Tag Archives: Other Transaction Agreements

Other Transaction Agreements (OTA) Best Practices For Success

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NATIONAL DEFENSE MAGAZINE

The intent of OTAs is to leverage commercial technologies for military purposes, improve the nation’s industrial base and allow for more cost effective and affordable solutions without extreme bureaucracy.

Opportunities are available to traditional defense industry partners and nontraditional defense contractors, such as academia, non-profits and other small businesses.

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“Imagine this. The Defense Department had an urgent need for armored vehicles to protect warfighters from new threats during a time of war. By applying a unique and tailored acquisition approach with specific attention to time and similar solutions already available in the commercial marketplace, it successfully started fielding new vehicles only 18 months after identifying the warfighter need.

The program referenced here was the mine-resistant ambush protected vehicle program, which began in 2006. Was the program a success? Absolutely. Was it a risk-free or perfect solution? No. Although the MRAP program was timely in helping mitigate the threat and associated warfighter casualties, there were challenges related to operating field conditions, training, sustainment, transportation and costs. The program, however, ultimately enabled the creation of other military vehicles that are still widely used today and supports how tailored acquisition approaches can produce successful outcomes.

A popular and continuously growing phenomenon within the department is the other transaction authority, or OTA. It permits Defense Department entities to award OTA agreements for research, prototyping and production efforts critical to national security. They are not an acquisition approach or strategy; however, they are flexible options that can support an acquisition approach or strategy.

Given leadership’s priorities for the increased application of adaptive acquisition methods, it is highly likely OTAs will be a key ingredient for success.

OTAs are binding agreements between Defense Department organizations and industry partners that are different than Federal Acquisition Regulation contracts, grants and cooperative agreements. While they are an innovative and flexible option that are not subject to all acquisition laws and regulations, they require vigorous program management.

Here are some points to remember:

OTAs are not new to the department. Although it received limited authority in 1989, the authority has significantly expanded since 2015. As a result, more agencies and industry partners are working together on the agreements. OTAs vastly differ from contracts because negotiations are not limited by FAR-based restrictions and allow for more robust terms between parties. This includes, but is not limited to, intellectual property rights, title to property, payment terms, project schedule or duration, cost or price analysis, financial and project status reporting, disputes, remedies and termination.

Congress specifically provided the authority to foster business flexibility for certain circumstances. Unfortunately, there is not a universal process or checklist for all parties to follow when planning or executing the agreements. This is intentional because universal processes across the department could hinder innovation and expanded industry participation.

Since OTAs will differ between agencies, these entities should individually create and maintain some form of standard business processes to support how to execute them from initial planning through completion. Examples of standard business processes include organizational policies, instructions, directives, guidebooks and standard operating procedures. These resources are foundational for success as they can provide tremendous assistance and value to not only the parties seeking to do business with the defense organization, but also the personnel leading or supporting the process.

There can also be immense benefits for industry partners who have not previously done business with the department. It currently has an “OT Guide” published in November 2018 available to the public; however, it is very broad and not unique to individual DoD organizations. Creating and maintaining standard processes can enable consistent and efficient operations, prevent miscommunication, minimize noncompliance with laws and assist organizations during evaluations or audits.

Since there is not a one-size-fits-all option to execute OTAs, defense authorities and industry partners should be aware of the various options available. Specific to prototype OTs, the most widely used type of OT, there are primarily four options for execution. Figure 1 provides helpful information associated with each option.

Agencies should carefully evaluate all options prior to option selection, depending on the specific need or the entity’s experience with OTAs. Evaluation can be done by market research and other means to effectively support the strategy and objectives. For example, if an organization is seeking a prototype that could be created by start-up companies or existing commercial firms, it may be in the best interest to award an OTA on its own, through the Defense Innovation Unit, or to a consortium.

Alternatively, if an agency is seeking a prototype similar to one another government agency is concurrently seeking through its own prototype OTA, it may be in the best interest — and the most economical option — for it to leverage the other government agency’s agreement. The Government Accountability Office reported in 2019 that the majority of funding for prototype OTAs between fiscal year 2016 and fiscal year 2018 was awarded to consortiums.

Further, the GAO reported that the department — in response to congressional direction — is improving its reports on OTA usage to provide more data and transparency. Given the options available for executing OTAs, it is critical that both defense organizations and interested industry partners are cognizant of the options and their individual characteristics.

Another factor for success is sound planning and identification of technical performance parameters.

Failing to plan is planning to fail. Since parties can negotiate and tailor many OTA elements, it is critical for all parties involved to complete sound planning efforts prior to execution. Also, because they promote “outside the box” business practices, risk management is not a choice, but the backbone of the effort from cradle to grave. Agencies should start planning with a clear needs statement or defined problem supporting a capability gap.

Next, the entity must perform adequate market research and requirements analysis to determine if solutions already exist or whether the capability is possible among industry partners. Adequate market research efforts must consider existing commercial products and practices, technological stability and current similar Defense Department or federal government efforts.

Entities must ensure OTAs will comply with codes, depending on the effort’s characteristics. The agency must collectively and clearly articulate what success looks like and how success or performance will be measured. Is the end game a report as a result of extensive research? Or is the end game follow-on production if the prototype OTA successfully meets the capability gap?

The government shall give full consideration to key areas related to cost, schedule and performance throughout the project’s life since OTAs do not eliminate the need for effective program management. Thus, consideration shall be given to vital technical characteristics or performance parameters, such as cybersecurity, intellectual property, technology transfer, testing, integration, interoperability and life cycle sustainment/supportability. Parties involved should continually ascertain when to continue or terminate the effort based on cost-benefit analysis.

Planning efforts should also encompass the means by which the government will publicize and solicit OTAs. Publicizing activities should target relevant and capable industry partners identified from market research. Solicitation activities must be creative, through fair and reasonable methods, to foster maximum competition. Methods include white papers, commercial solutions openings, requests for proposals, panel pitches, industry days, LinkedIn and Twitter.

OTAs require critical thinking and can be incredibly complex. Besides the many aspects of cost, schedule and performance to be considered and evaluated, they have minimum predefined requirements and are accompanied with unique negotiations requiring advanced levels of business acumen from various perspectives. OTAs are a team sport and should have diverse participation by technical and non-technical personnel.

Standardized OTA training or credential programs are not widely available to Defense Department or industry personnel. Personnel should seek to complete some form of OTA training. Nontraditional contractors should also complete training on the electronic invoicing system that will be used to submit invoices for work performed on OTAs. Invoicing the department can be cumbersome, especially for smaller firms with operations largely dependent on timely cash flows.

OTAs also require sufficient documentation since they have more flexibility and fewer internal controls when compared to other business options. Documentation is also vital to support OTA-related actions were fair, reasonable, transparent and legal. The need for sufficient documentation applies to both government and industry partners.

Appropriate documentation assists organizations in establishing beneficial continuous feedback loop mechanisms to replicate best practices and learn from shortcomings. Documentation also allows independent or unbiased individuals to follow OTA-related business decisions and funding. Documentation is even more meaningful as defense organizations spend greater amounts of taxpayer funds on OTAs and Congress seeks additional details on their usage.

Also, the law requires that all prototype OTs above $5 million include a clause that provides the GAO full access to records. As a result, all parties involved need to make documentation efforts a priority throughout the life of every OTA. Lack of existent or appropriate documentation could cause all the parties to receive undesired scrutiny from

Congress and defense leadership. Congress could also reduce or eliminate the authority if parties do not create or maintain sufficient OTA documentation.

The ability for the nation to maintain a sustainable competitive advantage and efficiently leverage adaptive acquisition methods depends on OTAs. It is all but certain they will continue to grow in popularity.

Although they are a bright and shiny object drawing significant attention from expanded usage, the department, its agencies and industry partners must carefully plan and execute OTAs from cradle to grave.

While they are flexible alternatives, they are accompanied by risks, not appropriate for every situation, and do not have a universal pathway for guaranteed success. OTAs must be treated as a privilege rather than an authority that will remain indefinitely.

Appropriate use in accordance with Congress’ intent could produce tremendous value for the Defense Department and industry partners. Alternatively, inappropriate use could result in inefficient use of taxpayer resources and Congress limiting or eliminating the modernized authority.”

https://www.nationaldefensemagazine.org/articles/2020/4/15/other-transactions-best-practices-to-enable-success

Amid COVID-19 DOD Weighing Security And Other Transaction Agreement (OTA) Controls

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DEFENSE SYSTEMS

OTAs are meant to speed the government buying process and allow DOD to buy new capabilities faster by allowing officials to sidestep competitive bidding in certain cases.

Rapid acquisitions for prototypes and experimental technology will be subject to the Defense Department’s unified cybersecurity standard.

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“In an OTA, in the technical specs, they can actually call it [Cybersecurity Maturity Model Certification (CMMC)] out and say what they want,” said Katie Arrington, DOD’s chief information security officer for acquisition during an April 29 NextGov webinar on CMMC.

OTAs are meant to speed the government buying process and allow DOD to buy new capabilities faster by allowing officials to sidestep competitive bidding in certain cases. But there’s ample worry of potential overuse, which could invite congressional scrutiny.

Arrington’s comments come as DOD has begun pushing for the use of OTAs to find and execute on solutions that can help treat or prevent the spread of coronavirus. Ellen Lord, DOD’s acquisition chief, issued a memo in early April to ease the OTA process by delegating contracting authorities to heads of agencies and combatant commanders during the pandemic.

For example, the Army issued $100,000 contracts for innovative ventilator solutions that could be deployed in rural settings as part of its xTech COVID-19 Ventilator Challenge. The ongoing contest aims to produce 10,000 ventilators suitable for field operation in eight weeks and uses OTAs.

As for cyber concerns, Arrington said because OTAs operate “outside” the Federal Acquisition Regulation and largely benefit small businesses, which can be the most vulnerable when it comes to cybersecurity, CMMC is even more important.

“That’s where we need to ensure that we’re putting those levels of CMMC in,” she said. “If you’re doing some grant work, we do need to make sure the institution or the department or the network that you’re doing this work on understands the risk…Everybody’s vulnerable.”

https://defensesystems.com/articles/2020/05/06/cmmc-ota-cyber-williams.aspx

Pentagon “Other Transaction Agreements” (OTA’s) Exploding In Popularity

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https://youtu.be/ynxQcjjyQK8?t=37

NATIONAL DEFENSE MAGAZINE

The agreements are a contracting mechanism intended to cut through bureaucratic red tape associated with the Pentagon’s standard acquisition practices, and help the department tap into innovation from nontraditional suppliers.

The number of OTAs awarded annually from fiscal years 2012 through 2015 hovered around 50, then shot up to a high of 298 in 2018. The average value of each contract increased from $2.4 million to $4.1 million

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“The Defense Department is ramping up spending on other transaction authority agreements, according to a recent report by big data analytics firm Govini.

The 2016 National Defense Authorization Act expanded their application. OTAs are now available for basic, applied and advanced research projects and for prototype projects and follow-on production, noted the Govini report titled, “Evaluating the Innovative Potential of Other Transaction Authority Investments.”

“To ensure U.S. military advantage, it is imperative for DoD to partner with businesses and academia to incorporate innovative technological advancements into military capability,” the study said. “DoD is increasingly using OTAs to leverage commercial technology for research and prototyping.”

Following the change in the NDAA, obligation totals grew by 122 percent, eventually reaching a total of $3.4 billion in fiscal year 2018, according to the report.

Last year, the Army led the way with about $2.5 billion in OTA contract obligations and more than 220 agreements. The Air Force was the next biggest user, followed by the Defense Advanced Research Projects Agency, other defense-wide organizations and the Department of the Navy, according to Govini.

Consortia are major players in this area, the report noted.

“A potential strength of OTAs is the ability for agreements to be entered into with a consortium, which is an organized group typically made up of contractors, nonprofit organizations and academic institutions,” it said. “Consortia allow members to collaborate on specific technology areas and offer the government a pool of stakeholders to help develop new technologies or processes.”

In 2018, about 20 percent of the companies that were part of OTA agreements were affiliated with consortia. Obligations to vendors associated with consortia reached a peak of $1.1 billion in 2017, according to the report.

“The increased use of OTAs … is an example of how DoD was more regularly leveraging commercial technology for prototyping and experimentation,” the study said. “Given that the commercial sector is the driving force generating innovation in a number of key technologies, this is a critical step for DoD to take to effectively compete with great power competitors.”

https://www.nationaldefensemagazine.org/articles/2019/7/9/ota-agreements–exploding-in-popularity

Other Transaction Agreements (OTA’s) Change Defense Acquisition For The Duration

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FEDERAL NEWS NETWORK

“For some time the DOD has been trying a number of ways to speed up the identification and acquisition of … innovative? non-traditional? prototypical? …  technologies or capabilities. It wants a third offset, a reasonable aspiration.

The OTAs can be a way to trap it in a way open competitions or wired traditional acquisition and their seemingly inevitable protests cannot.”

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“Can a defense acquisition approach restore the military advantages Pentagon planners say the U.S. has lost over the past 30 years? If so, contractors should get used to living with two parallel acquisition systems. The regular Defense version of the Federal Acquisition Regulation. And, of course, the burgeoning Other Transaction Authority (or Agreement).

“Other” can be a scary word. Everyone professes loathing for the FAR and the DFAR because how they ostensibly slow everything down. But whole armies of sales and business development people have invested careers and gotten wealthy by playing the traditional FAR and defense acquisition systems the way Paganini played the violin. OTAs threaten that.

Not that OTAs are new. They date to the early 1960s. But they’re like an unused kitchen utensil that, when re-discovered, finds all sorts of convenient uses. For defense acquisition, OTA’s are out of the rummage drawer.

Congress has encouraged OTAs for obtaining non-traditional technologies from non-traditional vendors. It’s given DoD greater explicit authority to use them. Some OTAs have looked, at least on the surface, like regular deals for regular companies. Two recent awards to Perspecta (old company, new name) from the Defense Information Systems Agency to build the background investigation system come to mind. I’m not prepared to second guess DoD on this one, but OTAs are available to traditional companies doing non-traditional or prototypical things. But not, one hopes, to non-traditional companies doing ordinary things.

A deep data analysis by Govini shows OTA activity in DoD having grown by a compound annual rate of 57% for the last six years. The base is small, but in 2018 they amounted to $3.4 billion. OTAs aren’t the only approach DoD uses for its research, development, test and evaluation investments. They only represent 8% of RTD&E spending. But the only part that’s growing. You could say they represent real money.

I mention all this, prompted by the round-number anniversary of D-Day approaching. OTAs fit in with a strategy having to do with numbers.

On D-Day, I think of those numbers. The sheer tonnage of platforms, materiel and, of course, human troops thrown by nations at one another produces wonder to this day. The D-Day invasion consisted of about 175,000 troops including 57,500 Americans. That’s just for the first few days of one piece of the plan to pinch Germany.

Warfare is totally different today because of technology. One 21st century precision bomb can inflict more real damage on an enemy than a squadron of bombers dropping hundreds of bombs over the course of an hour during the 1940s.

If from the Civil War to World War II sheer numbers dominance was the essential element for victory, later that dominance came from the sorts of technological advantages that produce greater lethality per troop. You might call it military productivity. In recent decades, the U.S. has attributed its advantage to technologies such as stealth and precision guidance, developed during the “second offset” of the 1970s. Offsets decay. How long did the atomic bomb offset last?

Military leaders have been hunting diligently for evidence of technology that could lead to an offset. They theorize such technologies exist within companies unknown, at least, to the military. The OTAs can be a way to trap it in a way open competitions or wired traditional acquisition and their seemingly inevitable protests cannot. “

Other Transaction Agreements (OTA’s) – Do The Rewards Outweigh The Risks?

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“THE PROJECT ON GOVERNMENT OVERSIGHT”


(Image of scales: Flickr / winnifredxoxo; illustration by POGO)

“The theory behind OTAs is that nontraditional vendors would be lured into the government contracting marketplace by streamlined procurement processes. 

While luring in nontraditional vendors may be a laudable goal, it is essential we protect sensitive technologies that are being created and prevent them from being shared with foreign governments or on the commercial market, which could fall into the hands of adversaries. “ ______________________________________________________________________________

“In recent years, the federal government has made a large shift in how it expends taxpayer dollars on federal contracts.1 Numerous laws have mandated new or expanded use of rapid procurement processes2 or other transaction agreements (OTA),3 which are now a preferred procurement vehicle.4 OTAs, while not contracts governed by the Federal Acquisition Regulation (FAR), are legally binding contracts that were once considered tools of last resort because they put taxpayers and the government at risk. 

The hope is that nontraditional contractors that were unable or unwilling to enter into traditional procurement contracts would come to the table and bring with them innovative solutions that traditional contractors were not offering.

The reality, however, is that these speedy buying procedures are being leveraged by large traditional contractors that are looking to boost their bottom line by avoiding normal contract administration, oversight, and accountability protections.

“Other transactions” is a term commonly used to refer to the authority to enter into transactions other than contracts, grants, or cooperative agreements.6 Agencies have authority to award such agreements in limited circumstances—research, prototype, and now defense follow-on production projects.7 Unlike a normal government contract, OTA is promoted as a more flexible agreement that can speed up the buying process and be better tailored based on changes in technology and the government’s needs.8

One of the inherent problems with OTAs is that rather than the government controlling the negotiation process by specifying well-defined contract requirements and terms in a statement of work, OTA vendors are in the powerful position of saying “here’s what we will do for you.” Federal procurement spending priorities are thereby being driven by contractors and consortia, especially when it comes to determining pricing, deliverables, and intellectual property rights.

In addition to leaving the government at the mercy of vendors, OTAs generally are not subject to many of the federal laws and regulations governing procurement contracts that protect the government and taxpayers,1including the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS),competition requirements, the Truth in Negotiations Act, the Procurement Integrity Act, Cost Accounting Standards, audit access for examination of contractor records by auditing agencies,  the Bayh-Dole Act, and transparency protections, to name a few. Those laws and regulations not only protect against waste, fraud, abuse, and corruption, but also provide mechanisms for ensuring fair and reasonable pricing, and for government ownership of intellectual property rights.

Another flaw with the OTA negotiation process is that the government is at a disadvantage when determining price reasonableness, which is vital during the negotiation. Determining price reasonableness can be a real chore for contracting officials—the burden rests entirely on the government official to review commercial or market data rather than pricing information from the vendor. While pricing reasonableness is a problem for all agencies with other transaction authority, the Department of Defense’s “Other Transactions Guide” specifically states that price reasonableness “must” be determined; however, it goes on to add that “the [agreement officers] should exhaust other means to establish price reasonableness before resorting to requesting cost information [from the vendor].”2 Essentially, this is equivalent to Uncle Sam buying a car without knowing—or having limited access to or being able to ask for—the sticker price, a system that places taxpayer dollars at risk.

The risk to taxpayers is compounded by the unprecedented barriers OTA proponents insist on placing in these agreements, including taking the vendors’ word on the contract’s claimed costs. Generally, these barriers keep the government from reviewing or auditing the claimed or purported OTA costs. Often left out of discussions about the use of OTAs, or even intentionally ignored, is the fact that the majority of dollars expended under such agreements, especially research projects, is spent on a cost-reimbursement basis. This type of contract that places taxpayer dollars at risk when cost principles and accounting standards are absent. When the government pays recipients of OTAs for work performed under cost-type contracts, the funding agency is essentially reimbursing the recipient of the OTA for their claimed costs, which is like providing vendors with a blank check because the government has few tools to challenge those costs. The proponents of OTAs argue that any check on pricing or costs is an “administrative burden to companies.” Simply stated, proponents want the government to just treat an OTA recipient’s statements of cost as if they are sacrosanct. To paraphrase President Eisenhower when describing the “military-industrial complex,” OTAs present “the potential for the disastrous rise” of unchecked spending by entities that are essentially traditional federal contractors. In no other arena of federal spending, whether under contracts, grants, or cooperative agreements, is such faith placed in the recipient of taxpayer funds.2

We have been using OTAs for 60 years yet we still have very little information or data about how OTAs are used, any analysis of their costs, or how effective they have been in producing cutting-edge technologies.2 Federal agencies and Congress should be made to prove that OTA benefits outweigh the risks and that their results justify the complete elimination of taxpayer protections. We have yet to see such proof, and there doesn’t seem to be justification for recent expansions of statutory authorities and the use of OTAs.

OTAs Not Achieving the Stated Intent

Other transactions were created 60 years ago for the National Aeronautics and Space Administration and expanded through the years to other federal agencies with the goal of luring nontraditional contractors that could bring innovative ideas to the government. While 11 agencies have OTA authority,2 the Department of Defense (DoD) is where the greatest expansion has taken place. DoD officials, however, have struggled to meet the intent behind the creation and expansion of OTA: luring in nontraditional vendors, and providing more bang for the buck.

For example, 72 percent of the research OTA funding and 97 percent of the prototype OTA funding went to traditional DoD contractors in the late 1990s.3

An official inside the Department of Defense Inspector General’s (DoD IG) office described the failures of OTAs a few years later, stating:

Based upon our most recent audits of prototype other transactions, we have found that other transactions have not attracted a significant number of nontraditional Defense contractors to do business with the Government. Available data for FY 1994 through FY 2001 illustrates this point. Traditional Defense contractors have received 94.5 percent of the $5.7 billion in funds for 209 prototype other transactions.

We find this trend disturbing, as other transactions do not provide the government a number of significant protections, ensure the prudent expenditure of taxpayer dollars, or prevent fraud. Procurement statutes and the FAR provide contracting officers the tools 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. [The Truth in Negotiation Act], [Cost Accounting Standards] and the various audit provisions are among the tools that have provided contracting officers’ visibility into contractor costs and help the government ensure that prices negotiated and eventually paid are reasonable. These provisions have served the interests of the government and the taxpayer for many decades. Congress has given agencies the authority to waive some of these protections, in certain circumstances, in connection with FAR contracts. Thus, the current methods of acquiring goods and services from contractors already provide considerable flexibility to accommodate the needs of the parties.3

The Congressional Research Service outlined a few reasons OTAs did not lure in nontraditional vendors, including ambiguity about the definition of nontraditional contractors and the use of OTAs for weapons systems, which are generally awarded to large defense contractors. No matter the reason, OTAs were going to large contractors. Recent data shows that traditional contractors are still major players in the OTA game. Three of the top five DoD contractors—Lockheed Martin, Northrop Grumman, and Boeing—are also in the top 5 of those “nabbing” the most OTA dollars.3

With the top contractors still obtaining a chunk of OTAs, there is a new justification for OTAs: DoD has lost its technological advantage over adversaries.3

We cannot expect much to change in the future as Congress has redefined the term “nontraditional defense contractor” (NDC) with respect to OTAs to include “an entity” that has not been subject to “cost accounting standards” or submitted “certified cost or pricing data” to the Defense Department over the past year. The narrow definition, and specifically the use of the term “entity,” will allow contractors already doing business with the government to qualify as nontraditional or “to partner with firms who do not qualify for NDC status.”3 The definition of nontraditional will also favor large traditional contractors in DoD prototype OTAs, as 10 U.S.C. § 2371b(d)(1)(A) allows the OTA if “[t]here is at least one nontraditional defense contractor or nonprofit research institution participating to a significant extent in the prototype project,” without defining the term “significant extent.” As a result, the definition of “nontraditional defense contractor” will hinder OTAs from being awarded to bona fide nontraditional contractors, which are the companies that the government allegedly wants to lure to the procurement table.

A Push for Intellectual Property Rights

While using OTAs to lure nontraditional contractors might be struggling to reach the levels desired, contractors have crafted a new reason Uncle Sam should be using OTAs more frequently—intellectual property rights. Contractors claimed that concerns over intellectual property rights were a barrier to doing work for the government. As a result, OTAs allow companies to negotiate to retain intellectual property rights, and the ability to profit from programs and research that were funded by taxpayers.3

Industry lawyer Angela Styles does not hide the goal of gaining intellectual rights to property funded by the taxpayer:

Protect your intellectual property. Don’t let the Defense Department, another company or a consortium lead take more of the company’s IP than is absolutely necessary to perform the OTA. There are no statutory requirements for the department, a prime or a consortium lead to take intellectual property in these agreements.

Ensure the company’s lawyers review each OTA-related agreement and treat it like the company would treat any other commercial agreement. Enhanced IP [intellectual property] protection is the most significant benefit of OTAs, so make sure to use it.4

There is an inherent conflict if winning a technological advantage over our adversaries is the stated goal for OTAs, yet the government is willing to allow its contractors to retain intellectual property rights and sell the resulting products to foreign governments or commercial vendors. It seems like the government is being played here. If others could convince a federal agency to buy their house and then sign over the title, you would not hear any complaints from the homeowners.

Where are the Results?

Despite concerns with the use of OTAs, large contractors did not let up in their push for OTA authority expansion. The Acquisition Reform Working Group (ARWG), a co-mingling of defense trade associations representing the interest of defense contractors, promoted the increased use of OTAs for years. ARWG’s legislative agendas in the early 2000s stated that Congress must “Eliminate Impediments to ‘Other Transaction’ Contracting Authority.”4

The RAND Corporation also threw its support behind OTAs despite the fact that data related to OTA results was non-existent. RAND published a study on the use of OTAs in 2002, expressing concerns about results and risks. While RAND’s general conclusions were that OTAs bring in new companies and better results, the authors of the study noted that they were unable to measure OTA results, adding that they were “constrained by difficulties in measuring OT effects” and had to rely on qualitative more that quantitative data.4 The authors of the RAND study, however, did not shy away from the known problems with other transactions, stating that criticisms focused on two points:

(1) that some agreements limit, to varying degree, direct DoD access to financial records in order to verify that contractor costs have been properly stated, and (2) that some agreements limit the DoD rights to intellectual property flowing from the project.4

RAND added that “[i]t is undeniable that the relaxation of financial and other controls inherent in the OT process opens some opportunity for abuse,” and that it could not really assess those risks.4

About that same time, the Army turned to the Defense Advanced Research Projects Agency (DARPA) to help procure the Future Combat System (FCS)—a system of land and air vehicles procured through an OTA. Critics, including the Project On Government Oversight (POGO), argued that the FCS should be purchased using a traditional FAR-based contract. The FCS was also under fire because it was listed as a commercial item, which prompted Senator John McCain to inquire, “Tell me … where might I be able to purchase such a vehicle commercially?” The program’s ballooning $157 billion price tag wasn’t helping to keep the program out of the spotlight. Within days of a Senate acquisition reform hearing, McCain, then-chairman of the Senate Armed Services’ Airland Subcommittee, sent a letter to the Secretary of the Army asking for “an estimate as to what additional costs the program would incur if the current OTA were converted to a FAR Part 15 contract, so as to require compliance” with the normal taxpayer protections that do not apply to an OTA. Within weeks, the Army converted the FCS program from an OTA to a FAR-based contract, stating that such a contract would be “more appropriate,” according to news sources. Eventually the FCS program was canceled, despite the investment of nearly $19 billion into the program, including an estimated $500 million in termination costs.5

The Department of Homeland Security similarly found itself in hot water. The Government Accountability Office criticized the agency for not documenting the reason for entering into OTAs, and found that the agency was not tracking “information to measure the benefits of other transaction authority, which include reaching nontraditional contractors.”5

The Congressional Research Service has also expressed concerns to Congress about the inability to assess OTA results, stating:

It appears that a favorable consensus exists regarding the use of OT authority, which seems to be based largely on the experiences and observations of individuals who participate, or have participated, in OTs. Yet, because of the nature of OTs and the types of work performed pursuant to them, it also appears that no one has been able to devise, let alone conduct, a study that has the methodological features and rigor sufficient for producing reliable and valid results.5

OTA Spending Exploding but Oversight Lacking for Now

In addition to the concerns about luring in non-traditional vendors, the DoD IG has a history of exposing OTA problems related to monitoring work against funds paid, compliance with cost sharing arrangements, receiving final research reports, and standardizing audit clauses.5

In 2000, DoD Deputy Inspector General Donald Mancuso pleaded with Congress to rein in OTAs. “Given the inapplicability of traditional controls to other transactions, any expansion of the authority for other transactions should provide the needed protections both for the Department and the American taxpayers,” he said.5

After a few relatively stagnant spending years on the OTA front,  and a lapse of memory within government circles that OTAs were not working as originally intended, contractors were back to endorsing this buying vehicle in 2013.5

According to data in the Federal Procurement Data System – Next Generation, spending through OTAs has increased from approximately $845 million in 2015 to approximately $3.9 billion in 2018, with DoD accounting for 93 percent of the total. That spending has grown because Congress has extended DoD OTA authorities, redefined nontraditional contractors, allowed follow-on production authority in Defense authorization acts, and doubled the ceiling for OTA prototype projects from $250 million to $500 million. A billion-dollar OTA is no longer a contractor’s pipe dream; it is a reality. And an expert panel created to streamline DoD acquisition rules recently recommended that follow-on production agreements for OTAs should be made easier, which will likely cause overall OTA spending to reach the tens or hundreds of billions of dollars in the not-so-distant future.

In the past, OTAs were used in the “space race” to the Moon; now they are being used “in areas as diverse as armaments, communications, electromagnetic spectrum uses, cyber security and medical technologies.” Launch services and cloud computing are other recent areas where OTAs are being utilized.6

But a closer look at other transactions in FPDS-NG and government reports shows agreements for questionable services—management support, utilities-electric, custodial/janitorial services, guard services, video surveillance, background investigations, training (including ironically enough, “other transaction training for the office of procurement operations”), and canine teams.7

Using OTAs for such buying is raising questions in Congress—especially questions about the lack of competition, transparency, and other essential taxpayer protections.75Federal News Radio cited an unnamed Congressional staffer saying to that OTAs “are more akin to corporate welfare than a way to bring small and nontraditional companies with new ideas into the Pentagon’s fold.”7

Additional questions have been raised about the experience and knowledge levels of contractors, government methods to detect fraud, waste, and abuse, and the level of requisite skills and training needed to develop and administer OTAs by the acquisition workforce.7 Yet, Congress has made it easier to award OTAs with little, or no, evidence that these concerns have been addressed.

Even Stan Soloway, a longtime contracting industry promoter, has raised questions about whether OTAs are working as intended. Soloway highlights important questions that have not been answered: “Are OTAs delivering on their promise? Are they, in fact, delivering new, otherwise inaccessible capabilities and innovation in a more timely and responsive manner than the traditional acquisition process? And are they doing so in a manner consistent with a set of core principles: accountability, competition and transparency?” 7 Predictably however, Soloway assumes the answers are “yes,” and notes that if OTAs are working they should become the new normal when buying products and services.

In essence, Soloway advocates the industry line: call these agreements whatever you want, just do not subject the companies receiving federal funds to cost or pricing data disclosure, sharing of reasonable intellectual property rights, or any type of pre- or post-award review and audit. It’s the old saw: the government should just “put the money on the stump and run.”

Possibly realizing that its push for OTAs without the necessary justifications could be a problem, Congress inserted provisions into the 2018 and 2019 Defense Authorization bills, which then became law, to build OTA intellectual property skills inside the DoD workforce and reporting requirements. The 2018 law required DoD to “establish a cadre of personnel who are experts in intellectual property matters.” The 2019 law requires DoD to report to Congress on Defense Innovation Unit Experimental’s use of traditional and nontraditional defense contractors, the goods being delivered to troops, and administrative functions of using OTAs. The reporting provisions required by Section 873 of the FY 2019 National Defense Authorization Act and the 2019 Defense Appropriations Act are designed to inform Congress about the use of OTAs and the expanded use of follow-on production agreements.8

Without data about the use of OTAs and the results as compared to typical FAR-based contracts, there is no assurance that OTAs are working as intended. Are agencies working with truly nontraditional contractors, are innovative products and services being produced, is the government saving money, and are the deals involving the intellectual property rights protecting the appropriate party? Any thought that OTAs should become the “new normal” is premature and reckless. It’s time to admit that OTAs are just one-sided contracts designed to appease large defense and other traditional contractors.

Recommendations

POGO supports cutting procurement costs, buying faster, and bringing nontraditional companies to the government procurement table. That said, OTAs could be improved if certain administrative, oversight, and transparency protections were incorporated into the agreements to prevent wasteful spending and ensure that projects achieve their intended missions.

First, Congress must restore the original intent of bringing innovation to the public from nontraditional government contractors, rather than throwing billions of dollars with no oversight controls to the government’s top vendors. The definition of nontraditional contractors should be revised and the rules should be changed to prohibit any vendor who has accepted a FAR contract from being eligible to receive an OTA.

Second, Congress should strengthen policies covering cost or pricing data disclosure, cost principles and accounting standards, audit access rights, and intellectual property rights to ensure that taxpayers are protected. If Uncle Sam paid for it, Uncle Sam should be able to make sure the results were the ones bargained for and to own or have unimpeded rights to the finished product.

Finally, federal agencies should look to renegotiate certain OTAs under contracting vehicles that provide taxpayer protections—mainly, FAR Part 15 contracts.

Speeding up the contracting process and bringing in cutting-edge technologies is essential to better buying, but it cannot come at the expense of taxpayers’ protections just because contractors find them burdensome. And while luring in nontraditional vendors may be a laudable goal, it is essential we protect sensitive technologies that are being created and prevent them from being shared with foreign governments or on the commercial market, which could fall into the hands of adversaries. Let’s not be fooled into believing that OTAs or other rapid acquisition processes are designed to actually meet all of the goals proffered by proponents. Contractors wanted processes where the rules do not apply to them and oversight is minimal to non-existent. Sadly, Congress recently handed them mostly everything on their wish list.”

https://www.pogo.org/report/2019/03/other-transactions-do-the-rewards-outweigh-the-risks/

Pentagon Takes Big Step to Clarify Other Transaction Authority Rules

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“NATIONAL DEFENSE MAGAZINE”

“Senior Pentagon leaders have been calling for increased innovation, speed and affordability in defense systems acquisition for some time. Occasionally they invoke other transaction authorities (OTAs) to accomplish those ends.

Now the Pentagon has added substance to rhetoric by issuing a new “Other Transactions Guide.” This follows the promulgation on Nov. 20, of two policy memoranda on their definitions and requirements and, the authority to use prototype OTAs.”

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“The new guide rescinds the previous guide of January 2017 which was seriously flawed. The new guide addresses both research OTAs (10 U.S.C. 2371) and prototype OTAs (10 U.S.C. 2371b) erasing an artificial division or stovepipes between the closely related authorities.

The ability to transition seamlessly from prototype to follow-on production means OTAs can be used as the basis for a complete alternative to procurement under the Federal Acquisition Regulation for systems development and fielding. They have also been used in the sustainment and upgrade of legacy systems.

The guide is organized in a clear and user-friendly manner. Highlights include case studies and a glossary with useful definitions. It makes plain OTAs are not just about reaching out to nontraditional contractors — as important as that might be. Traditional defense contractors can participate in prototype OTAs via a senior procurement executive determination, by teaming with nontraditional contractors or in other ways.

The new guide also clarifies some other key points.

There are a variety of pathways to use prototype OTAs — they are neither inherently subject to or inherently exempt from major defense acquisition system rules (DODI 5000.02). They may be executed as middle tier Section 804 acquisitions or in other ways.

The guide stresses the need for a cross functional government team to execute the agreements. Agreements officers need to be well qualified but need not be warranted FAR contracting officers.

The guide does not limit OTAs to a technical definition of “acquisition.” Projects have been structured with no government funding, for example. Research agreements are not limited to the technical definition of “assistance.” The arcane Technology Investment Agreement regulation (32 C.F.R. Pt. 37) receives only passing reference in the guide.

The initiation of an OTA project does not start with a determination of agency needs and requirements description as in FAR 2.101. Rather parsing the problem to be solved and communicating the problem to industry while leaving trade space for a variety of solutions is the preferred approach in such agreements.

Funding for OTAs is not restricted to research, development, test and evaluation appropriations. The decision of what funds are appropriate for a project is independent of award instrument.
The one mandatory proviso in the guide requires notice of the potential for follow-on production to be stated in any solicitation or agreement for a prototype project.

There is no single method for publicizing OTAs. Methods that reach potential performers with relevant technologies and capabilities need to be part of a thoughtful outreach strategy.

Payments can be structured as fixed amounts based on accomplishment of observable technical or programmatic milestones.

One of the case studies addresses the U.S. Transportation Command project that resulted in the Oracle America protest. The guide’s requirement for notice of follow-on production addresses the Government Accountability Office’s criticism of the Army contracting office approach in that case. However, the Defense Department’s definitions and requirements policy memorandum issued Nov. 20 clearly rejects GAO’s narrow and skewed definition of when a project is “successfully completed.”

Successful completion occurs when key technical goals of a project are met, success metrics in an agreement are satisfied, or a particularly favorable or unexpected result justifies transition to production. This is also reflected in the guide’s glossary.

Another case study relates to Global Hawk, an unmanned reconnaissance platform developed as an OTA and Advanced Concept Technology Demonstration. The prototype project was highly successful both in terms of achieving technical goals, speed of development and affordability. However, the “rest of the story” is less sanguine. Once transitioned to the traditional acquisition system requirements creep set in and the focus on affordability was lost. Global Hawk is a cautionary tale that starting a project as an OTA does not immunize it from the “costs too much, takes too long” syndrome of business as usual if transitioned to the traditional system.”The issuance of the new guide and policy memoranda constitute substantive steps in the Defense Department’s embrace of OTAs. However, much remains to be done. The department has failed to heed the call of Congress in section 867 of the National Defense Authorization Act of 2018 to create a preference for using OTAs as well as procurement for experimental purposes (10 U.S.C. 2373).

More critical is its failure to fully comply with subsection (g) of section 2371 mandating it to “ensure management, technical, and contracting personnel involved in” OTAs are “afforded opportunities for adequate education and training” including “continuous and experiential learning…”

The new guide is a big step in the right direction. When armed with proper education and training the defense acquisition work force now has the guidance to use OTAs more effectively. Thinking about problems, potential solutions and win/win scenarios is permitted and encouraged by this guide.”

http://www.nationaldefensemagazine.org/articles/2018/12/7/viewpoint-pentagon-takes-big-step-to-clarify-other-transaction-authority-rules

Don’t Get Carried Away With Other Transaction Agreements (OTA) Experts Caution

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OTA Carried Away Wall Street Journal

Image:  “Wall Street Journal”

“FEDSCOOP”

“The acquisition instrument allows agencies to sidestep the Federal Acquisition Regulation and work with innovative companies that don’t normally do business with the government.

Like most trends, because it’s currently in vogue, it runs the risk of being dramatically overused.”


“Other Transaction Agreements (OTAs) have been all the rage in the federal acquisition community in 2018.

acquisition officials from the departments of Defense and Homeland Security are concerned that the OTA’s innovative reputation could become as cool as cargo shorts if agencies abuse it.

“I think that’s the biggest risk,” Soraya Correa, DHS chief procurement officer, said Thursday. “That people use them properly, that we don’t overuse them, that we don’t abuse them, so they are around for the long haul. How I manage that is by making sure that we understand the authorities that we have been given, we really think about what that authority is for and then we educate.”

Correa and Scott Stewart, technical director of procurement at the Defense Information Systems Agency, said at an AFFIRM luncheon that while OTAs have become a popular way for agencies to discover new technology solutions, they are but one tool in a vast acquisition arsenal — not a catch-all.

OTAs allow agencies to develop and scale prototyped technology that is either a new application or can enhance an existing platform, like a smartphone, without going through a full contract acquisition process, often providing officials to develop innovative solutions through a non-traditional contractor base.

OTAs are contracts — which can be negotiated with commercial terms and conditions — but their ability to be developed quickly with a broader contracting pool has made them the hot acquisition item of the year.

But that doesn’t mean they are right for every situation, Stewart said, or that they can’t be successfully protested. Often enough, he has to dissuade defense agencies from pursuing an OTA because it’s the wrong vehicle for what they are trying to procure. But the promise of a fast acquisition has some officials striving to use them beyond their design.

“If somebody comes to us and says, ‘Hey, I want to do an OTA,’ [we say] let’s sit down and talk about it,” he said. “Usually, nine out of 10 times, we talk them out of it because it turns [we say], ‘Why can’t you just buy that on a FAR procurement contract? No, the help desk is not a prototype.’”

But the popularity of the vehicle within DOD and DHS means that civilian agencies are growing interested in their potential use, and Correa said that an overabundance of OTAs in the acquisition realm could remove their speed advantage and potentially lead to a crackdown on the authorities allowing them.

“I think the more we use them, it’s going to get a little slower to get to award,” she said. “But [in a year], I also think we will be talking about how more civilian agencies are using those. Where we are using them, how we are using them and hopefully that we are being really consistent. What I hope we are not talking about is regulations governing OTAs, that’s my biggest fear.”

https://www.fedscoop.com/other-transaction-agreements-otas-soraya-correa-dhs-scott-stewart-disa-affirm/

Air Force Keen On Making Startup “Angel Investments” Via Other Transaction Agreements (OTA’s)

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Image result for US air force"Angel investors" are typically high net worth individuals that invest in a startup at very early stages and prior to institutional investors.

EDITOR’S NOTE:   National Defense Magazine recently also published a cautionary article on the risks inherent in OTA’s for the small business contractor:  Federal Government Other Transaction Authority (OTA) Contracting – Big Rewards, Risks

“NATIONAL DEFENSE MAGAZINE”

“The Air Force wants innovative startups to see the service as an “angel investor,” able to readily hand out money to anyone who has a good idea, the service’s top acquisition official said …

Using a social-media like platform, the service plans to put out a request for ideas. Companies interested would respond with a one- to two-page explanation of their concept, a description of their company and a 90-second video to pitch the idea.”


“While Defense Department acquisition has often been characterized as cumbersome, the Air Force is looking to tap into nontraditional companies such as startups and reduce the time it takes to put their products on contract, said Will Roper, assistant secretary of the Air Force for acquisition, technology and logistics. He has a plan to write up agreements to develop their ideas in one day.

“It has continually been a criticism of acquisition that we can do a contract in about two months, and that’s if everything goes right, you pull all the stops” and use other transaction authority agreements, he said. Most OTAs “take three to four months — and that’s in a good case — [but] that’s too long for a startup.”

Most of the small companies the Air Force works with have 70 employees or more, and at that point they are no longer startups, he said during a media roundtable at the Air Force Association’s annual Air, Space & Cyber Conference in National Harbor, Maryland.

Startups “need cash now, and if not, they’re going to go to an investor who can,” he said. These new companies should look upon the Air Force as their angel investor, he added.

In order to have funding readily available, Roper challenged his contracting team to find out why the service couldn’t use an employee’s government purchase card to award a contract to a small business or startup. “The authorities that govern government purchase cards are broad and so we had both our government contracting professionals and legal professionals come back and they determined that we can do small business awards using a GPC,” he said.

Being able to use the cards opens up a “wonderful opportunity” to work with innovative companies, he said. The Air Force plans to hold a series of startup days to entice such firms to work with the Air Force, he added.

The Air Force will review the companies and then it will invite some of them to do a live pitch, he said. “The idea will be [that] 60 to 80 percent have a high likelihood of walking out of their live pitch being on contract that day.” The service also plans to help pay for travel arrangements, as the financial burden of that can often be a huge impediment to small companies, Roper noted.

The Air Force does not plan to institute the plan broadly but to keep it specific to startups and small businesses, he said.

The service is planning to conduct startup days throughout the Air Force and see how it goes, he noted. As a trial, Roper’s office is working with the Air Force Research Laboratory and AFWERX to try and complete “50 contracts in 50 hours” by the end of October, he said.

“We want to make sure the mechanics are sound.” If the strategy works out, it could prove useful for the service, he said.

“The benefit is huge because it finally pulls startups into orbits around our program offices,” he said. “Even if round one of their product isn’t ready, they’re aware of us as an angel investor. We’re not trying to have them work for the government. We just want their products to make sense for us.”

http://www.nationaldefensemagazine.org/articles/2018/9/18/air-force-acquisition-roper-081818

 

Federal Government Other Transaction Authority (OTA) Contracting – Big Rewards, Risks

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OTA Risk Vs. Rewards

Image:  aspenwoolf.co.uk

“NATIONAL DEFENSE MAGAZINE”

“OTA agreements have limited constraints — no certifications, no cyber requirements, no termination for convenience, no Truth in Negotiations Act requirements, no cost accounting standards and no intellectual property clauses.

These agreements will be used for billions of dollars in purchases as fiscal 2018 closes and 2019 begins. However, many risks loom.”


“For decades, the Department of Defense has struggled to keep pace with modern technology. As legacy infrastructure falls further behind and puts our warfighters at greater risk every day, the Pentagon’s unwieldy and inefficient procurement system bears a proportional share of the blame.

Recognizing the department’s urgent need to access modern solutions, Congress ditched the federal procurement system and opened billions of dollars in production contracts to an obscure statutory mechanism called “Other Transaction Authority.”

Recognizing the ease and potential benefit, the Defense Department’s use of other transaction authority has increased 100-fold, attracting both traditional and nontraditional contractors to the table.

Companies signing OTAs, participating in OTA consortiums or subcontracting on OTAs, should keep compliance and ethics top of mind to protect against problems that run the spectrum from fraud to loss of intellectual property.

There are requirements for competition. Other transaction authorities have traditionally been restricted to research and development or prototyping, but new statutory authority allows the department to use them for follow-on production. Critically important, follow-on production OTAs can only be used if the original one for a prototype: stated that a follow-on production contract could result, used “competitive procedures” for the selection of participants and was successfully completed.

Earlier this year, the Pentagon stumbled into problems by attempting to award a $1 billion follow-on production OTA to REAN Contracting for cloud migration and operations services. With a protest filed at the Government Accountability Office, Oracle America Inc. successfully overturned the award. According to GAO, the Defense Department failed to state in the original REAN prototype OTA that a follow-on production contract was contemplated and REAN had not yet successfully completed the prototype work.

Keep in mind that fraud is still fraud. Rumors abound that “fake” competitions occur with the OTA winner already selected before the “competition” occurs. If these rumors are true, don’t be a willing participant. With billions of federal dollars at stake, oversight authorities will be watching. Make sure the company’s ethical compass and compliance programs are in the right place and employees are well versed in the proper use of federal dollars.

Protect your intellectual property. Don’t let the Defense Department, another company or a consortium lead take more of the company’s IP than is absolutely necessary to perform the OTA. There are no statutory requirements for the department, a prime or a consortium lead to take intellectual property in these agreements.

Ensure the company’s lawyers review each OTA-related agreement and treat it like the company would treat any other commercial agreement. Enhanced IP protection is the most significant benefit of OTAs, so make sure to use it.

Be aware that there is no process under an OTA for resolving disputes. Realize that if something goes wrong, there will be little recourse against the federal government. While the Defense Department won’t be able to indemnify the company for losses, make sure the company’s potential losses and liability are limited in the agreement.

Additionally, many other transaction authority agreements require cost sharing, but there aren’t rules for how participants should account for costs. If the company doesn’t already have a compliant cost accounting system, think about establishing one. At the very least, ensure the company accounts for its share and that the accounting is consistent, fair and supportable should the cost share be questioned.

Be on the lookout for OTAs that require accounting for costs in accordance with Federal Acquisition Regulation cost allowability rules or cost accounting standards. If the company’s accounting or contracting system does not comply with these rules, don’t accept those terms.

When participating in an OTA through a consortium or as a subcontractor, remember the sub-agreement is a commercial contract, just like a contract with any other commercial entity. There are usually no required flowdowns unless the consortium or the prime has agreed to them. Be sure the company knows how the consortium lead and/or the prime contractor is set up to interact with the Defense Department. Ask for a copy of the OTA and be sure the company knows how the consortium lead is accounting for costs, cost shares and intellectual property.

Remember that OTAs do not remove requirements to comply with other laws. Export laws must be followed, and all the gift and gratuity rules still apply when socializing with government officials.

By keeping these key principles in mind and ensuring the company has a process to review OTAs, a robust compliance program and a strong ethics foundation, traditional and nontraditional contractors should take advantage of an easier and more efficient mechanism to provide products and services to the Defense Department.”

http://www.nationaldefensemagazine.org/articles/2018/9/27/ethics-corner-other-transaction-authority—big-rewards-risks