United States: GAO Rejects US Army's Misuse Of P-OTA Authority

On May 31, 2018, the US Government Accountability Office (GAO) issued a decision reaffirming its willingness to police an agency's decision to utilize a so-called "other transaction agreement," or OTA, when doing so deviates from the limited purposes for using OTAs in lieu of procurement contracts. Specifically, Oracle America, Inc. (Oracle) challenged the US Army's (Army) award of a follow-on production OTA (P-OTA) to REAN Cloud, LLC (REAN).¹ The GAO sustained Oracle's protest, concluding that the Army failed to articulate the possibility of a follow-on P-OTA in the original, prototype OTA and improperly awarded the P-OTA before the original, prototype OTA was complete. In addition, the GAO addressed procedural issues that will shape future protests in the context of OTAs, including applying a broad definition of "interested party" when determining that Oracle had standing to protest the award and confirming GAO's jurisdiction to consider a protest related to an OTA. Despite the protestor-friendly outcome on these issues, GAO's decision in this case also confirms that agencies have broad authority to use OTAs by holding that "pilot" or "test" programs, as well as projects designed to demonstrate a contractor's capabilities, may fit within the ambit of prototype OTA efforts—even if the capabilities being tested or demonstrated are already commercially available.

Background

In mid-June 2016, the DoD's Defense Innovation Unit (Experimental) (DIUx) published a Commercial Solutions Opening (CSO) Special Notice informing companies in the technology industry of forthcoming "award[] funding agreements." The CSO advertised that the forthcoming agreements contemplated future, prototype projects with the potential for "follow-on funding for promising technologies . . . and possible follow-on production." Then, in March 2017, the DIUx issued an Area of Interest statement (AOI) related to an emergent TRANSCOM software need. The AOI sought the submission of solution briefs related to "the prototyping of a robust and scalable software development environment to enable the modernization of [DoD] command and control systems in a cloud infrastructure." Throughout March 2017, the DIUx received 21 solution briefs, including one from REAN. Oracle did not submit a solution brief. From the 21 briefs submitted, TRANSCOM, Army Contracting Command–New Jersey (ACC–NJ), and the DIUx selected five companies to conduct a subsequent presentation where each company would demonstrate its proposed solution. Following presentations, TRANSCOM, ACC–NJ and the DIUx selected two companies, including REAN, to receive a request for prototype proposal (RPP). Neither the RPP nor REAN's proposal referred to a possible follow-on production transaction. On May 10, ACC–NJ executed a determination and findings (D&F) to approve the use of its other transaction authority for the award of a prototype OTA to REAN.

From May to November 2017, REAN worked on developing a "repeatable automated [software] methodology" that would migrate the legacy TRANSCOM applications to a government-authorized commercial cloud environment. On November 8, TRANSCOM concluded that REAN had "performed the requirements" of the prototype OTA, despite the fact that work relating to one OTA modification was still ongoing. On November 14, ACC–NJ notified REAN that "as a follow-on to the successful completion of the prototype OTA," it intended to enter into a P-OTA for REAN to "deploy, implement and sustain" the software product it had developed. On February 1, 2018, ACC–NJ executed a D&F concluding that the requirements of 10 USC section 2371b had been met and ACC–NJ could award the P-OTA. That same day, REAN and ACC–NJ executed the P-OTA.

The P-OTA had a not-to-exceed value of US$950 million and was structured similar to an indefinite-delivery, indefinite-quantity (IDIQ) ordering agreement that was available for use by other DoD entities through an order placed by ACC–NJ. On February 2, ACC–NJ placed the first order against the P-OTA at a value of over US$14 million. On February 12, the Army posted the notice of award on FedBizOpps. On February 20, Oracle filed the protest. On March 1, the DoD chief management officer and the undersecretary of defense for acquisition and sustainment directed the DIUx to reduce the value of the production agreement to a ceiling of US$65 million and to limit the services provided to TRANSCOM alone.

Discussion

Oracle argued (and the GAO agreed) that the Army's use of P-OTA authority failed to comply with 10 USC section 2371b because the Army: (i) failed to articulate the possibility of a follow-on P-OTA in the original, prototype OTA; and (ii) improperly awarded the P-OTA prior to completion of the original, prototype OTA.

Prior to reaching those issues, the GAO addressed two important threshold matters. First, it reiterated that it has jurisdiction and will consider protests alleging that an agency improperly used an OTA when a competitive procurement was required instead. In other words, while the GAO will not hear protests challenging an agency's decision to award an OTA to a particular entity, it will determine "whether the agency's use of its discretionary authority [to use an OTA vehicle] was proper, i.e., knowing and authorized."

The second threshold issue considered by the GAO was whether Oracle was an interested party to protest, given that it did not submit a solution brief. The GAO agreed with Oracle's argument that neither the CSO nor the AOI provided adequate notice of the agency's intent to issue a P-OTA and that this provided "a sufficient basis for the protester to argue that it would have submitted a solution brief had the AOI reasonably described the intended procurement." The GAO's holding is consistent with protests challenging the award of a task order on the grounds that the order exceeds the scope of the underlying contract. In that situation, the GAO has held that a party that would have been capable of submitting a proposal had the order been the subject of an open competition has standing to protest that competitive procedures were not used. Extending this logic to OTA and follow-on P-OTA situations may increase the potential for third-party protests.

Turning to the merits, the GAO first rejected Oracle's argument that the commercial availability of similar cloud-based capabilities rendered the original, prototype transaction an improper use of OTA authority. The GAO relied upon the broad definition of a "prototype project" in the DoD's Other Transaction Guide for Prototype Projects, rather than Oracle's recommended dictionary definition. The DoD definition considers "pilot" and "test" programs, as well as projects designed to demonstrate a contractor's capabilities, to fall within the scope of prototype OTA procurement efforts, even if the capabilities being tested or demonstrated are commercially available. The GAO's deference to the DoD on this matter encourages the use of prototype OTA authority, generally—a policy that is also reflected in the 2018 NDAA.

Concerning the parties' statutory contentions, the GAO's analysis was relatively demanding with respect to issues within its scope of review. Consistent with its discussion of jurisdictional matters, the GAO focused on the DoD's compliance with the statute authorizing the issuance of the P-OTA. Under 10 USC section 2371b(f), the DoD has authority to enter into a follow-on production transaction or contract following a successful prototype OTA. The DoD may award the subsequent production transaction or contract to the same participants as the prototype OTA without the use of competitive procedures if: "(A) competitive procedures were used for the selection of parties for participation in the transaction; and (B) the participants in the transaction successfully completed the prototype project provided for in the transaction.² 

The GAO found that the Army's reference to "possible follow-on production" in the CSO was insufficient to meet these requirements. Thus, the Army's failure to articulate the possibility of a follow-on P-OTA in the original, prototype OTA proved fatal to its attempted exercise of P-OTA authority. Secondly, the GAO held that the Army improperly awarded the P-OTA prior to completion of the original, prototype OTA. The government argued that because the unfinished work was part of a modification to the original scope of work under the prototype OTA, REAN had successfully completed "those 'parts of the prototype' project that were included in the P–OTA." The GAO found this argument unpersuasive. It reasoned that if the tasks under the modification "were not properly part of the 'prototype project,' then they would not be included in the Army's award authority under 10 U.S.C. §2371b(a)." Thus, the Army's attempted exercise of P-OTA authority was doubly flawed.

Conclusion

The GAO's recent decision encourages broad use of OTA authority through its adoption of agency-developed guidance in defining the scope of applicable, prototype projects. However, this holding is equally likely to encourage third-party protests in the prototype OTA and P-OTA contexts. In light of these developments, contractors should monitor the government's use of its OTA and P-OTA authority in their own transactions and in transactions where the government potentially fails to properly use an OTA instead of a procurement contract.

Footnotes

1 See Oracle Am., Inc., B-416061, 2018 WL 2676823 (Comp. Gen. May 31, 2018) (opinion released June 5, 2018).
2.10 USC §2371b(f)(2)(A)–(B).

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