. I hear those cries of need for so-called oversight and protection (protecting jobs for bureaucrats and checkers not doers). As former Senator Jeff Bingaman said, the defense acquisition system “spends millions to save thousands.”
The article records a quote about playing by the rules and ensuring full and open competition. First, OT contracting is played by the rules. Its rules are more familiar to commercial companies than the 2,010 pages of FAR that the Post apparently extols. Openness is one of the guiding principles of FAR (FAR 1.102 (b)(3)) but the FAR turns off most American companies which refuse to do business because of its non-value added burdens. As to competition, contracting offices and program managers do almost anything to avoid engaging in full FAR Part 15 competition. In some contracting offices, average procurement administrative lead time for a Part 15 action is in excess of 500 days. Those 500 days may involve delay in fielding capabilities that could win battles and save lives.
The Post quotes David Drabkin to the effect that OTs were not intended for “traditional manufacturers.” No system tracks awards to traditional manufacturers. The assertion that most OT awards go to traditional contractors is disingenuous and misleading. Currently, most OT funding goes through OT consortia. The dollars awarded go to a consortium management firm, which in most instances is a traditional contractor. These top level award dollars are tracked. The actual R&D or prototyping is done by consortium members. Most funding flows to the performing members. Depending on the consortium, most members may be non-traditional companies.
More than a year after the fact, the article ends with a rehash of the Oracle protest case, which involved a $950 million dollar award for cloud services to Rean Cloud (partnered with Amazon Web Services). Whether or not the GAO decision was correct, in that particular case, Army contracting did a sloppy job. They forgot to include one of only two mandatory clauses that were required to go into the agreement. What the article fails to mention is that since then, the DOD has prevailed in several OT protest cases.
Despite the OT bashing and purple words such as “loophole” and “obscure regulatory work around” the article does record some quotes that convey an accurate message:
“The streamlined OTA rapid prototyping acquisition process gets capability to the warfighter more quickly.”
“Prior to each OT award, every proposed agreement is documented and approved to ensure these conditions are met…”
“They…provide a…solution to what many regard as a broken acquisition system…”
“Contractors and the government alike don’t really like the [federal acquisition] regulation. It costs money to comply with all of it.”
OTA is an “incredibly important tool” for maintaining U.S. military competitiveness.