Past Performance Ratings for Other Transaction Agreements? Congress Is Considering How Much of the FAR Should Apply to OTAs

One of the primary benefits of the federal government’s Other Transaction Authority (OTA) is that it avoids delays, regulatory burdens, and expenses associated with the Federal Acquisition Regulation (FAR) and agencies’ FAR supplements. But freedom from the FAR comes at a price. For example, the U.S. House of Representatives’ Armed Services Committee recently noted that small businesses performing OTAs for the Department of Defense (DoD) do not receive Contractor Performance Assessment Reports (CPARs), a FAR-based procedure, inhibiting their ability to build a record of positive past performance and compete for federal awards. To assess this issue, the Committee ordered a report from DoD and is considering subjecting OTAs to the CPAR process, a development all contractors interested in OTAs should follow.

OTAs Are Not Subject to the FAR

OTAs “are not FAR-based procurement contracts.” Other Transactions Guide, U.S. Dep’t of Def. (2018), at 3, https://www.dau.edu/pdfviewer?Guidebooks/Other-Transactions-(OT)-Guide.pdf. Instead, “[a]n ‘other transaction’ agreement is a special type of legal instrument used for various purposes by federal agencies that have been granted statutory authority to use ‘other transactions.’” MorphoTrust USA, LLC, B-412711, May 16, 2016, 2016 CPD ¶ 133 at 6. For example, DoD may award OTAs under 10 U.S.C. § 4021 (formerly § 2371) for research and 10 U.S.C. § 4022 (formerly § 2371b) for prototypes.

In practice, OTAs are “defined in the negative” as transactions “other than contracts, grants, or cooperative agreements that generally are not subject to federal laws and regulations applicable to procurement contracts,” including the FAR. Id. at 6-7. Courts will therefore not apply the FAR’s procedures or requirements to OTAs. See United States ex rel. Jackson v. Ventavia Rsch. Grp., LLC, No. 1:21-CV-00008, 2023 WL 2744394, at *11-*12 (E.D. Tex. Mar. 31, 2023) (dismissing False Claims Act allegations based on FAR 52.203-13(b), 42.202(e), and 52.232-32(m) because OTAs, “as a statutory matter, are not subject to [the] FAR”).

Congress Is Considering Applying FAR Procedures for Past Performance to OTAs

The House Armed Services Committee recently recognized one downside of exempting OTAs from the FAR’s relatively well-defined processes—there is currently no system in place to evaluate and track contractors’ performance of OTAs. This can hinder small businesses’ ability to rely on valuable skills and experience gained performing OTAs in later acquisitions:

The committee emphasizes the importance of maximizing practicable opportunities for small businesses in federal contracting and including contractor performance assessments as a key factor in the Department’s source selection decisions. Small businesses, nontraditional entities, and new entrants to Department of Defense contracting are agile, often ingenuitive, and can deliver new and innovative technologies quickly. The Department often leverages this category of contractor through Other Transaction Authority (OTA) awards which are not subject to Federal Acquisition Regulations (FAR). Exemption from FAR enables acceleration of capability fielding for the warfighter. However, the Department does not provide small businesses with a contractor performance assessment for OTA contracts, since the Contractor Performance Assessment Reporting System (CPARS) is reliant on FAR requirements for its assessments. A consequence for new entrants that successfully execute an OTA is not receiving a demonstrated performance assessment that is required for program of record contracts.

H. Rept. 118-125 (June 30, 2023), https://www.congress.gov/118/crpt/hrpt125/CRPT-118hrpt125.pdf (emphasis added).

The Committee then stated that it is “interested in applying performance assessments to OTA contractors without applying FAR requirements or impairing the agility of OTAs,” and so directed “the Under Secretary of Defense for Acquisition and Sustainment to submit a report to the House Committee on Armed Services and the Senate Committee on Armed Services not later than February 1, 2024, on the feasibility of applying performance assessments to OTAs” in accordance with the following parameters:

The report should include assessments of the following:

1. the feasibility of applying FAR regulations required for CPARS to OTAs;
2. the feasibility of applying FAR regulations required for CPARS to OTAs on an optional basis for the contractor;
3. the Department’s ability to provide its own performance assessments for OTAs without adding FAR requirements;
4. the impact on speed and agility of OTA contracts if a Department performance assessment was required or optional; and
5. the impact on the ability of OTA contractors without a CPARS score to compete for programs of record.

Id.

Policymakers May Consider Applying More Regulations to OTAs as Their Use Continues to Grow

Congress and the federal government are relying on OTAs more and more. The CHIPS and Science Act of 2022 (Public Law 117-167) established the Technology, Innovation and Partnerships directorate and authorized the National Science Foundation (NSF) to use OTAs to carry out its activities. See Summary of Federal OIG Findings and Recommendations Related to Other Transaction Agreements, Nat’l. Sci. Foundation Off. of Inspector Gen. (Mar. 3, 2023), available at https://oig.nsf.gov/sites/default/files/reports/2023-03/23-6-001-Other-Transaction-Agreements.pdf. “The Army’s OTA usage increased by 500 percent between fiscal years 2017 and 2021, and in that time, the Army awarded more than 1,700 OTAs valued at nearly $11 billion[.]” Al Abramson, Brig. Gen. USA (Ret.), How OTA consortia are delivering for defense acquisition and our warfighters (July 3, 2023), Army AL&T Magazine, available at https://asc.army.mil/web/news-accelerating-superiority/.

Contractors should be on the lookout for regulatory adjustments in response to growing pains from this increased reliance on OTAs. The House Armed Services Committee identified one problem (lack of CPARs) from the contractor’s perspective. But the recent NSF OIG report cited above also found that across “8 reports published by 4 federal OIGs over the past 5 years,” there were “19 findings concerning the management of OTAs,” including agencies (1) obligating funds without complete information and/or documentation, (2) not complying with applicable laws, regulations, or policies during the award period, such as validating that work was completed, cost sharing occurred, or incurred costs were allowable, and (3) not properly securing, maintaining, tracking, or reporting award information.

As the OTA environment continues to grow and become more complex, contractors should expect legislators and regulators to weigh whether to institute more rules, including those based on or resembling the requirements of the FAR. Venable will continue to update contractors on these issues.