United States: The Future Of DIUx In Limbo Under Trump

Founded in August 2015 by Secretary of Defense Ash Carter, the Defense Department's Defense Innovation Unit Experimental, or DIUx, has been working to bring technology innovations from commercial developers to the armed services—quickly.   DIUx seems to be exactly the type of government entity that should appeal to the Trump administration; it is leanly staffed, is focused in locations (Boston and Silicon Valley) that are centers for the innovations the Department of Defense (DoD) is looking for, avoids the contractual burdens of traditional government procurement, and has streamlined procedures designed to appeal to commercial companies while avoiding red tape.  From the administration's perspective, DIUx has something else going for it:  it has been criticized by Congress.  Yet, it is hard to say whether DIUx will survive the change in administrations.  So, if your company has innovative technologies that might be interesting to the DoD, but you wish to avoid the headaches of traditional government procurement, now might be the time to weigh in with the DoD or Congress about the importance of DIUx.  Here is a perspective on how DIUx works that might assist you.

To help the DoD access cutting-edge technology from nontraditional contractors, DIUx introduced a new acquisition mechanism, known as the Commercial Solutions Opening, (CSO) through which DIUx solicits solutions to problems the military faces.  If a company's solution is accepted, the company is awarded a special agreement — an "Other Transaction" — for prototype projects (OT), which is not governed by the Federal Acquisition Regulation's (FAR) burdensome contracting obligations.

The CSO guidebook, "Fast, Flexible, and Collaborative: The Commercial Solutions Opening and DIUx's Approach to Other Transactions for Prototype Projects," available on the DIUx website, describes how federal agencies can create contracting vehicles that fast-track technological innovations using the CSO process.   DIUx solicits private-sector vendors that are in the business of creating technology products and services that could benefit the military.  Once DIUx receives a developer's "solution brief," the Government evaluates the brief against its criteria.  If the Government finds the brief has merit, the vendor is invited to submit a formal proposal.  A successful proposal can result in an OT agreement for a prototype project.  Essentially, the transaction is a merit-based selection process set up to address specific problems identified by the military.  The process is similar to that of broad agency announcements (BAAs)  already used by other agencies.

To bring together the government and commercial vendors that might not otherwise participate in government deals, DIUx takes advantage of enhanced OT authority granted just before DIUx's inception. In 2015, Congress expanded the use of OT Authority under Section 815 of the National Defense Authorization Act for Fiscal Year 2016 ("FY 2016 NDAA").  Section 815 replaces the OT Authority previously set out in Section 845 of the NDAA for Fiscal Year 1994. Under Section 815, 10 U.S.C § 2371b authorizes the Director of the Defense Advanced Research Projects Agency (DARPA), the Secretary of a military department, or any other official designated by the Secretary of Defense, to carry out prototype projects under OT Authority that are "directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by Department of Defense, or to improvement of platforms, systems, components, or materials in use by the armed services."  10 U.S.C.§ 2371b(a)(1)(a).  This OT Authority expanded how DoD may use OTs, which may now be used for research, development, and demonstration (RD&D) projects and activities that help advance new technologies or processes.

Using this authority, coupled with its streamlined processes, DIUx has the potential to do a lot of good. In the three months from June 2016 through the end of fiscal year 2016, DIUx awarded 12 OTs worth $36 million, with awards averaging 59 days to complete.  This is an impressively fast process that anyone familiar with federal contracting might admire: typical procurement processes can take many months or years and often involve bid protest litigation. (2016 Protest Roundup)

Congress most recently further broadened DoD's OT authority.  Section 879(a) of the FY 2017 NDAA, signed at very end of 2016, authorizes the Secretaries of Defense and the military departments to carry out a "defense commercial solutions opening pilot program" to acquire, on a fixed-price basis "innovative commercial items, technologies, and services" via a "competitive selection of proposals, resulting from a general solicitation and the peer review of such proposals." This will allow agencies that use traditional FAR contracts to procure prototypes via procedures comparable to CSOs.

Despite the success DIUx boasts on a shoe string budget, it has its detractors.  Congress has expressed skepticism about DIUx, which is reflected in the FY 2017 NDAA. The Act places significant restrictions on the expenditure of funds ultimately appropriated until DoD delivers a report to Congress detailing DIUx's justification.  And the NDAA Conference Report states Congress is concerned that DIUx is not delivering "game-changing technologies" and that itsr "customer base is not as diverse as expected." The Conference Report indicates that DIUx is not integrated with DoD's "innovation ecosystem," which may impede DIUx's ability recreate its "effectiveness and networking potential."

Whatever one's opinion of Congress, it remains true that what Congress says in one year is apt to be different a year later, particularly when administrations change.  Now is the time for industry to weigh in on DIUx.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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