Pilot Program Will Streamline Contracting

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On Jan. 9, the Defense Department issued Class Deviation 2018-O0009, designed to reduce barriers to entry for innovative entities through streamlining the awards process for research-and-development contracts.

Titled “Pilot Program for Streamlining Awards for Innovative Technology,” it allows for the use of simplified acquisition procedures and excuses certain procurement obligations when the Pentagon awards contracts valued at less than $7.5 million to nontraditional defense contractors or small businesses.

The Defense Department reports that it has awarded contracts valued below that amount to over 1,100 unique small entities in the past three years. Unless an exemption exists, the Federal Acquisition Regulation requires certified cost or pricing data for contract actions in excess of $750,000.

The exceptions apply to awards pursuant to a broad agency announcement for the acquisition of basic or applied research; the Small Business Innovation Research Program; and the Small Business Technology Transfer Program.

Nontraditional defense contractors and small businesses awarded contracts valued at less than $7.5 million pursuant to a broad agency announcement or the SBIR program are also exempted from requirements for audits and records examination. The exceptions expire on Oct. 1, 2020.

The pilot program, currently housed within the defense pricing/defense procurement and acquisition policy office is caught up in a restructuring at the Pentagon. It fell under the office of the undersecretary of defense for acquisition, technology and logistics, which was eliminated Feb. 1 as mandated by the 2017 National Defense Authorization Act.

The reorganization dissolved the AT&L office and created undersecretaries of defense for acquisition and sustainment and research and engineering. The acquisition and sustainment outfit is responsible for delivering technology to the warfighter more efficiently and affordably, while the research and engineering office is charged with driving innovation and accelerating the advancement of warfighting capability. 

Ben FitzGerald, a former staff member of the Senate Armed Services Committee and senior fellow at the Center for New American Security, was recently appointed director of the office of strategy and design and is overseeing the reorganization.

The pilot program appears to fit into the overarching objectives of both components of the new structure. As an interim measure it will fall under the authority of A&S. It remains to be seen where it will be permanently housed post-reorganization.

The pilot program is another attempt by the Pentagon and Congress to attract private-sector innovation to bring the latest technologies to the warfighter. Other efforts are already underway, most notably the Section 809 Panel and the Defense Innovation Unit Experimental.

"DoD’s current approach to acquisition does not foster meaningful collaboration with the private sector."

The Section 809 Panel, established by the 2016 NDAA to address fundamental defense procurement problems, is examining barriers to entry, particularly for nontraditional contractors with new technologies of interest to the department.

“DoD’s current approach to acquisition does not foster meaningful collaboration with the private sector,” the panel said in its report on streamlining and codifying acquisition regulations, which was released in January. That lack of collaboration “creates barriers for nontraditional contractors to enter the defense marketplace,” it added.

The panel noted that compliance-related requirements are especially daunting for nontraditional contractors and small businesses because many that pursue business with the department for the first time either are unaware of or underestimate the potential effects of audits, paperwork and other processes on their companies’ ability to operate.

The pilot program will directly address the 809 Panel’s concerns regarding barriers to entry.

The department has also touted the Defense Innovation Unit Experimental, created in 2015 to reduce barriers to entry by awarding contracts on an accelerated timeline.

DIUx reports that its procurement process usually takes 90 days from first contact with a company to awarding of a pilot contract. The unit’s goal is to attract innovation companies and commercial technologies into the defense market, awarding contracts in the areas of autonomy, artificial intelligence, human systems, information technology and space.

As of the fourth quarter of 2017, it reported $184 million awarded in 59 pilot contracts and two follow-on production contracts. Its production contracts are pioneering, marking the first time the Defense Department has awarded them under its “other transaction authority.”

DIUx benefitted from streamlining provisions in the 2016 NDAA allowing successful OTA pilot projects to transition directly to follow-on production contracts without further competition. Defense Secretary Jim Mattis said he believes the office will “grow in its influence and its impact” in the Trump administration.

The pilot program is intended to work alongside the DIUx initiative and the 809 Panel’s recommendations to provide forward momentum for the Defense Department in opening the door for nontraditional contractors through streamlined procurement procedures.

This class deviation could be a small step, but time will tell whether there are enough high-tech companies who can and will take advantage.

 Ray Biagini is partner, and Herb Fenster and Sandy Hoe are senior of counsel at Covington & Burling LLP. Michelle Willauer, who contributed to this article, is an associate at the firm. Note: Fenster and Hoe are outside general counsel to the 809 Panel.

Topics: Defense Contracting, Defense Department, Contracting