Trends in Defense Other Transaction Authority Technology Spending

Key Takeaways

• DOD spent $28.6B via OTA contracts over the three years from FY 2018 to 2020.
• OTA spending on IT in FY 2020 totaled $6B.
• Spending on Artificial Intelligence prototypes led DOD’s IT OTA spending in FY 2020.

Department of Defense spending on Information Technology (IT) through contracts awarded via Other Transaction Authority (OTA) has risen each year since Congress authorized the DOD to use OTA for IT. The available spending data shows that this trend continued into Fiscal Year (FY) 2020, although the rate of growth slowed compared to earlier years.

Before getting into IT specifically it is worth noting that the DOD spent $28.6B via OTA contracts over the three years from FY 2018 to 2020. Spending on IT accounted for 21% of that total, as is shown in the graphic below. The rest of DOD’s spending in FY 2020 covered other kinds of non-IT prototypes and COVID-19 vaccine development.

As for IT, after rising roughly $1.2B from FY 2018 to FY 2019, growth slowed to approximately $200M from FY 2019 to 2020.

What caused the slowdown in DOD’s IT OTA spending is not exactly clear, but the most likely culprit is the federal government’s response to the COVID-19 public health crisis. When work sites shut down and remote work became standard operating procedure engineering efforts also stopped, resulting in lower spending on many (not all) efforts. I’ve noted in earlier blog posts how the same trend shows up in the data for federal cloud spending (see here and here).

Concerning the type of technologies DOD is spending on, the data shows the following.

Spending on Artificial Intelligence/Machine Learning (AI/ML) prototypes far outpaced other technology areas, but even this area took a hit in FY 2020. After OTA spending on AI/ML reached a high of $813M in FY 2019, it totaled $535M in FY 2020. FY 2019 to 2020 spending on cloud (from $383M to $316M) and C5ISR solutions (from $451M to $314M) also dropped, although these are the only major technology areas that saw such a decline. Spending over that same period on big data/advanced analytics rose strongly from $128M to $412M. Cybersecurity solutions spending also rose from $179M to $282M, as did spending on unmanned systems (from $107M to $224M) and software/system development (from $111M to $210M).

Each fiscal year has also seen the addition of new projects covering new technology areas. In FY 2019, for example, Defense customers initiated IT prototype projects dealing with Space, Health IT, the Internet of Things, and Quantum Computing. New areas of development for DOD in FY 2020 included Blockchain ($4M spent) and 5G Communications ($3M spent).

Growth in certain areas of DOD’s OTA IT spending shows that despite experiencing some challenges in FY 2020, the department remains determined to test cutting-edge commercial technologies and integrate them into military operations. Positioning to bid on OTA contracts remains, therefore, an important strategy for industry partners.