Speed Contracting

 Commercial Solutions Opening (CSO) and Other Transaction Agreements (OTAs).

When Secretary of Defense Ash Carter started the Defense Innovation Unit Experimental (DIUx) in August 2015 in a bid to re-establish DOD's once robust ties to the technology innovation of Silicon Valley, DIUx needed to find a way to move "at the speed of business."

Silicon Valley considered the Department of Defense a bad customer, if it considered DOD at all. The federal government's normal contracting process, guided by the Federal Acquisition Regulation (FAR), could take six months to a year (and in some cases considerably longer).
Silicon Valley's tech companies expect to move from proposal to contract in a couple of months, if not weeks.

When Carter announced a refocused DIUx 2.0 in May 2017 under its new managing partner, U.S. Air Force fighter pilot-turned-entrepreneur Raj Shah, he also announced that he had requested $30 million to direct toward nontraditional companies with technologies--already commercially available or soon to be released--that could be used to meet military needs.
(Carter has since opened a DIUx office in Boston and a presence in Austin, Texas.)

DIUX, ACC-NEW JERSEY DEVELOP CSO

Seeking ways to get DOD up to Silicon Valley's "speed of business," DIUx, with help from the U.S. Army Contracting Command -- New Jersey (ACC-NJ), came up with the Commercial Solutions Opening (CSO). Under the authority of 10 U.S.C. 2371b, DIUx is interested in awarding funding agreements (agreements) to nontraditional and traditional defense contractors to carry out prototype projects that are 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 Department of Defense, or to improvement of platforms, systems, components, or materials in use by the armed forces. The information provided in this Commercial Solutions Opening (CSO) is intended to ensure that to the maximum extent practicable, competitive procedures are used when entering into agreements to carry out these prototype projects.

In contracting talk, a CSO is a solicitation instrument allowing for the award of other transaction agreements (OTAs) that DIUx has used to award $36 million in contracts so far.
Using a CSO, the time from when a Silicon Valley entrepreneur with a promising company or technology first responds to a DIUx proposal to when a contract is signed has averaged 59 days, said Lauren Schmidt in an October interview with Army AL&T. Schmidt is pathways director for DIUx and a former special assistant to the principal deputy assistant secretary of the Army for acquisition, logistics and technology.
The fastest contact-to-contract was 31 days, Schmidt said.

The National Defense Authorization Act for Fiscal Year 2017, signed in November 2015 by President Obama, encouraged broader, more effective use of other transaction agreements (OTAs). In late November 2017, DIUx released a guide on CSOs and OTAs to enable other federal government organizations to set up their own innovative contracting vehicles.

"Our goal from DIUx is that more organizations in DOD can use this type of authority and design particular processes that meet their particular needs," Schmidt said. "It doesn't have to be exactly the way that we did the CSO.
There's lots of ways you can design a process so it meets the needs of your particular organization."

STRAIGHTFORWARD PROCESS

The CSO process is fairly simple, Schmidt explained. First, DIUx posts basic areas of interest on its website. These aren't detailed requirements, she said, but descriptions of a problem DIUx is trying to solve or a technology it's interested in.

 Interested companies submit a paper--fewer than five pages of text, or briefing charts--on the company or its technology, generally required within about two weeks.

"We want to have a low barrier of entry to companies that have not worked with DOD before, have not put together a government proposal before," Schmidt said. "So for this first step, they can just use information they probably already have on hand," instead of what can often be a costly and time-consuming proposal development process.

Next, DIUx, acting in a sort of venture capitalist role, selects companies to pitch their technologies to its DOD customers.

 (DIUx is quick to point out that it is not a venture capitalist.) Finally, if DIUx, ACC-NJ and the DOD customer think the company or technology has promise, the company is invited to submit a full proposal and negotiate an other transaction agreements.

Under a CSO, nearly all terms, including intellectual property, are negotiable.

"This whole process is fast, flexible and collaborative, and these three attributes are really critical to our ability to work with a lot of these nontraditional companies," Schmidt said. Most important, she said, is the collaboration. "Rather than the government issuing a detailed RFP [request for proposal] that the contractor has to respond to behind a firewall, in isolation and without discussions with the DOD customer, we actually burn down that firewall and design projects together after we issue an RFP."

DIUx's CSO is a pilot in the use of this type of contracting instrument, said Paul Milenkowic, ACC-NJ executive director. "We can move quicker in that we're not bogged down on a lot of procedural timeframes or steps that don't apply to other transaction agreements," he said. "So one benefit is that we can focus more on the desired outcome versus 'are we following the proper steps'."

FLEXIBILITY ALLOWS SPEED

The key to the Commercial Solutions Opening (CSO) speed is the flexibility that OTAs have as opposed to the FAR, Milenkowic said. "The FAR's going to define steps and timeframes--a lot of them are dictated by the regulation," he said.

"With that flexibility in the commercial solutions opening, we've created efficiencies in the process that we wouldn't otherwise have the ability to do under the FAR. … The FAR is more rules-oriented versus the other transaction authority."

But moving quickly doesn't mean sloppiness, Milenkowic emphasized. "We're not doing speed at the expense of quality." Ensuring quality requires two things, he said.

 "The first is people. … We have a mature staff here that we've developed over the past few years at ACC-New Jersey, and to me that's essential, as there's a higher level of engagement, communication and interaction required and one has to feel comfortable taking this additional responsibility on."

The second is a solid partnership. "The other thing that's helped us is the entire DIUx team has been highly aligned in that we're all on the same page, we understand the process that we laid out, and we understand the goals we're working toward. The team also has a high degree of commitment, and that includes the staff at DIUx, the staff here at ACC-New Jersey and our local legal support as well," he said.

Secretary of Defense Ash Carter is greeted by DIUx Managing Director Raj Shah as he arrives at Moffett Field, California, to deliver remarks on May 11, 2017. Carter "refocused" the experimental unit, with Shah at the helm, on finding ways for DOD to do business as quickly as the tech companies innovating and experimenting in DOD areas of interest.

ENHANCED COLLABORATION

CSOs provide an element of collaboration that's not possible under the FAR, Milenkowic said. "Essentially, the CSO has turned the process on its head by asking commercial firms to provide a solution to our problem statement, and this is typically not what the government does," he said. "We usually are dictating a solution, and here we are asking for one. And therefore we might have vastly different approaches to solving a problem."

CSOs also allow enhanced interaction between the stakeholder and the contractor. Once a contractor is selected--typically a company that hasn't done business with DOD or the government before--ACC-NJ and DIUx will help with the content of the proposal and the scope of the project. T he collaboration with the contractor, Milenkowic said, "allows us to adjust the project as we go along and as we conclude negotiations. We're getting more insight and input from the contractor in that process. So we like to think that in the end we're going to be optimizing that solution in a better manner."

CONCLUSION

In recent years, senior leaders in DOD and the congressional armed services committees have focused on reform as a way to speed up the acquisition process. Their efforts have resulted in new authorities and organizations designed to help DOD access the technology it requires, particularly from new commercial sources.

Founded as a way to reach into Silicon Valley's innovation culture, DIUx, with ACC-NJ's help, finds itself at the forefront of a trend in acquisition innovation. DIUx has pioneered ways to bring in nontraditional defense contractors to provide next-generation capabilities that would in the past have been out of DOD's reach. Among its early agreements are plans for unmanned sailboats to collect climate and other data; small unmanned aerial vehicles that provide Soldiers critical situational awareness in caves and buildings; and hands-free, ears-free, two-way removable communications devices hidden in the mouth that integrate wirelessly with radios and offer clear communications in high-noise environments.

The November release of DIUX's guidebook provides the means for organizations across the DOD acquisition enterprise to break up logjams in filling capability gaps, working in timelines of days and weeks instead of months and years.

The CSO process at a glance:

Open to nontraditional companies and traditional defense companies under certain conditions.

A streamlined application process requires only minimal corporate and technical information.

Flexibility to use best practices with relief from the Federal Acquisition Regulation.

No mandatory cost accounting standards or reporting requirements.

Certified cost and pricing data are not required.

Fast-track selection timelines with most awards within 30 calendar days of proposal submission.

Negotiable payment terms.

Non-dilutive capital.

Negotiable intellectual property rights.

Direct feedback from operators, customers and users within DOD to help product teams develop and hone product design and functionality.

Potential follow-on funding for promising technologies and sponsorship of user test cases for prototypes.

Successful products and technologies may be eligible for accelerated procurement by DOD.

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2017

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