Trends in Defense Spending on Other Transaction Agreements

Approximately one month ago, the newly-minted Secretary of Defense, Pete Hegseth, issued a memorandum directing his department to “reframe our acquisition process from a hardware-centric to a software-centric approach.” The memo went on to state that the Department of Defense (DOD) must “reform its acquisition processes in order to acquire, deliver, and iterate on our weapon and business systems.” For this reason, the SECDEF directed DOD to use “Commercial Solutions Openings (CSOs) and Other Transactions (OTAs) as the default solicitation and award approaches for acquiring capabilities under the Software Acquisition Pathway.” Importantly, the new directive “applies to any software pathway program in the planning phase prior to execution,” meaning new starts will announce “competitions” for their efforts via industry consortia.

Industry is likely to see an increase in the number of CSO and OTA announcements once the Congress passes a Fiscal 2026 budget, since the recent Continuing Resolution set limits on new starts for FY 2025. This is unless those new efforts are already in flight and have budget dollars allotted to them, in which case they could appear in this fiscal year.

All of this got me wondering what the DOD has been spending on Information Technology OTAs over the last three years, as well as the types of technologies they have been leveraging. Today’s article provides an overview of those subjects.

Total DOD Spending on OTAs for IT Efforts, FY 2022-2024

First, let’s take a look at spending on IT OTAs vs. spending on OTAs awarded for non-IT requirements. The data shows that over the last three fiscal years the DOD spent significantly more on OTAs for non-IT requirements. The amount of spending has been rising each year, too.

Spending on IT OTAs shows a different upward trajectory. After topping out at $4.4B in FY 2023, the total for FY 2024 declined by $66M. Curiously, however, although spending declined slightly the number of IT OTA awards continued to climb, from 1,874 in FY 2022, and 1,937 in FY 2023, to 2400 in FY 2024. In other words, the DOD awarded a larger number of OTAs for less costly requirements. This could be a trend industry sees continuing into FY 2025 and beyond as the DOD turns more frequently to OTA awards for software and other IT requirements.

Defense IT-Related OTA Spending by Organization, FY 2022-2024

Breaking down the IT OTA spending data by the Military Departments and Fourth Estate shows the following patterns.

As it has since Congress granted DOD the revised OTA authority some years back, the U.S. Army continues to spend the most via these types of agreements. That said, it’s spending dipped significantly from FY 2023 to FY 2024. Spending by the U.S. Air Force and across Defense Agencies continued to grow, in contrast, while the U.S. Navy’s spending, which was always the least, languished in FY 2024.

Defense Spending on IT OTAs by Technology Area, FY 2024 Only

Federal Market Analysis has done its best to identify the types of technologies being used in OTA-related efforts. Our investigation reveals the following result for FY 2024 only.

This data shows that the DOD spent the most on solutions leveraging cloud computing for a variety of purposes, including system hosting and edge computing. Projects dealing with network or communications-related challenges followed, many of which concern the development of network architecture in space. Spending on artificial intelligence/machine learning and various sensor technologies followed.

Summing up, industry partners seeking IT work with the DOD may want to focus their support capabilities on the technologies outlined in the last chart above as they seem to be the areas of highest interest for the DOD. The data also shows that partners should look for IT OTA work primarily at the Army, Air Force, and Defense Agencies.