DOD Authorizes the Use of Other Transaction Authority for COVID-19 Response

Published: April 17, 2020

Federal Market AnalysisCoronavirus (COVID-19) PandemicDEFENSEHHSPolicy and LegislationProcurementResearch and Development

Defense Under Secretary Ellen Lord expands Other Transaction Authority use for pandemic response.

Key Takeaways

  • DOD has loosened regulations guiding the use of Other Transaction Agreements for COVID-19 response.
  • DOD and HHS R&D are likely to coordinate COVID-19-related OTA announcements in the coming weeks and months.
  • CARES Act funding provided $3.5B for HHS’ advanced research office to develop pandemic response solutions. The HHS advanced research office cooperated closely with DOD offices to award a COVID-19 test kit OTA.

Readers might have noticed a recent announcement by the Under Secretary of Defense for Acquisition and Sustainment (USD(A&S), Ellen Lord, authorizing the use of Other Transaction Authority (OTA) for prototype solutions to combat the COVID-19 crisis. According to the Under Secretary’s memo:

The Directors of Defense Agencies and Field Activities with contracting authority, Commanding Officers of Combatant Commands with contracting authority, and the Director of the Defense Innovation Unit (DIU), may award OTA prototype contracts and follow-on production contracts/agreements with values in excess of $100M.

Agreements/contracts awarded in excess of $500M in value may be approved by “the Senior Procurement Executives (SPE) of the Military Departments, the Director of the Defense Advanced Research Projects Agency (DARPA) and the Director of the Missile Defense Agency (MDA),” if required. Lord’s memo also notes that “the authority to approve OT prototype actions exceeding $100M but not exceeding $500M may be delegated from the SPE or the Director to such officials as the SPE or the Director sees fit.”

These steps may come as some surprise to those thinking of the DOD’s pandemic response only in terms of N-95 masks and ventilators, but loosening OTA authority could have several benefits. The first of these is speed. Should the DOD want to accelerate the development of new medical equipment, anti-viral vaccines, or other cutting-edge medical treatments, the award of OTAs could make that a reality much quicker than using traditional procurement channels.

Another benefit is attracting non-traditional contractors to offer emerging technology and/or medical solutions. These companies include especially those firms that are part of the Medical Technology Enterprises Consortium (MTEC), Medical CRBN Defense Consortium, and the Countering Weapons of Mass Destruction Consortium.

The use of OTAs for COVID-19 response is not as unexpected as one might think. Congress authorized it with the passage of the CARES Act back in March. Section 3301 of that legislation removed the existing cap on OTA awards during declared public health emergencies to allow the Secretary of Health and Human Services (HHS) to use OTAs. In addition, Section 13006 broadened the authority of DOD to employ the prototype contracting method for COVID-19 response.

The use of OTA by HHS in the past might provide some indication of the types of prototypes that could be funded in the future. In March 2020, the DOD cooperated with HHS’ Biomedical Advanced Research and Development Authority (BARDA) to develop a rapid COVID-19 diagnostic test. The company that received the $3.7M award, Cepheid, Inc., quickly optimized and validated the test, making it available for immediate use.

The key here is cooperation between the HHS and DOD. Joint Program Executive Office for Chemical, Biological, Radiological, and Nuclear Defense (JPEO-CBRND) teams worked with BARDA to get the COVID-19 test awarded. Industry should probably expect therefore that further cooperation between the departments will be forthcoming, particularly because BARDA received an appropriation of $3.5B in the CARES Act “for necessary expenses [related to the] manufacturing, production, and purchase, at the discretion of the Secretary [of HHS], of vaccines, therapeutics, diagnostics, and small molecule active pharmaceutical ingredients, including the development, translation, and demonstration at scale of innovations in manufacturing platforms.”

Under Secretary Lord’s authorization for DOD contracting authorities to make prototype awards for COVID-19 response likely signals a rush of potential OTA announcements in the weeks and months to come as DOD cooperates with public health authorities.

GovWin Principal Research Analyst Steven Mihalisko contributed to the information in this post.