A Guest Post by a Contracting Pioneer

Read this guest blog post from Lauren Dailey, a well-known pioneer in the latest wave of federal acquisition innovation.

This week I am thrilled to host a guest blog post from Lauren Dailey, a well-known pioneer in the latest wave of federal acquisition innovation. Lauren paved the way for the Defense Innovation Unit Experimental (DIUx, now DIU) to use Commercial Solutions Openings (CSOs) to quickly acquire, test, and adopt innovative commercial items.

You might recall from Victor Deal’s article about CSOs in the July issue of Contract Management magazine that they are a bid-selection model that employs a general solicitation allowing bidders to respond with solutions of their choosing to a broadly defined area of interest. Proposals are peer reviewed for merit, not against one another. To qualify as “innovative,” a technology, process or method must either be new or be a new application of something already in use. CSOs toss best value determinations and speed up contract awards so they can occur opportunistically, as long as the general solicitation remains open.

Lauren’s post kicks off with a move to make CSOs a permanent feature, not just a pilot project due to expire in 2022 at the Defense Department. She goes on to sketch several ways beyond CSOs that contracting professionals can take advantage of the flexibility of other transaction authority. News you can use, for sure.

I am delighted that Lauren agreed to write for Outside the Box and I look forward to hosting many more guest posts. If you have an idea for the blog, please share it with me at [email protected].

CSOs Are Here to Stay. What's Next in Innovative Acquisition?

By Lauren Dailey

The Senate Armed Services Committee’s FY21 National Defense Authorization Act markup includes several measures aimed at improving access to commercial and innovative technologies. One of them stood out to me: The committee would make permanent the use of Commercial Solutions Openings, or CSOs, to award FAR-based contracts. This is an incredibly important move as it is yet another tool that increases DoD’s ability to quickly access technologies and innovation from the commercial sector.

CSOs are a relatively new tool, and as such, some confusion exists around their use. Initially, the term CSO was only used to describe a mechanism to award Other Transaction Agreements (OTAs). In 2016, during my time at the Defense Innovation Unit Experimental (now simply DIU), I created their CSO to award OTAs on a fast, flexible, and collaborative basis, and create a rapid path to production for successful projects. Since the FY17 NDAA’s CSO pilot program, a CSO mechanism can also be used to award FAR-based contracts. This duality – the ability to award both FAR-based contracts and OTAs – can lead to some confusion when the term “CSO” is used. While it’s important for practitioners to clearly state what type of CSO they’re using (and what form of agreement or contract they’re awarding), what’s clear is that either CSO will allow them powerful access to commercial capabilities.

The potential permanence  of CSOs for FAR-based contracts leads to another question: What’s next in the world of innovative acquisition? What other tools or capabilities can be created or leveraged to further increase DoD’s access to commercial innovation? Because the statutes governing OTAs are so flexible, acquisition professionals can design new processes and tools to use OTAs in new and different ways. Here are just a few examples of ways in which OTAs could be used to create new opportunities for DoD to access commercial innovation:

1.  Benchmark from commercial practices and combine with other government tools to create new ways to award OTAs. Because of their inherent flexibility, OTAs can be awarded through virtually any competitive mechanism that you design--or through others that already exist. Assess your project’s end goals, and benchmark from other existing tools to create a competitive process that works for your team. For example, when creating the DIU CSO, we looked at how venture capital firms receive pitches from start-ups for funding and incorporated this into our competitive process. Because DIU’s goal was to rebuild bridges with Silicon Valley-like tech ecosystems, we designed our process to mirror ones our target audience was already familiar with. In addition to borrowing from commercial best practices, OTAs could also be combined with other government tools. For example, you could conduct a prize competition that results in the award of a prototype OTA as well as funding or award an OTA through the SBIR process. Be creative and leverage good ideas wherever you find them to take full advantage of the OTA’s flexibility.
2. Create new investment mechanisms to partner with commercial investors on the development of dual-use technologies. The commercial R&D ecosystem is leading the world in the development of new technologies – many of which have significant application in the defense market. Too often, the DoD is only an observer or late adopter of this innovation. Without the means to inject funds into start-ups, DoD often lacks the ability to have a seat at the table – to not only understand but influence the development of dual-use technologies. OTAs can change that. By taking full advantage of their flexible authorities, including cost-share provisions, DoD can partner with commercial investors to inject non-dilutive dollars into early-stage companies, sharing the development and financial risk with commercial investors. This confirms that DoD not only can have an earlier view into commercial technology development, but also help influence those technologies for eventual defense use.
3. Create a new integrator/innovator model. The majority of OTAs in DoD move through the consortium model. Under this construct, a base OTA is awarded to a consortium management firm, and specific projects are competed and awarded among the consortium’s members. Additionally, many projects executed by DoD benefit from some sort of an integrator – a company that can integrate, scale, or substantially impact the successful execution of new technologies or processes in existing DoD systems and infrastructure. DoD could mirror the consortium OTA construct to create a new integrator and innovator model, whereby a base OTA is competitively awarded to larger companies with experience integrating and scaling commercial technologies. Specific projects to prototype new technologies or processes can then be executed through that base vehicle – either competitively awarded with the government customer or competitively selected by the integrator. Creating such a construct would support the more successful transition and scaling of commercial technologies within DOD and provide yet another valuable tool to acquisition professionals and their customers.
4. Leverage production OTAs to the fullest extent for cross-DoD and cross-government vehicles. The direct path to production for successful prototype OTAs is incredibly powerful. It demonstrates to industry that successful prototype OTAs can have a much faster (and larger) return on investment. However, many production OTAs are still focused on a single customer – the same one that executed the prototype OTA – and their immediate needs. While this may be appropriate in some cases, in others, the government could build larger production OTAs to allow more government customers to leverage the successes of the prototype. For example, a prototype OTA that demonstrated the successful use of a new drone for a single Army organization could result in a production OTA that looks like an indefinite delivery-indefinite quantity (IDIQ) contract with a large ceiling--in effect, allowing organizations with similar missions across the DoD to purchase and use that same drone. This construct would make it easier and faster for many DoD customers to access proven technologies. Not only would this allow DoD to better share its successes, but also represent an even larger ROI to industry.

The rapid expansion of OTAs across DoD over the past four years, as well as the use of CSOs to award both OTAs and FAR-based contracts are important steps in making the DoD a more attractive customer in the commercial technology ecosystem. These vehicles offer government acquisition professionals the opportunity to create new and better ways to work with the commercial sector. Take this chance and continue to change the way DOD does business to leverage the best technologies and capabilities.

Lauren Dailey is an acquisition innovation leader at Deloitte & Touche LLP, where she focuses on bringing commercial innovation and technology to bear for DoD clients. She previously led the acquisition team at the Defense Innovation Unit, where she created the DIU CSO and oversaw the first production OTA awards in DoD. She can be reached at [email protected].

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