Other Transactions - Role for Small Business

Are you into the design and development of cutting-edge technologies?

Paragraph one of the “Foreword” to the Other Transaction Guide for Prototype Projects (OTA Guide) states:

Congress has provided the Department of Defense (DOD) with a tremendously flexible acquisition tool that creates opportunities to spur innovation among defense contractors, attract companies with leading-edge technologies and adapt business practices to explore innovative technology rapidly. With the enactment of section 815 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016, Public Law 114-92,, Congress amended DOD's authority to carry out prototype projects using "other transactions" (OTs). OTs are now permanently codified in 10 U.S.C. §237lb (section 2371b), and offer a streamlined method for carrying out prototype projects and transitioning successes into follow-on production.

Paragraph 2 of “Foreword” to OTA Guide states:

Section 2371b, which appears in Appendix 1 of this guide, authorizes DOD to carry out transactions for prototype projects using a legal instrument other than a procurement contract, grant or cooperative agreement. The 2371b instrument is a legally binding agreement between DOD and the participant(s) of a transaction. OTs are defined in this Guide by mainly what the legal instrument is not. This construction gives DOD greater flexibility than otherwise possible or permitted under the statutes and regulations that apply to other legal instruments. OTs for prototype projects are acquisition instruments that generally are not subject to the Federal laws and regulations governing procurement contracts. As such, they are not required to comply with the Federal Acquisition Regulation (FAR), its supplements or most laws that apply to procurement contracts. This acquisition authority, when used appropriately, is a vital tool that will help the Department to lower barriers to attract non-traditional defense contractors and increase access to commercial solutions for defense requirements.

Page 3, paragraph C1.5.1 to OTA Guide states:

Nontraditional Defense Contractor: It is in the DOD’s interest to tap into the research and development being accomplished by nontraditional defense contractors and to pursue commercial solutions to defense requirements. One use of this authority is to attract nontraditional defense contractors that participate to a significant extent in the prototype project. These nontraditional defense contractors can be at the prime level, team members, subawardees, lower tier vendors or “intra-company” business units (provided the business unit makes a significant contribution to the prototype project).

Nontraditional Defense Contractors are: “an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the DOD for the procurement or transaction, any contract or subcontract for the DOD that is subject to full coverage under the cost accounting standards prescribed pursuant to section 1502 of title 41 and the regulations implementing such section.”

Most Entities will find they qualify as Non-traditional Defense Contractors, because:

  • (1) They are a small business exempt from CAS requirements.
  • (2) They exclusively perform contracts under commercial procedures.
  • (3) They perform exclusively under FFP contracts with adequate price competition.
  • (4) They perform less than $50M in CAS covered efforts during the preceding cost accounting period.

Other Transactions for Prototype are limited to those projects: “directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the DOD, or to improvement of platforms, systems, components or materials in use by the armed forces.”


  • (1) There is at least one nontraditional defense contractor or nonprofit research institution participating to a significant extent in the prototype project.
  • (2) All significant participants in the transaction other than the federal government are small businesses or nontraditional defense contractors.
  • (3) At least one third of the total cost of the prototype project is to be paid out of funds provided by sources other than the federal government.
  • (4) The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract, or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract.

You can obtain additional information on the topic of “Other Transactions” by visiting the Defense Pricing and Contracting website at

https://www.acq.osd.mil/dpap/cpic/cp/10USC2371bOTs.html, and from the OTA Guide located at https://www.acq.osd.mil/dpap/cpic/cp/docs/OTA_Guide%20(17%20Jan%202017)%20DPAP%20signature%20FINAL.pdf.










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