Defense Agency Spending on IT Using Other Transaction Agreements, FY 2021-2023

Published: May 15, 2024

Federal Market AnalysisDEFENSEInformation TechnologyOther Transaction Agreements (OTAs)Research and DevelopmentSpending Trends

Fourth Estate spending on IT prototypes hit $1.6B in FY 2023.

Last week’s post took a look at the U.S. Army’s use of Other Transaction Agreements (OTAs) for information technology (IT) and non-IT requirements from fiscal 2021 to 2023. This week’s post continues our multi-week deep dive into the DOD’s use of OTAs for IT only. In this article, I’ll be analyzing the reported data for the Department of Defense’s Defense Agencies, known collectively as the Fourth Estate.

Total Fourth Estate IT OTA Spending, FY 2021-2023

Fourth Estate agencies have been using OTAs for IT prototypes for several years. Altogether, in fact, when the spending for all of the Defense Agencies is combined, the Fourth Estate spends the second most annually on IT OTAs.

The data shows that spending grew strongly from FY 2021 to 2022. Then, in FY 2023, it went flat. The growth was attributable to big jumps at three organizations: the Under Secretary for Research and Engineering (USD R&E) spent $618M more in FY 2022 than 2021, the Defense Information Systems Agency spent $129M more, and U.S. Special Operations Command spent $26M more.

IT OTA Spending by Army Organization, FY 2021-2023

The three-year cumulative spending data by organization shakes out as follows.

The Office of the Secretary of Defense is where the USD R&E mentioned above resides, so seeing OSD at the top of the list makes sense. Over the three years from FY 2021-2023, the USD R&E, on behalf of the Space Development Agency (SDA) spent more than $1.0B on the SDA Tranche 1 Tracking Layer ($501M) and the SDA Tranche 1 Transport Layer ($512M).

More surprising is the Washington Headquarters Service (WHS) in second place, because the WHS is not known for being an R&D organization that funds prototypes and prototypes are what OTAs are for.  It’s prototype effort focused on a capability called 5G Augmented Reality/Virtual Reality Training Prototype ($393M total).

In third place by spending is the Defense Advanced Research Projects Agency (DARPA). DARPA is a purely R&D-focused agency, so it is not surprising to see it here. The difference adding to the cumulative total of $530M spent is the sheer number of DARPA programs (208) leveraging OTAs vs. those at other agencies. By comparison, for example, the USD R&E has 100 programs on the books.

Spending by Technology Area, FY 2021-2023

Lastly, when it comes to the technologies Defense Agencies are spending prototype dollars on the data shakes out as follows:

The satellite communications (SATCOM) total makes sense based on the SDA programs noted above. The artificial intelligence/machine learning total is a bit more baffling, though, not because it is more than $1.0B, but because the spending peak of $434M occurred in FY 2021 and then declined annually to reach on $304M in FY 2023.

Spending on cloud computing is the real star here because that has been increasing, from $123M in FY 2021 to $401M in FY 2023. Total three-year spending on cloud OTAs has been particularly strong at the Defense Counterintelligence and Security Agency ($292M) and Defense Information Systems Agency ($132M).

Final Thoughts

Similar to the U.S. Army, Defense Agencies appear to have unlocked the process of using OTAs for IT prototypes. Industry should expect this to continue as the DOD investigates emerging technologies, but be aware that overall spending might be tempered a bit by the shifting of budgets from modernization and R&D efforts to operations and maintenance.