Thoughts on The DIUx Commercial Solutions Opening Guidebook

At the very end of November, the Department of the Defense’s Defense Innovation Unit Experimental (DIUx) program released a document called the “Commercial Solutions Opening (CSO) How-to Guide.” The new CSO Guide outlines the DIUx’s approach to and justification for its “Other Transactions for Prototype Projects” initiative to identify and rapidly acquire game-changing commercial technologies for U.S. warfighters. If you work in the technology industry providing solutions to the U.S. government I highly recommend that you download a copy of the guide and read it.

Why read the CSO Guide? Three reasons come to mind:

• First, the DIUx represents a new way of doing business for the DoD that could have repercussions for other agencies, should they decide to adopt a similar approach.
• Second, the new DIUx could have a significant impact on how mid-to-large sized businesses approach DoD’s new method of spending research and development dollars (more on this below).
• Third, because the cost range of successfully offered prototypes can reach up to $250M or more. This is real money in tight fiscal times.

What’s in the CSO Guide?

Without going into exhaustive detail, the CSO Guide provides a detailed explanation of the statutory origins of the DIUx’s Other Transaction (OT) authority. It also explains the procedures for announcing and competing Defense R&D requirements through Broad Agency Announcements put out by the DIUx, and it explains how the process of awarding follow-on contracts for prototypes works.

The funding available for DIUx contract awards comes from the DoD’s yearly Research, Development, Test, and Evaluation budget. The catch is that this funding is only available to non-traditional contractors. That’s right, if your business or any of its units has done development work for the DoD within the last year valued at $50M or above, your company is not eligible to participate in DIUx contract competitions. Statute makes an exception for businesses that are primarily commercial product suppliers as these are generally considered to be non-traditional contractors.

Why is this important?

Assuming the DIUx survives into the new presidential administration, and I see no reason why it should not, it is likely that the number of contract dollars flowing into OT contracts will continue to climb. As recounted in the CSO Guide, “the DIUx opened its CSO in June 2016, and by the end of FY16, three months later, [it had] awarded 12 OTs totaling ~ $36M.” Extrapolate this number evenly across an entire 12 month fiscal year (purely as a thought exercise) and it adds up to more than $140M. Then take into account the emphasis that DoD is placing on rapidly acquiring new technology and you can see the program’s potential.

Most importantly from a contracting standpoint, however, is the fact that none of this money will be available to traditional mid-to large sized government services vendors. That’s a big potential payday to miss out on. Small business vendors would obviously fare better given the statutory guidelines mentioned above.

With the program’s statutory limitations in mind, the DIUx provides a potential opportunity for large government contractors to spin off small independent commercial businesses focused on emerging technology development. This may be one way to capture some DIUx business if a company does not fit the definition of a non-traditional contractor and could shake up the R&D side of industry in years to come.