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Report | Sept. 8, 2022

Audit of DoD Other Transactions and the Use of Nontraditional Contractors and Resource Sharing (DODIG-2022-127)


Publicly Released: September 12, 2022


The objective of this audit was to determine whether the DoD awarded Other Transactions (OT) for prototypes in accordance with applicable Federal laws and DoD policies.



According to the United States Code (U.S.C.), the DoD can enter into transactions other than procurement contracts, grants, or cooperative agreements for basic, applied, or advanced research, through potential teaming arrangements tailored to a particular project. OTs are generally not subject to Federal regulations governing procurement contracts. The U.S.C. expanded this authority to include prototype OTs. The U.S.C. requires the DoD to meet one of the following conditions to carry out prototype projects:

  • At least one nontraditional defense contractor (NDC) or nonprofit research institution participates to a significant extent.
  • All significant participants are small businesses or NDCs.
  • Non-Government sources pay at least one-third of the total cost of the prototype project (resource share).
  • The agency senior procurement executive determines in writing that exceptional circumstances justify the use of an OT.

The U.S.C. defines NDCs as entities that are not currently performing and have not performed any DoD contract or subcontract subject to full cost accounting standards for at least 1 year before the OT solicitation. According to the OT Guide, a large number of contractors qualify as NDCs due to the exemptions related to full cost accounting standards. The Office of the Under Secretary of Defense for Acquisition and Sustainment issued an OT Guide, which provides guidance and lessons learned on planning, publicizing, soliciting, evaluating, negotiating, awarding, and administering OT agreements. While the OT Guide includes references to the controlling statutory and policy provisions for DoD OT authority, the guide is not a formal policy document.



Although DoD agreement officers awarded OTs for prototypes in accordance with the U.S.C., additional OT policies are needed. Specifically, we reviewed 34 prototype OT awards, valued at $5 billion, and found agreement officers did not always:

  • verify the status of NDCs because there is no requirement for agreement officers to do so;
  • validate NDCs participating in prototype awards to a significant extent actually completed the significant work because there is no requirement for the agreement officers to validate the work performed by the NDC throughout the project; or
  • approve costs incurred prior to award or appropriately award resource share OTs because the agreement officers did not comply with the U.S.C. and compliance with the OT Guide is not a requirement.

The DoD takes on more risk when it uses OTs to get participation from NDCs. However, without validating NDC status, conducting appropriate oversight to ensure the NDC performs the requirements of the OT agreement as proposed, or validating resource share contributions, agreement personnel may not meet the conditions of the U.S.C., the Government may be paying more than the amount required in the resource share agreement, and traditional contractors may obtain an OT for which they were ineligible. Because of agreement personnel’s noncompliance with U.S.C. and failure to approve costs incurred before award, the Department of the Navy incurred $800,000 in questioned costs associated with an Armored Reconnaissance Vehicle Research Area 2 Full-System Technology Demonstrator.



We recommend that the Principal Director, Defense Pricing and Contracting:

  • Require agreement officers to validate the NDC status prior to award and include documentation of the verification in the OT file.
  • Implement guidance or best practices for agreement personnel to consider when validating NDC significant participation throughout the duration of the project.
  • Reinforce the requirements in the U.S.C. and require agreements officers to ensure the OT files for resource sharing clearly document contractor contribution, approval of costs incurred before the effective date, and contractor contribution verification procedures.

We also recommend that the Chief, Office of Naval Research, review the $800,000 in questioned costs to determine whether the agreement officer properly approved it in writing and if the costs were appropriate. If the costs were not properly approved or appropriate, then take action to recover the funds.


Management Comments and Our Response

The Defense Pricing and Contracting Principal Director agreed with the recommendations, stating that Defense Pricing and Contracting will develop and implement additional guidance to address the recommendations in the OT Guide update. Therefore, the recommendations are resolved but open. We will close the recommendations once the Principal Director provides a copy of the additional guidance and we verify that the guidance fully addresses the recommendations.

The Deputy Assistant Secretary of the Navy (Procurement) Senior Procurement Analyst, responding for the Office of Naval Research Chief, did not agree with the recommendation to review the $800,000 in questioned costs, stating that subsequent to the issuance of the draft report, the Department of the Navy was able to locate a letter documenting that the agreement officer approved the questioned costs and that the costs were appropriate. Although the Senior Procurement Analyst disagreed with the recommendation, actions taken were sufficient to close the recommendation and the $800,000 is no longer a questioned cost.


This report is the result of Project No. D2021-D000AX-0111.000.