News
June 28, 2018

Other Transactions Authority (OTA): Protests and Disputes

Advisory

Ready or not—Federal agencies are increasingly utilizing Other Transactions Authority (OTA) to craft agreements that are not subject to traditional procurement laws and therefore should, in theory, allow the Government greater access to innovative solutions. While the goal of OTA procedures may be to avoid bottlenecks inherent in procurement under the Federal Acquisition Regulations (FAR), in the end they may result in valuable contracts with the government. As with any such contracts, it is inevitable that disputes will arise during their formation and administration.

While there is very little precedent relating to protests of OTA awards or claims arising under OTA-awarded contracts, there are some fundamental principles and analogous decisions that suggest how this early history of OTA protests and claims may unfold. This article attempts to portray the current landscape for protests of OTA awards and contract claims arising during performance of an OTA agreement. But, first, a bit of context:

A. OTA Generally

Executive agencies derive authority to enter into traditional procurement contracts, grants, and cooperative agreements from Congress. 1 "OTA" is a rubric describing a set of statutes that explicitly grant certain agencies the authority to enter into agreements other than procurement contracts, grants, and cooperative agreements. Over the past roughly 60 years, Congress has granted varying degrees of OTA to various agencies, including NASA and the Department of Defense (DoD).2

In theory, freedom from the burdens of traditional procurement laws and procedures should allow agencies to craft creative, customized agreements without the requirements and compliance burdens that can scare groundbreaking commercial companies away from the government contracting market. Of great interest to commercial companies, OTA awards are exempt from the Bayh-Dole Act and its associated patent and data rights regulations, allowing parties to an OTA agreement great flexibility in negotiating protection of intellectual property rights. As innovation is increasingly driven in the commercial sector by companies that are not reliant on federal funding, agencies are turning to OTA in order to attract companies that would not otherwise consider pursuing a traditional procurement opportunity.

While OTA is not new, it has grown quite a bit in recent years, due in part to DoD's Silicon Valley outpost, The Defense Innovation Unit (Experimental) (DIUx). DoD's OTA was originally limited to research,3 and companies that received an OTA award were generally exempted from traditional procurement laws, thus allowing DoD to attract a new set of contractors, such as universities and research institutions, that did not have established capabilities to comply with the requirements of traditional procurement laws.

Due in part to the difficulty of converting OTA agreements for research into production contracts, Congress facilitated that process by augmenting DoD's existing authority to enter into "prototype" OTA agreements.4 In the 2016 NDAA, Congress made DoD's "prototype" OTA authority permanent, and added a new tool. Under the new rules, if a prototype OTA agreement is awarded using competitive means, DoD may also issue a follow-on production contract to the same firm without the use of further competitive procedures.5

Signaling its intent that DoD broadly interpret and utilize this new authority, the Section 867 of the NDAA for FY2018 creates a priority for using prototype OTAs in "the execution of science and technology and prototyping programs."6 The accompanying Senate Report confirms that the "statutory authority for other transactions . . . is written in an intentionally broad manner," and admonished that DoD "should interpret these authorities accordingly, recognizing that it has authority to use OTAs with the most flexible possible interpretation . . . ."7

Use of OTA awards raises myriad legal and practical questions. Even determining what law applies can be an uncertain exercise.8 Moreover, the statutes providing OTA are (intentionally) broad and vague, and agencies have provided almost no regulatory guidance.9 In January 2017, DoD issued its guidance for OTA prototype projects.10 While this guide is a useful resource, it may raise more questions than it answers. This uncertainty and lack of guidance can be particularly problematic when drafting an agreement from a blank slate.

Contracting professionals do not often negotiate clauses relating to dispute resolution with the government. They simply rely on the standard, well-understood FAR clauses relating to disputes, changes, equitable adjustments, etc. Likewise, agencies and contractors are accustomed to the standard competitive procedures of FAR Parts 12 and 15. For better or worse, they understand that bid protests provide an opportunity for review, albeit limited and deferential, of the procurement process. They understand the FAR Disputes clause, and how it operates to preserve and resolve disagreements during performance. Once these standard clauses and procedures are stripped away, tough questions and uncertainty fill the void. Congress may be able to spare agencies and contractors from traditional procurement laws through a grant of OTA, but Congress cannot cure the reality that disputes will inevitably arise during the award and performance of OTA agreements.

As OTA awards become more prevalent, so too will disagreements among agencies and contractors regarding how OTA agreements are awarded and how disputes are to be resolved during performance. These questions have been wrestled with for decades in traditional procurement contexts, but remain largely unexplored in the context of OTA.

As an opening caveat: Note that this article is limited to "prime" OTA agreements formed with a federal executive agency. It does not attempt to describe the legal issues that will arise when so-called "master" OTA agreements are issued to a consortium of private entities. Disputes among consortia members are likely to be governed principally, if not entirely, by governing state law principles and the contract terms that bind the consortium members.

B. Protests of OTA Awards

At this point, we know that OTA protests are viable to a certain extent at the Government Accountability Office (GAO), but we are still waiting to see the extent to which, if at all, the Court of Federal Claims (COFC) and district courts will be willing to entertain challenges to OTA awards.

1. GAO

GAO's recent decision in Oracle America, Inc.11 confirms that GAO will not hesitate to scrutinize whether agencies have acted within their statutory authority when using OTA. GAO previously suggested that it was unwilling to wade into the merits of any agency OTA award determination (i.e. the terms of OTA "solicitations," or an agency's evaluation and selection of potential OTA awardees), but that it would address whether the Agency's choice of an OTA award, as opposed to a procurement contract, was "knowing and authorized."12 It was not clear, however, what specific issues might meet that narrow test. Oracle has established that GAO will delve into allegations of non-compliance with the underlying OTA enabling statute.

The Oracle decision was based on GAO's determination that the US Transportation Command (TRANSCOM)'s award of a sole source production OTA agreement exceeded TRANSCOM's statutory authority because TRANSCOM: (a) failed to properly provide for a follow on production contract in its initial "prototype OTA" instrument, and (b) issued its sole-source production order before the prototype was complete. Obviously, those are viable protest grounds in the context of protesting DoD's issuance of a follow on production contract after a prototype OTA award, but DoD and its OTA award recipients are unlikely to fall into those traps again. However, the Oracle decision suggests other challenges to DoD's use of its prototype OTA authority, for example whether such an award adhered to the competitive rules set out in the announcement, may likewise be viable, if timely raised by an interested party.

GAO had issued a handful of previous OTA decisions before Oracle, such as Rocketplane Kistler, B-310741, Jan. 28, 2008, 2008 CPD ¶ 22 and MorphoTrust USA, LLC, B-412711, May 16, 2016, 2016 CPD ¶ 133. These decisions, both denials, confirmed (although with different reasoning) the general authority of agencies (in the former case, NASA, in the latter, the TSA/Dept. of Homeland Security) to utilize OTA so long as the objective of the OTA offer conformed with those agencies' relevant statutory authorities. Oracle took that statute-based review one step further, and analyzed whether TRANSCOM's issuance of a follow on production contract was in compliance with the unique statutory requirements associated with DoD's prototype OTA. Because DoD's prototype OTA has more detailed statutory requirements than NASA or TSA's OTA, the Oracle decision went farther into the guts of an OTA procurement than any case beforehand, and made clear that where use of OTA is conditioned by statute (and perhaps regulation), GAO will not hesitate to scrutinize whether an agency is acting within its authority.

2. COFC

To date, we are not aware of any COFC decision addressing a protest of an OTA award. However, we doubt it will take long to break the silence.

On one hand, because an OTA award is not a "procurement," the protest of an OTA award does not fit neatly into the COFC's jurisdiction provided by 28 U.S.C. § 1491(b)(1). The Federal Circuit has expressly held that § 1491(b) protest jurisdiction extends only to a "procurement," and not to other agreements, such as cooperative agreements.13

On the other hand, § 1491(b) jurisdiction is typically regarded as being broader than the GAO's jurisdiction under CICA,14 covering "any alleged violation of statute or regulation in connection with a procurement or a proposed procurement." 15 It stands to reason that the COFC may interpret its §1491(b) jurisdiction at least as broadly as GAO's, allowing challenges alleging that an agency has improperly invoked OTA instead of using competitive procurement procedures. In other words, the challenge would be "in connection with a procurement" because OTA was purposefully used to improperly avoid issuing the procurement. Indeed, the Federal Circuit's analysis in Hymas suggests that it is appropriate to engage in an analysis, albeit a highly deferential analysis, of whether an Agency has appropriately invoked authority to enter into a non-procurement agreement.16

Moreover, assuming COFC's § 1491(b) bid protest jurisdiction does not provide for review of an agency's award decision once OTA is properly invoked, COFC may be willing to assess whether the Agency's OTA award decision breached an implied contract to consider offers fairly. This breach of implied contract theory falls under COFC's § 1491(a) jurisdiction, and is the basis under which COFC decided bid protests before Congress enacted § 1491(b)(1).17 Given the myriad circumstances under which an OTA award may be made, the circumstances of each case would have to be analyzed carefully to determine whether any implied in fact contract was actually formed that could bind the United States.18 But of course, even if an OTA award decision may be protested under § 1491(a), COFC has no authority to issue injunctive relief in such a case under § 1491(a), and therefore any successful protester would likely be limited to bid and proposal costs.19

In the absence of jurisdiction and/or access to meaningful relief at COFC, protesters may attempt to find equitable relief in district courts under the Administrative Procedure Act (APA).

3. District Courts

While it has been decades since district courts provided a viable protest forum for procurement awards under so-called Scanwell jurisdiction,20 the Administrative Disputes Resolution Act (ADRA), which provides COFC with exclusive bid protest jurisdiction under § 1491(b), addresses only procurement contracts. Because OTA agreements are not procurement contracts, it is conceivable that a district court may review final agency action in relation to an OTA award, exercising once again its Scanwell jurisdiction under the APA. Indeed, some Circuits, such as the Tenth, seem to have already embraced the notion that district court Scanwell jurisdiction survives for challenges to agency actions that do not fall within § 1491(b).21 Only time will tell whether this theory ultimately gains traction, but we won't be surprised if disappointed competitors for lucrative OTA awards try their luck in various district courts and Courts of Appeals throughout the country.

C. Claims Under OTA Agreements

Beyond the disputes that may arise among competitors during the formation of an OTA award, more traditional contracting disputes may and will arise during the performance or administration of OTA awards. The procurement community may not often praise it, but the combination of (a) form FAR disputes clauses that have been used and litigated for decades, and (b) the standard procedures of the Contract Disputes Act, impose a measure of consistency upon procurement contract disputes. Not so with OTA awards, which are not required to include most standard FAR clauses and are not subject to the CDA.

Without the FAR's standard disputes clause, which directs the familiar CDA procedures of seeking a Contracting Officer's final decision and then appealing to the Boards of Contract Appeals or COFC, parties to an OTA agreement must negotiate their own dispute resolution procedures. In other words, the procedures that will apply to any given OTA dispute will arise from the provisions of the specific OTA agreement in question.

Once the OTA agreement's dispute resolution procedures, if any, are exhausted, it seems clear that an OTA award recipient may sue the United States for money damages arising from a breach of the OTA agreement in the COFC pursuant to § 1491(a). While we are aware of only one COFC judge who has found jurisdiction over an OTA dispute, without discussion,22 the Federal Circuit has repeatedly explained that "[A]ny agreement can be a contract within the meaning of the Tucker Act, provided that it meets the requirements for a contract with the Government, specifically: mutual intent to contract including an offer and acceptance, consideration, and a Government representative who had actual authority to bind the Government."23

In this area, it will be critical to distinguish between aspects of "procurement" contract administration that are a function of standard FAR clauses and procurement statutes, and those more basic characteristics that are fundamental to any contractual agreement with the Federal Government. For example, while an OTA award may not include a standard Changes Clause, and therefore may not be subject to unilateral change orders by the Government, the rule that the United States may only be bound by an authorized official is not unique to procurement contracts and almost certainly applies to OTA awards. Thus, when negotiating and performing an OTA award, private parties should still be vigilant to ensure they are negotiating with an individual who has actual authority to bind the United States.

Other nuanced differences between standard CDA litigation and litigation under § 1491(a) may also arise. For example, while the Federal Circuit recently held that the CDA's six year statute of limitations is not jurisdictional and therefore may be equitably tolled, 24 the Supreme Court has classified the Tucker Act's six year statute of limitations as jurisdictional, and therefore not subject to equitable tolling.25 This is but one of many examples that lawyers working in this area will need to keep in mind.

D. Conclusion

One thing is certain—as agencies increasingly use OTA, protests and disputes relating to OTA awards will become more prevalent. While there is very little precedent on point to guarantee how this type of litigation will unfold, some predictions can be made based on case law from analogous contexts and fundamental principles relating to doing business with and litigating against the Federal government. Until this terrain becomes more certain, companies seeking to obtain and perform OTA awards, and their counsel, must be prepared to think creatively in order to preserve and protect their rights.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. See Federal Grant and Cooperative Agreement Act of 1977, 31 U.S.C. §§ 3601-05.

  2. Congress has also granted OTA to: Department of Energy (DOE), Department of Health and Human Services (HHS), Department of Homeland Security (DHS), Transportation Security Administration (TSA), and Department of Transportation (DOT).

  3. See 10 U.S.C. § 2371a.

  4. This authority was granted in installments. The OTA for prototype projects was first given to the Defense Advanced Research Projects Agency (DARPA) in 1993. Prototype OTA was expanded to all of DoD in 1996. DoD's prototype OTA authority was made permanent by Section 815 of the National Defense Authorization Act for Fiscal Year 2016.

  5. See 10 U.S.C. § 2371b.

  6. Pub. L. No. 115-91.

  7. S. Rep. 115-125.

  8. For useful analysis by retired DARPA General Counsel Richard Dunn, see Other Transaction Agreements: What Applies? 32 Nash & Cibinic Report NL ¶ 22 (May 2018).

  9. See 32 C.F.R. Part 3.

  10. See DoD Guide. Ralph Nash analyzed the DoD guide in, Using "Other Transactions To Obtain Prototypes: Broader Authority, 31 Nash & Cibinic Report NL ¶ 19 (Apr. 2017). Retired DARPA General Counsel Richard Dunn sharply criticized the DoD Guide in, Practitioner's Comment: DoD Guide for Other Transactions for Prototypes&–Fundamentally Flawed, 59 No. 3, Gov't Contractor ¶ 19 (Jan. 2017).

  11. B-416061, May 31, 2018, 2018 WL 2676823.

  12. See MorphoTrust USA, LLC, B-412711, May 16, 2016, 2016 CPD ¶ 133.

  13. Hymas v. United States, 810 F.3d 1312, 1317 (Fed. Cir. 2016) ("this court has found that {1491(b)} speaks 'exclusively' to procurement solicitations and contracts.'") (quoting Res. Conservation Grp., LLC v. United States, 597 F.3d 1238, 1245 (Fed. Cir. 2010).)

  14. at'l Air Cargo Grp., Inv. v. United States, 126 Fed. Cl. 281, 295 (2016) (finding that Tucker Act jurisdiction extends to IDIQ awardee challenging another offeror's award of the same IDIQ), with AAR Airlift Grp. Inc., B-414690 et al., Aug. 22, 2017, 2017 CPD ¶ 273 (awardee of IDIQ is not an interested party to challenge another offeror's award under the same IDIQ).

  15. 28 U.S.C. 1491(b)(1).

  16. See Hymas, 810 F.3d at 1318-29.

  17. See Res. Cons. Grp. v. United States, 597 F.3d 1238, 1242 (Fed. Cir. 2010) ("We conclude that implied-in-fact contract jurisdiction does survive as to claims where the new statute does not provide a remedy.")

  18. "An implied-in-fact contract requires findings of: 1) mutuality of intent to contract; 2) consideration; and, 3) lack of ambiguity in offer and acceptance." City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 1990). "When the United States is a party, a fourth requirement is added: the Government representative "whose conduct is relied upon must have actual authority to bind the government in contract." Id. While one Federal Circuit decision, read in isolation, could be read to suggest this protest theory only exists when the Government issues a formal RFP, Motorola, Inc. v. United States, 988 F.2d 113, 114 (Fed. Cir. 1993), the Motorola decision should not be read so broadly. See e.g., Commc'n Constr. Servs, Inc. v. United States, 116 Fed. Cl. 233, 260 & n.13 (2013) (dismissing DOJs overbroad reading of Motorola to require formal solicitation and bid submission); Steven L. Schooner & Nathaniel E. Castellano, Eyes on the Prize, Head in the Sand: Filling the Due Process Vacuum in Federally Administered Prize Contests, 24 Fed. Cir. B.J. 392, 418 & n.150 (2015) (explaining how implied-in-fact protest jurisdiction would be created between government and participants in federally-administered prize contests, despite absence of any formal Solicitation or bid submission).

  19. See e.g., Massie v. United States, 226 F.3d 1318, 1321 (Fed. Cir. 2000); see also FAS Support Servs., LLC v. United States, 93 Fed. Cl. 687, 694 (2010) ("the major difference between a protest brought under 28 U.S.C. 1491(b)(1) and one brought pursuant to an implied contract under 28 U.S.C. § 1491(a)(1) is the equitable relief which is available for the section 1491(b)(1) protest, but not for breach of implied contract. Only monetary relief is available for breach of the implied contract, comprising the costs incurred in preparing the proposal and bid.")

  20. 424 F.2d 859, 864 (D.C. Cir. 1970).

  21. See City of Albequerque, 379 F.3d 901, 906-12 (10th Cir. 2001) ({W}e conclude the Administrative Dispute Resolution Act only waives sovereign immunity for a suit in the Federal Court of Claims when the suit is brought by an actual or prospective bidder. Because the City in this case is not an actual or prospective bidder, its case does not fall within the ambit of the Administrative Dispute Resolution Act or the subject matter jurisdiction of the Court of Federal Claims. . . . In sum, we conclude the Administrative Dispute Resolution Act did not affect the district court's ability to hear cases challenging the government's contract procurement process so long as the case is brought by someone other than an actual or potential bidder. The district court retains subject matter jurisdiction over cases brought by non-bidders under 28 U.S.C. § 1331 and the waiver of sovereign immunity in the Administrative Procedure Act."); see also Jordan Hess, All's Well That Ends Well: Scanwell Jurisdiction In The Twenty-First Century, 46 Pub. Cont. L.J. 409 (2017).

  22. See Spectre Corp. v. United States, 132 Fed. Cl. 626 (2017) (Smith, J.).

  23. Trauma Serv. Grp., 104 F.3d 1321, 1326 (Fed. Cir. 1997); see also City of El Centro, 922 F.2d at 820.

  24. See Sikosrky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed. Cir. 2014).

  25. See John R. Sand. Co. v. United States, 552 U.S. 130 (2008).

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