As federal agencies have exponentially increased the use of “Other Transaction Agreements,” or OTAs, over the past few years, the question of the extent to which OTAs are subject to judicial review has arisen and, fortunately, recently been answered by GAO.  Although GAO will not review an agency’s award decision once it properly elects to utilize an OTA, GAO will examine the transaction to assess whether the agency properly chose to use the OTA instead of a procurement contract. The MD Helicopters decision, B-417379, April 4, 2019, 2019 WL 1505296, is GAO’s most recent decision on the subject.  With this in mind, federal contractors considering OTAs as a procurement vehicle should take note of GAO’s limited scope of review regarding such agreements and tread carefully.

Anyone paying attention to trends in federal procurement over the last few years has undoubtedly seen the exponential increase in the number of OTAs entered into by executive agencies with the authority to award such agreements. The numbers are undeniable; the Department of Defense (DoD) alone spent nearly $21 billion on 148 OTAs between FY 2015 and FY 2017. The inherent differences between OTAs and traditional government procurement contracts likely played a key role in the increased use of OTAs.  Notably, OTAs are not procurement contracts, grants, or cooperative agreements, and, as such, are not subject to typical procurement regulations, such as the Federal Acquisition Regulation (“FAR).  Accordingly, parties to an OTA can negotiate flexible, commercial-friendly terms and conditions. This flexibility has attracted new contractors to the federal marketplace, such as commercial technology companies, that may not have had the infrastructure to comply with seemingly draconian regulatory obligations under typical procurement laws and regulations.  This flexibility, however, is a double-edged sword for unwary contractors, as the lack of applicable traditional procurement statutes and regulations, or a standard template/model agreement for OTAs, often requires the parties to create an OTA from whole cloth.  As a result, the length of the drafting/negotiation period for OTAs can be significantly longer as compared to traditional procurement vehicles and wrought with more peril.

Another drawback for contractors is the limited judicial review of OTAs. Although OTAs are not “protest proof,” as detailed in MD Helicopters, GAO jurisdiction is narrowly construed.   In MD Helicopters, the protester challenged the U.S. Army’s decision not to enter into an OTA with the protester under a solicitation for the development of a future attack reconnaissance aircraft competitive prototype.  Specifically, the protester argued that (1) the Army unreasonably evaluated its proposal, and (2) failed to reasonably promote small business participation in accordance with 10 U.S.C. § 2371b(d)(1).

Unfortunately for the protester, GAO dismissed the protest on the ground that it does not review the award of non-procurement instruments issued under an agency’s OTA authority. Because OTAs are not procurement contracts, GAO explained, it does not typically review protests of the award or solicitations for the award of OTAs, as its bid protest jurisdiction is limited to “protests concerning alleged violations of procurement statutes or regulations by agencies in the award or proposed award of procurement contracts, and solicitations leading to such award.”

In an attempt to prevent dismissal of its protest, MD Helicopters seized on language in 4 C.F.R. § 21.5(m), which states that “GAO generally does not review protests of awards, or solicitations for award, of agreements other than procurement contracts” (emphasis added), and arguing that GAO should exercise its “considerable discretion” to hear the protest. GAO found this argument to be meritless, explaining that its jurisdiction to hear and decide protests is limited by the scope of the Competition in Contracting Act of 1984 (“CICA”).  Non-procurement contracts, such as OTAs, fall outside of the statutory grant.  Further, the term “generally” is not “intended to connote some reserved discretion to consider protests involving the award or proposed award of an OTA.”  Rather, the term “connotes that GAO may, in limited circumstances, hear a protest that tangentially impacts an agency’s award or proposed award of other than a procurement contract.”

Accordingly, “[a]bsent any allegation by MD Helicopters that the Army is improperly using its statutory OTA authority to acquire goods or services that should be acquired via a procurement contract,” GAO reiterated that its review of a procurement involving an OTA is limited to a timely pre-award protest that an agency is improperly using its OTA authority to procure goods or services, and determined that MD Helicopters’ protest, which concerned the agency’s evaluation of proposals and award decision, was not properly within its bid protest jurisdiction.

OTAs are indeed unique procurement vehicles with benefits attractive to commercial companies who may have eschewed doing business with the Government because of the restrictions imposed by all of the traditional procurements statutes and regulations. But potential drawbacks to OTAs remain, including GAO’s limited review of bid protests involving OTAs and the existence of those avoided statutes and regulations at the final point of sale – when an actual contract is created. As federal agencies increase the use of OTAs, contractors seeking this type of agreement should first seek the advice of experienced counsel to determine whether an OTA is the right procurement vehicle for it to pursue and the implications of such a pursuit.