Innovation-Boosting Solicitations Now Here to Stay
By Victor Deal
Acquisition professionals need flexible, faster, scalable, and modular approaches to contracting more than ever.
In a sign of the times, the U.S. Department of Defense (DoD) issued a memorandum in February 2022 to implement a law that permanently authorized the Commercial Solutions Opening (CSO) bid-selection technique for Federal Acquisition Regulation (FAR)-based procurement contracts.[1,2] The announcement favorably ends the 2018 defense CSO pilot program under which the DoD had obligated more than $1 billion in awards under the CSO model.[3,4]
Now that CSOs are here to stay, what are the implications for contracting professionals and the broader defense industrial base?
If you have not heard of CSOs before, here is what you must know.
The DoD created CSOs so that defense organizations can acquire innovative commercial products and commercial services, including research and development (R&D), in the same way as industry partners and consumers.
Instead of the DoD defining requirements, CSOs let offerors pitch solutions, or “work statements in reverse,” to a DoD problem area for acquisition professionals to evaluate and procure quickly. Under the hood, a CSO combines the concept of modular contracting with the ability to make awards based on the intrinsic merit of a proposal.
A New Ball Game
Acquisition professionals who have never worked on a science and technology (S&T) proposal to carry out basic or applied research or advanced technology development in the early phases of R&D will find themselves competing in a new ball game with CSOs.
Before CSOs, defense organizations only could use general solicitation competitive procedures in limited situations. For most, this meant awarding procurement contracts in response to S&T proposals and not to prototype bids or proposals for novel commercial technologies that may come later.
The impact was that defense organizations in late-stage R&D or with non-R&D operational responsibilities did not have a regulatory mechanism to implement innovation efficiently and systematically on an open, rolling basis, at scale.
The CSO approach to competing contracts is different from the traditional bid-selection process that most know. A CSO might not always have a clearly defined start or a winner-take-all end.
Of course, CSOs are flexible and can have a beginning and finite end, but many have open, rolling seasons that allow for a series of awards to maximize advantages to both sides.
An advantage of rolling seasons is open ramps. To be always able to enter a program is a strong incentive for industry participants to jump into the fray at any time by engaging a defense organization in creative ways (and vice versa).
This is especially true as a program matures and the stakes increase. Freedom to maneuver means CSOs foster an “always-on” competitive environment to achieve the best possible modular contracting outcome for U.S. taxpayers and U.S. national security.
Evaluating bids on a rolling basis without pre-determined pools provides the following benefits:
➢ Lowered barriers of entry
➢ Low transition costs
➢ No re-solicitation lag time
➢ The ability to revisit offers
➢ Faster awards
➢ More informal market research dialogue between parties
Defense organizations that adopt the CSO model can quickly realize these benefits and issue awards using any “color” of appropriated dollars up to $100 million per procurement contract before approval from the appropriate acquisition executive is required.
With these permanent changes to how the defense industrial base competes for defense dollars and with the benefits and a relatively high-dollar approval threshold, the DoD has a model suited to the digital generation.
Moreover, it can attract small businesses and nontraditional companies to the DoD and be used to award sizable production contracts before time with Silicon Valley quickly runs out.
Room for Innovation in Contracting
CSOs show that there is still plenty of room for innovation in contracting within and outside the FAR system.
Although the DoD memorandum implements CSOs as a permanent FAR-based authority, one might be surprised to learn that in 2016, the first awards under the CSO model made by the Defense Innovation Unit used Other Transaction (OT) authority.
Fast forward to the present and the DoD still awards OT contracts (also called OT agreements or OTs) using CSOs, alongside procurement contracts.
While OTs were once a cause célèbre of the 2000s that fell into disuse, this nonregulated authority, for which procurement regulations do not apply, is back in vogue after Congress permanently codified it for the DoD in 2015.[11,12]
The takeaway here is that knowing how FAR-based and OT-based contracts operate and recognizing the potential for interplay between the two can be helpful. Moreover, the likelihood of this skillset being beneficial in the future has never been higher. This state of play exists because Congress directed the DoD to establish a preference for OTs “[i]n the execution of science and technology and prototyping programs” in 2017.
Of course, the prospect of managing awards under two regimes will have its challenges. Yet, as CSOs show, this challenge can also give spirited innovators room to create.
Unclogging a Solicitation Chokepoint
Until the early 1980s, the federal government drove the U.S. R&D agenda by directing over half of the dollars spent. Today, federal spending makes up 20% of U.S. R&D expenditures. Within this context, CSOs reflect changing dynamics that have been in the making for over 40 years.
Broad agency announcements (BAAs), a precursor to CSOs, were the first proposal selection technique that leveraged the general solicitation competitive procedure to award R&D procurement contracts.
According to regulations, BAAs are for “advancing the state-of-the-art or [for] increasing knowledge or [for] understanding rather than focusing on a specific system or hardware solution.”
BAAs worked because publishing a single BAA notice provided an efficient way to solicit proposals. In addition, S&T organizations that used BAAs could quickly award hundreds of procurement contracts, grants, and cooperative agreements after assessing proposals’ intrinsic merit by peer or scientific review whenever needed and as appropriate.
The one-to-many nature of the BAA award process streamlined outreach to the expansive and diverse S&T community. However, any DoD requirement to acquire specific R&D solutions or any innovative commercial solutions that resulted from these scientific studies had to flow through the request for proposal or request for quote acquisition process, one solicitation at a time.
Many accepted this predicament as a cost of doing federal business until there was a need to find ways to attract nontraditional companies into the fold. Hence CSOs.
While CSOs now permanently unclog this chokepoint, the illustration of the problem encapsulates why the DoD response in February to an executive order describing how it plans to lower competition barriers is to use CSOs (and OTs).
This illustration also shows how the pace and breadth of commercial innovation are the impetus for change. CSOs only reflect the dynamics of the times.
Pivot to Portfolio Management
CSOs streamline acquisition processes and naturally enable portfolio management.
Today, U.S. business R&D spending is three times that of federal R&D spending. Globally, non-U.S. R&D spending is more than twice that of U.S. R&D spending.
What does this mean? First, one can reasonably infer that R&D will shape how the future technology landscape looks. Also, the given data trend suggests that future U.S. tech hegemony looks increasingly less likely.
An appreciation for this dynamism is essential to understanding the CSO model. While the front end of the CSO model streamlines the administrative process, the real value is in the results on the back end. With CSOs permanently authorized, acquisition professionals can use them to pivot to portfolio management.
Portfolio management is a hedging strategy for harnessing the pace and breadth of commercial innovation. Instead of focusing on program-centric technology platforms, the idea is to develop, organize, and manage modular capabilities that span several DoD programs of record to deliver valued outcomes.
The new paradigm is “to optimize investments by prioritizing needs and allocating resources” to procure the latest technologies with both peaceful and military applications, or so-called dual-use technologies, as quickly and efficiently as possible. Pursuing net capability over the priorities of a single platform is a relatively new approach for most defense organizations.
This paradigm has only recently begun to gain traction and trickle into everyday life. One commercial example is starting a video call using a mobile phone and seamlessly transferring the call to a desktop, laptop, or tablet computer.
In this case, contracting professionals can use CSOs to bring in new prototype devices, innovative services, or upgrade tranches under a flexible, fast, scalable, and modular selection process.
Now that CSOs are permanently authorized, contracting professionals have another agile and responsive contracting model available that can be relied on long term for harnessing a wave of commercial innovation.
In addition, because of “reverse” work statements, open ramps, and merit-based awards, CSOs make switching to portfolio management more feasible than before.
The commercial sector is an R&D leader in many critical technology areas. Given their ranges, CSOs are a model for acquiring high-end, exquisite technologies and innovative consumer retail solutions under a single solicitation.
Take note, contracting professionals and the defense industrial base. CM
The opinions expressed in this article are solely the author’s and do not necessarily reflect the views held by any current or past affiliations.
Victor Deal is senior director of the Other Transaction Account at HII. He previously served as senior procurement analyst and acquisition innovation advocate for the Department of Defense.
2. Section 803 of NDAA for FY 2022. https://www.congress.gov/bill/117th-congress/senate-bill/1605/text
4. Mostly COVID-19 related. Source is Contracts Intelligence Tool behind the paywall at https://www.bgov.com
5. Victor Deal, “What Commercial Solutions Openings Can Be…If We Dare,” Contract Management, July 2020, https://www.ncmahq.org/common/Uploaded%20files/CM%20Magazine%20Issues/2020/July-2020.pdf
6. Modular contracting is the practice of acquiring Information Technology systems in bites, and merit-based awards were previously permitted only under a general solicitation for early-stage research
7. These three categories describe the S&T budget. https://crsreports.congress.gov/product/pdf/IF/IF10553
13. Section 867 of NDAA for FY 2018. https://www.congress.gov/bill/115th-congress/house-bill/2810