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February 24, 2020

GAO Ruling Expands DOD Experimental Purchasing Authority

Aerospace & Defense Law360, Government Contracts Law360, Public Policy Law360

In its recent decision in Air Tractor Inc., the US Government Accountability Office held that the US Department of Defense may, at its own discretion, begin a project with agreements under its prototyping other transaction, or OT, authority, and award later phases of the same project on a sole-source basis under its experimental purchasing authority.

In the decision, the GAO discussed distinctions between these avenues and gave a broad reading to the DOD's authority to award contracts for experimental work.1

Introduction

The past few years have seen a swell of interest in the DOD's ability to sidestep the Federal Acquisition Regulation and use more flexible OT authority to enter into contracts.2 Thus far, the majority of this interest has centered on the DOD's OT authority to enter into prototype projects, now codified at Title 10 of US Code Section 2371b.

One of the most powerful features of the DOD's prototype OT authority is that the DOD may award a sole source follow-on production contract for a successful prototype. Congress included some limitations on this authority to award sole source follow-on production contracts at Title 10 of US Code Section 2371b(f).

For example, in its decision in Oracle America Inc., the GAO confirmed that the DOD must comply with all notice and other specific preconditions at the prototyping stage in order to award a sole source follow-on production contract.3

However, prototype OT authority is not the DOD's only authority to award sole-source contracts. The Competition in Contracting Act, or CICA, itself allows for sole-source awards in certain circumstances.

In DRS Sustainment Systems, the GAO held that the DOD need not comply with Title 10 of US Code Section 2371b(f) to award a sole-source production contract where the DOD invokes one of the CICA's exceptions to separately justify the sole source award.4

In addition, under Title 10 of US Code Section 2373, the DOD has authority to make sole-source purchases for items it "considers necessary for experimental or test purposes in the development of the best supplies that are needed for the national defense."

In Air Tractor,5 the GAO held that the DOD properly relied on its experimental purchasing authority under Title 10 of US Code. Section 2373 to purchase a set of full production light attack aircraft for use in experiments to determine the best use of such planes in combat support.

The GAO found that this purchase was acceptable because it met the requirements of Section 2373 alone, regardless of the US Air Force's initial use of its Section 2371b prototype OT authority to compare various candidate aircraft.

The GAO confirmed that while it will exercise jurisdiction to ensure agency compliance with various statutory authorities to award nonprocurement contracts, the GAO will not impose requirements beyond those stated in the statutes. In upholding the Air Force's acquisition strategy, the Air Tractor decision provides valuable insight as to the broad scope of Section 2373 experimental purchasing authority.

The Air Tractor Protest

The Air Tractor protest arose from the Air Force's light attack experimentation program, described by the GAO as "the most recent purchase of light attack aircraft by the Air Force to address the agency's need for weapon systems to meet counter-violent extremist operations requirements."6

In the first two phases of the program, the Air Force relied on its Section 2371b prototype OT authority to conduct market research and experimentation. At the end of Phase I, the Air Force chose two vendors to participate in Phase II, but Phase II was ultimately cut short following a crash during one of the experiments.

For Phase III, the Air Force decided to forego competitive procurement or further use of its prototype OT authority, and instead invoked Title 10 of US Code Section 2373 to purchase several (one to three) aircraft from one of the Phase II vendors.

The DOD's Section 2373 authority to engage in procurement for experimental purposes provides as follows, allowing the DOD to purchase small amounts of supplies for experimental purposes without undertaking the competitive requirements of procurement contracting:

Procurement for Experimental Purposes

Authority. The Secretary of Defense and the secretaries of the military departments may each buy ordnance, signal, chemical activity, transportation, energy, medical, space-flight, telecommunications, and aeronautical supplies, including parts and accessories, and designs thereof, that the Secretary of Defense or the secretary concerned considers necessary for experimental or test purposes in the development of the best supplies that are needed for the national defense.

Procedures. Purchases under this section may be made inside or outside the US and by contract or otherwise. Chapter 137 of this title applies only when such purchases are made in quantities greater than necessary for experimentation, technical evaluation, assessment of operational utility, or safety or to provide a residual operational capability.7

To support its use of this authority, the Air Force issued a determination and findings that (1) the aircraft to be purchased qualified as items of "aeronautical supply [that were] necessary to continue [light] attack aircraft experimentation," and (2) the DOD was purchasing only the quantity needed for experimentation.8

Air Tractor protested, arguing that (1) the Air Force was improperly evading the Section 2371b(f) requirements for follow-on sole source production contracts, and (2) the Air Force's planned acquisition did not qualify for Section 2373 experimental purchasing authority.

The GAO exercised jurisdiction, but rejected both arguments and upheld the Air Force's use of Section 2373.

The GAO's Decision

Jurisdiction

The GAO first addressed jurisdiction, reasoning that because the Air Force intended to award a contract under Section 2373, the GAO had jurisdiction to confirm the Air Force's compliance with Section 2373. The GAO's decision reveals (at footnote 2) considerable uncertainty as to whether Section 2373 qualifies as an OT authority, and whether an agency might use Section 2373 to enter into something other than a contract that would fall outside of GAO jurisdiction:

We note that, had the agency used its authority under 10 U.S.C. Section 2373 to acquire items via a non-contractual instrument, such a transaction may have fallen outside of our jurisdiction.

While it is not obvious how an agency could buy supplies without forming some type of legally binding contract along the way, the issue was not dispositive in this case because the record made clear the Air Force intended to award an "Other Transaction type contract under the authority of Title 10 of US Code Section 2373."

Sidestepping Section 2371b

Moving to the merits, the GAO rejected Air Tractor's argument that the Air Force was improperly sidestepping the statutory requirements for sole source follow-on production contracting enumerated in the DOD's prototype OT authority at Section 2371b(f).

The GAO technically dismissed this argument as untimely, but went on to explain that even where the DOD uses its Section 2371b prototype OT authority during the initial phases of an acquisition strategy, there is nothing in the statutes that prohibits the DOD from later invoking Section 2373 to justify a different purchase for a later experimental phase:

Nothing in the language of 10 USC Section 2371b limits an agency from using another statute to purchase an item if the purchase is consistent with that separate statutory authority. In addition, nothing in the language of 10 U.S.C. Section 2373 limits the agency's use of that statute based on its prior usage of 10 U.S.C. Section 2371b in a previous procurement. And, while 10 U.S.C. Section 2371b contains requirements that must be met before a follow-on production contract can be awarded pursuant to 10 U.S.C. Section 2371b, it does not proscribe agencies from using different statutory bases to enter into contracts for other purposes, such as the agency's intended experimentation here. Nor will we read such a limitation into the statute by adopting an overly broad interpretation of the statute, e.g., by construing the term "follow-on production contract" to apply even when the agency relies on a statutory authority other than 10 U.S.C. Section 2371b.

Invoking Section 2373

Air Tractor raised several arguments that the Air Force's sole source purchase of several aircraft could not be justified under Section 2373, all of which the GAO rejected in deference to the Air Force determination and findings.

Air Tractor argued that the Air Force could not rely on Section 2373 because (1) the aircraft being purchased were not experimental, (2) the solicitation did not describe experimental activities, and (3) the solicitation required extensive production efforts.

The GAO disagreed, stating that nonexperimental equipment could be properly purchased to enable an experiment, and that the relevant inquiry was not whether the contractor would experiment during performance, but whether the Air Force itself would use the purchased supplies for experimental purposes.

The GAO accepted the Air Force's analogy of the purchase of these aircraft to the purchase of test tubes:

While the solicitation contains production task items, and does not contain a detailed exposition of the experimentation to be conducted, we are not persuaded that this means the aircraft being purchased will not be used for experimentation. As the agency notes, it is the Air Force ... that will be conducting the experimentation, so there is no need for the solicitation to contain such detail, "much like a contract for test tubes would not impose on the test tube manufacturer the task of conducting the experiments or include all of the details of the experiment to be conducted." In addition, we note that the experimentation involves more than just the aircraft; it also involves techniques and tactics (i.e., operational paradigms) that can be employed with the aircraft.

Further, the contemporaneous acquisition record supports the agency's position that the aircraft will be used for experimentation. In support of its determination in this regard, the Air Force executed a D&F that sets forth the agency's intention to ... to continue [light attack aircraft] experimentation....

The agency's contemporaneous acquisition planning documents provide further evidence of its experimentation plan, including the agency's concept of operations document and an acquisition strategy panel presentation.

While the protester argues that these documents are inadequate since they are not binding solicitation documents, we disagree. Instead, we find that these documents expound on the agency's experimentation plans, which are also referenced in the solicitation documents. Together, these documents set forth the agency's experimentation plan and its plan for the purchase of the ... aircraft and related contractor support.

Air Tractor further challenged the determination and findings for failure to (1) address competition and (2) explain why the purchased aircraft, compared to Air Tractor's own, were uniquely necessary for the Air Force's intended experimentation. The GAO rejected the notions that the Air Force had to provide for competition when using Section 2373, much less determine that the items acquired are available from only one available source:

As an initial matter, we find nothing in the statutory language requiring an agency to conduct a competition, or consider competitive acquisition methods, before using 10 U.S.C. Section 2373. In fact, the statute specifically exempts the agency from the competitive requirements found at chapter 137 of title 10 when the quantities purchased are limited as here.

Similarly, we decline to impose a requirement that to qualify as "necessary" the item being purchased for experimentation be purchased from the only available source. In our view, had the statute intended such a restrictive interpretation of the word "necessary," it would have expressly said so, e.g., by adopting requirements such as those found in Federal Acquisition Regulation Section 6.302-1.

Conclusion

Air Tractor serves as a pointed reminder that it is critical for agencies, contractors and their counsel to understand the particular statutory authority invoked in any given transaction. Just as no two OTs will necessarily include the same clauses, no two purchasing authorities will necessarily contain the same restrictions or requirements. To the extent practitioners find the DOD's Section 2371b prototype OT authority broad, they may find it outright restrictive compared to the experimental purchasing authority of Section 2373.

  1. Air Tractor Inc., B-418244, B-418244.2 (Feb. 10, 2020).

  2. For more information about Other Transactions, see Nathaniel E. Castellano, Other Transactions Are Government Contracts, And Why It Matters, 48 Pub. Cont. L.J. 485 (2019).

  3. Oracle America Inc., B-416061, May 31, 2018, 2018 CPD ¶ 180.

  4. DRS Sustainment Systems Inc., B- 417628, Sept., 9, 2019, 2019 CPD ¶ 316; see also Nathaniel E. Castellano, DOD May Clarify Sole-Source Production Contracting Rules, Law360 (Oct. 2, 2019).

  5. Air Tractor Inc., B-418244, B-418244.2 (Feb. 10, 2020).

  6. Id.

  7. 10 U.S.C. § 2373.

  8. Air Tractor Inc., B-418244, B-418244.2 (Feb. 10, 2020). The GAO stated in a footnote that if the Air Force expanded its purchase under the agreement "beyond the quantity {of aircraft} necessary for experimentation, the protester may challenge such an action at that time." Id. at footnote 7.

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