[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
OTHER TRANSACTION AUTHORITY: FLEXIBILITY AT THE EXPENSE OF
ACCOUNTABILITY?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON EMERGING
THREATS, CYBERSECURITY,
AND SCIENCE AND TECHNOLOGY
of the
COMMITTEE ON HOMELAND SECURITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 7, 2008
__________
Serial No. 110-92
__________
Printed for the use of the Committee on Homeland Security
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
__________
U.S. GOVERNMENT PRINTING OFFICE
44-511 PDF WASHINGTON DC: 2008
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COMMITTEE ON HOMELAND SECURITY
Bennie G. Thompson, Mississippi, Chairman
Loretta Sanchez, California Peter T. King, New York
Edward J. Markey, Massachusetts Lamar Smith, Texas
Norman D. Dicks, Washington Christopher Shays, Connecticut
Jane Harman, California Mark E. Souder, Indiana
Peter A. DeFazio, Oregon Tom Davis, Virginia
Nita M. Lowey, New York Daniel E. Lungren, California
Eleanor Holmes Norton, District of Mike Rogers, Alabama
Columbia David G. Reichert, Washington
Zoe Lofgren, California Michael T. McCaul, Texas
Sheila Jackson Lee, Texas Charles W. Dent, Pennsylvania
Donna M. Christensen, U.S. Virgin Ginny Brown-Waite, Florida
Islands Gus M. Bilirakis, Florida
Bob Etheridge, North Carolina David Davis, Tennessee
James R. Langevin, Rhode Island Paul C. Broun, Georgia
Henry Cuellar, Texas
Christopher P. Carney, Pennsylvania
Yvette D. Clarke, New York
Al Green, Texas
Ed Perlmutter, Colorado
Bill Pascrell, Jr., New Jersey
Jessica Herrera-Flanigan, Staff Director & General Counsel
Todd Gee, Chief Counsel
Michael Twinchek, Chief Clerk
Robert O'Connor, Minority Staff Director
______
SUBCOMMITTEE ON EMERGING THREATS, CYBERSECURITY, AND SCIENCE AND
TECHNOLOGY
James R. Langevin, Rhode Island, Chairman
Zoe Lofgren, California Michael T. McCaul, Texas
Donna M. Christensen, U.S. Virgin Daniel E. Lungren, California
Islands Ginny Brown-Waite, Florida
Bob Etheridge, North Carolina Paul C. Broun, Georgia
Al Green, Texas Peter T. King, New York (Ex
Bill Pascrell, Jr., New Jersey Officio)
Bennie G. Thompson, Mississippi (Ex
Officio)
Jacob Olcott, Director and Counsel
Dr. Chris Beck, Senior Advisor for Science and Technology
Carla Zamudio-Dolan, Clerk
Kevin Gronberg, Minority Professional Staff Member
(II)
C O N T E N T S
----------
Page
Statements
The Honorable James R. Langevin, a Representative in Congress
From the State of Rhode Island, and Chairman, Subcommittee on
Emerging Threats, Cybersecurity, and Science and Technology.... 1
The Honorable Michael T. McCaul, a Representative in Congress
From the State of Texas, and Ranking Member, Subcommittee on
Emerging Threats, Cybersecurity, and Science and Technology.... 2
Witnesses
Mr. Thomas W. Essig, Chief Procurement Officer, Department of
Homeland Security, Accompanied by Dr. Keith B. Ward, Chief
Research and Development Branch, Chemical and Biological
Division, Science and Technology, Department of Homeland
Security:
Oral Statement................................................. 4
Prepared Statement............................................. 6
Dr. L. Elaine Halchin, Analyst, American National Government,
Congressional Research Service, Accompanied by Dr. John D.
Moteff, Specialist, Science and Technology Policy,
Congressional Research Service:
Oral Statement................................................. 13
Prepared Statement............................................. 15
Mr. John K. Needham, Acting Director, Acquisition and Sourcing
Management, Government Accountability Office:
Oral Statement................................................. 21
Prepared Statement............................................. 23
OTHER TRANSACTION AUTHORITY: FLEXIBI-
LITY AT THE EXPENSE OF ACCOUNTABILITY?
----------
Thursday, February 7, 2008
U.S. House of Representatives,
Committee on Homeland Security,
Subcommittee on Emerging Threats, Cybersecurity, and
Science and Technology,
Washington, DC.
The subcommittee met, pursuant to call, at 2:11 p.m., in
Room 311, Cannon House Office Building, Hon. James R. Langevin
[Chairman of the subcommittee] presiding.
Present: Representatives Thompson, Langevin, Etheridge,
Green, Pascrell, McCaul, and Broun.
Mr. Langevin [presiding]. The subcommittee will come to
order.
The subcommittee today is hearing testimony on other
transaction authority, or OTA, answering the question,
flexibility at the expense of accountability.
Good afternoon, and I want to welcome our witnesses to
today's hearing on other transaction authority at the
Department of Homeland Security.
I would like to begin by thanking my Ranking Member, Mr.
McCaul, for working with me on this issue and the Chairman of
the full committee, Mr. Thompson, for his leadership and
continued oversight over procurement matters within the
Department.
We are here today to consider the arguments for and against
extending the Department's use of other transaction authority,
which is scheduled to sunset in September 2008. Other
transaction authority, abbreviated as OTA, was originally
created to attract nontraditional commercial firms to do
business with the Federal Government. Within that definition
are those firms that either refuse or could not participate in
such contractual agreements with the Federal Government.
This authority is based on the premise that it is in the
Federal Government's best interest to attract nontraditional
contractors who are at the cutting edge of technology, which
can lead to new homeland security or defense products that
companies might not otherwise have adequate resources to invest
in on their own.
The Department of Homeland Security is one of several
agencies, including NASA, the Department of Defense, the
Department of Energy and the Department of Health and Human
Services, that use OTA.
OTA applies only two types of awards at DHS. One award is
known as other transactions for research, which are typically
used for basic, applied or advanced research. This type of
transaction does not call for a deliverable product but rather
provides a support to broaden the homeland technology knowledge
base.
The other award is known as other transactions for
prototypes, which are used to help the Department develop or
acquire a prototype.
Companies who receive awards under OTA are granted
exceptional benefits. For instance, an other transaction is not
subject to the Federal acquisition regulation, or FAR, most
procurement status or the Government's cost accounting
standards. Companies are also usually granted greater rights to
intellectual property that is produced under the agreement.
The subcommittee seeks answers to two questions today:
First, is OTA premised on sound policy, and, second, given the
incredible flexibility granted under OTA, are there adequate
protections in place to reduce or eliminate any potential
abuses?
We are not the first to examine these questions. Reports
issued earlier this decade suggested other transactions do
indeed expand Government's access to commercial technology and
production capacity and because of the cost-sharing provisions,
do result in lower overall transaction costs.
However, people closely associated with OTA, including a
former Department of Defense inspector general, note that the
potential for abuse exists without the traditional protections
of the procurement system.
The DOD IG noted during its review of OTA that contracting
officers failed, in this case, to sufficiently document
justification for using other transactions, to document the
review of cost proposals and to monitor the actual research
costs itself. This led to the IG's testimony in 2002 where the
Department concluded that based upon the DOD experience, we
believe other transactions should be considered only when it is
clear that the Government is unable to acquire goods, services
and even technologies through existing vehicles.
In short, though the freedoms associated with OTA may
attract more businesses to participate, they also carry
significant risks for the Federal Government. While we all want
technology faster and cheaper, we also have to be mindful that
we are stewards of American tax dollars.
If we are going to allow this kind of flexibility at the
Department, the Department must demonstrate to this committee
that it can be trusted to handle the authority. This means
showing that adequate protections are in place to reduce or
eliminate any potential abuses of OTA.
Then Mr. Essig can provide us with assurances that the
Department has conducted robust oversight over this process
before we consider extending OTA beyond 2008. We will have
several questions on this front when we get to that point.
With that, I conclude my remarks, and the Chair now
recognizes the Ranking Member of the subcommittee, the
gentleman from Texas, Mr. McCaul, for the purpose of an opening
statement.
Mr. McCaul.
Mr. McCaul. I thank the Chairman. I thank you for honoring
my request for this hearing. You are certainly a man of your
word and, as usual, conducting yourself in a very bipartisan
way, which is a good way to conduct ourselves in this very
important committee.
I believe this is an important issue. This is a tool that
the Department uses to protect our country.
Part of our duty as a committee is to ensure that DHS has
the best technology and training available. I see the authority
to engage in the other transactions is a critical tool, which
allows the Department to partner with nontraditional Government
contractors to develop state-of-the-art technologies faster and
more efficiently than would be possible under a traditional
procurement contract.
The Department of Defense has used this authority to enter
into other transactions for many years within DARPA where they
have had many incredible technological breakthroughs. These
agreements are not used to purchase office supplies or other
commodities for which a traditional contract is perfectly
acceptable.
Other transactions cover the development of technology to
fill a particular unmet need, such as automated biowarfare
agent detectors or a system to knock missiles out of the sky
before they bring down an airliner.
The traditional requirements of Government contracting do
not provide the flexibility necessary, in my judgment, to
develop such projects and can be cost-prohibitive to smaller
companies or those that don't regularly do business within the
Government.
I understand that my colleagues may have questions
regarding the accountability of these other transactions, and
I, too, share their concern. Because they are not subject to
the traditional Federal acquisition requirements, or the FAR,
other transactions do not have the same checks and balances
required by traditional procurement contracts. Considering the
increased risk inherent in other transactions, they should not
be entered into for inappropriate goals nor should they be
entered into lightly.
It is my understanding that the Department only allows its
most experienced and highly trained contracting officers to
enter into other transactions and even competes such contracts
despite there being no requirement that it do so. I believe
that this shows that the Department approaches the negotiations
of other transactions with the appropriate gravity, and I look
forward to hearing how the Department has put forth this
authority to use and the technologies that it has developed as
a result of these agreements.
I also hope to find out more about the nontraditional
Government contractors with which the Department has been able
to work. At the same time, I am looking forward to the
testimony from GAO and hearing their recommendations to improve
the success of these types of agreements.
The Department's authority to use other transactions
expires at the end of September 2008. Late last year, I
introduced H.R. 4290, which would extend the authority for
another 5 years. Without that authority, in my judgment, the
next administration could be unnecessarily hamstrung in their
pursuit of the best technology to fit their needs.
I thank the Chairman, and I yield back.
Mr. Langevin. I thank the Ranking Member.
Other Members of the subcommittee are reminded that under
the committee rules, opening statements may be submitted for
the record.
I now want to welcome our witnesses today. Our first
witness is Tom Essig, chief procurement officer of the
Department of Homeland Security. Mr. Essig came to his position
January 10, 2008, so he is definitely new on the job, but he
has a wealth of experience behind him. Prior to this
appointment, he was deputy chief procurement officer. Before
coming to DHS, Mr. Essig worked in the Navy's Office of the
Assistant Secretary and was the services director of the
Program Analysis and Business Transformation Division.
During the questioning period, Mr. Essig will be joined by
Keith Ward, chief of the Chem-Bio R&D branch within Science and
Technology Directorate.
Our second witness is Dr. Elaine Halchin, analyst in
American National Government at Congressional Research Service.
Dr. Halchin's principal areas are research responsibility,
government procurement, sports and the Senior Executive Service
and the government travel policy.
During the questioning period, she will be joined by her
CRS colleague, Jack Moteff.
Our third witness is John Needham, assistant director,
Acquisition and Sourcing Management, Government Accountability
Office. Mr. Needham leaves reviews of acquisition contracting
practices at the Department of Homeland Security and Defense.
I want to welcome all of our witnesses. Without objection,
the witnesses' full statements will be inserted into the
record, and I now ask each witness to summarize his or her
statement for 5 minutes, beginning with Mr. Essig.
Welcome.
STATEMENT OF THOMAS W. ESSIG, CHIEF PROCUREMENT OFFICER,
DEPARTMENT OF HOMELAND SECURITY, ACCOMPANIED BY KEITH B. WARD,
CHIEF RESEARCH AND DEVELOPMENT BRANCH, CHEMICAL AND BIOLOGICAL
DIVISION, SCIENCE AND TECHNOLOGY, DEPARTMENT OF HOMELAND
SECURITY
Mr. Essig. Mr. Chairman, Ranking Member McCaul and Members
of the subcommittee, thank you for this opportunity to appear
before you to discuss the Department of Homeland Security's use
of its other transaction authority.
I am the Department's chief procurement officer, or CPO,
and I am responsible for the management, administration and
oversight of the Department's acquisition programs. With me
here today is Dr. Keith Ward from the Department's Science and
Technology Directorate.
Before addressing the subject of today's hearing, DHS'
other transaction authority, I would like to take this
opportunity to summarize my background. I am a career Federal
employee with more than 30 years of public service in the
acquisition career field. I began my career in 1976 as a
contracting intern with the Navy Department. I was selected as
a member of the Senior Executive Service in 1995 and held
several senior acquisition positions with the Navy Department,
including executive director of the Office of Special Projects
and director for Program Analysis and Business Transformation.
I joined DHS in May 2006 as a deputy chief procurement
officer and was selected as the chief procurement officer last
month. I am also certified at level three, the highest level,
in both the contracting and program management career fields at
both DOD and DHS.
In my written statement, I identified my top priorities as
CPO. The first, to make good business deals, is intended to
ensure that we accomplish our mission while also being good
stewards of taxpayer dollars. Other transactions, or OTs, are a
very useful took in helping us achieve that goal.
OTs differ from traditional contracts in a number of ways.
Contracts are governed by the Federal acquisition regulation,
or the FAR, and as a result include a number of terms and
conditions not seen in commercial transactions. OTs, however,
are not subject to the FAR, so we are able to tailor terms and
conditions in order to, No. 1, attract business entities that
do not normally do business with the Government and, No. 2,
enhance our ability to share the cost of maturing certain dual-
use technologies with industry, thereby lowering the overall
cost to the taxpayer.
OTs have only been used by two of DHS contracting
activities, the Transportation Security Administration, TSA,
and the Office of Procurement Operations in support of DHS
Science and Technology Directorate. Their respective OT
authority comes from different sources.
TSA's OT authority is derived from the Aviation and
Transportation Security Act, and its primary use has been for
the explosive baggage screening and closed-circuit TV programs
at the Nation's airports. Because airport operators are public
entities, TSA's ability to enter into traditional contracts for
these programs is limited. TSA's OT authority provides the
necessary flexibilities to meet their mission requirements.
The focus of my testimony today, however, is on the
Department's OT authority in support of the S&T Directorate.
That authority stems from the Homeland Security Act of 2002,
which allows DHS to enter into other transactions for basic,
applied and advanced research and development and prototype
projects. The Department appreciates that the recently passed
DHS Appropriations Act includes a provision extending our OT
authority through September 30 of this year, and we are
grateful for, and fully support, Ranking Member McCaul's
efforts to further extend that authority through September
2012.
In my written statement, I identified four S&T projects
that were made possible with this OT authority. One of these is
the lightweight autonomous chemical identification system, or
LACIS project, which is developing handheld chemical agent
detectors for our first responders, including fire departments
and HAZMAT teams. The project resulted from a broad agency
announcement designed to reach a broad segment of the market
and attract traditional and nontraditional firms, both
individually and as teams.
In a December 2004 report, the Government Accountability
Office, GAO, reported on DHS' used of its OT authority under
the Homeland Security Act and recommended that DHS provide
guidance on including audit provisions in OTs, develop a
training program on the use of OTs and capture knowledge gained
during the acquisition process. I am pleased to report that we
have implemented all three recommendations.
In summary, OT authority provides a tool that is especially
useful when bringing nontraditional contractors to the Federal
research and development environment, gives the Department
access to more commercially available technologies than would
otherwise be the case, promotes the development of dual-use
technologies at a reduced overall cost to the taxpayer and
allows the Department to obtain proposals from teams that cut
across organizational boundaries to achieve optimal mixes of
talent and innovation.
We also recognize that OTs are not right for every
situation and have implemented guidance, training, knowledge
sharing and oversight procedures to ensure that OTs are used
appropriately.
Thank you, Mr. Chairman, for your interest in and continued
support of the DHS acquisition program and for the opportunity
to testify before the subcommittee about the Department's OT
authority.
I would be glad to answer any questions you or other
Members of the subcommittee may have for me.
[The statement of Mr. Essig follows:]
Prepared Statement of Thomas W. Essig
February 7, 2008
Chairman Langevin, Ranking Member McCaul and Members of the
subcommittee, thank you for this opportunity to appear before you to
discuss the Department of Homeland Security's (DHS) acquisition program
and in particular, DHS' use of its Other Transaction Authority (OTA). I
am the Chief Procurement Officer (CPO) for the Department. With me here
today is Dr. Keith Ward from DHS' Science & Technology (S&T)
Directorate.
As DHS' CPO, I am the lead executive responsible for the
management, administration and oversight of the Department's
acquisition programs. In that capacity, I oversee and support eight
procurement offices within DHS--Customs and Border Protection (CBP),
Federal Emergency Management Agency (FEMA), Immigration and Customs
Enforcement (ICE), Transportation Security Administration (TSA), United
States Coast Guard (USCG), United States Secret Service (USSS), Federal
Law Enforcement Training Center (FLETC), and the Office of Procurement
Operations (OPO). My office provides the acquisition policies,
procedures, training and workforce initiatives that will that enable
our acquisition professionals to support mission accomplishment while
also being good stewards of taxpayer dollars.
Before addressing the subject of today's hearing, DHS' Other
Transaction Authority, I would like to take this opportunity to
summarize my background and convey my top priorities as the CPO. I am a
career Federal employee, with more than 30 years of public service in
the acquisition career field. I began my Federal career in 1976 when I
entered the Navy's Contracting Intern Development Program. My initial
assignment was with the Naval Sea Systems Command (NAVSEA), where I
served as a contract specialist supporting various Naval weapon systems
and shipbuilding programs. I was selected as a member of the Senior
Executive Service in 1995 and served as the Director of the Surface
Systems Contracts Division of NAVSEA. I have also held Senior Executive
Service positions with the Navy Department as the Executive Director of
the Office of Special Projects, Director of the Navy Engineering
Logistics Office, and Director for Program Analysis and Business
Transformation in the Office of the Assistant Secretary of the Navy for
Research, Development, and Acquisition. I joined DHS in May 2006 as the
Deputy Chief Procurement Officer and was selected as the Chief
Procurement Officer in January 2008. While most of my career has been
in the area of contracting, my assignments have also given me
responsibility for leadership of other critical acquisition functions.
As a result, I am certified at Level III (the highest level) in both
the contracting and program management career fields at both the
Department of Defense (DoD) and DHS.
Earlier this year, I identified my top priorities for fiscal year
2008. The first three priorities were initially established by my
predecessor, Ms. Elaine Duke. While we have made significant progress
on all three priorities, more remains to be done and I have, therefore,
retained them for fiscal year 2008.
Priority No. 1: To Make Good Business Deals
We need to make business decisions that enable us to accomplish our
mission, while also being good stewards of taxpayer dollars. Within the
Office of the CPO (OCPO), we are developing and implementing a policy
and oversight framework that will facilitate the Department's ability
to achieve this objective. We have, for example, recently issued policy
and guidance on topics that include: goals for contract awards to small
business and other socio-economic concerns; judicious use of the Alaska
Native Corporation 8(a) program, including requirements to ensure the
award is in the best interest of the Government; increasing the use of
competition; and guidance documents on Source Selection, the use of
Other Than Full and Open Competition, and acquisition planning.
Priority No. 2: To Build and Sustain the DHS Acquisition Workforce
A key enabler of our ability to make good business deals is a
highly skilled and motivated acquisition workforce. In fiscal year
2008, we are focusing on four acquisition workforce initiatives:
establishment of an acquisition intern program; identification of
certification and training requirements for all acquisition functional
areas; a centralized acquisition training fund; and centralized
recruitment and hiring of acquisition personnel. I greatly appreciate
the funding we received in fiscal year 2008 in support of these
initiatives.
Priority No. 3: To Perform Effective Contract Administration
In addition to making sure that our contract awards represent good
business deals, we must perform effective contract administration in
order to ensure that we get what we bargained for. In this area, we are
leveraging support from the Defense Contract Management Agency to
support a number of contract administration areas, including the
performance of Earned Value Management (EVM) on DHS contracts. We are
also conducting comprehensive reviews and improving communications with
our contracting activities to identify and remedy issues that may occur
over the life cycle of our contracts. Recently, these reviews led to a
change in our Acquisition Manual to address specific Contracting
Officer's Technical Representative oversight responsibilities
associated with the review of contractor invoices (also referred to as
vouchers) for reasonableness and accuracy, and to ensure that
deliverables have been provided in accordance with the terms of our
contracts.
These first three priorities are largely focused on the contracting
function. Recognizing, however, that successful acquisition programs
require more than just good contracting, I have added a fourth priority
this year:
Priority No. 4: To Improve the Quality of Program Management Throughout
DHS
In order to deliver the capabilities to meet DHS' mission on
schedule and within budget, we are working to strengthen program
management, including related functions such as cost analysis,
logistics, systems engineering, and test and evaluation. During the
past year, we established a core group within OCPO and partnered with
the Defense Acquisition University and the Homeland Security Institute
to ensure we have the skills and experience necessary to assess the
status of DHS' acquisition programs and put policies and procedures in
place to improve the management of our acquisition programs. We are
also working to ensure that our program management teams are
appropriately staffed and trained. Our goal is to make certain we have
the policies, processes, and skilled people in place to effectively
manage our programs and ensure the successful achievement of our
mission objectives.
OTHER TRANSACTION AUTHORITY (OTA)
There are many differences between a FAR-based contract and an
Other Transaction or ``OT ''. Contracts are procurement instruments
and, as such, are governed by the FAR. Contracts are to be used when
the principal purpose of the project is the acquisition of goods and
services for the direct benefit of the Federal Government. In contrast,
DHS OTs used by the DHS Science & Technology Directorate for prototype
projects are used to acquire technologies that provide counter-
terrorism tools and resources for our agents and first responders in
the field to combat against those threatening our Homeland. Unlike
traditional contracts, these OTs attract business entities that do not
normally do business with the Federal Government, exploit the cost-
reduction potential of accessing innovative or commercially developed
technologies, and tend to increase competition for follow-on efforts.
The Contract Disputes Act and GAO protest rules do not apply to OTs for
prototype projects; procedures for resolving disputes and filing
protests are addressed in the actual OT.
OTs have only been issued by two of DHS' contracting activities:
the Transportation Security Administration (TSA) and the Office of
Procurement Operations (OPO) in support of DHS' Science & Technology
Directorate. Their respective OT Authority comes from different
sources.
The focus of much of my testimony today is on the Department's OT
Authority stemming from the Homeland Security Act of 2002 as well as
the subject of the Government Accountability Office's (GAO) 2004 audit.
However, I would first like to address the TSA's OT Authority which is
derived from the Aviation and Transportation Security Act (Pub. L. 107-
71).
TSA's OT Authority
TSA's primary use of its OT Authority has been for its Explosive
Baggage Screening Program (EBSP) and its Closed Circuit TV (CCTV)
Program at the Nation's airports. TSA's use of OTs is primarily as a
mechanism for providing reimbursement funding and outlining the roles
and responsibilities associated with these shared airport projects.
1. Explosive Baggage Screening Program (EBSP)
TSA's EBSP projects involve the modification and/or construction of
a checked baggage inspection system in the Airport/Air Carrier baggage
handling system through the installation of Explosive Detection Systems
(EDS). The scope of each project includes, but is not limited to,
design, construction of installation of new or renovation of existing
baggage conveyor systems, modification and upgrade of existing
mechanical, electrical, telecommunications infrastructure and plumbing
equipment, and baggage handling screening matrix able to support EDS
machines, and the installation of hardware and software for use with in
in-line baggage screening applications.
Each airport uses established contracting processes and contractors
to design and perform necessary airport site preparation to support the
project. The variety of local factors and conditions that affect
airport funding and design decisions requires a partnership between TSA
and each airport. Teaming with each airport ensures a mutually
acceptable baggage screening solution to TSA and each airport and its
associated air carriers. By providing funding to each airport via an OT
that allows for the reimbursement of the baggage screening project
costs, TSA benefits as the burden of the airport design work and the
responsibility of the construction management, logistics, and work
performance is shared with each airport. The OT outlines the
responsibilities of the airport and the TSA as well as provides the
funding for each airport project.
TSA uses an integrated and participatory approach to the project
planning and design process with each airport to appropriately size the
system for EDS equipment, providing the most cost-effective solution
and ensuring optimal baggage screening performance standards are met.
Using industry standards, TSA validates the cost estimate of the
project based on information provided by each airport. Once the design
effort is completed, the TSA Technical Representative monitors the
airport construction effort.
TSA retains a percentage of the OT funds until the airport has
successfully passed the TSA administered integrated baggage screening
test. Reimbursement of costs by TSA is made to the airport on a
documented cost basis. The use of an OT provides for airport
performance of site preparation work, but allows TSA to retain
oversight of the project and control over the reimbursement of costs.
Additionally, TSA submits an annual spend-plan to congressional
appropriators detailing planned locations and funding for its in-line
systems. To date, for the EBSP, TSA has executed 53 OTs valued at
approximately $320 million. All of these OTs have been with airport
operators which are public entities.
2. Closed Circuit Television (CCTV) Other Transaction
Agreements
Expanding the views of an airport's CCTV camera system to include
views of the passenger checkpoints and baggage screening areas allows
TSA to enhance security situation awareness, deter theft, aid in the
resolution of claims, and assist in the resolution of law enforcement
issues. Each airport uses established contracting processes to perform
installation work (electrical, network connectivity, camera mounting,
media storage capability) necessary to support the TSA camera views of
passenger screening and baggage screening areas. Given the variety of
local factors and conditions that affect airport funding and design
decisions, developing a partnership between TSA and each airport
ensures a mutually acceptable CCTV screening solution.
TSA benefits from the business relationships each airport
establishes with their CCTV vendors as each CCTV system is unique to a
particular airport. By providing funds to each airport via an OT that
allows for the reimbursement of the costs of the installation of CCTV
cameras and media storage capability, TSA benefits by sharing the
burden of the installation management, logistics, and work performance.
The OTA outlines the responsibilities of the airport and the TSA as
well as provides the funding for the project.
Each airport provides TSA a statement of work with a cost estimate
for the camera views to be installed. The cost estimate is validated
and an OT is executed with the airport for the project and monitored
during the project's performance. Installed CCTV products supplement
each airport's current CCTV system and are not owned by the TSA. Each
airport is responsible for maintenance and repairs to ensure the
uninterrupted operation of the CCTV system. To date, TSA has executed
32 OTs valued at approximately $32 million for CCTV projects. All of
these OTs have been with airport operators which are public entities.
S&T's OT Authority
DHS' OT Authority exercised by OPO in support of S&T is very
different from that used by TSA. The OPO Authority is derived from the
Homeland Security Act of 2002 and the subject of GAO's 2004 audit.
Section 831 of Public Law 10-296, the Homeland Security Act of 2002,
granted DHS its authority to enter into transactions (other than
contracts, cooperative agreements, and grants) for basic, applied, and
advanced research and development (R&D) projects as well as for
prototype projects. This authority has since been codified in Title 6
of the United States Code (Subchapter VIII Part D Section 391, as
amended. DHS' R&D OT Authority is based on DoD's authority (Section
2371 of Title 10, United States Code and Section 845 of Public Law 103-
160). DHS appreciates that the recently passed DHS Appropriations Act
(Public Law 110-161) includes a provision extending our OT R&D
Authority through September 30, 2008, and we very much appreciate and
fully support Ranking Member McCaul's efforts through H.R. 4290
Homeland Security Technology Advancement Act to further extend our R&D
OT Authority through September 30, 2012.
This DHS R&D OT Authority provides a useful tool that enhances the
Department's ability to carry out basic, applied and advanced research
and development; advance the development, test and evaluation, and
deployment of critical homeland security technologies; and accelerate
the prototyping and deployment of technologies to address homeland
security vulnerabilities. This type of R&D OT Authority is especially
useful in bringing non-traditional Government contractors to the
Federal Research & Development environment, because the resultant OTs
permit flexibilities in key areas to include application of cost
accounting standards, submission of cost and pricing data, specific
Federal Acquisition Regulation (FAR) provisions, and intellectual
property rights. They are also useful for dual-use (Government/
commercial) technologies in cases where the estimated cost of advancing
those technologies is too great for industry to invest on its own or
the risk is too immense for companies to commit to traditional contract
terms and conditions. In these cases, OT Authority gives the Department
access to more companies and commercially available technologies than
would otherwise be the case and, in certain situations, is the only way
to affordably advance the maturity level of technologies that will help
us counter homeland security vulnerabilities.
I previously mentioned that my first priority as CPO is to ``make
good business deals.'' R&D OT Authority supports that goal by enhancing
our ability to share the costs of maturing certain dual-use
technologies with industry, thereby lowering the overall cost to the
taxpayer. In a traditional contract, the Government usually pays the
full cost of maturing that technology. Our OT Authority also gives us
the ability to reach agreements with a consortium of providers, where
such arrangements are more advantageous to the Government than
traditional contracts (through prime and subcontractor agreements or
establishment of joint ventures).
I would like to take this opportunity to elaborate on several
examples of DHS' use of its OT Authority in support of the Under
Secretary for Science & Technology:
1. Lightweight Autonomous Chemical Identification System
(LACIS) Project
Under the LACIS Project, hand-held chemical agent detectors for
first responders, e.g., fire departments, military HAZMAT teams, and
industrial HAZMAT teams, are being developed by Sensor Research and
Development, Corp., Smiths Detection--Edgewood, Inc., and Purdue
University in collaboration with ICx Griffin Analytical Technologies.
The current detectors, normally spectrometers, for chemical warfare
agents and toxic industrial chemicals, tend to have a limited range,
are expensive and are subject to false alarm from interference. The
LACIS Project has been on time and is overcoming limitations of the
current technology at a relatively affordable cost. The use of an OT
for this requirement has promoted flexibility in forming teaming
arrangements involving both traditional and non-traditional
participants.
2. Autonomous Rapid Facility Chemical Agent Monitor
(ARFCAM)
Under the ARFCAM Project, autonomous chemical detectors for
monitoring facilities, e.g., airports and train stations as well as
other high-asset venues, are being developed by Hamilton Sundstrand
Space Systems, Inc., Smiths Detection--Watford Inc., and Bruker
Daltonics. The current commercial detectors, normally spectrometers,
for chemical warfare agents and toxic industrial chemicals, tend to
have a limited range, are expensive and are subject to false alarm from
interference. The ARFCAM Project has been on time and is overcoming
limitations of the current technology at a relatively affordable cost.
The use of an OT for this requirement has promoted flexibility in
forming teaming arrangements involving both traditional and non-
traditional participants.
3. BioWatch Generation 3 (BioAgent Autonomous Network
Detector (BAND)) Program
The purpose of the BAND Program is to develop a detect-to-treat
biological detection sensor system that provides more rapid indications
of the presence of biological agents compared to current state-of-the-
art technology. This program is developing the next generation of
BioWatch detectors and is critical to the BioWatch program. Currently,
the BioWatch system consists of distributed collectors that sample on
filters that are collected and centrally processed at local
laboratories. This process has not provided information in as timely a
response as the Department would have liked.
With the use of our OT Authority, DHS has been able to prototype
and test three BAND systems from three firms, IQuum, Inc., Microfluidic
Systems, Inc., and U.S. Genomics, Inc. While each system is different,
the systems have performed up to the rigorous objectives set by DHS.
DHS objectives include having: a very high sensitivity in a cluttered
background; an extended coverage area, i.e., with a networked system as
opposed to a manual collection system; a very low false alarm rate,
range of 1 per 10 to 100 years; and a low cost of ownership. Due to the
projected reduced costs of these systems, a larger portion of the
Nation's population will be protected without incurring additional
costs and with equivalent or better performance.
Both the LACIS and BAND Programs resulted from Broad Agency
Announcements (BAAs) designed to obtain proposals from teams that cut
across organizational boundaries to achieve optimal mixes of talent and
innovation. The BAAs specified that DHS would use its OT Authority to
attract traditional and non-traditional firms individually and as
teams.
4. Countermeasures for the Man-Portable Air Defense System
(Counter MANPADS) Program
Under the DHS Counter-MANPADS Program, we have adapted military
Directed InfraRed Counter Measure (DIRCM) technology to protect
commercial transports from shoulder-launched surface-to-air missiles,
called Man-Portable Air Defense Systems (MANPADS). The systems use
existing military missile warning systems to detect MANPADS and cue an
infrared laser to jam the missile guidance system. At the completion of
the program, DHS expects to have two counter-MANPADS systems capable of
being deployed on commercial transports.
DHS realized savings in time by the use of OT agreements. After a
full and open competition, three 6-month OTs were awarded for Phase I,
which was less than 8 weeks following program initiation. This rapid
schedule was several months shorter than what would have been
experienced for comparable programs of similar size and complexity
using a FAR-based solicitation and contract award. The use of OT
Authority for prototype projects will allow DHS to complete a three-
phase system development, test, and operational evaluation program in 5
to 6 years compared to similar DoD programs that have been programmed
since the mid-1990's. The use of OT Authority also allowed us to select
teams that included non-traditional mixtures of military and commercial
contractors that would not have been possible under FAR-based
contracts.
In the second phase of the program, accomplished through a
modification to an existing OT, design solutions were completed through
prototype development and Federal Aviation Administration (FAA)
certification for airworthiness. For this phase, the contractors
fabricated, installed, and tested their prototypes on commercial
aircraft. In the latest phase, the OT holders delivered and installed
several complete countermeasure prototypes on commercial cargo and
passenger aircraft and have continued demonstrating system performance.
DHS is now evaluating the operational suitability and anticipated costs
by collecting data during commercial airline operations for each of the
systems. Performance results achieved to date would not have been
possible without the OTs because the non-traditional contractors
(commercial airlines and associated operation and maintenance
companies) would not have participated under a FAR-based contract.
The following are Counter-MANPADS Program Highlights and Key
Points:
Program on schedule--to be completed early 2009;
Systems can protect commercial transports;
Live fire test demonstrations Fall 2007 (October-December);
Four different FAA-certified installations;
Phase III reduced risk and cost of ownership;
DHS results are also improving DoD systems' reliability and
performance;
No deployment decision yet made.
OTs, however, are not right for every situation, as the rights
provided to the Government under an OT differ significantly from those
provided under a traditional contract. While OTs are an extremely
useful tool, they should only be used in appropriate situations by
personnel that are knowledgeable of the advantages and disadvantages of
OTs versus contracts and who are able to make informed decisions
regarding which method is anticipated to provide better value to the
Government.
In that regard, on July 8, 2005, DHS issued Management Directive
(MD) 0771.1, ``Other Transaction Authority,'' to align OT Authority and
accountability and provide policy and guidance on the Department's use
of OT Authority for research as well as for prototype projects. In
accordance with this MD, I, as the Chief Procurement Officer, am
responsible for setting policy, conducting oversight, and approving the
use of OT Authority pursuant to the Homeland Security Act of 2002. I
have further designated the DHS Director, Strategic Initiatives within
OCPO as the authority to make Department-level decisions on R&D OTs. As
indicated earlier, the only Heads of Contracting Activity within the
Department with approval to use OT Authority are the Head of the
Contracting Activity (HCA) for the Office of Procurement Operations
(OPO), who reports directly to me, and the HCA for TSA under the
authority of the Aviation and Transportation Security Act.
While Other Transactions are not covered by the Competition in
Contracting Act, OPO uses competitive procedures to the maximum extent
practicable for its R&D OTs including soliciting through FedBizOpps and
utilizing Broad Agency Announcements to reach a broad segment of the
marketplace. For OTs where competition is determined not to be
available or not appropriate (e.g., unsolicited proposals), the OT file
is fully documented and, for OTs exceeding $550,000, documentation
supporting the use of non-competitive procedures must be approved by
the OPO Competition Advocate or higher (depending on OT total dollar
value). Furthermore, OPO utilizes the audit services of the Defense
Contract Audit Agency (DCAA) during its pre- and post-award phases for
its R&D OTs, as it normally would for traditional contracts.
gao review of dhs' use of its research & development other transaction
AUTHORITY
In December 2004, the Government Accountability Office (GAO)
released its report, HOMELAND SECURITY: Further Action Needed to
Promote Successful Use of Special DHS Acquisition Authority in
accordance with The Homeland Security Act of 2002 requirement for GAO
to report annually to Congress on DHS' use of its OT Authority. To
fulfill this obligation, GAO: (1) Evaluated whether DHS has developed
polices and established a workforce to manage other transactions
effectively; and, (2) evaluated how effectively DHS has used its other
transactions authority to attract non-traditional Government
contractors. In its report, GAO made the following recommendations:
(1) Provide guidance on including audit provisions in other
transactions agreements;
(2) Develop a training program in the use of other transactions;
and
(3) Capture knowledge obtained during the acquisition process for
use in planning and implementing future other transactions
projects.
I am pleased to report that DHS has implemented all three GAO
recommendations, as follows:
Recommendation No. 1: Provide guidance on including audit provision in
other transactions agreements.
The Director of the Office of Procurement Operations (OPO), the
primary HCA holding the Department's Other Transaction Authority, has
established procedures for conducting internal reviews and audits of
all procurement documentation to ensure compliance with applicable
Federal and departmental regulatory guidelines. The review and approval
process for OTs has been integrated into OPO standard business
processes. In accordance with established procedures, all OTs valued at
$550,000 or greater are reviewed by the Office of General Counsel and
OPO Division Directors. OTs with an estimated value greater than $10
million are subject to additional review by the OPO Policy, Oversight
and Customer Support Division, and OTs with an estimated value of $25
million or greater are reviewed by the OPO Acquisition Review Board,
chaired by the OPO HCA and comprised of OPO Division Directors and
representatives from S&T General Counsel. As the CPO, I approve all OPO
OTs with a value over $50 million. OPO Contracting Officers assigned to
support S&T are required to complete OT training. This training
includes guidance on the appropriate audit provisions that should be
included in OTs and securing audit services where appropriate.
Currently, OPO Contracting Officers utilize the services of DCAA
whenever possible for pre- and post-award support in evaluating
proposals and auditing of OTs.
Recommendation No. 2: Develop a training program in the use of other
transactions.
Recognizing the specialized nature and inherent complexities
required to establish and effectively administer OTs for research and
development and prototype requirements, the DHS OPO established
specialized, recurring OTA Training for the OPO Contracting Workforce
supporting S&T and their customers. During fiscal year 2006, two 3-day
OTA training sessions were conducted, and an additional two 3-day
sessions were conducted in fiscal year 2007. OPO plans to continue this
training in fiscal year 2008. This comprehensive OTA training provides
specific guidance on OTAs for Prototype Projects, Assistance OTs, the
acquisition of property, and foreign access to technology. Very
importantly, the class also includes the necessary foundation in FAR-
based research and development contracting, with a particular emphasis
on the contract types suitable for S&T contracts. This foundational
knowledge provides the Contracting Officer and members of the program
office with the understanding of R&D contracting to ensure that the
appropriate method of acquisition is selected.
Recommendation No. 3: Capture knowledge obtained during the acquisition
process for use in planning and implementing future other
transactions projects.
In July 2005, DHS OPO solicited support services from leading
industry experts on the appropriate use and implementation of OTs. This
expertise was utilized by DHS to develop policies and procedures for
implementing the OT Authority within the Department, and to maximize
lessons-learned from the application of OT Authority by defense
agencies, military services and other Federal agencies. OPO continues
to enlist the services of these industry experts to provide specialized
OT training for the DHS acquisition workforce. OPO personnel refer to
the OTA lessons-learned and training material when formulating OTs and
conducting OTA policy reviews.
In summary, OTs provide an essential tool to assist DHS with
accomplishment of its mission. The tool is: especially useful in
bringing non-traditional contractors to the Federal Research &
Development environment; gives the Department access to more
commercially available technologies than would otherwise be the case;
promotes the development of dual-use technologies at a reduced overall
cost to the taxpayer; and allows the Department to obtain proposals
from teams that cut across organizational boundaries to achieve optimal
mixes of talent and innovation. The tool, however, is not appropriate
for all actions and requires an appropriate level of knowledge and
experience to determine whether an OT or traditional contract provides
the better value to the Government. As Chief Procurement Officer, I am
responsible for setting policy, conducting oversight, and approving the
use of OT Authority within DHS. We concur with the recommendations of
the GAO and have implemented guidance, training, and knowledge sharing
to ensure that our OTs are used appropriately. I have also directed
that a statistical sample of TSA and OPO OTs be reviewed during regular
Procurement Reviews and will update Departmental guidance, training and
lessons-learned as appropriate. Additionally, I have directed a review
of Management Directive (MD) 0771.1, ``Other Transaction Authority,''
and am assessing whether both OT Authorities should be covered by a
single MD.
Thank you, Mr. Chairman for your interest in and continued support
of the DHS Acquisition Program and for the opportunity to testify
before the subcommittee about the Department's Other Transaction
Authority. I would be glad to answer any questions you or other Members
of the subcommittee may have for me.
Mr. Langevin. Thank you, Mr. Essig, and I thank you for
your testimony.
I now recognize Ms. Halchin to summarize your statement for
5 minutes.
STATEMENT OF L. ELAINE HALCHIN, ANALYST, AMERICAN NATIONAL
GOVERNMENT, CONGRESSIONAL RESEARCH SERVICE, ACCOMPANIED BY JOHN
D. MOTEFF, SPECIALIST, SCIENCE AND TECHNOLOGY POLICY,
CONGRESSIONAL RESEARCH SERVICE
Ms. Halchin. Mr. Chairman and Members of the subcommittee,
thank you for inviting me here today to offer testimony
regarding the subject matter of this hearing, other transaction
authority.
I am Elaine Halchin, an analyst in American National
Government with the Congressional Research Service of the
Library of Congress.
Other transaction authority originated 50 years ago. The
Space Act of 1958, as amended, authorized the National
Aeronautics and Space Administration to enter into and perform
such contracts, leases, cooperative agreements or other
transactions as may be necessary in the context of its work.
However, other transaction authority, as it exists today, began
in 1989.
The Department of Defense received statutory authority to
engage in other transactions through the Defense Advanced
Research Projects Agency for research projects. Other executive
departments that have been authorized by statute to engage in
other transactions are the Department of Transportation, the
Department of Energy and of course the Department of Homeland
Security.
Other Federal agencies that engage in research also may use
OT authority for projects designed to facilitate defending
against or recovering from acts of terrorism or nuclear,
biological, chemical or radiological attacks. Other transaction
authority may be used for research and for prototypes.
Providing OT authority to DARPA and later expanding the
authority for use within DOD was part of an effort by the
Defense Department and Congress to seek ways to better leverage
the commercial technology and industrial base. This effort was
based on the argument that the technical capabilities of the
commercial technology industrial base exceeded those of the
traditional defense sector in some areas and that such
transactions would cost the Government less money due to
greater economies of scale and preexisting investments.
However, the regulations and statutes governing traditional
procurement methods were a barrier to some businesses.
Companies that were unable or unwilling to comply with the
Federal acquisition regulation did not enter into contracts
with the Federal Government OT authority is a wholesale way of
waiving these and other procurement requirements.
In addition, it was anticipated that other transactions
would encourage cost sharing, which would result in savings for
the Government.
Since an other transaction is not a contract, the FAR, a
number of procurement statutes and the Government's cost
accounting standards do not apply to such transactions. In
2000, an ad hoc working group affiliated with the public
contract law section of the American Bar Association published
a monograph on the applicability of relevant statutes to DOD's
OT authority. Although the monograph includes some statutes and
provisions that apply only to DOD, the analysis of other
statutes is applicable to non-DOD agencies.
Upon analyzing 30 statutes or statutory provisions, the
working group determined that 20 of them do not apply to other
transactions. Two others that do not apply to research OTs may
apply to prototype OTs. The list of statutes, which may be
found in table one of my testimony, includes, for example, the
Competition and Contracting Act, the Procurement Protest System
and the Procurement Integrity Act.
Freedom from Federal procurement requirements is an
overarching advantage of the use of OT authority, but, at the
same time, problems associated with other transactions may
follow from this exemption. Agencies and companies that engage
in OTs might face uncertainties and increased risk regarding,
for example, funding limitations, dispute resolution and data
rights.
Also, the protection and tools that contracting officers
have to negotiate fair and reasonable prices and to ensure that
costs are allowable and consistent with Federal procurement
policies do not apply to other transactions.
Additionally, the DOD inspector general has reported that
some contracting officers fail to sufficiently document the
justification for using research OTs, to document the review of
cost proposals and to monitor actual research costs. Thus, the
flexibility inherent in OT authority, which is a significant
advantage of using this method, might also result in fewer
protections and decreased transparency and accountability when
compared to conventional procurement methods.
A DOD IG summary of several audits that it had conducted
found that other transactions had not attracted a significant
number of nontraditional defense contractors. Data for the
period, fiscal year 1994 through fiscal year 2001, showed that
traditional defense contractors received nearly 95 percent of
the $5.7 billion in funds for 209 prototype other transactions.
In 2002, the RAND Corporation evaluated the effectiveness
of using OT authority for prototypes within DOD. The study
examined 21 of the 72 prototype projects that at the time of
the study had been awarded using other transaction authority.
Due to a number of challenges that involved devising metrics
for determining whether OT projects achieved policy objectives
and comparing other transactions with traditional procurements,
the study relied largely on the judgments and opinions provided
by DOD and private sector program managers.
The RAND study concluded that, first, DOD had gained access
to important, new industrial resources; second, the flexibility
permitted by other transaction authority meant that more of the
project cost was spent on the product, then on the acquisition
process; and, third, the Government did incur some risks but
RAND considered the risks to be low.
On the one hand, it is not possible to determine
conclusively whether the use of OT authority accomplishes what
is intended, including higher performance and less expensive
Government end products; however, the RAND study and the
judgments of many people involved in OTs suggests that the use
of this authority does expand Government access to commercial
technology and production capacity and involves lower
transaction costs and reduced risks for the projects.
Evaluating how DHS has used other transaction authority and
whether the use has been successful would be a complex
undertaking for several reasons, including some of the
challenges encountered by RAND in the course of conducting its
study.
Adding to the complexity of such an undertaking would be
the need to do field research to obtain information that is
sufficiently detailed and comprehensive.
This concludes my statement. Thank you for your attention.
I am accompanied by a colleague, Dr. Jack Moteff, who is a
specialist in science and technology policy with CRS. We
welcome your questions.
[The statement of Dr. Halchin follows:]
Prepared Statement of L. Elaine Halchin
February 7, 2008
Mr. Chairman and Members of the subcommittee, thank you for
inviting me here today to offer testimony regarding the subject matter
of this hearing, other transaction authority. I am Elaine Halchin, an
Analyst in American National Government with the Congressional Research
Service of the Library of Congress.
origin and expansion of other transaction (ot) authority
Other transaction (OT) authority originated 50 years ago.\1\ The
Space Act of 1958, as amended, authorized the National Aeronautics and
Space Administration (NASA) to ``enter into and perform such contracts,
leases, cooperative agreements, or other transactions as may be
necessary in the conduct of its work . . . ''. However, other
transaction authority, as it exists today, began in 1989.\2\ With the
enactment of Public Law 101-189, the Department of Defense (DOD) was
authorized to use cooperative agreements and ``other transactions,''
through the Defense Advanced Research Projects Agency (DARPA), for
advanced research projects.\3\ Subsequent legislation broadened this
authority so that, first, it could be used for prototype projects and,
second, it could be used throughout DOD, including the military
departments.\4\
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\1\ American Bar Association, Section of Public Contract Law, Ad
Hoc Working Group on Other Transactions, Department of Defense ``Other
Transactions'': An Analysis of Applicable Laws, American Bar
Association (Chicago: 2000), p. 3. The statutory authority for NASA to
engage in ``other transactions'' may be found at 42 U.S.C. 2473 (Pub.
L. 85-569; 72 Stat. 426, at 430).
\2\ Nancy O. Dix, Fernand A. Lavallee, and Kimberly C. Welch,
``Fear and Loathing of Federal Contracting: Are Commercial Companies
Really Afraid to Do Business with the Federal Government? Should They
Be?'' Public Contract Law Journal, vol. 33, fall 2003, p. 25. The
statutory authority for DOD to engage in ``other transactions'' may be
found at 10 U.S.C. 2371 (Pub. L. 101-189, as amended; 103 Stat. 1352,
at 1403).
\3\ Sec. 251(a) of Pub. L. 101-189.
\4\ Sec. 845 of Pub. L. 103-160; 107 Stat. 1547, at 1721. The
authority for DOD to use other transaction authority for advanced
research and prototype projects is codified in 10 U.S.C. 2371 and 10
U.S.C. 2371 note, respectively.
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Other executive departments that have been authorized, by statute,
to engage in ``other transactions'' are the Department of
Transportation (DOT), the Department of Energy (DOE), and the
Department of Homeland Security (DHS).\5\ Additionally, executive
agencies that engage in research as well as research and development
projects that have the potential to facilitate defense against, or
recovery from, acts of terrorism or nuclear, biological, chemical, or
radiological attacks are authorized to engage in ``other
transactions.''\6\
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\5\ The statutory authority for each department is as follows:
Department of Transportation, 23 U.S.C. 502; Pub. L. 105-178; 112
Stat. 107, at 422; the Department of Homeland Security, Pub. L. 107-
296; 116 Stat. 2135, at 2224; and the Department of Energy, 42 U.S.C.
7256; Pub. L. 109-58; 119 Stat. 594, at 932.
\6\ 41 U.S.C. 428a note; Sec. 1441(a)(B) of Pub. L. 108-136; 117
Stat. 1392, at 1673.
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rationale for other transaction authority
Providing OT authority to DARPA and, later, expanding the authority
for use within DOD, was part of an effort by the Defense Department and
Congress to seek ways to better capitalize on the commercial technology
and industrial base. This effort was based on the argument that the
technical capabilities of the commercial technology and industrial base
exceeded those of the traditional defense sector in some areas, and
cost less due to greater economies of scale and pre-existing
investments.\7\ One element of this effort was to encourage greater
cooperation between DOD and companies (or vendors) in developing new
technologies of mutual interest. Specifically, the purpose of OT
authority for DOD, in particular, was, and ``is to enhance the state-
of-the-art, demonstrate technology, transfer technology, establish
industrial capabilities, and otherwise advance national capabilities so
that the United States' technological base will be capable of
supporting the most advanced defense systems in the future.''\8\
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\7\ One of the many influential recommendations of the President's
Blue Ribbon Commission on Defense Management (known as the Packard
Commission), in its report A Quest for Excellence (June 1986), was that
the Department of Defense should expand the use of commercial products.
See also Defense Science Board, Use of Commercial Components in
Military Equipment, 1986 and 1989; The Center for Strategic and
International Studies, Integrating Commercial and Military Technologies
for National Strength: An Agenda for Change (Washington: 1991); and
U.S. Office of Technology Assessment, Assessing the Potential for
Civil-Military Integration, OTA-ISS-611, 1994.
\8\ Nancy O. Dix, Fernand A. Lavallee, and Kimberly C. Welch,
``Fear and Loathing of Federal Contracting: Are Commercial Companies
Really Afraid to Do Business with the Federal Government? Should They
Be?'' p. 26.
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However, the regulations and statutes governing traditional
procurement methods were a barrier to some businesses. Companies that
were unable, or unwilling, to comply with the Federal Acquisition
Regulation (FAR) and procurement statutes did not enter into contracts
with the Federal Government. For example, prior to the enactment of OT
authority, DARPA missed ``numerous opportunities to contract with
companies that were developing some of the most promising new
technologies'' reportedly because they had ``neither the capability nor
the desire to do business with the Government through the procurement
process.''\9\ Two particular areas of concern for some companies were
data rights and the Federal Government's cost accounting standards. As
the value of intellectual property, or data, has grown, companies are
said to be less willing ``to accept the standard clauses [on data
rights] required by . . . Federal procurement laws and
regulations.''\10\ As for cost accounting standards, the often-heard
complaint was that commercially oriented firms would have to establish
separate divisions or contracting functions to accommodate the
relatively unique Federal cost accounting standards.\11\ Other
transaction authority was a wholesale way of waiving these and other
procurement requirements that served as barriers to some companies. In
addition, it was anticipated that ``other transactions'' would
encourage cost sharing, which would result in savings. Commercial firms
agree to cost sharing because the technology under development benefits
the company commercially, and, typically, commercial markets are much
larger than the Government market.
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\9\ Richard N. Kuyath, ``The Untapped Potential of the Department
of Defense's `Other Transaction' Authority,'' Public Contract Law
Journal, vol. 24, summer 1995, pp. 526-527.
\10\ Diane M. Sidebottom, ``Intellectual Property in Federal
Government Contracts: The Past, the Present, and One Possible Future,''
Public Contract Law Journal, vol. 33, fall 2003, p. 65.
\11\ See Center for Strategic and International Studies,
Integrating Commercial and Military Technologies for National Strength:
An Agenda for Change. Another barrier was the use of military
specifications (MilSpecs).
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APPLICABILITY OF THE FEDERAL ACQUISITION REGULATION AND PROCUREMENT
STATUTES TO OTHER TRANSACTIONS
Since an ``other transaction'' is not a contract, the Federal
Acquisition Regulation, a number of procurement statutes, and the
Government's Cost Accounting Standards do not apply to such
transactions.\12\ Determining which procurement statutes do not apply
to ``other transactions'' is a lengthy, involved process. In 2000, an
ad hoc working group affiliated with the Public Contract Law Section of
the American Bar Association (ABA) published a monograph on the
applicability of relevant statutes to DOD's other transaction
authority. Although the monograph includes some statutes and provisions
that apply only to DOD procurement, the analysis of other statutes is
applicable to non-DOD agencies.
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\12\ Executive agencies, contractors, and subcontractors are
required to use the cost accounting standards developed by the Cost
Accounting Standards Board (CASB) ``in estimating, accumulating, and
reporting costs in connection with pricing and administration of, and
settlement of disputes concerning, all negotiated prime contract and
subcontract procurement within the United States in excess of
$500,000.'' (U.S. Office of Management and Budget, ``Cost Accounting
Standards Board,'' available at http://www.whitehouse.gov/omb/
procurement/casb.html.) The CASB is located within the Office of
Management and Budget, Office of Federal Procurement Policy.
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Upon analyzing 30 statutes or statutory provisions, the working
group determined that 20 of them do not apply to ``other
transactions,'' and two others that do not apply to research OTs may
apply to prototype OTs.\13\ The list of statutes, shown in Table 1,
includes, for example, the Competition in Contracting Act, the
Procurement Protest System, and the Procurement Integrity Act.
---------------------------------------------------------------------------
\13\ American Bar Association, Section of Public Contract Law, Ad
Hoc Working Group on Other Transactions, Department of Defense ``Other
Transactions'': An Analysis of Applicable Laws, pp. 27-31.
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Finally, it should be noted that, in describing the challenges of
analyzing each statute, the Ad Hoc Working Group pointed out that its
analysis of statutes may not be conclusive in some cases.\14\
---------------------------------------------------------------------------
\14\ Ibid., p. 26.
TABLE 1.--STATUTES AND STATUTORY PROVISIONS THAT DO NOT APPLY TO OTHER
TRANSACTIONS
------------------------------------------------------------------------
Purpose of Statute or
Statute or Statutory Provision * Statutory Provision **
------------------------------------------------------------------------
Competition in Contracting Act (CICA)..... ``To promote the use of
10 U.S.C. 2301 et seq.; competitive procedures and
41 U.S.C. 253 et seq. prescribe uniform
Government-wide policies
and procedures regarding
contract formation, award,
publication, and submission
of cost or pricing data.''
Contract Disputes Act..................... ``To create a comprehensive,
41 U.S.C. 601 et seq. fair, and balanced
statutory scheme of
administrative and legal
remedies for claims under
Government contracts.''
Procurement Protest System (Subtitle D of ``To provide a statutory
CICA). basis for procurement
protests by interested
parties to the Comptroller
General.''
Kinds of Contracts........................ ``To establish various
10 U.S.C. 2306 restrictions on the terms
and conditions of
contracts.''
Examination of records of contractor...... ``To provide authority to
10 U.S.C. 2313 the contracting agency to
access a contractor's
records or plants in order
to perform audits of the
contractor.''
Contracts: acquisition, construction, or ``To provide authority for
furnishing of test facilities and acquisition, construction,
equipment [to R&D contractors]. or furnishing of test
10 U.S.C. 2353 facilities or equipment in
connection with R&D
contracts.''
Contracts: indemnification provision...... ``To authorize the Military
10 U.S.C. 2354 Departments to include
provisions in DOD R&D
contracts indemnifying the
contractor for certain
claims and losses.''
Prohibition against doing business with ``To prohibit the award by
certain offerors. the Department of Defense
10 U.S.C. 2393 of contracts, or in some
cases subcontracts, to
firms that have been
debarred or suspended by
another agency.''
Major weapon systems: contractor ``To provide warranty
guarantees. protection to the
10 U.S.C. 2403 Government for major
weapons systems it
acquires.''
Prohibition on persons convicted of ``To prevent persons
defense contract related felonies and convicted of fraud or any
related criminal penalties as defense other felony arising out of
contractors. a defense contract from
10 U.S.C. 2408 further participating in
contracts with the
Department of Defense for a
specified statutory
period.''
Contractor employees: protection from ``To prohibit contractors
reprisal for disclosure of certain from discharging, demoting,
information. or discriminating against
10 U.S.C. 2409 employees who disclose
substantial violations of
law related to contracts.''
Limitation on the use of appropriated ``To prohibit recipients and
funds to influence certain Federal requesters of Federal
contracting and financial transactions. contracts, grants, or
31 U.S.C. 1352 cooperative agreements from
using appropriated funds to
pay any person to influence
or to attempt to influence
executive or legislative
decisionmaking in
connection with the
awarding of any Federal
contract or grant, the
making of any Federal loan,
or the entering into of any
cooperative agreement.''
Anti-Kickback Act......................... ``To eliminate the practice
41 U.S.C. 51-58c of subcontractors paying
kickbacks in the form of
fees, gifts, gratuities, or
credits to higher tier
subcontractors or prime
contractors for the purpose
of securing the award of
subcontracts or orders.''
Procurement Integrity Act................. ``To ensure the ethical
41 U.S.C. 423 conduct of Federal agency
procurements by prohibiting
certain Government
officials from accepting
compensation from or
discussing future
employment with bidders or
offerors, and prohibiting
the unauthorized receipt or
disclosure of contractor
bid and proposal
information or source
selection information
before the award of a
Federal agency procurement
contract.''
Walsh-Healey Act.......................... ``To require all covered
41 U.S.C. 35-45*** contracts to contain
stipulations regarding
minimum wages, maximum
hours, safe and sanitary
working conditions, child
labor, and convict labor
requirements.''
Drug-Free Workplace Act................... ``To eliminate any
41 U.S.C. 701-707 connection between drug use
or distribution and Federal
contracts, cooperative
agreements, or grants.''
Buy American Act.......................... ``To provide a preference
41 U.S.C. 10a-10d for domestic products in
Government acquisition for
public use.''
Bayh-Dole Act............................. ``To set forth Government's
35 U.S.C. 200-212 policy regarding allocation
of patent rights to
inventions conceived or
first actually reduced to
practice under contracts,
grants, and cooperative
agreements with small
business firms and
educational and other
nonprofit
organizations.''****
Technical data provisions applicable to ``To provide for regulations
DOD. to define the legitimate
10 U.S.C. 2320 and 2321 interest of the United
States and of a contractor
or subcontractor in
technical data pertaining
to an item or process.''
Truth in Negotiations Act................. ``To require the submission
10 U.S.C. 2306a of cost or pricing data on
negotiated contracts in
excess of $500,000, as well
as for certain subcontracts
and contract
modifications.''
Cost Accounting Standards................. ``To provide for the
41 U.S.C. 422 promulgation of uniform
standards for allocating
costs to Government
contracts.''
Cost Principles........................... ``To provide for the
10 U.S.C. 2324 disallowance of certain
costs under flexibly priced
contracts and prescribe
penalties for the
submission of claims for
unallowable costs.''
------------------------------------------------------------------------
Source: American Bar Association, Section of Public Contract Law, Ad Hoc
Working Group on Other Transactions, Department of Defense ``Other
Transactions'': An Analysis of Applicable Laws, American Bar
Association, (Chicago: 2000), pp. 27-31.
* The source of the name or descriptive information in this column is
American Bar Association, Section of Public Contract Law, Ad Hoc
Working Group on Other Transactions, Department of Defense ``Other
Transactions'': An Analysis of Applicable Laws, pp. 27-29.
** Ibid., pp. A-1--A-57.
*** This provision or statute does not apply to ``other transactions''
involving research and development, but it may apply to ``other
transactions'' involving prototypes. (Ibid., pp. 30-31.)
**** The phrase ``first actually reduced to practice'' refers to a
working model of the idea or invention.
concerns regarding the use of other transaction authority
Freedom from Federal procurement requirements is an overarching
advantage of the use of OT authority, but, at the same time, problems
associated with ``other transactions'' may follow from this exemption.
In the absence of certain statutes and regulations that apply to
traditional procurements, agencies and companies that engage in OTs
might face uncertainties, and increased risk, with regard to some
issues or procedures, such as funding limitations, dispute resolution,
and data rights.\15\ Additionally, the protections and tools that
contracting officers have ``to negotiate fair and reasonable prices,
and to ensure that taxpayer dollars are expended for costs which are
allowable and consistent with Federal procurement policies''--such as
the Truth in Negotiations Act, cost accounting standards, and various
audit provisions--do not apply to ``other transactions.''\16\ These are
some of the tools ``that have provided contracting officers' visibility
into contractor costs and help the government ensure that prices
negotiated and eventually paid are reasonable.''\17\ As the DOD
Inspector General (IG) found, even within the contracting office,
problems may arise. The IG reported that ``some contracting officers
[failed:] (a) to sufficiently document the justification for using
[research and development] OTs, (b) to document the review of cost
proposals, and (c) to monitor actual research costs.''\18\ Thus, the
flexibility inherent in OT authority, which is a significant advantage
of using this method, might also result in fewer protections and
decreased transparency and accountability when compared to conventional
procurements.
---------------------------------------------------------------------------
\15\ Ibid., p. 2; U.S. Department of Defense, Office of the
Inspector General, ``Statement for the Record, Robert J. Lieberman,
Deputy Inspector General, Department of Defense, to the Subcommittee on
Technology and Procurement Policy, House Committee on Government
Reform, on The Services Acquisition Reform Act (SARA) of 2002,'' Mar.
12, 2002, Report No. D-2002-064, p. 14.
\16\ Ibid., p. 11.
\17\ Ibid.
\18\ Ibid., p. 12.
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how well does ot authority work?
A DOD IG summary of several audits that it had conducted found that
``other transactions'' had not attracted a significant number of
nontraditional defense contractors.\19\ Data for the period fiscal year
1994 through fiscal year 2001 showed that traditional defense
contractors received nearly 95 percent of the $5.7 billion in funds for
209 prototype ``other transactions.''\20\
---------------------------------------------------------------------------
\19\ A ``nontraditional defense contractor'' is ``an entity that
has not, for a period of at least 1 year prior to the date that a
transaction (other than a contract, grant, or cooperative agreement)
for a prototype project under the authority of this section [Sec. 845
of Pub. L. 103-160] is entered into, entered into or performed with
respect to--(1) Any contract that is subject to full coverage under the
cost accounting standards prescribed pursuant to section 26 of the
Office of Federal Procurement Policy Act (41 U.S.C. 422) and the
regulations implementing such section; or (2) any other contract in
excess of $500,00 to carry out prototype projects or to perform basic,
applied, or advanced research projects for a Federal agency, that is
subject to the Federal Acquisition Regulation.'' (10 U.S.C. 2371
note.) Apparently, this definition also applies to ``other
transactions'' that involve research.
\20\ U.S. Department of Defense, Office of the Inspector General,
``Statement for the Record, Robert J. Lieberman, Deputy Inspector
General, Department of Defense, to the Subcommittee on Technology and
Procurement Policy, House Committee on Government Reform, on The
Services Acquisition Reform Act (SARA) of 2002,'' Mar. 12, 2002, Report
No. D-2002-064, pp. 11-12.
---------------------------------------------------------------------------
The DOD IG also provided the following suggestions involving OT
authority: (a) Consider the use of OT authority only when it is clear
that the agency cannot acquire the goods, services, and technologies
through existing vehicles (for example, contracts, grants, or
cooperative agreements); and (b) tailor OT legislation so that such
transactions are used only to attract nontraditional contractors and
only for transactions involving technologies, research capabilities,
and processes that are not available through traditional procurement
methods.\21\ The DOD IG also recommended that audit access rights be
given to the Government for OTs, and that, for research OTs, agency
heads be required to make a determination that an OT is necessary to
convince a nontraditional contractor to engage in a project with the
Government. Additionally, the determination would include a finding
that a contract, grant, or cooperative agreement is not appropriate or
feasible and a statement that waivers to procurement regulations and
statutes are not sufficient for meeting the agency's needs.\22\
---------------------------------------------------------------------------
\21\ Ibid., p. 12.
\22\ Ibid.
---------------------------------------------------------------------------
In 2002, the RAND Corporation evaluated the effectiveness of using
other transaction authority for prototypes within DOD.\23\ Although the
study focused on prototypes, it seems likely that most of the findings
of the study might equally apply to research projects.\24\
Specifically, the RAND study asked the following question: Do the
benefits expected from waiving the Federal Acquisition Regulation
justify the possible costs that might be incurred? The study examined
21 of the 72 prototype projects that, at the time of the study, had
been awarded using other transaction authority. The study noted the
difficulties involved in devising metrics for determining whether
``other transaction'' projects achieved policy objectives. In this
study, the number of nontraditional contractors was ruled out as a
potential metric for being an unreliable measure. Another potential
metric, cost avoidance, was rejected for being unverifiable.
Additionally, the authors of the study noted that it is not practical
to compare ``other transactions'' with traditional procurements for two
reasons: (a) It is impossible to find truly analogous projects; and,
(b) there is no way to determine what would have occurred if a
different procurement method had been used. Therefore, the study relied
largely on the judgments and opinions provided by DOD and contractor
program managers who had experience with both types of OTs.\25\ The
RAND study concluded that: (a) DOD had gained access to important new
industrial resources; (b) the flexibility permitted by other
transaction authority meant that more of the project cost was spent on
the product than on the acquisition process; and, (c) the Government
did incur some risks, but those risks were low.
---------------------------------------------------------------------------
\23\ RAND, National Defense Research Institute, Document Briefing,
Assessing the Use of ``Other Transactions'' Authority for Prototyping
Project (Santa Monica: 2002).
\24\ Another earlier assessment of DARPA's use of ``other
transactions'' for research and development was prepared for DARPA by
the Institute for Defense Analyses, Participant Views of Advanced
Research Projects Agency ``Other Transactions'', IDA Document D-1793,
Nov. 1995. The observations recorded in this report are generally
similar to those in the RAND report; i.e., flexibility was important,
and the work would not have occurred without using ``other
transactions'' agreements.
\25\ RAND, National Defense Research Institute, Document Briefing,
Assessing the Use of ``Other Transactions'' Authority for Prototyping
Project, pp. 9-10.
---------------------------------------------------------------------------
Another finding of the study was that those transactions in which
data rights and cost accounting standards had been loosened the most
involved firms that expected the commercial sector to be the main
market for the technology under development with the Government. These
firms had already expended their own resources on the technology, and
they brought their own commercial assets and funds to the Government
project. The study suggested that applying acquisition regulations to
this type of project would most probably mean that such projects would
not be accomplished.\26\
---------------------------------------------------------------------------
\26\ Ibid., pp. 27-28.
---------------------------------------------------------------------------
On the one hand, it is not possible to determine conclusively
whether the use of other transaction authority accomplishes what is
intended, including higher performance and less expensive Government
end-products. However, the RAND study and the judgments of many people
involved in OTs suggest that the use of OT authority does expand
Government access to commercial technology and production capacity and
involves lower transaction costs and reduced risks for the projects.
dhs's experience with other transaction authority
Evaluating how DHS has used other transaction authority, and
whether the use has been successful, would be a complex undertaking for
several reasons, including some of the challenges encountered by RAND
in the course of conducting its study. Adding to the complexity of such
an undertaking would be the need to do field research to obtain
information that is sufficiently detailed and comprehensive. An
evaluation might include a series of questions such as these:
What companies are involved in OT projects?
What does each company bring to the project in terms of
technology, manufacturing capability, or engineering resources?
To what extent do each company's resources reside in, or
take advantage of, the commercial market?
How much cost sharing, if any, has occurred?
Has the Department experienced any unintended consequences
as a result of using OT authority?
How have DHS and its partners addressed certain elements of
their transactions, such as data rights and cost accounting
standards?
For OTs that have been completed, did the terms and results
of the transactions match the rationale for and expected
benefits of the transactions?
How many nontraditional Government contractors and
traditional contractors have participated in DHS transactions?
\27\
---------------------------------------------------------------------------
\27\ The term ``nontraditional Government contractor'' has the same
meaning as ``nontraditional defense contractor,'' which is defined in
Sec. 845(e) of Pub. L. 103-160 and 10 U.S.C. 2371 note. The
definition also is included above, in another footnote.
---------------------------------------------------------------------------
Finally, based on these questions and possibly others, has
OT authority enabled DHS to acquire research, technologies, and
prototypes that it would not have been able to acquire
otherwise?
This concludes my remarks. Thank you for your attention. I am
accompanied by a colleague, Dr. John Moteff, who is a Specialist in
Science and Technology Policy with CRS. We welcome your questions.
Mr. Langevin. Thank you, Ms. Halchin. Thank you for your
testimony.
I now recognize Mr. Needham to summarize your statement for
5 minutes.
Welcome.
STATEMENT OF JOHN K. NEEDHAM, ACTING DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Needham. Thank you, Mr. Chairman, Ranking Member McCaul
and other Members of the subcommittee. I appreciate the
opportunity to discuss the Department of Homeland Security's
use of other transaction authorities under the Homeland
Security Act.
I am John Needham, acting director of the Acquisition and
Sourcing Management Team of the Government Accountability
Office.
In my statement, I am going to cover three points. First is
the extent of DHS' use of OT authority under the Homeland
Security Act, the status of DHS' implementation of GAO's
previous recommendations and accountability challenges
associated with the use of these agreements based on GAO's
previous work at the Department of Homeland Security and the
Department of Defense.
While OTs provide great flexibility in attracting
contractors that have not typically pursued Government
contracts, they also carry the risk of reduced accountability
and transparency, and fewer safeguards have been found FAR-
based procurements. Accordingly, GAO will be continuing to
review DHS' use of OT agreements this year.
In discussing the extent to which DHS has used its
authority, I would point out that the $153 million that DHS
spent on OTAs in the Science and Technology Directorate in 2006
is approximately 1 percent of DHS' total procurement
obligations. Based on data that we recently reviewed, DHS
entered into 37 OT agreements between fiscal years 2004 and
2007, most of which were initiated in 2004 and 2005.
Though it is using its authority less frequently, it
continues to obligate funds for its earliest agreements. The
agreements from the first 2 years account for 88 percent of OT
spending by DHS in its Science and Technology Directorate.
Furthermore, about 77 percent of dollars spent on these
agreements have been obligated under seven of DHS' 37
agreements. According to DHS, all the agreements to date were
for prototype projects and that each included at least one
nontraditional contractor.
Regarding the recommendations that we made in our 2004 and
2005 reports, DHS has taken several steps to address these
recommendations. It has created guidance on when to include
audit provisions in OT agreements, established a training
program on using these agreements and improved controls over
potential conflicts of interest.
However, it has not implemented all of them. For example,
we also recommended that DHS capture knowledge gained from OTs
it has awarded, while DHS has compiled lessons that relate to
DOD rather than DHS' experience, as opposed to that of DOD.
Challenges that I would like to talk about are the four,
and they are inherent in the flexibilities provided by OT
authority. The first is attracting and ensuring the use of
nontraditional contractors. DHS has said that it had the
nontraditional contractor involved in each of its 37 OT
agreements in the Science and Technology Directorate.
It should be noted that DHS' management directive
identifies conditions under which it can enter into OTs without
using nontraditional contractors. While we have not assessed
the extent of the involvement of nontraditional contractors or
what portion of the funding they receive; however, our review
of OT agreements at DOD found that DOD departed from the
original rationale of using these agreements, as most were
entered into with traditional DOD contractors and nonprofit
institutions.
Second, intellectual property rights. A large appeal of
using an OT is to provide greater protection to a firm's
intellectual property rights. Alternatively, and just as
important, insufficient intellectual property rights on the
part of the Government could hinder the Government's ability to
adapt developed technology for use outside the initial scope of
the project. Therefore, while an OT agreement may help reduce
the development costs early on, there is no assurance that the
total cost to the Government will be reasonable when the cost
of producing the final product is considered as well.
Third, financial controls and cost accounting. OTs are
exempt from cost accounting standards and audit requirements.
While OT recipients have flexibility in tracking costs, they
still need to provide cost information and demonstrate that
Government funds are being used responsibly. This is
particularly true for traditional contractors that are
performing work under both FAR-based contracts as well as OT
agreements.
Furthermore, DHS also needs a way to assess the
reasonableness of the contractor's reported value of in-kind
contributions.
Now, finally, maintaining a skilled acquisition force is
also a key challenge. As prior GAO work has noted, maintaining
institutional knowledge sufficient to maintain Government
control and contractual-type relationships is critical. The
unique nature of OT agreements means that the Federal
Government acquisition staff working with these agreements need
to be experienced in doing R&D acquisitions, have strong
business acumen and sound judgment to operate effectively in a
relatively unstructured business environment.
Retaining a skilled acquisition workforce has been a
continual challenge at DHS overall, and we have ongoing work in
this area for this committee.
Mr. Chairman, this concludes my oral statement. I would be
pleased to take questions from the subcommittee Members. Thank
you.
[The statement of Mr. Needham follows:]
Prepared Statement of John K. Needham
February 7, 2008
DEPARTMENT OF HOMELAND SECURITY: STATUS AND ACCOUNTABILITY CHALLENGES
ASSOCIATED WITH THE USE OF SPECIAL DHS ACQUISITION AUTHORITY
GAO HIGHLIGHTS: HIGHLIGHTS OF GAO-08-471T, A REPORT TO THE SUBCOMMITTEE
ON EMERGING THREATS, CYBERSECURITY, AND SCIENCE AND TECHNOLOGY,
COMMITTEE ON HOMELAND SECURITY COMMITTEE, HOUSE OF REPRESENTATIVES
Why GAO Did This Study
Other transaction authority was created to enhance the Federal
Government's ability to acquire cutting-edge science and technology by
attracting nontraditional contractors that have not typically pursued
Government contracts. The Homeland Security Act of 2002 granted the
Department the temporary authority to enter into other transactions for
research and prototype projects for a period of 5 years. The
Consolidated Appropriations Act of 2008 extended this authority until
September 30, 2008.
This testimony discusses: (1) The extent to which DHS has used its
other transaction authority, (2) the status of DHS's implementation of
GAO's previous recommendations, and (3) the accountability challenges
associated with the use of these agreements.
What GAO Recommends
While GAO is not making recommendations in this testimony, GAO has
made recommendations over the past few years to help improve DHS's
Science and Technology Directorate's use its other transaction
authority. The Department has generally concurred with these
recommendations and has taken action to improve its use of other
transaction authority, but has not fully addressed all of GAO's
recommendations.
DEPARTMENT OF HOMELAND SECURITY: STATUS AND ACCOUNTABILITY CHALLENGES
ASSOCIATED WITH THE USE OF SPECIAL DHS ACQUISITION AUTHORITY
What GAO Found
DHS entered into 37 other transaction agreements between fiscal
years 2004 and 2007, most of which were entered into in the first 2
years. Though it has since used this authority less frequently, it
continues to obligate funds for its earliest agreements. Furthermore,
about 77 percent of the dollars spent on these agreements have been for
7 of DHS's 37 agreements. Contracting representatives also told us that
all of the agreements to date were for prototype projects and that each
agreement included at least one nontraditional contractor. GAO plans
further review of DHS's use of other transaction agreements as required
by the Homeland Security Act of 2002.
DHS has made efforts to improve its use of other transaction
agreements and to prevent conflicts of interest. The Department has
taken the following steps to address prior GAO recommendations
including:
creating guidance on when to include audit provisions in
other transaction agreements;
creating a training program on using these agreements; and;
improving controls over conflicts of interest.
GAO also recommended that DHS capture knowledge gained from the
agreements it has entered into. The Department has compiled lessons
learned from the Department of Defense, but the document is not related
to DHS's experience. Furthermore, while DHS created guidance on when to
include audit provisions in agreements, its guidance only applies to
certain prototype projects and only in certain circumstances.
Risks inherent with the use of other transaction agreements create
several accountability challenges. These challenges include attracting
and ensuring the use of nontraditional contractors, acquiring
intellectual property rights, ensuring financial control, and
maintaining a skilled acquisition workforce with the expertise to
create and maintain these agreements.
Mr. Chairman and Members of the subcommittee, thank you for
inviting me here today to discuss the Department of Homeland Security's
(DHS) use of its other transaction authority. According to DHS
officials, this authority, which is set to expire in September 2008, is
a critical tool because it has given the Department the flexibility to
attract new contractors to help develop and manage the mission of an
integrated program of science and technology from basic research to
production. However, the flexibility afforded by other transaction
authority also carries the risk of reduced accountability and
transparency. For this reason, it is important to monitor the use of
this authority to help ensure that the benefits outweigh the risks to
the Government. We have previously reviewed DHS's use of this authority
and ethics-related management controls and made recommendations for
improvements.
My statement today will focus on: (1) The extent to which DHS has
used its other transaction authority, (2) the status of DHS's
implementation of GAO's previous recommendations, and (3) the
accountability challenges associated with the use of these agreements.
In preparation for this hearing, we obtained recent data on other
transaction agreements from DHS and looked at several of these
agreements, interviewed DHS representatives from the Science and
Technology Directorate, reviewed related reports and studies, and
identified the efforts DHS has made to address our previous
recommendations.\1\ We conducted our work from January to February 2008
and in accordance with the generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. We plan to
conduct additional audit work on DHS's use of other transaction
authority as required by the Homeland Security Act of 2002.
---------------------------------------------------------------------------
\1\ We followed up on recommendations made in GAO, Homeland
Security: Further Action Needed to Promote Successful Use of Special
DHS Acquisition Authority; and GAO-05-136 (Washington, DC: Dec. 15,
2004), and GAO, Homeland Security: DHS Needs to Improve Ethics-Related
Management Controls for the Science and Technology Directorate, GAO-06-
206 (Washington, DC: Dec. 22, 2005).
---------------------------------------------------------------------------
SUMMARY
In fiscal years 2004 through 2007, DHS entered into 37 other
transaction agreements with a total value of $443 million. DHS entered
into most of the agreements in the first 2 fiscal years, with only
seven new agreements in 2006 and 2007 combined. Most of the spending
was for a small number of its earliest agreements. Science and
Technology (S&T) Directorate contracting representatives stated that
all of the 37 agreements were for prototype projects and included at
least one nontraditional contractor.
DHS has taken steps to improve its use of other transaction
agreements and to avoid conflicts of interest. Specifically, the
Department has developed guidance on when to include audit provisions
in agreements, developed an other transaction agreement training
program, and improved management controls over conflicts of interest.
DHS also created a document on lessons learned to capture knowledge
gained from using other transactions, but the document is not specific
to DHS's experience.
Risks inherent with the use of other transaction agreements create
several accountability challenges. These challenges include attracting
and ensuring the use of nontraditional contractors, acquiring
intellectual property rights, ensuring financial control, and
maintaining a skilled acquisition workforce.
BACKGROUND
Other transaction authority was created to enhance the Federal
Government's ability to acquire cutting-edge science and technology by
attracting nontraditional contractors that have not typically pursued
Government contracts. Other transactions are agreements other than
Government contracts, grants, or cooperative agreements and may take a
number of forms. These agreements are generally not subject to the FAR.
This authority originated in 1958 when Congress gave the National
Aeronautics and Space Administration (NASA) the authority to enter into
contracts, leases, cooperative agreements, or ``other transactions.''
In 1989, Congress granted the Defense Advanced Research Projects Agency
(DARPA) temporary authority to use other transactions for advanced
research projects. In 1991, Congress made this authority permanent and
extended it to the military services. In 1993, Congress temporarily
expanded DARPA's other transaction authority, allowing the agency to
use the agreements for prototype projects. The Homeland Security Act of
2002 created DHS and granted the agency the authority to enter into
other transactions for research and development and prototype projects
for a period of 5 years. Congress granted DHS this authority to attract
nontraditional \2\ firms that have not worked with the Federal
Government, such as high-tech commercial firms that have resisted doing
business with the Government because of the requirements mandated by
the laws and regulations that apply to traditional FAR contracts. The
Consolidated Appropriations Act for 2008 extended this authority until
September 30, 2008.\3\
---------------------------------------------------------------------------
\2\ DHS's Management Directive No. 0771.1, July 8, 2005, defines a
nontraditional Government contractor as a business unit that has not,
for at least a period of 1 year prior to the date of entering into or
performing an other transaction agreement, entered into or performed:
any contract subject to full coverage under Federal Cost Accounting
Standards (CAS); or any contract in excess of $500,000 to carry out
prototype projects or to perform basic, applied, or advanced research
projects for a Federal agency that is subject to compliance with the
Federal Acquisition Regulation (FAR).
\3\ Consolidated Appropriations Act, 2008, Pub. L. No. 110-161,
Dec. 26, 2007.
---------------------------------------------------------------------------
DHS began operations in March 2003 incorporating 22 Federal
agencies to coordinate and centralize the leadership of many homeland
security activities under a single department.\4\ Since then, DHS has
become the third largest agency for procurement spending in the U.S.
Government. DHS's acquisition needs range from basic services to
complex investments, such as sophisticated screening equipment for air
passenger security and upgrading the Coast Guard's offshore fleet of
surface and air assets. In fiscal year 2006, according to agency data,
the Department obligated $15.9 billion for goods and services to
support its broad and complex acquisition portfolio. DHS's S&T
Directorate supports the Department's mission by serving as its primary
research and development arm. In fiscal year 2006, according to S&T
data, S&T obligated over $1.16 billion dollars to fund and develop
technology in support of homeland security missions. The directorate
has funded technology research and development in part through the use
of other transaction authority. According to agency officials, S&T is
the only component within DHS that uses this authority. Because of
their flexibility, other transactions give DHS considerable latitude in
negotiating with contractors on issues such as intellectual property,
reporting on cost, and data rights. In addition, it may relieve the
parties from certain contract administration requirements that
nontraditional contractors find burdensome.
---------------------------------------------------------------------------
\4\ The Homeland Security Act of 2002, Pub. L. 107-296, Sec. 101,
Nov. 25, 2002, defined the Department's missions to include preventing
terrorist attacks within the United States; reducing U.S. vulnerability
to terrorism; and minimizing the damages, and assisting in the recovery
from, attacks that occur within the United States.
---------------------------------------------------------------------------
DHS'S USE OF OTHER TRANSACTION AUTHORITY HAS DECLINED SINCE FISCAL YEAR
2005
The number and value of DHS's other transaction agreements has
decreased since 2005. Its recent other transaction agreements represent
just a small portion of its total procurement spending. Most of the
Department's use of other transaction authority to date occurred
between fiscal years 2004 and 2005. Though it has since used this
authority less frequently, it continues to obligate funds for its
earliest agreements. About 77 percent of the $443 million spent on
DHS's agreements has been on 7 of the 37 agreements. S&T contracting
representatives reported that all of these agreements were for
prototype projects.
In fiscal year 2006, other transactions accounted for almost $153
million of DHS's reported $15.9 billion in procurement obligations,
approximately 1 percent (see fig. 1). In addition, other transactions
represent only a small portion of S&T spending. For example, the
Department estimates that from fiscal years 2004 through 2007, S&T
spent 13 percent of its total obligations on its other transaction
agreements.\5\
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\5\ According to S&T, total spending through other transaction
agreements includes four that are managed by DHS's Domestic Nuclear
Detection Office (DNDO). S&T contracting representatives told us that
these agreements were entered into by the S&T Directorate before DNDO
was created.
DHS reported a total of 37 other transaction agreements, 30 of
which were entered into in fiscal years 2004 and 2005. Accordingly, 88
percent of total spending was for agreements reached in fiscal years
2004 and 2005 (see fig. 2). While the total number of new agreements
has decreased since 2005, the total obligations under these agreements
have generally increased because funds are obligated for agreements
made in prior years (see fig. 3).
About 77 percent of obligations was for the seven largest other
transaction agreements (see appendix I). According to S&T, all of these
agreements included at least one nontraditional contractor, most
commonly as a subcontractor.
Though the acquisition outcomes related to DHS's use of other
transaction authority have not been formally assessed, the Department
estimates that at least some of these agreements have resulted in time
and cost savings. According to an S&T contracting representative, all
of its current agreements are for development of prototypes, but none
of the projects have yet reached production. Therefore, it is too soon
to evaluate the results. However, the Department believes that some of
these agreements have reduced the time it takes to develop its current
programs, as compared to a traditional FAR-based contract. In addition,
DHS has stated that its two cost-sharing agreements for development of
its Counter-MANPADS technology have resulted in savings of over $27
million and possibly more. However, the extent to which these savings
accrue to the Government or to the contractor is unclear.
DHS Has Made Progress in Improving Its Use of Its Other Transaction
Authority, But Has Yet To Fully Address Prior GAO
Recommendations
Soon after DHS established the S&T Directorate, S&T issued other
transaction solicitations using some commonly accepted acquisition
practices and knowledge-based acquisition principles. For example, DHS
used integrated product teams and contractor payable milestone
evaluations to manage other transaction agreements.\6\ To quickly
implement its early projects, S&T relied on experienced staff from
DARPA, other Government agencies, and industry to help train S&T
program and contracting staff in using other transactions and help DHS
create and manage the acquisition process. S&T also brought in program
managers, scientists, and experts from other Government agencies on a
temporary basis to provide assistance in other areas. Beyond these
efforts, GAO found some areas for improvement and recommended that: DHS
provide guidance on when to include audit provisions in agreements;
provide more training on creating and managing agreements; capture
knowledge gained from current agreements for future use; and take
measures to help rotational staff avoid conflicts of interest. DHS has
implemented some measures to address many of these recommendations;
however, it has not addressed all of them.
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\6\ Payable milestones are predetermined, observable technical
events or other measures of progress that the contractor and government
agree upon in advance.
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Provide guidance.--We recommended that DHS develop guidance
on when it is appropriate to include audit provisions in other
transaction agreements. Subsequently, DHS modified its
management directive to add guidance on including GAO audit
provisions in agreements.\7\ However, the guidance only
addresses prototype agreements over $5 million. While S&T
contracting officials recently told us that they have only
issued other transaction agreements for prototypes, they noted
that the Department intends to issue agreements for research
projects in the future. In addition, it is unclear how the $5
million threshold is to be applied. In at least one agreement,
the audit provision did not apply to subcontractors unless
their work also exceeded the $5 million threshold.
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\7\ The guidance grants GAO access for a period of 3 years after
the final payment is made.
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Provide additional training.--We recommended that DHS
develop a training program for staff on the use of other
transactions. DHS has developed a training program on other
transactions, and S&T contracting representatives said they
have plans to conduct additional sessions in 2008. The training
includes topics such as intellectual property rights,
acquisition of property in other transactions, and foreign
access to technology created under other transaction authority.
An S&T contracting representative told us the Directorate
currently has three staff with other transaction warrants and
has additional in-house expertise to draw on as needed, and
they said S&T no longer needs to rely on other agencies for
contracting assistance.
Capture lessons learned.--We recommended that DHS capture
knowledge obtained during the acquisition process for use in
planning and implementing future other transaction projects. In
2005, DHS hired a consultant to develop a ``lessons learned''
document based on DOD's experience using other transactions.
This is included in DHS's other transaction training. However,
it was not evident based on our follow-up work that DHS has
developed a system for capturing knowledge from its own
experience regarding other transaction agreements the
directorate has executed since it was created.
Ethics.--We made a number of recommendations regarding
conflicts of interest and ethics within S&T. When the S&T
Directorate was established in 2003, it hired scientists,
engineers, and experts from Federal laboratories, universities,
and elsewhere in the Federal Government for a limited time
under the Intergovernmental Personnel Act (IPA) with the
understanding that these staff would eventually return to their
``home'' institution.\8\ This created potential conflicts of
interest for those staff responsible for managing S&T
portfolios as these staff could be put in a position to make
decisions on their ``home'' institutions. We recommended that
DHS help the portfolio managers assigned through IPA comply
with conflict of interest laws by improving the S&T
Directorate's management controls related to ethics. DHS has
complied with these recommendations to define and standardize
the role of these portfolio managers in the research and
development process; provide regular ethics training for these
portfolio managers; and determine whether conflict of interest
waivers are necessary. The only outstanding recommendation
concerns establishing a monitoring and oversight program of
ethics-related management controls. Furthermore, an S&T
official told us the use of rotational portfolio managers has
largely been eliminated with the exception of one portfolio
manager who is currently serving a 2-year term.
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\8\ The Intergovernmental Personnel Act (IPA) of 1970, U.S.C.
3371-76, allows employees to be temporarily assigned to a Federal
agency.
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Inherent to Other Transactions' Flexibility Are Certain Accountability
Challenges
With Federal agencies' increased reliance on contractors to perform
mission-related functions comes an increased focus on the need to
manage acquisitions in an efficient, effective, and accountable manner.
The acquisition function is one area GAO has identified as vulnerable
to fraud, waste, abuse, and mismanagement. An unintended consequence of
the flexibility provided by other transaction authority is the
potential loss of accountability and transparency. Accordingly,
management controls are needed to ensure intended acquisition outcomes
are achieved while minimizing operational challenges. Operational
challenges to successfully making use of other transaction authority
include: attracting and ensuring the use of non-traditional
contractors; acquiring intellectual property rights; financial control;
and maintaining a skilled acquisition workforce.
Nontraditional Contractors.--One of the goals of using other
transactions is to attract firms that traditionally have not worked
with the Federal Government. S&T contracting officials confirmed that
at least one nontraditional contractor participated in each other
transaction agreement, generally as a partner to a traditional
contractor. We have not assessed the extent of the involvement of
nontraditional contractors or what portion of the funding they receive.
However, we have reported in the past that DOD had a mixed record in
attracting nontraditional contractors.\9\
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\9\ GAO, Acquisition Reform: DOD's Guidance on Using Section 845
Agreements Could Be Improved, GAO/NSIAD-00-33 (Washington, DC: April,
2000).
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Intellectual Property Rights.--One reason companies have reportedly
declined to contract with the Government is to protect their
intellectual property rights. Alternatively, insufficient intellectual
property rights could hinder the Government's ability to adapt
developed technology for use outside of the initial scope of the
project. Limiting the Government's intellectual property rights may
require a trade-off. On the one hand, this may encourage companies
towork with the Government and apply their own resources to efforts
that advance the Government's interests. However, it also could limit
the Government's production options for items that incorporate
technology created under an other transaction agreement. For example,
we previously reported that DARPA received an unsolicited proposal from
a small commercial firm to develop and demonstrate an unmanned aerial
vehicle capable of vertical take-off and landing based on the company's
existing proprietary technology. DARPA agreed not to accept any
technical data in the $16.7 million agreement. To obtain Government
purpose rights,\10\ DOD would have to purchase 300 vehicles or pay an
additional $20 million to $45 million.\11\ Therefore, using an other
transaction agreement could potentially limit competition and lead to
additional costs for follow-on work.
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\10\ Government purpose rights enable the Government to allow
others to use the data for Government purposes. See GAO, Intellectual
Property: Information on the Federal Framework and DOD's Other
Transaction Authority, GAO-01-980T (Washington, DC: July 2001).
\11\ GAO-01-980T.
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Financial Controls and Cost Accounting.--Other transactions are
exempt from CAS. While other transaction recipients have flexibility in
tracking costs, they still need to provide cost information and
demonstrate that Government funds are used responsibly. This is
particularly true for traditional contractors that are performing work
under both FAR-based contracts as well as other transaction agreements.
For example, contractors may use in-kind donations to satisfy cost-
sharing requirements; therefore, it is important that DHS has a means
to ensure that companies do not satisfy their other transaction cost-
sharing requirements with work funded under a FAR-based contract.
Maintaining a Skilled Acquisition Workforce.--Other transactions do
not have a standard structure based on regulatory guidelines and
therefore can be challenging to create and administer. Prior GAO work
has noted the importance of maintaining institutional knowledge
sufficient to maintain Government control. The unique nature of other
transaction agreements means that Federal Government acquisition staff
working with these agreements should have experience in planning and
conducting research and development acquisitions, strong business
acumen, and sound judgment to enable them to operate in a relatively
unstructured business environment. Retaining a skilled acquisition
workforce has been a continual challenge at DHS, and we have ongoing
work in this area for this committee.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions you or other Members of the committee
may have at this time.
Appendix I: Selected DHS Other Transaction Agreements
Mr. Langevin. Thank you, Mr. Needham.
I want to thank the witnesses for their testimony, and I
will remind each Member that he or she will have 5 minutes to
question the panel.
I will now recognize myself for questions.
Mr. Essig, let me begin with you. Basically, three areas I
want to get into. Just briefly, first, is the Department still
planning on asking this committee for an extension of the other
transaction authority beyond the 2008 sunset?
Next, I want to point out and ask this question: On section
831 of the Homeland Security Act, it requires that a report be
submitted to Congress each year for awards made in the
preceding fiscal year, pursuant to OT authority. This includes
all initial awards and options exercised. My question here is,
where are these reports?
Then, finally, I would like you to address Mr. Needham's
point with respect to those recommendations that have not been
implemented that GAO had recommended. Why haven't you addressed
those areas?
If you would start with the sunset question first.
Mr. Essig. Thank you, Mr. Chairman. As I mentioned in my
opening comments, we are very appreciative and fully support
Ranking Member McCaul's proposal to extend our authority to
2012. We believe that other transaction authority is an
absolutely critical tool for us to close some critical homeland
security vulnerabilities.
Regarding the second question, regarding section 831 and
the requirement for an annual report to Congress, I have been
the chief procurement officer just since last month, and I am
now aware that the Department has not submitted the reports as
required by section 831. As the chief procurement officer, I am
responsible for ensuring that those reports are submitted, and
I will commit and go on the record as indicating that I will
have that report submitted this year. I will also put
procedures in place to ensure that those reports are submitted
on a timely basis in the future.
Regarding the specific GAO recommendations, regarding full
implementation of the knowledge capturing system, what I would
like to identify for the group, the book I have in front of
me--it is about a 2-inch binder--is a training manual we use
for all of our OT contracting officers. Now, my background is
primarily in the area of DOD, but one thing that DHS does over
and above what I have seen before is we only warrant our
contracting officers to do other transactions after they have
successfully completed this training course.
Now, the manual you see here is the guide book they are
given in the class. It includes the lessons learned from the
Department of Defense. It includes some recommendations from
the Logistics Management Institute on actions taken at the
Department of Homeland Security. All of this information is
available to our OT contracting officers when they evaluate
whether or not to do OTs in the future.
This is a living document. This is a document which will be
updated for every successive class. Our intention is as we
identify additional lessons learned, we incorporate this into
the manual so that as people go through training they have the
latest available lessons learned, both from other agencies as
well as DHS. So if we find cases where the Department has not
yet fully implemented a GAO recommendation, I can tell you, I
fully concur with the recommendations of GAO, and we will fully
implement those recommendations.
Mr. Langevin. Thank you. Well, that certainly is
reassuring, and I appreciate that answer.
Let me ask this: The DOD audit found departures from the
original rationale for using OT agreements, which was to
attract nontraditional defense contractors. Data collected from
fiscal year 1990 to 1997 revealed that 85 percent of the funds
for other transactions went to traditional DOD contractors,
which isn't quite how Congress envisioned the authority.
According to the 2004 GAO report, DHS relied on self-
certification by contractors of their status as a
nontraditional Government contractor. Is this still the
practice today?
Mr. Essig. Actually, at the time DOD received its authority
for other transactions on prototypes, I was the director for
surface systems contracts with the Naval Sea Systems Command,
so I was with DOD at that time. I recall very specifically when
DOD received this authority there was heavy interest in
demonstrating that we are able to implement the authority
received. The unfortunate consequence, in my perception, the
unfortunate consequence of that is that it was used in cases
where it did not provide the greatest value to the Government.
It was used in cases with traditional Government contractors.
It did not provide the benefits, it did not give us access to
those nontraditional contractors, it did not provide the cost-
sharing arrangements we have seen.
That is one of the lessons learned, okay, I think that we
have now. We understand how it was incorrectly used in the
past. It was a lesson learned for the future. At DHS, every one
of our OTs is reviewed, not only by the contracting officer but
by a review panel that includes both the Office of General
Counsel and some senior personnel within the contracting
office, and the goal is to ensure that the justification and
the documentation for an other transaction at DHS meets the
appropriate measures.
Mr. Langevin. So the answer is that this issue of these
contractors of self-certifying is no longer the case?
Mr. Essig. As I said, I have been at this for a month. I do
not have the information in front of me. I can take that
question for the record and get back to you as to whether or
not we are using any self-certification within the Department.
Mr. Langevin. Okay. Thank you. I would hope that the answer
comes back, ``No,'' but I will wait to hear from you.
Mr. Essig. Yes, sir. I would like to confirm that.
Mr. Langevin. Thank you.
With that, I will stop now and recognize the Ranking
Member, Mr. McCaul, the gentleman from Texas, for 5 minutes.
Mr. McCaul. I thank the Chairman, and I thank the
witnesses.
Mr. Essig, congratulations on your new position. I must
say, we both met with you prior to this, and I was impressed by
your professionalism, your sincerity and your experience in
terms of procurement. I think you are going to be a great asset
to the Department.
There are some concerns and reservations that have been
raised, but I believe that, in my view, the benefits of these
other transactions far outweigh the risk.
Now, we talked about innovation, flexibility, bringing
barriers down to businesses, some small businesses, the cost
savings, cost-sharing arrangements, the fact that we, through
this other transaction authority, developed handheld chemical
agent detection systems, which have been used in larger cities,
the fact that the DOD has been doing this for quite some time,
and the RAND study seemed to be somewhat favorable that this
has worked quite well in areas where we really need it. NASA
has used it, the Department of Energy.
My question to Mr. Essig is, this is getting ready to
expire in September 2008, it will sunset: If Congress allows
this to expire, what will be the impact at the Department of
Homeland Security and your ability to protect this Nation from
potential terrorist threats?
Mr. Essig. Thank you for that question. I believe that the
loss of the other transaction authority would have at least two
serious and possibly devastating consequences from the ability
of the Department to meet its mission requirements.
First, given the nature of the homeland security mission,
it is essential that we have access to all available commercial
technologies, including those that are from companies that do
not currently or traditionally do business with the Government.
Technologies such as the four S&T systems I identified in my
written statement, including the LACIS project, which you just
mentioned, sir, on the chemical agent detectors, would not have
been achievable without this authority.
The second consequence of the loss of this authority would
be that it would significantly reduce the ability of the
Department to share the cost of developing dual-use
technologies with industry. Now, these are technologies that
may have application both commercially and for homeland
security where the cost of developing that technology is too
great for industry to develop it on its own.
So in the absence of the OT authority where we can share
the cost of developing that with industry, the Department would
be forced either to forego the development of technology and be
unable to close those areas of identified risk or bear the full
cost of its development, increasing the cost to the taxpayer.
If I could ask, I guess, Keith, if he had anything to add
to that?
Mr. Ward. Yes, I would be happy to.
Mr. Essig has asked me to give a few examples of particular
products that have come out of some of our currently funded R&D
efforts in the Department of Homeland Security S&T Directorate.
The first I want to show you--and I apologize for the
committee Members not being able to see this, but I am not
going to apologize for how small it is, because, in fact, one
of the goals of this particular project--it is part of the
Autonomous Rapid Facility Chemical Agent Monitoring System,
which is specifically being developed to protect the
facilities, rail and transport security systems and
infrastructure protection--is small affordable systems.
This particular gadget name is actually longer and bigger
than the gadget itself. This is a differential mobility
spectrometer combined with a convention ion mobility
spectrometer. How about that?
It was developed by a company called Sionex out of New
Bedford, Massachusetts. They were the nontraditional contractor
that the prime, Hamilton Sundstrand, teamed with in response to
our initial broad agency announcement, which encouraged people
to team with unconventional contractors.
This is an extremely innovative technical solution to the
general problem of building affordable, lightweight, highly
effective chemical monitoring systems, and I think it is an
excellent example of the power of OTAs. This particular
company, in my opinion, would not have been able to provide
this sort of technology to homeland security without our having
other transaction authority.
One final example, if I may mention it briefly, is in the
biological defense arena. As many of you know, one of our
projects, called the Bioagent Autonomous Network Detector,
BAND, aims to develop the third generation biowatch system. One
of the major performers of the three that are left in the
program is a company called Microfluidics, Incorporated. They
chose to team with a small company called Cycle Smart,
Incorporated in Sunnyvale, California.
This particular gadget that I hold in my hand is a highly
innovative and clever Microfluidic Systems made with this
nontraditional contractor. It is this particular part of the
overall third generation biowatch system. It is the actual part
that--both the whole organisms and spores from biological
agents so that the system can get to the DNA to allow it to
identify exactly what the agent is.
Another great example of a nontraditional contractor coming
to the fore. Again, it is my professional opinion that we would
have never been able to capture this sort of innovative
technology had we not had other transaction authority for
prototype development.
Mr. McCaul. Thank you, Dr. Ward.
I submit, then, Mr. Chairman, that we work with the GAO to
better improve the other transaction authority but that we not
throw out the baby with the bath water. I think that it
provides innovation, flexibility, cost savings, it is good for
the American taxpayer, and, ultimately, it is the kind of
flexibility that, in my view, the Department needs to protect
this Nation. So I hope that this committee and this Congress
will reauthorize this provision and give DHS the tools that it
needs.
Thank you.
Mr. Langevin. I thank the gentleman for his questions and
his comments.
Mr. Ward, just as a followup, on that third generation
biodetector you were holding up, that is something that
requires little to no human interaction, and that is something
that is real time?
Mr. Ward. Yes, sir, Mr. Chairman. We have currently three
performers all competing to see who can build the best system,
and all of those systems will be completely autonomous, work in
real time and conduct all of the analysis of the biological
agent in place, on the box. That is quite different from what
our current biowatch system does, as you probably know.
Mr. Langevin. Well, I agree. I am not at all satisfied with
our current biodetection system we have in place, and I am
anxious to get to that third generation technology as quickly
as possible.
Do you have, as a side note, a best guess as to when that
technology will be ready to be fielded?
Mr. Ward. Yes, sir, Mr. Chairman. Currently, there will be
the final stages of the developmental testing and evaluation,
which will allow us to hand this off to the Office of Health
Affairs, the DHS customer who is actually running biowatch, and
that will occur in the latter part of 2009, with early
deployment in 2010.
Mr. Langevin. Thank you. The sooner the better, as far as I
am concerned. We are all concerned about our preparedness in
that area, which is sorely lacking, and I am anxious to get
that new equipment fielded.
So thank you for the brief on that and the update.
With that, the Chair now recognizes the gentleman from
North Carolina, Mr. Etheridge, for 5 minutes.
Mr. Etheridge. Thank you, Mr. Chairman, and let me thank
our witnesses for being here.
If OT is designed to allow nontraditional commercial firms
to do business with the Federal Government and inject
entrepreneurial energy into the Federal research enterprise,
one would expect that small business would be the prime
benefactors. However, there are still a lot of large businesses
making agreements under OT.
Mr. Needham and Dr. Halchin, can you describe some of the
impediments to using OT for small businesses?
Mr. Needham. Congressman, when we did our work back in
2004, one of the things that we did was spend time with the
procurement effort in terms of the outreach that DHS did. One
of the things we were impressed with was they did an extensive
outreach. They used what they called industry days where they
would basically go out and discuss what some of the technology
they were looking for. They tried to do a fairly wide
announcement as to bring as many small businesses as possible.
They then followed that up with technical conferences where
businesses could come in and kind of get a closer----
Mr. Etheridge. No, I understand the process, but what are
the impediments?
Mr. Needham. Well, the impediments are that they have a
good knowledge of what small businesses are out there, what
kind of knowledge base they have and where they are located and
are they reaching them. One of the things that they would have
to do is evaluate how well their outreach has been.
Mr. Etheridge. Okay.
Dr. Halchin, do you have anything to add to that?
Ms. Halchin. I would agree with Mr. Needham. One other item
I could add, I know that DHS and DOD do post at least some if
not all of their--I guess usually they use something called a
broad agency announcement when they are about to embark on some
sort of other transaction, and they may post it on their Web
site. I am not sure if it always gets posted on the Federal
Business Opportunities Web site. It is possible but that could
be an impediment if these types of opportunities are not
publicized as widely as traditional procurements are.
Mr. Etheridge. Thank you, because that is one of the issues
that this was all about initially, trying to reach out to small
folks.
Mr. Essig, do you know what percentage of OT agreements go
to large versus small businesses?
Mr. Essig. There are a couple of different things there. In
2006, approximately 34 percent of our S&T other transaction
dollars went to small businesses as small business prime
contractors. I do not have the visibility into how----
Mr. Etheridge. What is your definition of small versus
large?
Mr. Essig. It depends upon the particular category. That is
defined by the Small Business Administration.
Mr. Etheridge. So you use the Small Business Administration
as your cut line.
Mr. Essig. Yes, sir.
Mr. Etheridge. You are saying 34 percent?
Mr. Essig. Thirty-four percent in 2006, and the good news
here, two things: One, in 2007, 54 percent of our S&T OT
dollars went to small businesses, and one of the things we do
with our use of broad agency announcements and the use of OTs
is we are looking for participation from as broad a sector of
the marketplace as possible, be it small businesses, large
businesses or mid-size businesses.
We are also looking at promoting unusual teaming
arrangements. We are not constrained by traditional prime
subcontractor relations. We could get consortiums to apply. It
gives us opportunities to reach teams of companies, which may
involve, again, a mixture of large, small and mid-size. The
data we capture on awards, as it reflects the awards to prime
contractors, and, again--so small businesses can get a portion
of the total work without necessarily being prime contractors.
Notwithstanding that, the results for small businesses looks
fairly good at this point.
Mr. Etheridge. Well, since we are on that topic, let me ask
you another one. OT, as you know, was originally created to
attract nontraditional commercial firms to do business with the
Federal Government, small business, et cetera, but there is
some flexibility in DHS' management directive for implementing
OT that allows traditional firms to enter agreements in
exceptional circumstances. Can you offer examples of these
exceptional circumstances that would allow DHS to issue an OT
for a prototype project without the participation of a
nontraditional Government contract, and how often does this
exceptional circumstance clause apply?
Mr. Essig. First off, again, and having only been the chief
procurement officer for a month, I am not personally aware of
any exceptions approved. In accordance with the management
directive that you are speaking to, any of those agreements
would have to be approved as the senior procurement executive.
I have not seen any since I have been at DHS, but I can
take the question and get back to you as to whether or not
there have been any----
Mr. Etheridge. Would you? And submit that to the committee
for the record.
Mr. Essig. Now, I could speculate as to some reasons for
that, but I have no concrete examples of where that authority
has been used. What it does is recognize the opportunity that
if we find an arrangement which is basically advantageous and
helps us basically close a critical vulnerability in homeland
security, if it doesn't meet one of those two conditions, it
gives us a way to implement it, nonetheless.
Mr. Etheridge. So you will submit that in writing for the
committee.
Mr. Essig. Yes, sir.
Mr. Etheridge. Thank you.
I yield back.
Mr. Langevin. I thank the gentleman.
The Chair now recognizes the gentleman from Georgia, Mr.
Broun, for 5 minutes.
Mr. Broun. Thank you, Mr. Chairman.
Mr. Essig, what are the most important protections that the
Federal acquisition regulation-based contracts contained in
other transactions do not? Also, how does DHS plan to monitor
the benefits, dollars, time saved from using its other
transaction agreements?
Mr. Essig. The other transactions, as you indicate, they
are exempt from the Federal acquisition regulations. They are
also exempt from a number of statutory requirements that apply
to procurement transactions, which include cost and pricing
data, which include standard provisions for disputes and
protests.
As a result of that, the level of expertise that is
required from our other transaction contracting officers is
higher than it is for contracting officers in general. The
reason for that is, is when we are using standard, what I call,
boiler-plate provisions that are identified in the Federal
acquisition regulations, mandatory provisions, we know what
they do, we know why they are included, and it really doesn't
require a significant level of expertise.
When you start to eliminate those, you really need to--or
you modify a clause, you really need to understand why it was
there in the first place and what the implications are for
changing it.
Some of the keys areas, as I said, and probably one of the
key areas I ran into in my work while still within the
Department of the Navy had to do with the issue of cost and
pricing data. In the absence of cost and pricing data, how do
you assure that the price you are getting is fair and
reasonable for the Government? That is less of a problem in
areas where we are having cost-sharing arrangements, in which
case we are really concerned with before we pay, for example,
50 cents on the dollar, did the company reasonably and
accurately incur the dollar?
But there are other techniques which are used. Many of
those are identified. There are some other pricing techniques
that can be used. But it becomes critical that basically our
contracting personnel understand appropriate measures for
analyzing costs in the absence of certified cost and pricing
data.
Now, within the Office of the Chief Procurement Officer, we
have recently hired somebody--we have basically hired from the
Department of Defense who is an expert, both in the cost
accounting standards and an expert in cost analysis of
contracts. He is setting up some training opportunities for the
contracting personnel within DHS, and the goal is to improve
the capability of our OT contracting officers, all of our
contracting personnel in being able to analyze proposed costs.
So we understand there are some risks. We are putting
together some basic things to assure that the proper reviews
are in place.
Previously, I mentioned that we have reviews over and above
the level of the contracting officer. For OTs valued at greater
than $25 million, those are approved by an acquisition review
board. For those over $50 million, they have to come to me for
approval. So I think we have proper protections in place on a
pre- and post-award side. It requires a more detailed review of
the business deal than your normal contract does.
Mr. Broun. When those contracts come to you, what kind of
thought process do you go through to approve or disapprove
those contracts?
Mr. Essig. One of the things we are trying to get all of
our contracting personnel to understand--and the training
manual, by the way, is not a training manual in other
transactions. Critical to really understanding this is, this is
a training manual that is Federal acquisition regulation-based,
research and development contracting and other transactions.
The assurance is we need to be sure that our contracting
personnel and our program personnel understand the implications
and the benefit and disadvantages of each approach, and they
both have pros and they both have cons. So we are looking at
basically ensuring that they are properly trained, we have
proper checks and balances in place to understand under the
situations where an other transaction is the greatest benefit.
One of the things we are starting to use in our broad
agency announcement is we are not specifying that this will
result in an other transaction. We are saying it may result in
an other transaction, it may result in a contract, it may
result in a grant.
What that gives is the ability for us to weigh the actual
proposals, not speculate as to which of these will likely
provide the greatest benefit but to have real data to look at,
where you can take a look at what the company has proposed in
terms of price, terms and conditions on a contractual basis and
what they have proposed if we are willing to change some of the
intellectual property rights or we are willing to waive cost
and pricing data. Based on real data we can then make an
informed decision as to which of those two approaches provides
the greater value for the Government.
Mr. Broun. All right. I thank you very much.
Dr. Ward, I want to associate myself with the Chairman's
comments about getting that biological piece of equipment that
you had. I am a physician, and certainly I would like to see it
on the ground as quickly as we possibly can.
I have some other questions that I would like to submit to
you all for you all to answer and put in the record.
Mr. Chairman, I ask permission to do so.
Mr. Langevin. Without objection.
Mr. Broun. I thank you all for coming today and appreciate
you all participating in this panel.
Thank you, Mr. Chairman. I will yield back.
Mr. Langevin. I thank the gentleman for his questions.
The Chair now recognizes the gentleman from New Jersey, Mr.
Pascrell, for 5 minutes.
Mr. Pascrell. Thank you, Mr. Chairman.
Mr. Needham, are you convinced that our homeland security,
before it considered nontraditional contracting or whatever,
were they unable to, let's say, acquire goods or services or
the needed technologies through existing vehicles and more
traditional? Are you convinced that that is the case or are you
not convinced?
Mr. Needham. At the time we did our review, we didn't have
any data related to that particular question, but this
authority was put into the act when the Department was created,
so they had it from the get-go.
Mr. Pascrell. But how you use the authority should be
determined by some oversight----
Mr. Needham. Right.
Mr. Pascrell [continuing]. Other than the Department. I am
asking you whether or not all other means were exhausted? That
is a very direct and simple question. You had reviews in the
Department of Defense to that effect, did you not?
Mr. Needham. Yes.
Mr. Pascrell. What did you conclude?
Mr. Needham. There was mixed use. I mean, that they were
able to get--about 13 percent of the companies they were able
to get were nontraditionals when we looked at them, and that
was in 2000.
We also have found at the time they didn't have a condition
specified as to when to use nontraditional contractor or to use
an OT. One of the things that the Department of Defense changed
was they put these things into policy as well as symmetrics for
measuring what they were doing with OTs. In fact, when the
Department of Homeland Security was created and the OT
authority was given to them, they basically modeled their
directives and their processes on what was done at DARPA and
brought in DARPA personnel. Much of what we recommended to
DARPA was embedded into the management directive at DHS.
But we only looked at--at that time, there were only two
projects that were underway. They have now completed 37, or
have 37 underway, so we are going back in this year to look
at----
Mr. Pascrell. So you already had a review of two, so they
have 35 really to review.
Mr. Needham. Right.
Mr. Pascrell. So the information you are providing to us is
not complete, by any stretch.
Mr. Needham. No.
Mr. Pascrell. Let me ask you this question: So you only
looked at two of them. Would you say any percentage of the
dollar, each dollar that was extended, was in these other
transactions that we have talked, other traditional contracts,
is every cent of the dollar accounted for in those two
projects?
Mr. Needham. We can't answer that question. We didn't get
in--in fact, as I mentioned in my statement, we didn't look at
that, but we will be looking at the financial aspects of this
when we go back in next month.
Mr. Pascrell. Now, why would I be asking that question, Mr.
Needham?
Mr. Needham. Because it is about dollars. It is tax dollars
going into these agreements, and what is the accountability
there?
Mr. Pascrell. Well, what did the Department of Homeland
Security in its own oversight, what did it find in the
accountability of those dollars wherever procurement was
necessary, be it traditional or nontraditional?
Very simple question, Mr. Chairman, very simple question.
Mr. Needham. What I can speak to is what I saw in terms of
the inspector general's reviews that they did in the chem-bio
program, and it was dealing with the fact that there were needs
for more controls to make sure that improvements were actually
happening. I have seen a limited number of reviews based on
what I looked at in the last year.
Mr. Pascrell. So I can conclude--correct me if I am wrong--
that we are nowhere near coming to a conclusion of the review
of such contracts so that we can make decisions in this
committee and in the Congress of the United States. We are now
in 2008, and there have been many contracts, both traditional
and nontraditional, that have been accepted, and we don't
really have a firm conception--I don't, let me speak for
myself--I don't have a firm conception as to whether this works
or doesn't work since there has only been a review of two
contracts. I mean, have I----
Mr. Needham. That was early on, sir.
Mr. Pascrell. Yes. And who is reviewed? Is there any
mechanism within the Department that reviews since those first
two contracts to the present time?
Mr. Needham. There is an internal review process between
the Program Office and the Chief Procurement Office.
Mr. Pascrell. Who is in charge of that?
Mr. Needham. The chief procurement----
Mr. Pascrell. If I may ask Mr. Essig, who is in charge of
that?
Mr. Essig. I am sorry, sir. Who is in charge of oversight
of OTs?
Mr. Pascrell. Yes.
Mr. Essig. I am, sir. I am responsible for oversight of
acquisition within the Department.
Mr. Pascrell. Now, you are just in the job.
Mr. Essig. Yes, sir.
Mr. Pascrell. Did you review the reports made by your
predecessor about what occurred from these two contracts to the
present time? Have you reviewed that?
Mr. Essig. Well, I have reviewed the GAO recommendations. I
have reviewed the----
Mr. Pascrell. But the GAO recommendations are based upon
only two contracts. What happened between the two contracts and
the other 35, you don't have any idea yet.
Mr. Essig. I have not reviewed them. I have reviewed the
processes that have been put in place to ensure that they are
properly reviewed and that proper oversight procedures are in
place. As a result of that review, I have recently directed
that a review of other transactions that are contracting
activities be included as a portion of our periodic procurement
management reviews, okay? That is a change that I have
implemented within the last week. So I have reviewed the
processes, I have not reviewed individual other transactions.
Mr. Pascrell. Thank you.
Mr. Chairman, I would hope that this committee would be
able to obtain within the next 2 or 3 weeks the reports about
those other 35 contracts. This is unacceptable. Can't blame
this young man, he just got the job, but it is unacceptable
that the Department does not have a review. There is no
oversight, there is no oversight in any part of these
departments. You know it, and I know it, and anything I have
heard today is simply in the future, what we are going to do in
the future.
Mr. Chairman, you go back over the meetings over the past 3
years, we always hear about the future, we never hear or have
any accountability. The citizens do not have any idea how their
money is being spent, none, zero.
Thank you.
Mr. Langevin. Certainly, this is part of that effort to
exercise the oversight that needs to be exercised in this area,
and we will continue to give both the contracts and this
process and the OT contract awards great scrutiny.
Just as a follow-up, Mr. Essig, so that I am clear, and it
is for the record, the reports that we required under the
contracts, have they in fact been done or is this something
that had not been done but will be as we go forward? Could you
clarify that point? I was not clear.
Mr. Essig. Yes, sir. It is my understanding the reports
have not been done. I have directed that those reports be
completed, and they are now in the process of being completed.
I have ensured that among the changes, we incorporate that
requirement, not only into our overall schedules to make sure
we don't miss them, but that the requirement is included in our
training manuals so it is one of the things we don't miss then.
Mr. Langevin. I appreciate that answer, for the record. We
will want to follow up on those reports, and as the gentleman
from New Jersey points out, you can't be--the blame can't be
put on your shoulders for what happened prior to your arrival,
which is just recent, but certainly we will want to hear about
the outcome of those reports and then give greater scrutiny to
this as we go forward.
To Mr. Needham, for the record, will you be following up on
these reviews? Also, I am interested in knowing, will you be
looking further at the percentage of these contracts that does
in fact go to nontraditional contractors?
Mr. Needham. Mr. Chairman, we have a review scheduled. The
team has been selected, and they are going to start work next
month, and we will do a full scope initially to look at all
aspects of the program, and we will be meeting with your office
to arrange, in terms of the questions and the work, how we will
be approaching it.
Mr. Langevin. Thank you.
I thank the gentleman from New Jersey for that robust line
of questioning.
The gentleman from Texas, Mr. Green, is now recognized for
5 minutes.
Mr. Green. Thank you, Mr. Chairman. After hearing my
colleague from New Jersey, I am tempted to say, ``Amen,'' but I
will simply say, ``A-woman.''
Let us start with thanking you for appearing today and
giving us your testimony.
Ms. Halchin, you have indicated that 95 percent of the
proceeds from $5.7 million--proceeds of $5.7 million went to
traditional defense contractors; is that correct?
Ms. Halchin. Yes, sir; that is correct. The data relates to
DOD, but that is correct.
Mr. Green. Mr. Essig, how do you explain how that could
occur, 95 percent? It is a pretty large number. How does that
happen?
Mr. Essig. Sir, here again, I don't have data to be able to
answer for DOD. I can only tell you based on my personal
involvement while working for the Navy Department was we were
looking for ways, basically, to implement other transaction
authority. We had no group of lessons learned back then such as
we have today. When you try things with no experience, with no
background, you have some successes and you have some failures.
I think what I am looking at in my position, as the chief
procurement officer, is where is the Department today, how did
we get here, and where do we need to go?
Mr. Green. Do we know what an OTA looks like today?
Mr. Essig. In our training manual, we include several
examples of OTAs that have been used. Again, each OTA is
negotiated individually. What we are trying to do is put
together some samples, some models of prior OTAs, of prior
provisions that have been used successfully without taking
authority away from the OT contracting officer to tailor that
to the unique needs.
Mr. Green. Do we have a definition of an OTA?
Mr. Essig. We have a specific definition of an OT in our
management directive and----
Mr. Green. An OT, excuse me. Continue, an OT.
Mr. Essig [continuing]. And I believe that comes from the
Homeland Security Act. It is modeled on DOD's authority. The
language, though, about other transactions comes specifically
from the Homeland Appropriation Act, and it talks to the use of
transactions other than contracts, grants or a cooperative
agreement.
Mr. Green. Is a small business, by virtue of being a small
business, considered an OT?
Mr. Essig. No, sir. However, small businesses have an
opportunity under OTs because of the way the definition of a
nontraditional contractor is worded. The way it is worded is a
nontraditional contractor is a company that has not in the past
year performed on a contract that is subject to full coverage
under the cost accounting standards, which is $15 million worth
of contracts or a contract in excess of $500,000 to carry out
prototype projects or perform basic, applied, or advanced
research projects for a Federal agency subject to compliance
with the FAR.
Now, what that means, if you have a business that hasn't
had $15 million of work in the past year, is not subject to
cost accounting standards, and has not had $500,000 of R&D
contracts with a FAR-covered Federal agency, it qualifies as a
nontraditional source. Many small businesses would meet those
requirements even if they had contracts with the Federal
Government. Those could be support contracts, they could be
supply contracts, or research and development contracts that
don't reach that threshold.
Mr. Green. So do you have any other examples of
nontraditional businesses that you can call to our attention,
small businesses? What other categories do you have?
Mr. Essig. We do. I think Keith has some examples.
Mr. Green. Okay. Thank you.
Mr. Ward. Yes, sir.
Mr. Green. Would a business owned by a female be considered
a traditional or nontraditional business?
Mr. Ward. Actually, the definition of a nontraditional
contractor, which would be necessary in order for a team to
qualify for an other transaction agreement, actually is the
definition that Mr. Essig just gave you, and that has to do not
with their ownership but how much previous work they have done
under FAR contracts or other sorts of contracts.
However, I might point out, because it may be of interest,
that this third generation biowatch system that seeing
developed now started out with eight to 10 major performers.
The only ones that are left are three. They have done the best
work, and the other ones have all dropped off. Every one of
those happens to be small businesses, just by accident and the
good work that they happen to have been done.
We also have some examples of nontraditional contractors
who have qualified and allowed their teams to qualify for OTAs
that do happen to be women-owned small businesses. The
particular one there is----
Mr. Green. What percentage have been women-owned?
Mr. Ward. I am sorry, I don't have that in front of me. I
will be happy to take that for the record. Maybe Mr. Essig
knows.
Mr. Essig. Our contract database and our other transaction
database captures information on the prime contractors. It will
identify them as small businesses. I will verify but I do not
believe we have visibility into which specific small or
socioeconomic category they may fall into.
Now women-owned small business is one of the socioeconomic
categories that we identify goals for contract awards within
the Department. Within the Department, we support all of our
small business and socioeconomic preference programs. So,
again, we look at them every year.
Basically, we establish goals for contracting within each
of those groups, and each of those goals is identified and
provided to the heads of the contracting activities at the
beginning of each year.
But I will verify, I can take it for the record and get
back to you. I don't believe we have visibility into the award
data by socioeconomic category.
Mr. Green. If I can ask one more question, Mr. Chairman?
Mr. Langevin. Briefly.
Mr. Green. Okay. Is there a reason why you don't have that
kind of visibility? Is there some rule that prohibits that kind
of visibility?
Mr. Essig. Two things. The Federal Procurement Data System,
FPDS, currently data on procurement contracts. Other
transactions are not procurement vehicles, and, as a result,
they are not currently captured in FPDS. Because that data is
important to us at the Department of Homeland Security, all of
the other transactions issued by the Office of Procurement
Operations is included in our contract database, our prism
contract database. So we are gathering that data for Department
of Homeland Security.
One of the other things I have done is I have had
discussions with the director of our Office of Small and
Disadvantaged Business Utilization looking at establishing
goals for the Department that go beyond just contracting goals,
that include other transactions in the base. So what we would
identify is we are looking at goals for awards for small and
other socioeconomic organizations, firms, okay, regardless of
whether or not it is an other transaction or a contract. We are
looking at total awards from the Department, how much is going
to these organizations.
Mr. Green. Thank you very much.
Thank you, Mr. Chairman.
Mr. Langevin. I thank the gentleman.
Before the hearing concludes, the Ranking Member and I just
wanted something clarified, Mr. Needham, that you had brought
up.
With respect to the teams you are putting in place, the
reviews you are conducting, when do you expect that those would
be concluded?
Mr. Needham. Mr. Chairman, what we typically do is go in
and do a period of work where we survey what is being done in
the Department and then come back and then meet with the
various committee staffs to lay out what would be an approach
that we would take. At that point, we would lay out when we
would conclude the work. We would expect, though, after several
months we would be able to kind of define what that period
would be. But I would expect that we are going to be able to
brief you prior to September 2008 on what we are getting at
that point. Whether we will hope to conclude the work at that
point is another question, depending on the scope of what we
cover.
Mr. Langevin. We will look forward to the reports when they
are done.
Mr. Needham. Okay.
Mr. Langevin. With that, I want to thank the witnesses for
their valuable testimony and the Members for their questions.
Members of the subcommittee may have additional questions
for the witnesses, and I would ask that you respond
expeditiously in writing to those questions.
Hearing no further business, the subcommittee stands
adjourned.
[Whereupon, at 3:25 p.m., the subcommittee was adjourned.]