Future Other Transaction Use Cases

Putting flexibility to work.

Over the past several months, there has been renewed interest in utilizing “Other Transactions” (OTs) to meet government needs. Defense Secretary Hegseth issued a memo directing the use of OTs to enable faster prototyping and fielding of critical technologies. The President issued an Executive Order directing a general preference for OTs. OTs have been around for several years, so this renewed interest comes at a time where more and more contracting officers have experience using OTs.

OTs are generally defined by what they are not: They are not procurement contracts, nor are they grants or cooperative agreements (referred to as “Financial Assistance.”) NASA is generally considered the leader in using OTs through the Space Act, but the DOD and a few other agencies have created dozens of consortia through OTs. Notably, Operation Warp Speed, the program that delivered COVID-19 vaccines, was largely done through OTs that guaranteed volume purchases of effective vaccines.

Because they are defined by what they are not, Agencies sometimes struggle to develop use cases for them. Sometimes that is because Agency business processes are sufficiently ingrained that no other tool seems feasible. Other efforts are stymied by risk aversion or bureaucratic incompetence. Importantly, Agencies have divergent legal foundations for OTs, which makes it difficult to transfer lessons learned across agencies. This article will lay out four categories of use cases where OTs may be used: General Regulatory Relief; Process Improvements; Partnership Intermediary Agreements; and Industrial Policy. This article is not meant as an implementation guide; agency practitioners will have to carefully consider the legal and regulatory environment in their agency.

Category 1: General Regulatory Relief

The Federal Acquisition Regulation (FAR) and 2 CFR 200, the regulations that cover procurement contracts and financial assistance, do not apply to OTs. There are often particular parts of those regulations that make doing business with the government more difficult than it needs to be. Those seeking regulatory relief from a specific FAR or 2 CFR 200 may consider using OTs. Here are some examples:

1. 2 CFR 200.307 “Program Income” Program income requires that profits made under a financial assistance agreement defray the cost of the agreement, add scope to the agreement, or cover any required recipient cost share. Agencies investing in major infrastructure, projects that require private financing, or dual use technologies may find resistance to the program income requirements. These types of projects may anticipate profits in advance of the end of the agreement. In these cases, the use of an OT can allow the parties to find a mutually agreeable way to handle such considerations.

2. 2 CFR 200.311 “Real Property” Similar to program income and depending on Agency supplements to 2 CFR 200, real property considerations may call for the use of an OT. Some major infrastructure investments made via financial assistance may find the value of real property go up at the completion of the project. This makes compensating the government for the value of the infrastructure tricky and difficult to finance. OTs could offer relief.

3. Intellectual Property. Whether via the FAR or 2 CFR 200, intellectual property concerns are common. Intellectual property rights are, generally, fully negotiable under OTs. While practitioners should consult with intellectual property attorneys, OTs allow for the elimination of march-in rights, narrowing Government purpose licenses, and/or permitting the counterparty to keep patentable inventions as trade secrets.¹

4. Termination Terms. FAR based contracts include a clause allowing the Government to unilaterally terminate contracts at its convenience. Many financial assistance agreements allow for unilateral termination if the award no longer effectuates the program goals or agency priorities. Since these types of terms are unique to working with the Government, practitioners may consider using an OT and including a provision allowing for the mutual termination of the agreement after negotiation. Such provisions could include the requirement for a specific notification period ahead of a termination by either party.

5. Agreement Scope. The Competition in Contract Act does not apply to OTs, nor does 2 CFR 200’s preference for competition. Therefore, practitioners can include flexible terms regarding the scope of the agreement. This can be especially important for long term agreements with outcomes that may shift over time or depend on where the research goes. Since the concepts of in scope and out of scope don’t apply to OTs, including simple modification terms may be preferable.

6. Pay for Performance. Most financial assistance is done on a reimbursable basis, and where agencies have mandatory cost sharing requirements, they must be done on a reimbursable basis. Reimbursable agreements attach more oversight costs related to audits, invoicing, and the need to account for every penny. Where agencies and their partners can agree to fixed payments for milestones, OTs can offer a lot of cost and oversight relief. In this kind of OT, the parties agree to fixed payments attached to milestones. The payments are not made if the milestones are not met, and the agency does not track the actual dollars outlaid to meet the milestone. Admittedly, this is a common approach in FAR based fixed price contracting, but for agencies that make heavy use of financial assistance, this can be a power “pay-for-performance” mechanism that incentivizes the counterparty to meet the milestones efficiently as possible.

Category 2: Process Improvements

One criticism of both the FAR and financial assistance agreements is that the process for formation for both takes a long time. In some cases, that process takes a long time because of agency dysfunction, risk aversion, or incompetence. In other cases, the FAR and 2 CFR 200 regulations require extra or unnecessary steps. Expert practitioners may be able to work around these issues, but embracing OTs to simplify or rationalize processes may be in the best interests of agencies. Some areas where OTs can simplify processes are described below.

1. Capability Based Selection. When agencies use FAR part 15, they have to consider cost and price prior to establishing a competitive range.² Considering cost and price at that early stage strikes many as premature. In financial assistance, cost is barely considered at all prior to selection. This leads to a tremendous amount of wasted time and effort on both sides of the transaction. A better way exists–it is called “capability based selection” and it already exists in the FAR.³ Unfortunately, its use is limited to Architect and Engineering contracts only. OTs can clear this regulatory hurdle.

   When an agency conducts a capability based assessment, the relevant line of inquiry is “What organization is most capable of fulfilling the government’s needs?” There are no tradeoffs with price or cost–offerors do not even submit a cost estimate with their capability statement. Capability can be assessed in a myriad of different ways: questionnaires; professional assessments or qualifications; past performance; capacity; or any other method the agency sees fit. The agency evaluation panel then ranks the offers and enters into price and cost negotiations with the highest rated offer. If an agreement cannot be made, the agency moves on to the next highest rated offer.

   Using OTs in this matter has obvious time and efficiency benefits. Government personnel do not have to review price and cost proposals for every offeror and every offeror does not have to produce one. It narrows and focuses the evaluation effort on the thing typically most important to the agency–the capability of the counterparty. It focuses cost analysis work where it is needed most because it limits the pool of offerors subject to it. Some agencies may worry about paying too much. However, it is easy enough to publish with the solicitation the max award amount. Then, it is up to the agency negotiating team to get the maximum value at the max award amount or below. This also works where the agency wants to make many awards–like in a traditional financial assistance research solicitation.

2. Relational Formation. For long term and strategically important agreements, OT practitioners may choose to embrace relational contracting. A relational contract establishes a partnership within a flexible contract framework based on social norms and jointly defined objectives. It prioritizes the relationship with the continuous alignment of interests before the transaction. Embracing the relational contracting process to negotiate the agreement differs significantly from typical government negotiations.⁴ The parties will start with their values, co-create the vision and objectives of the agreement, establish a governance structure, and co-construct the deal points. Federal contracting expert Vern Edwards has called for this approach to replace Performance Based Service Contracting in his article, “A proposal for a new approach to Performance-Based Services Acquisition.”

   Embracing relational contracting allows practitioners to craft tailored, long term agreements that can adapt to changing circumstances. This approach compliments OTs because it works out how the parties will adapt to change ahead of time, something that FAR and 2 CFR 200 agreements struggle to do. Since the process is different, it is recommended that practitioners interested in utilizing relational contracting seek guidance before starting.

3. Market Intelligence Based Solicitations. Both FAR and 2 CFR 200 based agreements share a preference for “full and open competition.” In theory, full and open competition drives prices down and drives quality up. In practice, because it makes solicitations publicly available, it can gum up the works, extend timelines, lead to protests, and increase transaction costs. Since full and open requirements do not apply to OTs, practitioners can decide on the amount of competition necessary. One way to do this is to use market intelligence to determine which organizations will receive the solicitation. Market intelligence allows for a myriad of ways to gain information on the market and OT practitioners should embrace a rigorous process of identifying the most capable organizations working in the target market. This could include traditional market research tools like requests for information, industry days, and reviewing FPDS and CPARS databases. Agencies may even choose to use Partnership Intermediary Agreements (PIAs, discussed below) to help identify sources. Once market intelligence is completed, only the most capable organizations receive the solicitation.

   Additionally, agencies should take the opportunity to gain deep insight into the market and use the intelligence gained to craft the solicitation. Understanding what makes projects like the one being done will help practitioners understand what evaluation criteria to use, what partnerships to require, and what proposals materials to require.

   Adopting this approach shifts the review burden from proposal evaluation to market intelligence. Agencies will likely spend more time doing market intelligence, but since market intelligence is less formal than proposal evaluation, it is likely to save time by reducing the number of proposals to evaluate. Further, the proposals that the agency does receive will likely be of higher quality. And, since the agency used information gained during market intelligence to inform its solicitation, the project is probably more likely to succeed.

4. Small Business Innovative Research (SBIR) Commercialization. Some agencies have embraced OTs for advancing SBIR project commercialization. This is a use case that should find wider adoption and innovation. SBIR projects that have advanced through phase II, III, and even beyond still may require support to fully commercialize the technology. For example, agencies with promising SBIR projects that require more support could batch them by technology sector and issue an OT solicitation to only the most promising organizations. Again, this is an area that is ripe for innovation, and could be expanded to cover a more broad set of commercialization challenges in various technology sectors.

Category 3: Partnership Intermediary Agreements. Partnership Intermediary Agreements (PIAs) are best thought of another type of other transaction. There are several different statutes governing PIAs, including 15 U.S. Code § 3715. PIAs are authorized to “...perform services that increase the likelihood of success in the conduct of cooperative or joint activities…” Further Partnership Intermediary is defined as an organization that “assists, counsels, advises, evaluates, or otherwise cooperates…” with businesses and Universities that “need or can demonstrably make productive use of technology related assistance from a Federal laboratory.” Some agencies, like the Departments of Defense and Energy, have made use of PIAs to assist in commercialization efforts. In addition to commercialization support, Agencies can consider using PIAs for:

1. Identification of sources in specific technological fields. Agency market intelligence efforts can be stymied by volume of both government and non-government communications and the mismatch between government communication networks and the places, communities, and spaces where promising technology developers actually operate. According to Rick Dunn, known as the father of OTs, PIAs can, “...provide the means to connect with companies that have technologies with dual-use potential, or which could partner with traditional government contractors.”⁵ PIAs can help by leveraging and creating informal communication networks, hosting small events, and digging into regional and local communities that Federal agencies struggle to access. This is a powerful force multiplier for market research intelligence. Agencies have blunt and broad communication abilities through the Federal Register and www.sam.gov, but those media are not typically read by the average citizen. PIAs can help agencies break down those communication limitations.

2. Workforce Training. PIAs could also be leveraged to provide training to upskill the workforce required to, for example, build and maintain large infrastructure projects. In this model, the companies planning to build major infrastructure–for example, small modular nuclear reactors–could partner with the Agency and local colleges to prepare the workforce for the project. These programs could include welders, steelworkers, and project managers. The lack of a skilled workforce has been blamed for part of the cost overruns for nuclear projects.⁶ Smart agencies should attempt to address the problem before the project starts, and PIAs are one way to do just that.

   Worker training programs need not be limited to major infrastructure necessarily. Emerging technologies in medical treatments and techniques, nursing, responsible use of artificial intelligence, modular home construction, and agricultural techniques like vertical farming could benefit from similar training programs. These programs will make it more likely that the agency’s investment in the technology makes it into the real world.

Category Four: Industrial Policy. One emerging area of OT use is to assist national industrial policy. Agencies should think carefully about using OT for these types of interventions; however; well designed and justified programs can greatly benefit from the flexibility that OTs provide. Three recent examples are described below.

1. Department of Commerce. The Department of Commerce made extensive use of OTs to implement the CHIPS and Science Act. Commerce made approximately 50 awards using OTs to catalyze long term growth in the domestic semiconductor industry.⁷ Commerce used a hybrid “Notice of Funding Opportunity” that offered the ability to award financial assistance, OTs, and loans and loan guarantees.

2. Department of Energy. The Department of Energy entered into a competitive OT with the EFI Foundation to study ways to support the growth of domestic hydrogen production through demand side interventions.⁸ Energy worked off the Operation Warp Speed model where the government guaranteed the purchase of effective vaccines once they became available. Similarly, Energy would contribute a small subsidy for clean hydrogen to accelerate demand. Energy elected to not execute the full program, but similar demand side interventions in critical and emerging markets could consider using OTs.

3. Department of Defense. In July 2025, the Department of Defense (DOD) entered into an other transaction with MP Materials for the production of critical minerals used in DOD weapon systems. This agreement featured a $400M equity investment by DOD as well as a demand side price support in the form of a price floor. It also included an off-take commitment for the first ten years of production. Apparently, several different authorities were used to finalize the deal, including the Defense Production Act, so non-DOD agencies may not have similar authorities. However, OT practitioners should keep an eye on this deal and how it may inform future OT use cases for industrial policy.

4. Others. Multiple agencies are discussing non-monetary consideration for use in OTs. In the absence of appropriations, agencies may have to get creative in how to push their mission forward. Agencies could consider offering generous indemnification terms or “free” testing and validation services through a government lab.

Conclusion

Because of the growing interest in OTs, agencies that do not plan to implement them risk falling behind the curve. Agencies that have already embraced OTs stand to gain as their practitioners work to find new ways to implement them. What is articulated here is not the universe of potential use cases, rather a starting point for future consideration. The best OT practitioners will come up with ways to use OTs to solve some of America’s trickiest problems.

1. Dunn, Rick “Guide to Other Transactions” Third Edition, page 58.

2. FAR 15.305.

3. FAR 36.6.

4. Frydlinger, D. (2021a). Contracting in the new economy: Using relational contracts to boost trust and collaboration in Strategic Business Relationships. Palgrave Macmillan., page xxiii.

5. https://strategicinstitute.org/other-transactions/ot-pia-connection/

6. https://www.worldnuclearreport.org/Worker-shortage-barrier-to-nuclear-ambitions#:~:text=Those%20same%20welders%20are%20also,Australia%20is%20not%20insulated%20from.

7. https://www.nist.gov/chips/chips-america-awards?page=0

8. https://www.usaspending.gov/award/ASST_NON_DECD0000077_8900