prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: CMS has four principal programs: Medicare, Medicaid, CHIP, and the health-insurance marketplaces  See table 1 for information about the four programs  As discussed earlier, Medicare and Medicaid are CMS’s largest programs and have been growing steadily (see fig  1)  CBO projects that, in 2026, under current law, Medicare spending will reach $1 3 trillion  Medicaid is also expected to continue to grow—program spending is projected to increase 66 percent to over $950 billion by fiscal year 2025, and more than half of the states have chosen to expand their Medicaid programs by covering certain low-income adults not historically eligible for Medicaid coverage, as authorized under the Patient Protection and Affordable Care Act of 2010 (PPACA)  The two programs’ use of managed-care delivery systems to provide care has also increased  For example, the number and percentage of Medicare beneficiaries enrolled in Medicare Part C has grown steadily over the past several years, increasing from 8 7 million (20 percent of all Medicare beneficiaries) in calendar year 2007 to 17 5 million (32 percent of all Medicare beneficiaries) in calendar year 2015  As of July 1, 2015, nearly two-thirds of all Medicaid beneficiaries were enrolled in managed- care plans and about 40 percent of expenditures in fiscal year 2015 were for health-care services delivered through managed care  CMS receives appropriations to carry out antifraud activities through several funds including the Health Care Fraud and Abuse Control (HCFAC) program and the Medicaid Integrity Program  The HCFAC program was established under the Health Insurance Portability and Accountability Act of 1996 to coordinate federal, state, and local law- enforcement efforts to address health-care fraud and abuse and to conduct investigations and audits, among other things  In fiscal year 2016, CMS received $560 million through the HCFAC program appropriations  The Medicaid Integrity Program, established by the Deficit Reduction Act of 2005, supports contracts to audit and identify overpayments in Medicaid claims, and provides technical assistance for states’ program-integrity efforts  According to CMS, it received $75 million every year since fiscal year 2009 through the Medicaid Integrity Program appropriations  According to CMS, in fiscal year 2016, total program-integrity obligations to address fraud, waste, and abuse for Medicare and Medicaid were $1 45 billion  As mentioned previously, we designated Medicare and Medicaid as high- risk programs starting in 1990 and 2003, respectively, because their size, scope, and complexity make them vulnerable to fraud, waste, and abuse  Similarly, the Office of Management and Budget (OMB) designated all parts of Medicare as well as Medicaid “high-priority” programs because these programs report $750 million or more in estimated improper payments in a given year  We also highlighted challenges associated with improper payments in Medicare and Medicaid in our annual report on duplication and opportunities for cost savings in federal programs  Improper payments are a significant risk to the Medicare and Medicaid programs and can include payments made as a result of fraud  Improper payments are payments that are either made in an incorrect amount (overpayments and underpayments) or those that should not be made at all  For example, CMS estimated in fiscal year 2016 that the Medicare fee-for-service (FFS) improper payment rate was 11 percent (approximately $41 billion) and the Medicaid improper payment rate was 10 5 percent (approximately $36 billion)  Improper payment measurement does not specifically identify or estimate improper payments due to fraud  Health-care fraud can take many forms, and a single case can involve more than one scheme  Schemes may include fraudulent billing for services not provided, services provided that were not medically necessary, and services intentionally billed at a higher level than appropriate  These fraud schemes may include compensating providers, beneficiaries, or others for participating in the fraud scheme  Fraud can be regionally focused or can target particular service areas such as home-health services, or durable medical equipment such as wheelchairs  Fraud may also have nonfinancial effects  For example, patients may be subjected to harmful or unnecessary services by fraudulent providers  Fraud can be perpetrated by different actors, such as providers, beneficiaries, health-insurance plans, as well as organized crime  Fraud and “fraud risk” are distinct concepts  Fraud is challenging to detect because of its deceptive nature  Additionally, once suspected fraud is identified, alleged fraud cases may be prosecuted  If the court determines that fraud took place, then fraudulent spending may be recovered  Fraud risk exists when individuals have an opportunity to engage in fraudulent activity, have an incentive or are under pressure to commit fraud, or are able to rationalize committing fraud  When fraud risks can be identified and mitigated, fraud may be less likely to occur  Although the occurrence of one or more cases of health-care fraud indicates there is a fraud risk, a fraud risk can exist even if fraud has not yet been identified or occurred  Suspicious billing patterns, certain types of health-care providers, or complexities in program design may indicate a risk of fraud  Information to help identify potential fraud risks may come from various sources, including whistleblowers, agency officials, contractors, law-enforcement agencies, beneficiaries, or providers  According to federal standards and guidance, executive-branch agency managers are responsible for managing fraud risks and implementing practices for combating those risks  Federal internal control standards call for agency management officials to assess the internal and external risks their entities face as they seek to achieve their objectives  The standards state that as part of this overall assessment, management should consider the potential for fraud when identifying, analyzing, and responding to risks  Risk management is a formal and disciplined practice for addressing risk and reducing it to an acceptable level  In July 2015, GAO issued the Fraud Risk Framework, which provides a comprehensive set of key components and leading practices that serve as a guide for agency managers to use when developing efforts to combat fraud in a strategic, risk-based way  The Fraud Risk Framework describes leading practices in four components: commit, assess, design and implement, and evaluate and adapt, as depicted in figure 2  The Fraud Reduction and Data Analytics Act of 2015, enacted in June 2016, requires OMB to establish guidelines for federal agencies to create controls to identify and assess fraud risks and design and implement antifraud control activities  The act further requires OMB to incorporate the leading practices from the Fraud Risk Framework in the guidelines  In July 2016, OMB published guidance about enterprise risk management and internal controls in federal executive departments and agencies  Among other things, this guidance affirms that managers should adhere to the leading practices identified in the Fraud Risk Framework  Further, the act requires federal agencies to submit to Congress a progress report each year for 3 consecutive years on the implementation of the controls established under OMB guidelines, among other things  CMS’s antifraud efforts for its four principal programs are part of the agency’s broader program-integrity approach to address fraud, waste, and abuse  CMS’s Center for Program Integrity (CPI) is the agency’s focal point for program integrity across the programs  According to CMS, its approach to program-integrity allows it to “address the whole spectrum of fraud, waste, and abuse ” For example, CMS describes its program- integrity activities as addressing unintentional errors resulting from providers being unaware of recent policy changes on one end of the spectrum, through somewhat more-serious patterns of abuse such as billing for a more-expensive service than was performed (known as upcoding), and finally up to serious fraudulent activities, such as billing for services that were not provided  CMS then aims to target its corrective actions to fit the risk  See figure 3 for CMS’s description of the spectrum of fraud, waste, and abuse that its program-integrity activities aim to address  Within its program-integrity activities, CMS has established several control activities that are specific to managing fraud risks, while others serve broader program-integrity purposes  According to CMS officials, the agency’s antifraud control activities mainly focus on providers in Medicare FFS  Officials told us that when CPI began operating, its primary focus was developing program integrity for Medicare FFS and, as a result, it is the most “mature” of all of CPI’s programs  CMS’s specific fraud control activities include, for example, the Fraud Prevention System (FPS), a predictive-analytics system that helps identify potentially fraudulent payments in Medicare FFS, and the Unified Program Integrity Contractors (UPIC), which detect and investigate aberrant provider behavior and potential fraud in Medicare and Medicaid  Other control activities serve broader program-integrity purposes such as to reduce improper payments resulting from error, waste, and abuse in addition to preventing or detecting potential fraud  For example, CMS provides education and outreach to Medicare providers and beneficiaries on issues identified through data analyses in order to reduce improper payments and to increase their awareness of fraud  HHS and CMS department- and agency-wide strategic plans guide CMS’s program-integrity activities—including antifraud activities  The program-integrity goals identified in the HHS strategic plan primarily focus on improper payments and are driven by statutory requirements  For example, the HHS strategic plan for fiscal years 2014–2018 includes performance goals of reducing the percentage of improper payments made under Medicare FFS and Medicare Parts C and D  One antifraud- focused goal in the HHS strategic plan is to increase the percentage of Medicare providers and suppliers identified as high risk that receive administrative actions, such as suspending payments to providers or revoking providers’ billing privileges  HHS and CMS department- and agency-wide strategic plans also include an emphasis on fraud prevention and early detection—a leading practice in the Fraud Risk Framework—and moving away from a “pay-and-chase” model  For example, the HHS strategic plan calls for “fostering early detection and prevention of improper payments by focusing on preventing bad actors from enrolling or remaining in Medicare and Medicaid” and to “use public-private partnerships to prevent and detect fraud across the health care industry by sharing fraud-related information and data between the public and private sectors ” As a part of this emphasis on prevention, CMS developed FPS in response to the Small Business Jobs Act of 2010, which required CMS to implement predictive-analytics technologies  Also, the Patient Protection and Affordable Care Act of 2010 (PPACA) included provisions to strengthen Medicare and Medicaid’s provider enrollment standards and procedures, among other program-integrity provisions  CMS works with an extensive and complex network of stakeholders to manage fraud risks in its four principal programs  In Medicaid and CHIP, CMS partners with and oversees the 50 states and the District of Columbia  Until the Deficit Reduction Act of 2005 expanded CMS’s role in Medicaid program integrity to provide effective federal support and assistance to states’ efforts to combat fraud, waste, and abuse, states were primarily responsible for Medicaid program integrity  Each state has its own Medicaid program-integrity unit, Medicaid Fraud Control Unit (MFCU), and state audit organization  CMS also uses numerous contractors to conduct the majority of its program-integrity activities  Since the enactment of Medicare in 1965, contractors have played an integral role in the administration of the program  The original Medicare program was designed so that the federal government contracted with health insurers or similar organizations experienced in handling physician and hospital claims to pay Medicare claims  Later, the Health Insurance Portability and Accountability Act of 1996 required the Secretary of Health and Human Services to enter into contracts to promote the integrity of the Medicare program  According to CMS officials, in fiscal year 2016 contractors received 92 percent of CMS’s program-integrity funding  Medicare and Medicaid program- integrity contractors play a variety of roles: (1) processing and reviewing claims, (2) conducting site visits of providers enrolling in Medicare, (3) auditing claims and recovering overpayments, (4) performing data analysis, and (5) investigating aberrant claims and provider behaviors, among other things  States also use contractors in many of these roles for managing program integrity  Additionally, multiple private health-insurance plans in Medicare Parts C and D and over 200 health-insurance plans in Medicaid managed care also carry out program-integrity activities  For the health-insurance marketplaces, CMS is responsible for operating the federally facilitated marketplace and overseeing the state-based marketplaces  CMS also developed the Federal Data Services Hub, which acts as a portal for exchanging information between state-based marketplaces, the federally facilitated marketplace, and state Medicaid agencies, among other entities, as well as other external partners, including other federal agencies, such as the Internal Revenue Service  Finally, law- enforcement groups, including the joint Department of Justice (DOJ) and HHS OIG Medicare Fraud Strike Force Teams, identify, investigate, and prosecute instances of fraud in CMS programs  See figure 4 for a depiction of CMS’s stakeholder network for managing fraud risks  This figure illustrates approximate numbers of stakeholders (through the concentration of dots), but not the extent of individual stakeholder roles  CMS provides oversight to, or partners with, these stakeholders to manage fraud risks  For oversight, CMS creates policies and guidance to direct stakeholders’ antifraud efforts, such as Medicare and Medicaid program-integrity manuals and the Medicaid Provider Enrollment Compendium  CMS also provides technical assistance to states in areas such as provider enrollment and data analysis  In areas where CMS does not have a primary role, it acts as a partner by collaborating and coordinating program-integrity and antifraud activities  For example, CMS is directly responsible for Medicare program integrity, but, in Medicaid and CHIP, states are the first line of program-integrity efforts  Similarly, CMS maintains control over Medicare FFS program integrity, but within Medicare managed care, it provides guidance for health- insurance plans to carry out their own program-integrity activities  In the health-insurance marketplaces, CMS reviews state-based marketplaces’ procedures for verifying applicant eligibility for coverage  For example, it conducts annual reviews of the state-based marketplaces, which include a review of states’ fraud, waste, and abuse policies  See figure 5 for a further description of CMS’s and various stakeholders’ roles and responsibilities in fraud risk management  CMS also facilitates collaboration among federal, state, and private entities for managing fraud risks  In 2012, CMS created the Healthcare Fraud Prevention Partnership (HFPP) to share information with public and private stakeholders and to conduct studies related to health-care fraud, waste, and abuse  According to CMS, as of October 2017, the HFPP included 89 public and private partners, including Medicare- and Medicaid-related federal and state agencies, law-enforcement agencies, private health-insurance plans (payers), and antifraud and other health- care organizations  The HFPP has conducted studies that pool and analyze multiple payers’ claims data to identify providers with patterns of suspect billing across payers  In a recent report, participants separately told us that the HFPP’s studies helped them to identify and take action against potentially fraudulent providers and payment vulnerabilities of which they might not otherwise have been aware, and fostered both formal and informal information sharing  CMS’s relationships with stakeholders were varied in terms of maturity and extent of information sharing, according to stakeholders we interviewed  While some relationships between CMS and stakeholders have been long-standing, some are developing, and others exist on an ad hoc basis  For example, CMS has had a long-standing relationship with state Medicaid program-integrity units, by collaborating through monthly meetings of the Medicaid Fraud and Abuse Technical Advisory Group, sending fraud alerts, and offering courses through the Medicaid Integrity Institute  However, in our interviews with state program-integrity units, and as we recently reported, some state Medicaid agencies shared concerns about the communication, level of policy guidance, and technical support provided by and received from CMS for managing fraud risks in Medicaid  This concern was echoed by state audit officials, with whom CMS recently initiated coordination to build relationships that would facilitate state auditing of Medicaid programs  CMS also has varying relationships with its law-enforcement partners  For example, the relationship between CMS and DOJ’s Health Care Fraud unit, which leads the DOJ and HHS OIG Medicare Fraud Strike Force Teams, has been ad hoc  According to CMS and DOJ officials, the interactions between the agencies have been based on specific fraud cases such as coordination of national takedowns when DOJ provided CMS with the names of providers committing fraud so that CMS could suspend them consistently with the timing of the enforcement efforts  According to CMS officials, they coordinate more with HHS OIG, working together on payment suspensions and revocations for OIG cases, or working with it to take administrative actions against large providers  CMS’s antifraud efforts partially align with the Fraud Risk Framework  Consistent with the framework, CMS has demonstrated commitment to combating fraud by creating a dedicated entity to lead antifraud efforts  It has also taken steps to establish a culture conducive to fraud risk management, although it could expand its antifraud training to include all employees  CMS has taken some steps to identify fraud risks in Medicare and Medicaid; however, it has not conducted a fraud risk assessment or developed a risk-based antifraud strategy for Medicare and Medicaid as defined in the Fraud Risk Framework  CMS has established monitoring and evaluation mechanisms for its program-integrity control activities that, if aligned with a risk-based antifraud strategy, could enhance the effectiveness of fraud risk management in Medicare and Medicaid  The commit component of the Fraud Risk Framework calls for an agency to commit to combating fraud by creating an organizational culture and structure conducive to fraud risk management  This component includes establishing a dedicated entity to lead fraud risk management activities  Within CMS, the Center for Program Integrity (CPI) serves as the dedicated entity for fraud, waste, and abuse issues in Medicare and Medicaid, which is consistent with the Fraud Risk Framework  CPI was established in 2010, in response to a November 2009 Executive Order on reducing improper payments and eliminating waste in federal programs  This formalized role, according to CMS officials, elevated the status of program-integrity efforts, which previously were carried out by other parts of CMS  As an executive-level Center—on the same level with five other executive-level Centers at CMS, such as the Center for Medicare and the Center for Medicaid and CHIP Services—CPI has a direct reporting line to executive-level management at CMS  The Fraud Risk Framework identifies a direct reporting line to senior-level managers within the agency as a leading practice  According to CMS officials, this elevated organizational status offers CPI heightened visibility across CMS, attention by CMS executive leadership, and involvement in executive- level conversations  Additionally, in 2014, CMS established a Program Integrity Board that has brought together senior officials across CMS Centers on a monthly basis to coordinate on fraud and program-integrity vulnerabilities  According to CPI officials, the board is one of the mechanisms through which CPI engages other executive-level offices at CMS  CPI chairs the meetings and typically develops meeting agendas to solicit information from and disseminate information to other CMS units or stakeholders  Further, the board may establish small working groups, known as integrated project teams, to address specific vulnerabilities  For example, according to CMS officials, in 2016 the board established a Marketplace integrated project team to resolve potential fraud eligibility and enrollment issues in the federally facilitated marketplace using the Fraud Risk Framework  CPI has further demonstrated commitment to addressing fraud, waste, and abuse through several organizational changes with the goal of improving coordination and communication of program-integrity activities across Medicare and Medicaid  Most recently, in 2014, CPI reorganized its structure to align functional areas across Medicare and Medicaid, where possible  Previously, separate units within CPI administered their own program-integrity activities for Medicare and Medicaid programs  For example, CPI established a Provider Enrollment and Oversight Group, responsible for provider screening and enrollment functions in both Medicare and Medicaid  According to CMS officials, if CPI employees identify an issue in provider enrollment in Medicare, the same CPI employees also consider how this issue applies to Medicaid  According to CMS officials, the reorganization has helped CPI to look at vulnerabilities in a crosscutting way and to facilitate communication across programs  Similarly, since 2016, CPI began shifting contracting functions from separate Medicare and Medicaid regional contractors that identify and investigate cases of potential fraud and conduct audits to five regional UPICs responsible for a range of program-integrity and fraud-specific activities in both Medicare FFS and Medicaid  According to CMS, the purpose of the UPICs is to coordinate provider investigations across Medicare and Medicaid, improve collaboration with states by providing a mutually beneficial service, and increase contractor accountability through coordinated oversight  CMS officials told us that UPIC integration is a cornerstone of CMS’s contract management strategy and would help to ensure communication and coordination across Medicare and Medicaid program-integrity efforts  CMS plans to award all the UPIC contracts by the end of 2017, ultimately phasing out the ZPICs and Medicaid Integrity Contractors  The commit component of the Fraud Risk Framework also includes creating an organizational culture to combat fraud at all levels of the agency  Consistent with the Fraud Risk Framework, CMS has promoted an antifraud culture by demonstrating a senior-level commitment to combating fraud through public statements, increased resource levels, and internal and external coordination  In addition to HHS and CMS strategic documents discussed earlier, CMS and CPI leaders have testified publicly about CMS’s commitment to preventing fraud and protecting taxpayers and beneficiaries  For example, CPI’s former Director testified in May 2016 before the House Committee on Energy and Commerce’s Subcommittee on Oversight and Investigations that “CMS is deeply committed to our efforts to prevent waste, fraud and abuse in Medicare and Medicaid programs, protecting both taxpayers and the beneficiaries that we serve ” More recently, CMS’s new Administrator testified in her February 2017 confirmation hearing regarding her intent to prioritize efforts around preventing fraud and abuse  CPI’s budget and resources have increased over time to support its ongoing program-integrity mission  According to CMS, program-integrity obligations for Medicare and Medicaid increased from about $1 02 billion in fiscal year 2010 to $1 45 billion in fiscal year 2016  According to CMS officials, the Health Care Fraud and Abuse Control (HCFAC) account, one of the primary sources of CPI funding, has never received a funding reduction  Additionally, in 2015, CPI received additional funding based on a discretionary cap adjustment to HCFAC  Similarly, CPI staff resources have increased over time  According to CMS, CPI’s full-time equivalent positions increased from 177 in 2011 to 419 in 2017  Consistent with leading practices in the Fraud Risk Framework to involve all levels of the agency in setting an antifraud tone, CPI has also worked collaboratively with other CMS Centers  In addition to engaging executive-level officials of other CMS Centers through the Program Integrity Board, CPI has worked collaboratively with other Centers within CMS to incorporate antifraud features into new program design or policy development and established regular communication at the staff level  For example: Center for Medicare and Medicaid Innovation (CMMI)  When developing the Medicare Diabetes Prevention Program, CMMI officials told us they worked with CPI’s Provider Enrollment and Oversight Group and Governance Management Group to develop risk-based screening procedures for entities that would enroll in Medicare to provide diabetes-prevention services, among other activities  The program was expanded nationally in 2016, and CMS determined that an entity may enroll in Medicare as a program supplier if it satisfies enrollment requirements, including that the supplier must pass existing high categorical risk-level screening requirements  Center for Medicaid and CHIP Services (CMCS)  CMCS officials told us they worked closely with CPI to issue Medicaid guidance and best practices to states on home and community-based services that incorporate program-integrity provisions  A senior CMCS official told us that, to address fraud, CMS has requested that states include provider information on claims to determine whether providers are meeting eligibility criteria  Center for Medicare (CM)  In addition to building safeguards into programs and developing policies, CM officials told us that there are several standing meetings, on monthly, biweekly, and weekly bases, between groups within CM and CPI that discuss issues related to provider enrollment, FFS operations, and contractor management  A senior CM official also told us that there are ad hoc meetings taking place between CM and CPI: “We interact multiple times daily at different levels of the organization  Working closely is just a regular part of our business ” CMS has also demonstrated its commitment to addressing fraud, waste, and abuse to its stakeholders  Representatives of CMS’s extensive stakeholder network whom we interviewed—state officials, contractors, and officials from public and private entities—generally recognized the agency’s commitment to combating fraud  In our interviews with stakeholders, officials observed CMS’s increased commitment over time to address fraud, waste, and abuse and cited examples of specific CMS actions  State officials, for example, told us that the Medicaid Integrity Institute, a training center coordinated jointly by CMS and DOJ, has been a helpful resource for states to build capacity to address fraud and program integrity  CMS contractors told us that CMS’s commitment to combating fraud is incorporated into contractual requirements, such as requiring (1) data analysis for potential fraud leads and (2) fraud- awareness training for providers  Officials from entities that are members of the HFPP, specifically, a health-insurance plan and the National Health Care Anti-Fraud Association, added that CMS’s effort to establish the HFPP and its ongoing collaboration and information sharing reflect CMS’s commitment to combat fraud in Medicare and Medicaid  The Fraud Risk Framework identifies training as one way of demonstrating an agency’s commitment to combating fraud  Training and education intended to increase fraud awareness among stakeholders, managers, and employees, serves as a preventive measure to help create a culture of integrity and compliance within the agency  The Fraud Risk Framework discusses requiring all employees to attend training upon hiring and on an ongoing basis thereafter  To increase awareness of fraud risks in Medicare and Medicaid, CMS offers and requires training for stakeholder groups such as providers, beneficiaries, and health-insurance plans  Specifically, through its National Training Program and Medicare Learning Network, CMS makes available training materials on combating Medicare and Medicaid fraud, waste, and abuse  These materials help to identify and report fraud, waste, and abuse in CMS programs and are geared toward providers, beneficiaries, as well as trainers and other stakeholders  Separately, CMS requires health-insurance plans working with CMS to provide annual fraud, waste, and abuse training to their employees  However, CMS does not offer or require similar fraud-awareness training for the majority of its workforce  For a relatively small portion of its overall workforce—specifically, contracting officer representatives who are responsible for certain aspects of the acquisition function—CMS requires completion of fraud and abuse prevention training every 2 years  According to CMS, 638 of its contracting officer representatives (or about 10 percent of its overall workforce) completed such training in 2016 and 2017  Although CMS offers fraud-awareness training to others, the agency does not require fraud-awareness training for new hires or on a regular basis for all employees because the agency has focused on providing process-based internal controls training for its employees  While fraud-awareness training for contracting officer representatives is an important step in helping to promote fraud risk management, fraud- awareness training specific to CMS programs would be beneficial for all employees  Such training would not only be consistent with what CMS offers to or requires of its stakeholders and some of its employees, but would also help to keep the agency’s entire workforce continuously aware of fraud risks and examples of known fraud schemes, such as those identified in successful OIG investigations  Such training would also keep employees informed as they administer CMS programs or develop agency policies and procedures  Considering the vulnerability of Medicare and Medicaid programs to fraud, waste, and abuse, without regular required training CMS cannot be assured that its workforce of over 6,000 employees is continuously aware of risks facing its programs  Although CMS has shown commitment to combating fraud, at times CPI’s efforts to combat fraud compete with other mission priorities, such as (1) ensuring beneficiary access to health-care services and (2) limiting provider burden  CPI leadership has been aware of this inherent challenge  For example, at a congressional hearing in May 2016, CPI’s Director stated that “our efforts strike an important balance: protecting beneficiary access to necessary health care services and reducing the administrative burden on legitimate providers and suppliers, while ensuring that taxpayer dollars are not lost to fraud, waste, and abuse ” Beneficiary access to care  In accordance with its mission statement, providing and improving beneficiaries’ access to health care is a CMS priority  CMS’s commitment to providing access to high-quality care and coverage is reflected in the agency’s mission statement and is one of its four strategic goals  As a result, before taking administrative actions against a Medicare Part A provider, such as a hospice, or providers in rural areas, CMS officials told us that they first look at whether there is a sufficient number of providers in an area by running a provider search by provider county and adjacent counties and considering how heavily populated an area is with Medicare beneficiaries  According to these officials, rather than taking an administrative action against a provider that would limit beneficiaries’ access to services, the agency may enter into a corrective action plan with the provider  CMS officials told us that revoking a provider’s enrollment in Medicare, an option available to CMS in cases of provider noncompliance or misconduct, is rare  Administrative burden on providers  According to CMS documents and officials, concern over placing undue burden on providers—the majority of whom are presumed to be honest—provides a counterforce to implementing program-integrity control activities  CMS’s web page entitled Reducing Provider Burden states: “CMS is committed to reducing improper payments but must be mindful of provider burden because medical review is a resource-intensive process for both the healthcare provider and the Medicare review contractor ” Two CMS contractors told us that they scaled back or did not pursue audits of providers’ documentation because of provider burden or sensitivity considerations  One contractor removed providers from audit samples after some providers opposed having to supply multiple medical records  CPI officials told us that they want to reduce provider burden in a logical manner  For example, according to CMS officials, in the Medicare FFS Recovery Audit Program, CMS established limits on Additional Documentation Requests, which are requests for medical documentation supporting a claim being reviewed  CMS requires such documentation adjustments so that they align with a providers’ claim denial rates  Providers with low denial rates will have lower documentation requirements, while providers with high denial rates will have higher documentation requirements, thus adjusting provider burden based on demonstrated compliance  The assess component of the Fraud Risk Framework calls for federal managers to plan regular fraud risk assessments and to assess risks to determine a fraud risk profile  Identifying fraud risks is one of the steps included in the Fraud Risk Framework for assessing risks to determine a fraud risk profile  CMS has taken steps to identify some fraud risks through several control activities that target areas the agency has designated as higher risk within Medicare and Medicaid, including specific provider types, such as home health agencies, and specific geographic locations  As discussed earlier, CMS officials told us that CPI initially focused on developing control activities for Medicare FFS and considers these activities to be the most mature of all CPI efforts to address fraud risks  CMS has identified fraud risks in the following selected examples, which are not an exhaustive list of its control activities  Data analytics to assist investigations in Medicare FFS  In 2011, CMS implemented FPS, a data-analytic system that screens all Medicare FFS claims to identify health-care providers with suspect billing patterns for further investigation  Medicare FFS contractors—ZPICs and UPICs— have used FPS to identify and prioritize leads for investigations of potential fraud by high-risk Medicare FFS providers  Contractors told us that FPS allows them to quickly identify and triage leads  CMS’s guidance requires contractors to prioritize investigations with the greatest program impact or urgency and identifies required criteria for prioritizing investigations, such as patient abuse or harm, multistate fraud, and high dollar amount of potential overpayments  One contractor we interviewed developed a risk-prioritization model that incorporated CMS’s required criteria, such as patient harm, as well as additional criteria, such as provider spikes in billing, into a tool that automatically creates a provider risk score to help the contractor focus and prioritize investigative resources  Prior authorization for Medicare FFS services or supplies  CMS published a final rule in December 2015 that identifies a master list of durable medical equipment, prosthetics, orthotics, and supplies for which CMS can require prior authorization before suppliers submit a Medicare FFS claim  In this rule, CMS identified 135 items that are frequently subject to unnecessary utilization and stated that the agency expects the final rule to result in savings in the form of reduced unnecessary utilization, fraud, waste, and abuse  Under this program, prior authorization is a condition of payment for claims  CMS can choose which items on the master list to subject to prior authorization  For example, in March 2017, it began requiring prior authorization for selected power wheelchairs in four states and expanded the prior authorization program for these items to all states in July 2017  CMS also began to test the use of prior authorization on a voluntary basis through a series of fixed-length demonstrations for items and services that have been associated with high levels of improper payments, including high incidences of fraud in some cases, and unnecessary utilization in certain geographic areas  For example, CMS began implementing a voluntary prior authorization demonstration in September 2012 for other power mobility devices, such as power scooters, in seven states where historically there has been extensive evidence of fraud and improper payments  CMS expanded the demonstration to an additional 12 states in October 2014, for a total of 19 states  According to the initial Federal Register notice, CMS planned to use the demonstration to develop improved methods for investigation and prosecution of fraud to protect federal funds from fraudulent actions and the resulting improper payments  Under the demonstration, providers and suppliers are encouraged—but not required—to submit a request for prior authorization for certain items before they provide the item to the beneficiary and submit a claim for payment  Revised provider screening and enrollment processes for Medicare FFS and Medicaid FFS  In response to PPACA, in 2011 CMS implemented a revised screening process for providers and suppliers who enroll in Medicare and Medicaid based on identified provider risk categories  CMS placed all Medicare provider and supplier types into one of three risk categories—limited, moderate, or high—based on its assessment of the potential risk of fraud, waste, and abuse each provider and supplier type poses  For example, CMS designated prospective (newly enrolling) home health agencies and prospective suppliers of durable medical equipment, prosthetics, orthotics, and supplies in the high-risk category  According to the final rule and our interviews with CMS officials, CMS developed these risk-based categories based on its review and synthesis of various information sources about the fraud risks posed by each provider and supplier type, including (1) the agency’s experience with claims data used to identify potentially fraudulent billing practices, (2) expertise of contractors responsible for investigating and identifying Medicare fraud, and (3) GAO and OIG reports  CMS designated specific screening activities for each risk category, with increased requirements for moderate- and high-risk provider and supplier types  For example, moderate- and high-risk providers and suppliers must receive preenrollment site visits, and high-risk providers and suppliers also are subject to fingerprint-based criminal-background checks  As part of the revised screening process, beginning in September 2011, CMS also undertook its first program-wide effort to rescreen, or revalidate, the enrollment records of about 1 5 million existing Medicare FFS providers and suppliers, to determine whether they remain eligible to bill Medicare  Temporary provider enrollment moratoriums for certain providers and geographic areas for Medicare FFS and Medicaid FFS  CMS identified certain provider types and geographic areas as high risk for fraud and used its authority under PPACA to implement temporary moratoriums to suspend enrollment of such Medicare and Medicaid providers in those areas  For example, in July 2016, CMS extended temporary moratoriums statewide on the enrollment of new Medicare Part B nonemergency ambulance suppliers and Medicare home health agencies statewide in six states, as applicable  The statewide moratoriums also apply to Medicaid  According to the Federal Register notice, CMS imposed the temporary moratoriums based on qualitative and quantitative factors suggesting a high risk of fraud, waste, or abuse, such as law-enforcement expertise with emerging fraud trends and investigations  CMS’s data analysis also confirmed the agency’s determination of a high risk of fraud, waste, and abuse for these provider and supplier types within certain geographic areas, according to the notice  Medicaid state program integrity reviews and desk reviews  CMS tailored state Medicaid program-integrity reviews to areas it identified as high risk for improper payments, such as personal care services, which may also be at high risk for fraud  In March 2017, we reported that, from fiscal years 2014 through 2016, CMS conducted focused reviews of state program-integrity efforts in 31 states, reviewing 10 or 11 states annually  For each state, CMS tailored its focused reviews to the state’s managed care plans and relevant other high-risk areas, including provider enrollment and screening, nonemergency medical transportation, and personal care services  CMS and state officials we spoke with as part of that work told us that the tailored oversight had been beneficial and helped identify areas for improvement  CMS has also initiated desk reviews of state program-integrity efforts  According to CMS, these desk reviews allow the agency to provide states with customized program- integrity oversight  Vulnerability tracking system for Medicare  CPI recently initiated an effort to centralize and formalize a vulnerability tracking process for Medicare, which could support identification of specific fraud risks, both in Medicare and possibly Medicaid  As described by CPI officials, the process aims to collect information on fraud-related vulnerabilities from CMS employees, contractors, and other sources, such as GAO and HHS OIG reports  The assess component of the Fraud Risk Framework calls for federal managers to plan regular fraud risk assessments and assess risks to determine a fraud risk profile  Furthermore, federal internal control standards call for agency management to assess the internal and external risks their entities face as they seek to achieve their objectives  The standards state that, as part of this overall assessment, management should consider the potential for fraud when identifying, analyzing, and responding to risks  The Fraud Risk Framework states that, in planning the fraud risk assessment, effective managers tailor the fraud risk assessment to the program by, among other things, identifying appropriate tools, methods, and sources for gathering information about fraud risks and involving relevant stakeholders in the assessment process  Fraud risk assessments that align with the Fraud Risk Framework involve (1) identifying inherent fraud risks affecting the program, (2) assessing the likelihood and impact of those fraud risks, (3) determining fraud risk tolerance, (4) examining the suitability of existing fraud controls and prioritizing residual fraud risks, and (5) documenting the results  (See fig  6 ) Although, as discussed earlier, CMS has identified some fraud risks posed by providers in Medicare FFS and, to a lesser degree, Medicaid FFS, the agency has not conducted a fraud risk assessment for either the Medicare or Medicaid program  Such a risk assessment would provide the detailed information and insights needed to create a fraud risk profile, which, in turn, is the basis for creating an antifraud strategy  According to CMS officials, CMS has not conducted a fraud risk assessment for Medicare or Medicaid because, within CPI’s broader approach of preventing and eliminating improper payments, its focus has been on addressing specific vulnerabilities among provider groups that have shown themselves particularly prone to fraud, waste, and abuse  With this approach, however, it is unlikely that CMS will be able to design and implement the most-appropriate control activities to respond to the full portfolio of fraud risks  A fraud risk assessment consists of discrete activities that build upon each other  Specifically: Identifying inherent fraud risks affecting the program  As discussed earlier, CMS has taken steps to identify fraud risks  However, CMS has not used a process to identify inherent fraud risks from the universe of potential vulnerabilities facing Medicare and Medicaid programs, including threats from various sources  According to CPI officials, most of the agency’s fraud control activities are focused on fraud risks posed by providers  The Fraud Risk Framework discusses fully considering inherent fraud risks from internal and external sources in light of fraud risk factors such as incentives, opportunities, and rationalization to commit fraud  For example, according to CMS officials, the inherent design of the Medicare Part C program may pose fraud risks that are challenging to detect  A fraud risk assessment would help CMS identify all sources of fraudulent behaviors, beyond threats posed by providers, such as those posed by health-insurance plans, contractors, or employees  Assessing the likelihood and impact of fraud risks and determining fraud risk tolerance  CMS has taken steps to prioritize fraud risks in some areas, but it has not assessed the likelihood or impact of fraud risks or determined fraud risk tolerance across all parts of Medicare and Medicaid  Assessing the likelihood and impact of inherent fraud risks would involve consideration of the impact of fraud risks on program finances, reputation, and compliance  Without assessing the likelihood and impact of risks in Medicare or Medicaid or internally determining which fraud risks may fall under the tolerance threshold, CMS cannot be certain that it is aware of the most-significant fraud risks facing these programs and what risks it is willing to tolerate based on the programs’ size and complexity  Examining the suitability of existing fraud controls and prioritizing residual fraud risks  CMS has not assessed existing control activities or prioritized residual fraud risks  According to the Fraud Risk Framework, managers may consider the extent to which existing control activities—whether focused on prevention, detection, or response—mitigate the likelihood and impact of inherent risks and whether the remaining risks exceed managers’ tolerance  This analysis would help CMS to prioritize residual risks and to determine mitigation approaches  For example, CMS has not established preventive fraud control activities in Medicare Part C  Using a fraud risk assessment for Medicare Part C and closely examining existing fraud control activities and residual risks, CMS could be better positioned to address fraud risks facing this growing program and develop preventive control activities  Further, without assessing existing fraud control activities and prioritizing residual fraud risks, CMS cannot be assured that its current control activities are addressing the most-significant risks  Such analysis would also help CMS determine whether additional, preferably preventive, fraud controls are needed to mitigate residual risks, make adjustments to existing control activities, and potentially scale back or remove control activities that are addressing tolerable fraud risks  Documenting the risk-assessment results in a fraud risk profile  CMS has not developed a fraud risk profile that documents key findings and conclusions of the fraud risk assessment  According to the Fraud Risk Framework, the risk profile can also help agencies decide how to allocate resources to respond to residual fraud risks  Given the large size and complexity of Medicare and Medicaid, a documented fraud risk profile could support CMS’s resource-allocation decisions as well as facilitate the transfer of knowledge and continuity across CMS staff and changing administrations  Senior CPI officials told us that the agency plans to start a fraud risk assessment for Medicare and Medicaid after it completes a separate fraud risk assessment of the federally facilitated marketplace  This fraud risk assessment for the federally facilitated marketplace eligibility and enrollment process is being conducted in response to a recommendation we made in February 2016  In April 2017, CPI officials told us that this fraud risk assessment was largely completed, although in September 2017 CPI officials told us that the assessment was undergoing agency review  CPI officials told us that they have informed CM and CMCS officials that there will be future fraud risk assessments for Medicare and Medicaid; however, they could not provide estimated timelines or plans for conducting such assessments, such as the order or programmatic scope of the assessments  Once completed, CMS could use the federally facilitated marketplace fraud risk assessment and apply any lessons learned when planning for and designing fraud risk assessments for Medicare and Medicaid  According to the Fraud Risk Framework, factors such as size, resources, maturity of the agency or program, and experience in managing risks can influence how the entity plans the fraud risk assessment  Additionally, effective managers tailor the fraud risk assessment to the program when planning for it  The large scale and complexity of Medicare and Medicaid as well as time and resources involved in conducting a fraud risk assessment underscore the importance of a well-planned and tailored approach to identifying the assessment’s programmatic scope  Planning and tailoring may involve decisions to conduct a fraud risk assessment for Medicare and Medicaid programs as a whole or divided into several subassessments to reflect their various component parts (e g , Medicare FFS, Medicaid managed care) as well as determining the timing and order of assessments (e g , concurrently or consecutively for Medicare and Medicaid)  CMS’s existing fraud risk identification efforts as well as communication channels with stakeholders could serve as a foundation for developing a fraud risk assessment for Medicare and Medicaid  The leading practices identified in the Fraud Risk Framework discuss the importance of identifying appropriate tools, methods, and sources for gathering information about fraud risks and involving relevant stakeholders in the assessment process  CMS’s fraud risk identification efforts discussed earlier could provide key information about fraud risks and their likelihood and impact  Further, existing relationships and communication channels across CMS and its extensive network of stakeholders could support building a comprehensive understanding of known and potential fraud risks for the purposes of a fraud risk assessment  For example, the fraud vulnerabilities identified through data analysis and information sharing with states, health-insurance plans, law-enforcement organizations, and contractors through the HFPP could inform a fraud risk assessment  CPI’s Command Center missions—facilitated collaboration sessions that bring together experts from various disciplines to improve the processes for fraud prevention in Medicare and Medicaid—could bring together experts to identify potential or emerging fraud vulnerabilities or to brainstorm approaches to mitigate residual fraud risks  As CMS makes plans to move forward with a fraud risk assessment for Medicare and Medicaid, it will be important to consider the frequency with which the fraud risk assessment would need to be updated  While, according to the Fraud Risk Framework, the time intervals between updates can vary based on the programmatic and operating environment, assessing fraud risks on an ongoing basis is important to ensure that control activities are continuously addressing fraud risks  The constantly evolving fraud schemes, the size of the programs in terms of beneficiaries and expenditures, as well as continual changes in Medicare and Medicaid programs—such as development of innovative payment models and increasing managed-care enrollment—call for constant vigilance and regular updates to the fraud risk assessment  The design and implement component of the Fraud Risk Framework calls for federal managers to design and implement a strategy with specific control activities to mitigate assessed fraud risks and collaborate to help ensure effective implementation  According to the Fraud Risk Framework, effective managers develop and document an antifraud strategy that describes the program’s approach for addressing the prioritized fraud risks identified during the fraud risk assessment, also referred to as a risk-based antifraud strategy  A risk- based antifraud strategy describes existing fraud control activities as well as any new fraud control activities a program may adopt to address residual fraud risks  In developing a strategy and antifraud control activities, effective managers focus on fraud prevention over detection, develop a plan for responding to identified instances of fraud, establish collaborative relationships with stakeholders, and create incentives to help effectively implement the strategy  Additionally, as part of a documented strategy, management identifies roles and responsibilities of those involved in fraud risk management activities; describes control activities as well as plans for monitoring and evaluation, creates timelines, and communicates the antifraud strategy to employees and stakeholders, among other things  As discussed earlier, CMS has some control activities in place to identify fraud risk in Medicare and Medicaid, particularly in the FFS program  However, CMS has not developed and documented a risk-based antifraud strategy to guide its design and implementation of new antifraud activities and to better align and coordinate its existing activities to ensure it is targeting and mitigating the most-significant fraud risks  Antifraud strategy  CMS officials told us that CPI does not have a documented risk-based antifraud strategy  Although CMS has developed several documents that describe efforts to address fraud, the agency has not developed a risk-based antifraud strategy for Medicare and Medicaid because, as discussed earlier, it has not conducted a fraud risk assessment that would serve as a foundation for such strategy  In 2016, CPI identified five strategic objectives for program integrity, which include antifraud elements and an emphasis on prevention  However, according to CMS officials, these objectives were identified from discussions with CMS leadership and various stakeholders and not through a fraud risk assessment process to identify inherent fraud risks from the universe of potential vulnerabilities, as described earlier and called for in the leading practices  These strategic objectives were presented at an antifraud conference in 2016, but were not announced publicly until the release of the Annual Report to Congress on the Medicare and Medicaid Integrity Programs for Fiscal Year 2015 in June 2017  Stakeholder relationships and communication  CMS has established relationships and communicated with stakeholders, but, without an antifraud strategy, stakeholders we spoke with lacked a common understanding of CMS’s strategic approach  Prior work on practices that can help federal agencies collaborate effectively calls for a strategy that is shared with stakeholders to promote trust and understanding  Once an antifraud strategy is developed, the Fraud Risk Framework calls for managers to collaborate to ensure effective implementation  Although some CMS stakeholders were able to describe various CMS program- integrity priorities and activities, such as home health being a fraud risk priority, the stakeholders could not communicate, articulate, or cite a common CMS strategic approach to address fraud risks in its programs  Incentives  The Fraud Risk Framework discusses creating incentives to help ensure effective implementation of the antifraud strategy once it is developed  Currently, some incentives within stakeholder relationships may complicate CMS’s antifraud efforts  As discussed earlier, CMS is a partner and provides oversight to states’ program-integrity functions  Officials from one state told us that they were reluctant to share their program vulnerabilities because CMS would use this information to later audit the state  Among contractors, CMS encourages information sharing through conferences and workshops; however, competition for CMS business among contractors can be a disincentive to information sharing  CMS officials acknowledged this concern and said that they expect contractors to share information related to fraud schemes, outcomes of investigations, and tips for addressing fraud, but not proprietary information such as algorithms to risk-score providers  Without developing and documenting an antifraud strategy based on a fraud risk assessment, as called for in the design and implement component of the Fraud Risk Framework, CMS cannot ensure that it has a coordinated approach to address the range of fraud risks and to appropriately target and allocate resources for the most-significant risks  Considering fraud risks to which the Medicare and Medicaid programs are most vulnerable, in light of the malicious intent of those who aim to exploit the programs, would help CMS to examine its current control activities and potentially design new ones with recognition of fraudulent behavior it aims to prevent  This focus on fraud is distinct from a broader view of program integrity and improper payments by considering the intentions and incentives of those who aim to deceive rather than well-intentioned providers who make mistakes  Also, continued growth of the programs, such as growth of Medicare Part C and Medicaid managed care, call for consideration of preventive fraud control activities across the entire network of entities involved  Further, considering the large size and complexity of Medicare and Medicaid and the extensive stakeholder network involved in managing fraud in the programs, a strategic approach to managing fraud risks within the programs is essential to ensure that a number of existing control activities and numerous stakeholder relationships and incentives are being aligned to produce desired results  Once developed, an antifraud strategy that is clearly articulated to various CMS stakeholders would help CMS to address fraud risks in a more coordinated and deliberate fashion  Thinking strategically about existing control activities, resources, tools, and information systems could help CMS to leverage resources while continuing to integrate Medicare and Medicaid program-integrity efforts along functional lines  A strategic approach grounded in a comprehensive assessment of fraud risks could also help CMS to identify future enhancements for existing control activities, such as new preventive capabilities for FPS or additional fraud factors in provider enrollment and revalidation, such as provider risk scoring, to stay in step with evolving fraud risks  The evaluate and adapt component of the Fraud Risk Framework calls for federal managers to evaluate outcomes using a risk-based approach and adapt activities to improve fraud risk management  Furthermore, according to federal internal control standards, managers should establish and operate monitoring activities to monitor the internal control system and evaluate the results, which may be compared against an established baseline  Ongoing monitoring and periodic evaluations provide assurances to managers that they are effectively preventing, detecting, and responding to potential fraud  CMS has established monitoring and evaluation mechanisms for its program-integrity activities that it could incorporate into an antifraud strategy  In Medicare, CMS has taken steps to measure the rate of fraud in a particular service area  We have previously reported that agencies may face challenges measuring outcomes of fraud risk management activities in a reliable way  These challenges include the difficulty of measuring the extent of deterred fraud, isolating potential fraud from legitimate activity or other forms of improper payments, and determining the amount of undetected fraud  Despite these challenges, CMS has taken steps to estimate a fraud baseline—meaning the rate of probable fraud—in the home health benefit  In fiscal year 2016, CMS conducted a pretest in the Miami-Dade area of Florida to evaluate its potential measurement approach that could later be used in a nationwide study of probable fraud among home health agencies  The pretest was not a random sample and was not intended to produce a rate of fraud, but instead was intended to test the interview instruments and data-collection methodology CMS might use in a study nationwide  CMS and its contractor collected information from home health agencies, the attending providers, and Medicare beneficiaries in the Miami-Dade area in order to test these interview instruments  CMS completed this pretest, but, according to CMS officials, the agency does not yet have plans to roll out a nationwide study that would estimate a probable fraud rate for the Medicare FFS home health benefit  In its 2015 annual report to Congress, CMS stated that “documenting the baseline amount of fraud in Medicare is of critical importance, as it allows officials to evaluate the success of ongoing fraud prevention activities ” CMS officials working on the pilot told us that having an estimate of the rate of fraud in home health benefits would allow CMS to reliably assess its efforts at eliminating or reducing fraud  Without a baseline, officials said, the agency cannot know whether its antifraud efforts are as effective as they could be  We previously reported that the lack of a baseline for the amount of health-care fraud that exists limits CMS’s ability to determine whether its activities are effectively reducing health care fraud and abuse  A baseline estimate could provide an understanding of the extent of fraud and, with additional information on program activities, could help to inform decision making related to allocation of resources to combat health-care fraud  As described in the Fraud Risk Framework, in the absence of a fraud baseline, agencies can gather additional information on the short-term or intermediate outcomes of some antifraud initiatives, which may be more readily measured  For example, CMS has developed some performance measures to provide a basis for monitoring its progress towards meeting the program-integrity goals set in the HHS Strategic Plan and Annual Performance Plan  Specifically, CMS measures whether it is meeting its goal of “increasing the percentage of Medicare FFS providers and suppliers identified as high risk that receive an administrative action ” CMS does not set specific antifraud goals for other parts of Medicare or Medicaid; other CMS performance measures relate to measuring or reducing improper payments in CHIP, Medicaid, and the various parts of Medicare  CMS uses return-on-investment and savings estimates to measure the effectiveness of its Medicare program-integrity activities and FPS  For example, CMS uses return-on-investment to measure the effectiveness of FPS and, in response to a recommendation we made in 2012, CMS developed outcome-based performance targets and milestones for FPS  CMS has also conducted individual evaluations of its program-integrity activities, such as an interim evaluation of the prior-authorization demonstration for power mobility devices that began in 2012 and is currently implemented in 19 states  Commensurate with greater maturity of control activities in Medicare FFS compared to other parts of Medicare and Medicaid, monitoring and evaluation activities for Medicare Parts C and D and Medicaid are more limited  For example, CMS calculates savings for its program-integrity activities in Medicare Parts C and D, but not a full return-on-investment  CMS officials told us that calculating costs for specific activities is challenging because of overlapping activities among contractors  CMS officials said they continue to refine methods and develop new savings estimates for additional program-integrity activities  According to the Fraud Risk Framework, effective managers develop a strategy and evaluate outcomes using a risk-based approach  In developing an effective strategy and antifraud activities, managers consider the benefits and costs of control activities  Ongoing monitoring and periodic evaluations provide reasonable assurance to managers that they are effectively preventing, detecting, and responding to potential fraud  Monitoring and evaluation activities can also support managers’ decisions about allocating resources, and help them to demonstrate their continued commitment to effectively managing fraud risks  As CMS takes steps to develop an antifraud strategy, it could include plans for refining and building on existing methods such as return-on- investment or savings measures, and setting appropriate targets to evaluate the effectiveness of all of CMS’s antifraud efforts  Such a strategy would help CMS to efficiently allocate program-integrity resources and to ensure that the agency is effectively preventing, detecting, and responding to potential fraud  For example, while doing so would involve challenges, CMS’s strategy could detail plans to advance efforts to measure a potential fraud rate through baseline and periodic measures  Fraud rate measurement efforts could also inform risk assessment activities, identify currently unknown fraud risks, align resources to priority risks, and develop effective outcome metrics for antifraud controls  Such a strategy would also help CMS ensure that it has effective performance measures in place to assess its antifraud efforts beyond those related to providers in Medicare FFS, and establish appropriate targets to measure the agency’s progress in addressing fraud risks  As CMS makes plans to move forward with a strategy and to further develop evaluation and monitoring mechanisms, it will be important to share its efforts with stakeholders  The Fraud Risk Framework states that effective managers communicate lessons learned from fraud risk management activities to stakeholders  For example, CMS could be a leader to states in measuring the effectiveness of program-integrity efforts  Officials in three of the four states we spoke with expressed interest in receiving CMS guidance on how to measure the effectiveness of their Medicaid program-integrity efforts, such as by providing models for how to calculate return-on-investment  Medicare and Medicaid provide health insurance to over 129 million Americans, but the size—in terms of number of beneficiaries and amount of expenditures—as well as complexity of these programs make them inherently susceptible to fraud and improper payments  CMS currently manages these risks across its programs as part of a broader approach to identifying and controlling for multiple sources of improper payments and by developing relationships with an extensive network of stakeholders  In Medicare and Medicaid specifically, we note that CMS has taken many important steps toward implementing a strategic approach for managing fraud  However, the agency could benefit by more fully aligning its efforts with the four components of the Fraud Risk Framework  CMS is well positioned to leverage its fraud risk management efforts— such as demonstrated leadership for combating fraud, existing control activities, and stakeholder relationships—to provide additional antifraud training, as well as to develop an antifraud strategy based on fraud risk assessments for Medicare and Medicaid  We recognize that the effort may be challenging, given the size and complexity of Medicare and Medicaid, and the need to balance antifraud activities with CMS’s other mission priorities  However, by not employing the actions identified in the Fraud Risk Framework and incorporating them in its approach to managing fraud risks, CMS is missing a significant opportunity to better ensure employee vigilance against fraud, and to organize and focus its many antifraud and program-integrity activities and related resources into a comprehensive strategy  Such a strategy would (1) provide reasonable assurance that CMS is targeting the most-significant fraud risks in its programs and (2) help protect the government’s substantial and growing investments in these programs  We are making the following three recommendations to CMS: The Administrator of CMS should provide fraud-awareness training relevant to risks facing CMS programs and require new hires to undergo such training and all employees to undergo training on a recurring basis  (Recommendation 1) The Administrator of CMS should conduct fraud risk assessments for Medicare and Medicaid to include respective fraud risk profiles and plans for regularly updating the assessments and profiles  (Recommendation 2) The Administrator of CMS should, using the results of the fraud risk assessments for Medicare and Medicaid, create, document, implement, and communicate an antifraud strategy that is aligned with and responsive to regularly assessed fraud risks  This strategy should include an approach for monitoring and evaluation  (Recommendation 3) We provided a draft of this report to HHS and DOJ for comment  HHS provided written comments, which are reprinted in appendix I  DOJ did not have comments  HHS and DOJ also provided technical comments, which we incorporated as appropriate  In commenting on this report, HHS agreed with our three recommendations  Specifically, in response to our first recommendation to provide required fraud-awareness training to all employees, HHS stated that it will develop and implement a fraud-awareness training plan to ensure all CMS employees receive training  Regarding our second recommendation to conduct fraud risk assessments for Medicare and Medicaid, HHS stated that it is currently conducting a fraud risk assessment on the federally facilitated marketplace and, when this assessment is complete, will apply the lessons learned in assessing this program to fraud risk assessments of Medicare and Medicaid  In response to our third recommendation to create, document, implement, and communicate an antifraud strategy that is aligned with and responsive to regularly assessed fraud risks, HHS stated that it will develop respective risk-based antifraud strategies after completing fraud risk assessments for Medicare and Medicaid  We are sending copies of this report to the Acting Secretary of Health and Human Services, the Administrator of CMS, the Assistant Attorney General for Administration at DOJ, as well as appropriate congressional committees and other interested parties  In addition, this report is available at no charge on the GAO website at http://www gao gov  If you or your staff members have any questions about this report, please contact me at (202) 512-6722 or bagdoyans@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made contributions to this report are listed in appendix II  In addition to the contact named above, Tonita Gillich (Assistant Director), Irina Carnevale (Analyst-in-Charge), Michael Duane, Laura Sutton Elsberg, and Catrin Jones made key contributions to this report  Also contributing to the report were Lori Achman, James Ashley, Colin Fallon, Leslie V  Gordon, Maria McMullen, Sabrina Streagle, and Shana Wallace 


Report 2: The Department of Defense (DOD) obligates more than $300 billion annually to pay for goods and services (including research and development)  Most of these acquisitions are governed by numerous statutes and regulations found in Title 10 of the United States Code, the Federal Acquisition Regulation (FAR), and the Defense Federal Acquisition Regulation Supplement (DFARS)  DOD can also enter into certain transactions without triggering most of the standard acquisition statutes and regulations by using other transaction (OT) authorities  In recent years, Congress has expanded these authorities and DOD is increasingly using OTs for research, prototyping, and production  This report examines (1) how OTs work, (2) why they were established, (3) potential benefits and risks of using OTs, and (4) whether there are data available against which to measure their effectiveness  Appendix A provides a legislative history of DOD's other transaction authorities  On October 4, 1957, the Soviet Union triggered a space race with the United States when it successfully launched Sputnik I into orbit, becoming the first nation to send a man-made satellite into space  Congress, concerned that the United States was falling behind in space, held a series of hearings on an "emergency" effort to respond to the Soviet launch of Sputnik  At the same time, a bill was introduced in the Senate to create an agency with the means to quickly and efficiently develop a national space program  These efforts led to passage of the National Aeronautics and Space Act of 1958 (Space Act, P L  85-568) in July 1958, which established the National Aeronautics and Space Administration (NASA)  In an effort to give the new agency "the necessary freedom to carry on research, development, and exploration     to insure the full development of these peaceful and defense uses without unnecessary delay," the Space Act granted NASA broad authority to "enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary" to accomplish its mission of research and exploration (emphasis added)  Congress extended different variations of OT authorities to other select agencies, granting the authority to DOD in the FY1990 & 1991 National Defense Authorization Act (NDAA, P L  101-189 )  For an analysis of which non-DOD agencies can use OTs and how the authorities differ by agency, see Appendix B   Other transactions are legally binding contracts that are generally exempt from federal procurement laws and regulations such as the Competition in Contracting Act and the Federal Acquisition Regulation  In contrast, traditional procurement contracts must adhere to the procurement rules set forth in statute and regulation  Generally, DOD can use other transaction authorities for three purposes: 1  conduct research, 2  develop prototypes, or 3  contract for follow-on production of a successful prototype project  DOD's other transaction authorities are found in two sections of law: 10 U   S   C   2371 grants DOD the authority to use other transactions to carry out basic, applied, and advanced research projects  DOD regulations treat these projects as financial assistance instruments, not as contracts  10 U   S   C   2371b permits the use of other transactions to conduct prototype projects and follow-on production  OTs can only be used for prototypes if one of the following applies: at least one nontraditional defense contractor significantly participating in the project; all significant participants are small businesses or nontraditional defense contractors; at least one-third of the total cost of the prototype project is provided by nongovernment participants; or the senior procurement acquisition official provides in writing an explanation of the exceptional circumstances justifying an OT  Follow-on production can only be conducted when the underlying prototype OT was competitively awarded, and the prototype project was successfully completed  10 U   S   C   2373 , while generally not considered an o ther t ransaction authority , allows DOD to buy certain items and designs for experimental or test purposes without having to adhere to the procurement laws set forth in Chapter 137 of Title 10  OT authorities grant government officials the flexibility to include, amend, or exclude contract clauses and requirements that are mandatory in traditional procurements (e g , termination clauses, payments, audit requirements, intellectual property, and contract disputes)  OTs can be structured in numerous ways, including a direct relationship between a single government agency and a single provider; joint ventures; partnerships; multiple agencies joining together to fund an agreement encompassing multiple providers; or through a consortium  One common application of OTs is to forge an agreement with a consortium  A consortium is an organized group— it can consist of nonprofits, academic institutions, or contractors— focusing on a specific technology area  Generally, a lead entity coordinates and directs a consortium's activities  Consortia have consisted of a handful to as many as 1,000 members  Consortia can act to facilitate multiparty agreements whereby each member is akin to its own co-prime contractor with the government  In such a case, the government articulates the need or problem it is trying to solve, and the various members of the consortium can submit white papers for consideration  In this scenario, OTs can serve as an efficient way for all members to send unsolicited technology suggestions and solutions to solve a defined challenge  Consortia can also be used to develop an ecosystem of entities working together on a project, whereby members of a consortium pool resources and collaborate with DOD  A number of analysts argue that using consortia in this way gives the federal government a unique ability to leverage and pool the technological expertise and innovation of multiple entities in a particular sector, thereby strengthening and advancing a sector of the industrial base that may have defense applications  Seen like this, OTs can be considered a mechanism to promote defense technology and the defense industrial base, with the potential added benefit of advancing the domestic commercial technology base  Some analysts, however, have argued that many of today's consortia do not operate as collaborative organizations, but function more like managed multiple award task order contracts  These analysts argue that DOD should seek to foster more collaboration in consortia  Some analysts have argued that consortia reduce competition, since only members of the consortium under contract can participate in the project or submit white papers for consideration and funding  Others counter that even when an OT is signed with a single consortium, competition could be increased, since all members of the consortium are notified of the opportunity (expanding the pool of potential competitors aware of the opportunity), and the OT will foster internal competition among consortium members  OTs are not procurement contracts and thus are exempt from numerous procurement statutes and regulations, including the statutes in Chapter 137 of Title 10 ( Procurement Generally )  They are, however, bound by standard contract and other select laws and regulations  Examples of laws that do not apply include the Truth in Negotiations Act, Competition in Contracting Act, Cost Accounting Standards, Contract Disputes Act, and select intellectual property statutes such as the Bayh-Dole Act  A number of these laws are aimed at oversight and protecting the interests of taxpayers  While the Competition in Contracting Act does not apply, 10 U S C  2371b requires that research and prototype projects be competed "to the maximum extent practicable " DOD policy mirrors the statutory language, stating "[C]ompetition is a good thing  It helps keep prices low, quality high, and gives the government leverage in negotiations " To the extent that OTs induce nontraditional contractors to work with DOD, OTs can be viewed as promoting competition among (and within) entities that would not normally compete for DOD contracts  However, the lack of explicitly defined competition requirements could result in less competition for certain OTs  OTs are not free from all legislative and regulatory requirements  Generally, statutes and regulations that are not procurement-specific apply, including the Trade Secrets Act, (18 U S C  1905); the Economic Espionage Act (18 U S C  1831-39); elements of the Freedom of Information Act (5 U S C  552); and fiscal and property laws, such as the Anti-deficiency Act (31 U S C  1341); and the Tucker Act (28 U S C  1491)  As can be seen by these citations, many of these statutes are not located in the procurement titles of Title 10 or Title 41  The Government Accountability Office (GAO) has held that OTs are not procurement contracts, and therefore it will not review protests of such an award or solicitation  However, GAO will review "a timely protest that an agency is improperly using its other transaction authority " OT contracts can be protested to the Court of Federal Claims, although there is debate as to the extent of the court's jurisdiction  The limited protest jurisdiction of GAO is appealing to many government procurement officials  One senior Air Force official reportedly stated that OTs are "just so much faster and so much more attuned to getting something that we want today and not have to spend a couple of years going through a protest, going through this huge process to get something we wanted two years ago " It generally does not take that long to go through a GAO protest  By statute, GAO must issue an opinion on a protest within 100 days of the protest being filed, and 70% of cases are resolved in less than 60 days  While exempt from GAO bid protests, OTs are not exempt from GAO audits  Generally, OTs that include government payments exceeding $5 million are required to include a clause granting GAO the right to examine the records of any related party  However, this requirement has a number of limitations  Used properly, OTs can provide significant benefits to DOD  Along with the potential benefits come certain risks  Some of the potential benefits to OTs highlighted by analysts and officials include providing a mechanism to pool R&D resources with industry to facilitate development of, and obtain "the latest state-of-the-art, dual use technologies"; attracting nontraditional contractors with promising technological capabilities to work with DOD; lowering costs by eliminating requirements associated with the Federal Acquisition Regulations (i e , costs associated with required reporting and administrative activities) or sharing costs with industry; and "speeding up" the acquisition process  A number of experts argue that OTs provide a unique mechanism for DOD to invest in, and influence the direction of, technology development even when the end result is not directly tied to a military capability  As one observer noted, the real benefit to DOD may be that [t]he R&D has been accomplished and is available to the technical and scientific communities  As a result, a subsequent phase of research can begin or a particular approach can be demonstrated to be of no value  Some argue that OTs have particular import today  Drawing parallels to the space race, these analysts argue that DOD is engaged in a defense technology race  According to the 809 Panel: DoD is now in a period during which the time a particular technology is a dominant force on the battlefield is getting increasingly shorter, disruptive technologies are emerging at a faster pace, and these technologies are more widely dispersed…In a world with rapidly changing technology, time is a valuable resource that must not be taken for granted  It is difficult to predict what capabilities DoD will need 5 to 10 years from now—biotechnology, nanotechnology, artificial intelligence, robotics, or a new technology area not even known today  It also is unclear on what plane the military will conduct warfare—traditional battlefields, space, cyberspace, or some other domain  The current acquisition system lacks the agility needed to adapt to new paradigms  These analysts argue that OTs and similar rapid acquisition authorities are critical for DOD to compete in such a fast-paced global environment where technology and innovation are no longer driven by DOD, but by industry and foreign competitors  In 1960, the United States accounted for 69% of global R&D, with U S  defense-related R&D alone accounting for more than one-third of global R&D  The federal government funded approximately twice as much R&D as U S  business  However, from 1960 to 2016, the U S  share of global R&D fell to 28%, and the federal government's share of total U S  R&D fell from 65% to 24%, while business's share more than doubled from 33% to 67%  As a result of these global, national, and federal trends, federal defense R&D's share of total global R&D fell to 3 7% in 2016  Given the shift in the global R&D landscape, and the diminishing influence of DOD as a market mover, analysts suggest that the current procurement system is overburdened by regulations and bureaucratic processes that slow the system, increase costs, and dissuade companies from doing business with DOD  In contrast, OTs are viewed as faster, attracting companies that would otherwise forgo working with DOD and promoting broader investment in critical defense capabilities  As one analyst wrote: OTAs are currently the only way to remove the barriers necessary to get these nontraditional sources of innovation to do business with the military  Properly constructed, OTAs help speed up the process, respect a company's IP through negotiation rather than regulatory fiat, and result in contracting under commercial terms and conditions  Congress also appears to have shifted its view on appropriate use of other transactions  In the FY1999 conference report, Congress stated that [OT] authority should only be used in the exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies  By comparison, in the FY2018 NDAA, Congress expanded OT authorities and stated the following: In the execution of science and technology and prototyping programs, the Secretary of Defense shall establish a preference, to be applied in circumstances determined appropriate by the Secretary, for using transactions other than contracts, cooperative agreements, and grants  Along with the potential benefits come potential risks, including that of diminished oversight and exemption from laws and regulations designed to protect government and taxpayer interests  Some analysts, while acknowledging the important role of OTs, raise concerns over transparency and how these agreements are being employed  As one industry official stated, OTs are a contracting method, not a substitute for good acquisition practices  Discussing a particular OT for cloud services that was protested and ultimately cancelled by DOD, one observer argued The cloud contract provides a teachable moment for procurement reform-minded officials in the Pentagon and Capitol Hill  The problem was not with the OTA mechanism, which remains an essential element of reforming Pentagon procurement  Rather, the problem was with a lack of transparency with how the mechanism was employed  Scott Amey, general counsel of the Project on Government Oversight, cautioned We have to seriously consider how we are using [OTs]; whether we are using them as intended, whether we are getting the goods and services that we really want and need, whether we are getting them at the best cost and process, and we are using this procurement vehicle as a way to just circumvent the rules and have contractors not have the administration and oversight they need to hold them accountable  I'm just afraid this is going to result in a lot of waste, fraud, and abuse in the future  Congress has expressed repeated concerns that OTs could be used to circumvent congressional intent  In the FY1999 NDAA, the committees emphasized that the authority should only be used in a limited manner  The conference report stated the following: The conferees are especially concerned that such authority not be used to circumvent the appropriate management controls in the standard acquisition and budgeting process  Congress echoed a similar concern in the FY2019 NDAA  According to the House report: The committee also urges the Department to reiterate through established guidelines that OTA is not a means for circumventing appropriate use of the Federal Acquisition Regulations, and that full and open competition should be used to the maximum extent possible to maintain a sense of integrity, fairness, and credibility in the Federal Procurement process  Other transactions are also exempt from many of the socioeconomic policies put in place by Congress to promote public policies, including some Buy America requirements  Some analysts have raised concerns that OTs are a way to circumvent many of the public policies enshrined in the acquisition process  A number of analysts and officials have raised concerns that if DOD uses OTs in ways not intended by Congress—or is perceived to abuse the authority—Congress could clamp down on the authority  Under Secretary of the Army Ryan McCarthy reportedly stated that the military department is "trying to be very judicious about this authority so we don't lose it " Some analysts argue that Congress is already clamping down on the use of OTs  These analysts point to language in the FY2019 NDAA and FY2019 appropriations legislation ( P L  115-245 ) requiring additional reporting and notification (see Appendix A )  Such notification and reporting requirements, however, are not new; when Congress expanded OT authorities in the past, reporting and notification requirements were commonly included  The reporting requirements may also be a result of congressional frustration with a lack of transparency and data on how DOD uses OTs  DOD lacks authoritative data that can be used to assess OT effectiveness and better understand broader trends associated with these agreements  The most frequently cited source for such data is the Federal Procurement Data System-Next Generation (FPDS-NG), which is the primary source for tracking data on contract obligations, including other transactions for prototypes and follow-on production  FPDS-NG is configured to track data on cost-sharing, other transaction award type, and prevalence of nontraditional contractors  Obligations connected to OTs for research are tracked by the Defense Assistance Awards Data System, which is primarily used to track grants and cooperative agreements  This bifurcation of how OT data are tracked makes it more difficult to get a consolidated view of OT data  According to DOD, all OT data will be reported through FPDS-NG starting in late 2019  The procurement data in FPDS-NG are not fully reliable  There are quality issues relating to accuracy, completeness, and timeliness of data  CRS reviewed FPDS-NG data for prototype OT agreements signed or modified between FY2015 and FY2017 and found similar data inconsistencies  DOD officials acknowledge that they do not have sufficiently reliable data upon which to conduct analysis on the use of OTs and are taking steps to try to improve the data  The analyses below reflect CRS's effort to analyze DOD's use of other transaction authority based on the best available data  According to FPDS-NG, in FY2017, DOD obligated $2 1 billion—and received $360 million in cost-share contributions—on prototype other transaction agreements, representing less than 1% of DOD's total FY2017 contract obligations (approximately $320 billion)  Despite the small percentage of obligations, OTs are growing quickly and are expected to continue to grow at a rapid pace  From FY2013 to FY2017, the number of new prototype agreements increased from 12 to 94, an increase of over 650% (see Table 1 )  DOD's Defense Innovation Unit (DIU, formerly known as the Defense Innovation Unit Experimental, or DIUx) was involved with approximately half of the prototype agreements executed in 2017  DOD officials have stated their intent to further increase the department's use of OTs  Officials say that this increase is due to Congress expanding the statutory authority  The Army executed more than 66% of the prototype OT agreements between FY2013 and FY2017, often on behalf of other military departments and components (see Table 2 )  Army Contracting Command-New Jersey at Picatinny Arsenal executes many of these agreements  DIU currently uses Picatinny Arsenal to execute all of its other transaction agreements  A number of private sector companies do not pursue federal government contracts because they are unwilling to forfeit intellectual property rights or adhere to some of the procurement regulations  One of the goals of OTs is to expand the defense marketplace by creating a mechanism for access to technologies and services of companies that would not otherwise work with DOD, particularly startups and companies developing innovative technology  As one industry representative stated: Because they are "outside" the FAR, OT agreements do not require such cumbersome oversight and audit requirements such as those imposed by the Truth in Negotiations Act, cost and pricing data or an expensive Cost Accounting System (CAS) qualified financial system  CAS compliant financial systems can cost a company millions of dollars to implement and maintain — and are therefore a significant, if not potentially fatal, barrier to government market entry for startups and small, innovative companies  These requirements tend to reinforce the "legacy advantage" of large traditional contractors, who can afford to hire and staff these requirements with large staffs of accountants and lawyers  A number of nontraditional companies told CRS that they are more likely to work with DOD because of the department's other transaction authorities  Despite these claims, some observers question whether OTs are effectively bringing nontraditional contractors into the defense marketplace  A DOD Inspector General report examining other transactions from FY1994 to FY2001 found that OTs did not attract significant numbers of nontraditional defense contractors to do business with DOD  The report found that of the 209 prototype agreements examined, traditional defense contractors received 95% of the $5 7 billion in funds awarded  A recent analysis of FPDS-NG data by Federal News Network had similar findings  According to the report, from FY2015 to FY2017, while nontraditional defense contractors were awarded most of the new OTs (66% vs  33% for traditional defense contractors), the dollar value of the OTs favored traditional contractors ($20 8 billion vs  $7 4 billion for nontraditional contractors)  Some observers have questioned the accuracy of the data published by Federal News Network  According to Charlie McBride, president of Consortium Management Group (which manages two consortia working with DOD through OTs), 88% of the total dollar value of awards to CMG Group has gone to nontraditional prime contractors, and nontraditional entities have participated in the remaining 12%  This debate highlights the lack of authoritative data on OTs  The currently available data may not accurately reflect the extent to which nontraditional contractors are engaged in OT agreements  FPDS-NG does not collect data regarding subcontractors or consortia composition, making it difficult to determine the nature and extent to which nontraditional defense contractors and entities may be working under OT agreements with DOD directly or as subcontractors  When Congress extended OT authority to DOD, it authorized inserting a clause requiring a person or entity to make payments to DOD as a condition of receiving support under the agreement  Such funds were to be merged into an account dedicated to support DARPA advanced research projects  The intent of this provision was to permit DARPA to "recoup the fruits of such arrangements, when there is a 'dual use' potential for commercial application" and reinvest the funds to develop other technologies  In addition to the recoupment authority, DOD can share costs with other parties under an OT  Using this approach, the amount of each party's share is negotiated and incorporated into the agreement  Congress believed that OTs and cooperative agreements were ideal vehicles for promoting DOD-industry collaboration in developing dual-use technologies  For example, the FY1992 & 1993 NDAA ( P L  102-190 ) authorized DOD to enter into cooperative and other transaction agreements to develop critical dual-use technologies as set forth in the Defense Critical Technologies Plan  According to the Senate report:     the United States tends to underinvest in dual-use technologies  National security requirements alone often do not justify major DOD support, and market prospects alone often appear to be too long-term or high risk to justify US industry carrying the entire development burden     The committee encourages use of cooperative agreements and other transactions in lieu of grants or contracts     The provision would require that at least 50 percent of funding over the life of a partnership derive from non-federal sources but would allow for a smaller industry share at the start  In the 1990s, some DARPA OTs required participants to share costs because the types of work completed generally involved R&D that was mutually beneficial to government needs and industry commercial goals  In certain instances, present-day OTs have cost-sharing requirements that foster collaborative research  Some analysts believe that DOD is not always realizing all the benefits that OTs have to offer, such as sufficiently leveraging private capital or forming true consortia of multiple parties pooling resources  Some of these analysts believe that DOD does not sufficiently use consortia to leverage private investment through the pursuit of collaborative, mutually beneficial, dual-use technologies  Some observers argue that as the legislation on OTs has evolved, the cost-sharing provision for prototype projects has come to create an unfair playing field biased against traditional defense contractors  For prototype projects, traditional contractors generally are required to assume one-third of costs whereas nontraditional defense contractors and small businesses generally do not have to cost share  From a fairness perspective, these observers argue that traditional contractors should not have a mandatory cost share  These observers also point out that some nontraditional defense contractors are companies with billions of dollars of revenue that should not be granted a competitive cost advantage  Putting traditional defense contractors at a competitive disadvantage could deny DOD access to those companies with the most experience working on defense products, potentially depriving the military of access to leading defense-related research and technology  Other observers argue that the cost share as currently structured is appropriate: traditional defense contractors hold a significant competitive edge in their understanding of, and have the systems in place to manage, traditional contracts  In contrast, nontraditional and small businesses, which generally cannot compete with the traditional defense contractors, need the exemption from the cost-share requirement to be able to work with DOD  These observers also argue that traditional contractors are awarded the majority of dollars obligated to OTs, proving how difficult it is for nontraditional suppliers to break into the defense marketplace  Additionally, traditional contractors could avoid the cost-sharing requirement by teaming with a nontraditional contractor  DOD has not effectively tracked data on cost sharing  A 2017 report to Congress indicated that in FY2016 DOD obligated $1 billion for prototype agreements and received $68 million in cost-share contributions  A CRS review found numerous concerns with the data underlying the report, and with DOD's analytical conclusions  See Appendix C for further discussion  A number of analysts and industry officials have raised concerns that DOD could use OTs to avoid competitions, as OTs are exempt from the Competition in Contracting Act  According to statute, follow-on production using other transaction authority can only be awarded if the underlying R&D agreement was competed  In addition, 10 U S C  2371b states that "to the maximum extent practicable" OTs must be competed  Determining whether OTs are being used to circumvent competition requires a two-step analysis: 1  Are OTs competed less often that traditional contracts? 2  Is there a benefit to these OTs being competed? Available FPDS-NG data suggest that DOD is broadly complying with 10 U S C  2371b's competition mandate  Between FY2013 and FY2017, approximately 89% of all new OT prototype agreements were competed in some fashion  Many observers and analysts believe that OT agreements can be executed substantially faster, sometimes in a matter of weeks, compared to the months or years it typically takes to execute traditional contracts  Based in part on this belief, some officials and analysts are touting OTs as a new model for conducting acquisitions and the answer to many of the problems in defense acquisition  These analysts argue that in a world of increasingly fast technology development, DOD acquisitions must go faster or risk being left behind  Many acquisition professionals argue that OT contracts are not inherently faster than traditional contracting; instead, they are executed faster because they are not encumbered by the reviews, protests, and bureaucratic layers that have been overlaid on traditional contracting  According to these officials, OTs take just as long as traditional contracts if the same execution and oversight processes are applied  And because all terms are negotiable, complex negotiations could make OTs take longer to execute than traditional contracts that have required, nonnegotiable conditions  The Other Transactions Guide states The OT award process will not always be faster than the traditional procurement processes and sometimes can be as long or longer  The speed of award is tied to many factors, many of which are internal to the organization  DOD has not tracked data on the relative time it takes to execute OTs vs  traditional contracts, making it impossible to objectively assess these claims  Analysts and officials generally agree that the workforce plays a critical role in determining the success or failure of an acquisition  Because there are fewer predefined requirements, OTs can be more difficult to negotiate than traditional contracts, putting DOD at greater risk of not getting what it wants at a reasonable price  The complexity and difficulty of negotiations is particularly high when there are intellectual property/patent rights issues, as is the case with most OTs  Given these challenges, OTs often require more experienced and capable government representatives to ensure implementation of agreements that are in the government's best interest  Some analysts question the extent to which the workforce is sufficiently trained and equipped to negotiate OTs  In response to this concern, in the FY2018 NDAA, Congress required workforce education and training for OTs, and required DOD to establish a cadre of intellectual property experts to advise, assist, and provide resources to program offices that are developing intellectual property strategies for contracts and agreements (see Appendix A )  DOD officials acknowledge that more training and education is required  Given the complexity of OTs and the limited extent to which they are used, some analysts and industry officials suggested that there may be a benefit to establishing a centralized office within DOD responsible for executing or overseeing all other transaction agreements  Such a structure could help ensure that those members of the acquisition workforce engaged in other transactions are sufficiently experienced, trained, and qualified  A number of analysts have argued that DOD should take steps to improve its use of OTs  Many of these analysts have suggested that data are not consistently and accurately tracked, regulations and guidance on when and how to use OTs are vague or insufficient, and the workforce is not sufficiently prepared to effectively use OTs  A number of officials have acknowledged these shortcomings and DOD is reportedly taking steps to address them  For example, in December 2018, DOD issued an updated Other Transactions Guide , a comprehensive guide containing best practices, case studies, and a clarification of myths related to other transaction authorities  In addition, Defense Acquisition University developed new course materials addressing OTs and is working to expand its offerings of relevant training and classes  However, numerous acquisition officials question whether it is possible, or even desirable, to try to quickly implement training aimed at preparing the thousands of DOD acquisition officials to execute OTs  Some of these officials have suggested it might be appropriate to only allow a limited and vetted number of acquisition professionals to be OT agreements officers  Some argue that OTs are just one "tool in the tool box," appropriate for only specific types of contracts, and should not be used to avoid the statutory and regulatory framework or to try to accelerate the process just for the sake of speed  Others have suggested that OTs should be used to cut through bureaucracy, speed up the acquisition process, avoid regulations and bid protests, and perhaps eventually supplant the regular FAR-based contracting process  Given the benefits and risks associated with OTs, questions for Congress include the following: 1  To what extent and in what circumstances do the potential benefits of OTs in terms of cost, schedule, and added capabilities outweigh concerns over potential fraud, waste, abuse, diminished oversight, and other public policy objectives? 2  Should OT authorities be extended further, curtailed, or maintained? The FY2019 NDAA required DOD to submit a report annually through 2021, summarizing DOD's use of OTs, including organizations involved; number of transactions; amounts of payments; and purpose, description, and status of projects  The NDAA also required the Defense Innovation Unit to submit a report to Congress, to include the number of traditional and nontraditional defense contractors with DOD contracts or other transactions resulting directly from the unit's initiatives  The conference report for the FY2019 defense appropriations bill included language expressing the conferees' "[concern] with the lack of transparency surrounding the employment of OTA, particularly for follow-on production " The conferees directed DOD to provide quarterly reports to the House and Senate appropriations committees listing each active OT, and to include additional information for each agreement  The conferees also directed GAO to review DOD's use of OTs to determine whether the "employment of this authority conforms to applicable statutes and guidelines, to include the identification of any potential conflicts " GAO was also required to report on the extent to which OTs have been used since FY2016  The multitude of reporting requirements, and the questionable reliability of the available data, raise a number of questions that Congress may wish to explore, such as the following: 1  To what extent, if any, should the current reporting requirements be consolidated to create a more streamlined and consistent flow of information to Congress? 2  What specific data does Congress need in these reports to effectively conduct oversight? For example, what percentage of research OTs result in prototype projects and follow-on production? 3  To what extent are the data sufficiently reliable, and will such data be easily retrievable in the future, to allow Congress to conduct effective, timely, and ongoing oversight? If the data are not sufficiently reliable or accessible in the future, what other data collection and tracking methods could Congress mandate to ensure ongoing access to reliable data? 4  How are OTs being used? Where and when in the acquisition lifecycle is the authority being used? To what extent is the requirements process being circumvented when DOD awards an OT follow-on production contract for a major system? One analyst suggested that "no efficiency is lost if only the most able personnel are authorized to procure and administer" OT agreements and further argued that expanding the use of OTs would increase the training costs by expanding the number of people who can "weave complex agreements in a relatively unstructured environment " Congress may consider whether DOD should establish an acquisition innovation lab or center of excellence responsible for overseeing, executing, and approving all OTs across the department  Such a lab or center could be staffed and supported by a cadre of professionals with experience across the acquisition lifecycle who have a willingness and ability to embrace new ideas and rethink existing practices  Alternatively, such labs or centers could be established in the military departments  Having centers in each organization could allow for consideration of the different missions and business approaches of the departments and help educate the workforce on a more systematic basis  Proponents argue that such an office would help ensure that only experienced and capable officials, with the appropriate training, use OT authorities  Such an office could also help protect against layering internal DOD policies and bureaucracies onto OTs by placing OTs outside of the traditional bureaucratic acquisition process  Proponents could further argue that such an office could better propagate best practices and ensure that OTs are used appropriately and are consistent with guidance and legislation  Having a single office responsible for executing or approving all OTs could also help ensure more timely and accurate information, giving Congress more visibility into DOD's use of other transaction authorities  To the extent that a single, high-level official is responsible for managing and overseeing all OTs, Congress might wish to consider repealing or modifying existing statutory approval requirements  If such an office was able to provide timely and accurate information, Congress might also consider some of the current reporting requirements unnecessary, and may choose to repeal some of the reporting requirements  Opponents of such a proposal argue that centralizing OTs would have the opposite effect, increasing bureaucracy by adding yet another office within DOD  Opponents also argue that such an office could make it more time-consuming to get a project underway and may discourage program offices from attempting or suggesting OTs  Some also argue that a single office may not have the resources to execute and approve agreements in a timely manner, and would inhibit spreading expertise on how to execute OT agreements more broadly across the acquisition workforce  Even proponents who might in theory support establishing such an office could raise significant concerns regarding how such an office would function in practice  A number of alternative options could be pursued to address concerns raised by opponents of establishing a centralized office  Some of these alternative options include the following: Granting such an office primary, but not exclusive, authority to execute OTs  For example, agreement officers specifically authorized to do so could execute OTs, with the centralized office conducting a peer review  Under this construct, the office could also be charged with providing information and expertise/consulting services on the use of OTs to program offices contemplating using the authorities  Establishing centers within each military department, with a designated office in OSD serving a coordinating function (with nondelegable approval authority residing in the military department office designated for OTs)  Creating the office as a pilot program for three years, to help DOD manage OTs until such time as the workforce becomes more experienced and proficient in using these agreements  Appendix A  Legislative History Other transaction authority first appeared in the National Aeronautics and Space Act of 1958  Since then, Congress has extended OT authorities to 11 federal agencies and a number of other federal offices (see Appendix B for information on other federal entities with similar authorities)  This appendix traces the legislative history of OT authorities and select related statutes applicable to DOD  To read the full text of the three statutory provisions related to OTs (10 U S C  2371, 2371b, and 2373), see Appendix D   National Aeronautics and Space Act of 1958 (P L  85-568) Creation of Other Transaction Authority On July 29, 1958 President Dwight D  Eisenhower signed into law the National Aeronautics and Space Act (P L  85-568), which established the National Aeronautics and Space Administration (NASA)  The purpose of the act included the expansion of human knowledge, preservation of the role of the United States as a leader in space science and technology, and pursuing the most effective utilization of the scientific and engineering resources of the United States  Section 203(b)(5) of the Space Act provided NASA the authority (emphasis added) to enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary in the conduct of its work and on such terms as it may deem appropriate, with any instrumentality of the United States     or with any person, firm, association, corporation, or educational institution  To the maximum extent practicable and consistent with the accomplishments of the purpose of this Act, such contracts, leases, agreements, and other transactions shall be allocated by the Administrator in a manner which will enable small-business concerns to participate equitably and proportionately in the conduct of the work of the Administration  Intellectual Property Rights The Space Act specifically addressed NASA's "property rights in inventions " Section 305 stated that any invention made in the performance of any work under any contract is the exclusive property of the United States "unless the Administrator waives all or any part of the rights " This was true even when the person who created the invention "was not employed or assigned to perform research, development, or exploratory work, but the invention is nevertheless related to the contract" and was made during working hours, or with a contribution of the government  The act granted the Administrator wide latitude to "waive all or any part of the rights of the United States under this section" if doing so was deemed to be in the best interests of the United States  When such rights were waived, NASA retained an irrevocable, nonexclusive, nontransferable royalty-free license by or on behalf of the United States  National Defense Authorization Act for FY1990 & FY1991 ( P L  101-189 ) The FY1990 & FY1991 NDAA granted DARPA temporary authority to enter into "cooperative agreements and other transactions" for the purpose of conducting advanced research projects  The statute clarified that OTs should only be used when "the use of standard contracts or grants is not feasible or appropriate " Congress restricted funding for OTs and cooperative agreements to $25 million of appropriated funds for FY1990 and FY1991, and set the authority to expire on September 30, 1991  Cost Sharing The FY1990 & FY1991 NDAA permitted OTs (or cooperative agreements) to include a clause requiring a person or entity to make payments to DOD as a condition of receiving support under the agreement  Such funds were to be merged into an account dedicated to supporting DARPA advanced research projects using cooperative agreements and other transactions  The act required, to the extent practicable, that funds provided by the government not exceed the total amount provided by the other parties to the project  According to the Senate report, one of the intents of the cost-sharing provision was to permit DARPA to "recoup the fruits of such arrangements, when there is a 'dual use' potential for commercial application" and to reinvest the funds to develop other technologies  Reporting Requirements The FY1990 & FY1991 NDAA required DOD to submit an annual report on the use of OTs and cooperative agreements, to include a description of each agreement and the technologies involved, the potential military and commercial utility of the technology, the reasons a contract or grant was not feasible to support the research, and the amount of payments, if any, received by the federal government under the agreement  National Defense Authorization Act for FY1991 ( P L  101-510 ) Section 244 increased the funds authorized for cooperative agreements and OTs from $25 million to $50 million  However, no such funding was appropriated  Reporting and Notification Requirements The conference report required DOD to submit to Congress a report listing the cooperative agreements and consortia intended to be used in FY1991-1992  The conference report also required DOD to provide the armed services and appropriations committees 30 days' notice prior to DOD signing a cooperative agreement or agreement with a consortia under OT authority  The Senate report focused on consortia as a method to pool resources, share research among numerous participants, and promote critical dual-use technology  Department of Defense Appropriations Act, 1992 ( P L  102-172 ) Limitations on the Use of OTs Section 8113A of P L  102-172 placed temporary limitations on the use of agreements undertaken pursuant to 10 U S C  2371: Section 8113A limited the use of OTs and cooperative agreements exclusively to DARPA (to the exclusion of the rest of DOD) for FY1992  Section 8113A limited DARPA to obligating or expending no more than $37 5 million in FY1992 for cooperative agreements or OTs undertaken pursuant to 10 U S C  2371  Section 8113A further established that no more than $75 million could be obligated or expended by DARPA in FY1992 for DOD dual-use critical technology partnerships  National Defense Authorization Act for FY1992 & FY1993 ( P L  102-190 ) Expanded Authority Section 826 extended other transaction authority to the military departments, and established separate fund accounts in each department for cost sharing  Section 826 also repealed the sunset for cooperative agreements and OTs, making the authorities permanent  Section 821 authorized DOD to enter into cooperative and other transaction agreements to develop critical dual-use technologies as set forth in the Defense Critical Technologies Plan  According to the Senate report   

ground_truth: CMS, an agency within the Department of Health and Human Services (HHS), provides health coverage for over 145 million Americans through its four principal programs, with annual outlays of about $1.1 trillion. GAO has designated the two largest programs, Medicare and Medicaid, as high risk partly due to their vulnerability to fraud, waste, and abuse. In fiscal year 2016, improper payment estimates for these programs totaled about $95 billion. GAO's Fraud Risk Framework and the subsequent enactment of the Fraud Reduction and Data Analytics Act of 2015 have called attention to the importance of federal agencies' antifraud efforts. This report examines (1) CMS's approach for managing fraud risks across its four principal programs, and (2) how CMS's efforts managing fraud risks in Medicare and Medicaid align with the Fraud Risk Framework. GAO reviewed laws and regulations and HHS and CMS documents, such as program-integrity manuals. It also interviewed CMS officials and a sample of CMS stakeholders, including state officials and contractors. GAO selected states based on fraud risk and other factors, such as geographic diversity. GAO selected contractors based on a mix of companies and geographic areas served. The approach that the Centers for Medicare & Medicaid Services (CMS) has taken for managing fraud risks across its four principal programs—Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and the health-insurance marketplaces—is incorporated into its broader program-integrity approach. According to CMS officials, this broader program-integrity approach can help the agency develop control activities to address multiple sources of improper payments, including fraud. As the figure below shows, CMS views fraud as part of a spectrum of actions that may result in improper payments. CMS's efforts managing fraud risks in Medicare and Medicaid partially align with GAO's 2015 A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework). This framework describes leading practices in four components: commit , assess , design and implement , and evaluate and adapt . CMS has shown commitment to combating fraud in part by establishing a dedicated entity—the Center for Program Integrity—to lead antifraud efforts. Furthermore, CMS is offering and requiring antifraud training for stakeholder groups such as providers, beneficiaries, and health-insurance plans. However, CMS does not require fraud-awareness training on a regular basis for employees, a practice that the framework identifies as a way agencies can help create a culture of integrity and compliance. Regarding the assess and design and implement components, CMS has taken steps to identify fraud risks, such as by designating specific provider types as high risk and developing associated control activities. However, it has not conducted a fraud risk assessment for Medicare or Medicaid, and has not designed and implemented a risk-based antifraud strategy. A fraud risk assessment allows managers to fully consider fraud risks to their programs, analyze their likelihood and impact, and prioritize risks. Managers can then design and implement a strategy with specific control activities to mitigate these fraud risks, as well as an appropriate evaluation approach consistent with the evaluate and adapt component. By developing a fraud risk assessment and using that assessment to create an antifraud strategy and evaluation approach, CMS could better ensure that it is addressing the full portfolio of risks and strategically targeting the most-significant fraud risks facing Medicare and Medicaid. GAO recommends that CMS (1) provide and require fraud-awareness training to its employees, (2) conduct fraud risk assessments, and (3) create an antifraud strategy for Medicare and Medicaid, including an approach for evaluation. HHS concurred with GAO's recommendations.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.



Report 2:  the United States tends to underinvest in dual-use technologies  National security requirements alone often do not justify major DOD support, and market prospects alone often appear to be too long-term or high risk to justify US industry carrying the entire development burden     The committee encourages use of cooperative agreements and other transactions in lieu of grants or contracts     The provision would require that at least 50 percent of funding over the life of a partnership derive from non-federal sources but would allow for a smaller industry share at the start  The conference report stated that the partnerships should focus on programs that fit into the security needs within DARPA  The conference report also stated that OTs are appropriate for those cases where the "regulations applicable to the allocation of patent and data rights under the procurement statutes may not be appropriate to partnership arrangements in certain cases " National Defense Authorization Act for FY1993 ( P L  102-484 ) Cost Sharing Section 4221 established 10 U S C  2511, which required DOD to establish cooperative arrangements with industry, educational institutions, federal labs, and other entities, to pursue research, development, and application of dual-use technologies  The section authorized DOD to use grants, contracts, cooperative agreements, or OTs to create these partnerships, and that the Federal government should not contribute more than 50% of the costs related to projects under this authority  National Defense Authorization Act for FY1994 ( P L  103-160 ) Expanded Authority Section 827 established 10 U S C  2358, which gave the Secretary of Defense and the Secretaries of the military departments the authority to conduct basic, advanced, and applied research through the use of contracts, cooperative agreements, grants, and OTs  Previously, OTs were only authorized for advanced research  Prototype Authorities Section 845 granted DARPA the authority to use OTs for prototype projects directly related to weapons or weapon systems proposed to be acquired by DOD  Section 845 required that "to the maximum extent practicable," prototypes be competitively awarded  This authority was set to terminate after three years  Section 845 remained as a note to 10 U S C  2371 until separately codified as 10 U S C  2371b in the FY2016 NDAA ( P L  114-92 )  Federal Acquisition Streamlining Act of 1994 ( P L  103-355 ) Section 1301 redesignated the language in 10 U S C  2358 (granting the authority to use OTs) to 10 U S C  2371  Reporting Requirements Section 1301 also required DOD to submit an annual report to the armed services committees, to include a general description of the other transactions, including the technologies involved in the research, the potential military and, if any, commercial utility of such technologies, the reasons for not using a contract or grant to provide support for such research, and the amount of payments, if any, received during the fiscal year pursuant to a clause in the other transactions and to what accounts such payments were credited  National Defense Authorization Act for FY1997 ( P L  104-201 ) Section 203 required that a senior DOD official be designated in OSD, and that the officials' sole responsibility be developing policy related to, and ensuring implementation of, DOD's dual-use technology program  This section authorized DOD to use OTs (as well as contracts, cooperative agreements, and grants) for dual-use projects only if the project "is entered into through the use of competitive procedures " Section 743 granted DOD the authority to use OTs to conduct research on Gulf War Syndrome, to determine its relationship to possible exposures of members of the Armed Forces to chemical warfare agents and hazardous materials, and the use of inoculations and new drugs  Expanded Prototype Authorities Section 804 amended Section 845 of the FY1994 NDAA by extending to the military departments and officials designated by the Secretary of Defense, the authority to use OTs for certain prototype projects  This authority, originally granted solely to DARPA and set to expire after three years, was given a new termination date of September 30, 1999  Reporting Requirements Section 267 modified elements of the annual report to the armed services committees  National Defense Authorization Act for FY1998 ( P L  105-85 ) Section 832 amended 10 U S C  2371 by clarifying that certain information submitted to DOD (i e  a proposal, business plan, technical information) be protected from disclosure pursuant to 5 U S C  552 for a period of five years  Strom Thurmond National Defense Authorization Act for FY1999 ( P L  105-261 ) Section 241 extended the sunset day for the authority to use OTs for prototypes from September 30, 1999, to September 30, 2001  Section 817 amended Section 2371 of Title 10, United States Code, clarifying that information submitted by outside parties in cooperative agreements for basic, applied, and advanced research is protected from disclosure under Section 552 of Title 5, United States Code  Department of Defense Appropriations Act, 1999 ( P L  105-262 ) While the enacted FY1999 defense appropriations bill ( P L  105-262 ) did not include legislative language addressing OTs, H Rept  105-591 , which accompanied the House-reported version of H R  4103 , included language expressing the House Appropriations Committee's "serious reservations" regarding the Air Force's then-proposed use of an OT agreement—instead of a contract— to develop the Evolved Expendable Launch Vehicle (EELV) program  The committee noted that "under [OTs] traditional safeguards which protect the government's interest in large acquisition programs are largely absent," and required the Under Secretary of Defense for Acquisition, Technology, and Logistics (now the Under Secretary of Defense for Acquisition and Sustainment) and the DOD Inspector General to certify to the congressional defense committees that the use of an OT was appropriate for the EELV program, and that "adequate safeguards exist[ed] to protect the government's interest and monitor program performance " National Defense Authorization Act for FY2000 ( P L  106-65 ) Section 801 required that for prototypes using OT authorities, DOD ensure that GAO, under its audit authority, have access to records relating to other transaction prototype agreements exceeding $5 million  Section 801 allowed for a waiver to GAO access and exempted entities that over the last year have not entered into an agreement with DOD that provided for audit access by a government entity  According to the Senate report: Senior DOD officials have sought legislation to extend other transaction authority to production contracts  Under current authority, there is some debate about whether GAO has audit access to other transactions  As the size, costs, and complexity of programs being funded using other transactions increases, the committee wants to ensure that the GAO has audit access in relation to the higher levels of spending and added risks  Reporting Requirements The Senate report also addressed reporting requirements and congressional intent to review the use of OTs  The report stated the following: The committee is assessing the utility of other transaction prototype authority  The statement of managers accompanying the Strom Thurmond National Defense Authorization Act of 1999 directed the Secretary of Defense to report on the use of this authority to the congressional defense committees, no later than March 1, 1999  In addition, both the Department of Defense Inspector General and the General Accounting Office are reviewing the use of other transaction prototype authority and will report to Congress in the coming year  The committee is interested in the extent that new commercial firms are entering the DOD marketplace through the use of other transaction authority, as well as the degree of cost sharing between the government and non-federal government parties  The committee is also interested in any lessons learned from the broad exemptions to federal law provided by other transaction authority  For example, other transactions are exempt from the Competition in Contracting Act, Truth in Negotiations Act, Contract Disputes Act, Antikickback Act of 1986, Procurement Integrity Act, Service Contract Act, Buy American Act, and chapter 137 of title 10, United States Code  Questions have been raised about whether the government's interest is adequately protected in the absence of the applicability of these statutes  Conversely, advocates of the view that the government should take advantage of the flexibility of other transactions have championed proposals to extend other transaction authority to production  The committee directs the Secretary of Defense to provide a new report that updates information in the March 1999 report on the use of other transaction prototype authority to the congressional defense committees by February 1, 2000  National Defense Authorization Act for FY2001 ( P L  106-398 ) Limitations on the Use of OTs Section 803 limited the use of OTs for prototype projects to only those circumstances when at least one nontraditional defense contractor significantly participates in the project, one-third of the total cost of the project is paid out of funds provided by parties to the transaction other than the federal government, or the senior procurement executive determines in writing that exceptional circumstances justify use of an OT  Nontraditional defense contractor was defined as an entity that for a period of one year has not entered into or performed "any contract that is subject to full coverage under the cost accounting standards" or "any other contract in excess of $500,000 to carry out prototype projects or to perform basic, applied, or advanced research projects for a Federal agency, that is subject to the Federal Acquisition Regulation '' Section 803 also extended the authority to use OTs for prototypes from September 30, 2001, to September 30, 2004  According to the Senate report, the intent of using OTs for prototypes is to attract companies that typically do not do business with the Department of Defense and encourage cost sharing and experimentation in potentially more efficient ways of doing business with traditional defense contractors  Other transaction authority is an important acquisition tool that can facilitate the incorporation of commercial technology into military weapon systems  In an environment where, in many areas, commercial technology is now more advanced than defense technology, it is imperative that the Department continue to have the flexibility to use innovative contractual instruments that provide access to this technology  There are, however, improvements that can be made in managing and overseeing these contractual arrangements  Section 804 clarified the extent of GAO's access to records in instances where the party in question has only done business with the government in the preceding year through an OT or cooperative agreement  National Defense Authorization Act for FY2002 ( P L  107-107 ) Expanded Authority—Follow-on Production Section 822 of the FY2002 NDAA granted DOD the authority to award a follow-on production contract for prototype projects when at least one-third of the total cost of the prototype project is to be paid out of funds provided by non-federal government sources  Under this authority, such a follow-on contract could be awarded without competition if the prototype project was successfully completed, the number of units in the production contract does not exceed the number of units specified in the underlying prototype agreement, and the price for each unit does not exceed the price specified in the underlying transaction  Department of Defense and Emergency Supplemental Appropriations for Recovery from and Response to Terrorist Attacks on the United States Act, 2002 ( P L  107-117 ) Establishment of Army Venture Capital Initiative (AVCI) Section 8150 designated $25 million of the FY2002 funds made available for Army Research, Development, Test, and Evaluation (RDT&E) to be made available to the Secretary of the Army for the purpose of funding a venture capital investment corporation established pursuant to 10 U S C  2371  A 2014 RAND report stated that OT authorities were used only to form the AVCI, and were not used to acquire products or services: "While OT authorities were used to form [AVCI] itself, any volume of the Army's purchase of products and services from [AVCI] companies is conducted under the FAR " National Defense Authorization Act for FY2004 ( P L  108-136 ) Expanded Authority Section 847 of the FY2004 NDAA extended the authority to use an OT for developing prototypes to improve weapons or weapon systems currently in use by the Armed Forces  Previously, such authority was restricted to prototypes "directly relevant to weapons or weapon systems proposed to be acquired or developed" by DOD  Section 847 also established a pilot program for transitioning prototypes to follow-on contracts for production for nontraditional defense contractors  Under the pilot program, such a follow-on contract could be treated as a commercial item or an item developed with both federal and private sector funds (for purposes of negotiating intellectual property rights)  The pilot program was restricted to contracts with nontraditional defense contractors, where the value of the contract does not exceed $50 million (approximately $70 million in FY2018 dollars), and that are firm-fixed price or fixed price with economic adjustment  The pilot program was set to sunset September 30, 2008  Section 1441 authorized any agency that engages in basic, applied, or advanced research and development projects that facilitated defense against or recovery from terrorism or nuclear, biological, chemical, or radiological attack to exercise the same general authority given to DOD as found in 10 U S C  2371 (including for prototype projects)  Reporting Requirements Section 1031 sunset the annual reporting requirement for OT after the report covering FY2006 was submitted  National Defense Authorization Act for FY2006 ( P L  109-163 ) Restricted Authority and Notification Requirements Section 212 of the FY2006 NDAA directed the Army to procure the Future Combat System using contract procedures set forth in part 15 of the Federal Acquisition Regulation, in lieu of an OT  Section 823 extended ethics requirements to OT prototype authority and required the congressional defense committees be notified in writing at least 30 days before such authority is exercised  Certification Requirements Section 823 also amended Section 845 of the FY1994 NDAA, requiring a written determination by a senior procurement executive for other transaction prototype projects estimated between $20 million and $100 million, and for a written determination by the Under Secretary of Defense for Acquisition, Technology, and Logistics for prototype projects that exceed $100 million  According to the Senate report: Section 845 was intended to be used for limited prototype projects, particularly those in which the Department seeks to engage nontraditional defense contractors that may be averse to the requirements imposed by a standard Department procurement contract  For this reason, the statement of managers accompanying the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105–261) states: The conferees continue to believe that the section 845 authority should only be used in the exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies  The conferees are especially concerned that such authority not be used to circumvent the appropriate management controls in the standard acquisition and budgeting process  …  The committee does not believe that the $20 9 billion agreement entered between the Army and the Lead Systems Integrator for the FCS program is consistent with the language and intent of section 845 authority  Section 845 authority is intended to be used for limited prototype projects, particularly those in which the Department of Defense seeks to engage nontraditional defense contractors that may be averse to the requirements imposed by a standard Department contract  Department of Defense Appropriations Act, 2007 ( H R  5631 ) Reporting Requirement The FY2007 defense appropriations bill ( P L  109-289 ) did not include language addressing OTs  The conference report ( H Rept  109-676 ) included language expressing the conferees' "[concern] with the continued use of OTA contracts by the Missile Defense Agency," as such contracts "lack the customary safeguards found under FAR-based contracts for organizational conflict of interest, truth in negotiations and submission of cost and pricing data " The conferees "strongly encourage[d]" the Missile Defense Agency to convert "large development and procurement contracts using OTA to FAR-based contracts," and directed the Missile Defense Agency to submit a report to the congressional defense committees on the use of OTs, to include the number, value, and justification for the use of such agreements  National Defense Authorization Act for FY2008 ( P L  110-181 ) Section 823 extended the authority for prototype projects for five more years, from September 30, 2008, to September 30, 2013  National Defense Authorization Act for FY2009 ( P L  110-417 ) Section 822 required DOD to issue guidance on rights in technical data under non-FAR agreements, including OTs  Section 822 also required that appropriate provisions relating to rights in technical data be included in non-FAR agreements, consistent with policy guidance  This requirements is in statute at 10 U S C  2320 note  Section 824 expanded the scope of the pilot program for transition to follow-on contracts for certain prototype projects to include research projects carried out under 10 U S C  2371  Authority to use the pilot program, set to expire September 30, 2008, was extended to September 30, 2010  Section 874 required OT data be included in the Federal Procurement Data System  National Defense Authorization Act for FY2011 ( P L  111-383 ) Section 866 changed the definition of nontraditional defense contractor, conforming the definition to that found in 10 U S C  2302(9)  National Defense Authorization Act for FY2013 ( P L  112-239 ) Section 863 extended the authority for using OTs for prototype projects from September 30, 2013, to September 30, 2018  Carl Levin and Howard P  "Buck" McKeon National Defense Authorization Act for FY2015 ( P L  113-291 ) Expanded Authority Section 812 expanded the authority to use OT for prototypes, to include those "directly related to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to improvement of platforms, systems, components, or materials in use by the Armed Forces " Prior to the FY2015 NDAA, OTs could only be used for prototypes relating to weapons or weapon systems proposed to be developed, or for the improvement of weapons or weapon systems currently in use  Reporting Requirements Section 1071 repealed the reporting requirement language found in 10 U S C  2371, relating to OTs for research projects  National Defense Authorization Act for FY2016 ( P L  114-92 ) Until the FY2016 NDAA, the prototyping and follow-on production authority established in Section 845 of the FY1994 NDAA (as amended) was found in 10 U S C  2371 note  Section 815 of the FY2016 NDAA simultaneously repealed Section 845 of the FY1994 NDAA and put the repealed language into the newly created 10 U S C  2371b  The FY2016 NDAA also modified 2371b by making the authority permanent  Expanded Authority and Small Business The authorities in Section 2371b were expanded to allow their use when "all significant participants in the transaction other than the Federal government are small businesses or nontraditional contractors" and when the agency determines that using an OT would expand the defense supply base in a manner that could not be accomplished through a contract  Section 815 eased the restriction on follow-on production contracts or transactions  Section 815 amended the definition of a nontraditional defense contractor found in 10 U S C  2302 to be an entity that is not currently performing, and for one year prior to an OT has not performed on any contract or subcontract that is subject to full coverage under the cost accounting standards pursuant to Section 1502 of Title 41, U S C  Section 815 also required DOD to update its guidance to reflect changes in the statute  The conference report stated that Congress believed OTs are an attractive option for firms and organizations that do not usually participate in government contracting due to typical overhead burdens and the "one size fits all" rules governing defense acquisition  The report also stated that OTs could support DOD's effort to access new sources of technological innovation, specifically with Silicon Valley startup firms and small commercial firms  National Defense Authorization Act for FY2018 ( P L  115-91 ) Expanded Authority Section 216 of the FY2018 NDAA authorized nonprofit research institutions to enter into OTs with DOD for prototype projects  Section 862 amended 10 U S C  2358, granting the Secretary of Defense and the military departments the authority to pursue basic research, applied research, advanced research, and development projects under the OT authorities granted in Sections 2371 and 2371b of Title 10  Workforce Section 802 required DOD to establish a cadre of intellectual property experts to advise, assist, and provide resources to program offices who are developing intellectual property strategies for contracts and agreements  Section 863 required training and education for personnel involved in OTs and other innovative contracting methods  Certification Requirements and Small Business Section 864 adjusted the language of the statute to state that the dollar threshold relates to the specific transaction for a prototype project and not for the value of the entire project  Section 864 defined a transaction for follow-on production to include "all individual prototype sub-projects awarded under the transaction to a consortium of United States industry and academic institutions " Section 864 also increased the dollar thresholds for required approvals and defined the term small business to include small businesses under Section 9 of the Small Business Act to ensure that companies participating in the Small Business Innovation Research and Small Business Technology Transfer programs were considered small businesses for the purposes of the cost-sharing requirements  Miscellaneous Section 867 required the Secretary of Defense to establish a preference for OTs in the "execution of science and technology and prototyping programs " Section 1711 required DOD to carry out a pilot program to "assess the feasibility and advisability of increasing the manufacturing capability of the defense industrial base " Pursuant to the pilot, Section 1711 authorized DOD to use OTs to support production capabilities in small and medium-sized manufacturers  John S  McCain National Defense Authorization Act for FY2019 ( P L  115-232 ) Section 211 of the FY2019 NDAA clarified that follow-on production of a prototype or subproject within a consortium may occur if the individual prototype or subproject is complete; all projects associated with the consortium do not need to be completed before follow-on production of a specific prototype  Expanded Authority The FY2019 NDAA authorized the use of OTs to develop enhanced personal protective equipment (Section 226) and to carry out research under the Explosive Ordnance Disposal Defense Program (Section 311)  Reporting Requirements Section 244 required the Defense Innovation Unit to submit a report to Congress, to include the number of traditional and nontraditional defense contractors with DOD contracts or other transactions resulting directly from the unit's initiatives  Section 873 required DOD to submit an annual report through 2021, summarizing DOD's use of OTs, including organizations involved; number of transactions; amounts of payments; and purpose, description, and status of projects  Department of Defense Appropriations Act, 2019 ( P L  115-245 ) Reporting Requirements While the enacted FY2019 defense appropriations bill did not include legislative language addressing OTs, the conference report included language expressing the conferees' "[concern] with the lack of transparency surrounding the employment of OTA, particularly for follow-on production " The conferees directed DOD to provide quarterly reports to the House and Senate appropriations committees listing each active OT, and to include the following information on each agreement: funding military service or DOD component; major command (if applicable); contracting activity; appropriation title; budget line item; minimum and maximum award value; vendor; obligations and expenditures to date; product service code; period of performance; and indication if the OT agreement included an option for follow-on production (with a description of the scope of anticipated follow-on production)  The conferees also directed GAO to review DOD's use of OTs to determine whether the "employment of this authority conforms to applicable statutes and guidelines, to include the identification of any potential conflicts " GAO was also required to report on the extent to which OTs have been used since FY2016  Notification Requirements The House report to accompany H R  6157 acknowledged OTs as an "important tool to provide flexibility and agility for cutting-edge research and development projects and prototypes " However, the report stated its concern "with the lack of transparency on the use of OTA authority for follow-on production procurements," and directed that no funds could be obligated or expended for a follow-on production contract or a transaction carried out under 10 U S C  2371b, until 30 days after the Secretary of Defense provides the congressional defense committees with a notification of the proposed contract or transaction, to include a justification of why an OT is being used for production  Appendix B  Non-DOD Federal Agencies with Agency-Wide OT or Related Authorities A number of agencies have varying other transaction or similar authorities, as reflected in Table B-1   The table below is not a comprehensive or definitive listing of every federal government entity with OT or related authorities  In some instances, offices, agencies, commissions, and other federal government entities have OT or related authorities that are only associated with certain programs or projects, such as the National Institutes of Health (which has OT authority for such specific activities such as the National Heart, Blood Vessel, Lung, and Blood Diseases and Blood Resources Program [42 U S C  §285b-3] and the Cures Acceleration Network [42 U S C  §287a])  Appendix C  Reliability of Data on Other Transactions All data have imperfections and limitations  FPDS-NG data can be used to identify broad trends and produce rough estimates, or to gather information about specific contracts  Some observers say that despite their shortcomings, FPDS-NG data are substantially more comprehensive than what is available in most other countries in the world  Understanding the limitations of government procurement data—including knowing when, how, and to what extent to rely on data—can help policymakers incorporate FPDS-NG data more effectively into their decisionmaking process  FPDS-NG OT Data Quality and Accuracy Issues Decisionmakers should be cautious when using data from FPDS-NG to develop policy or otherwise draw conclusions, especially with respect to OTs  In some cases, the data themselves may not be reliable  In other instances, a query for particular data may return differing results, depending on the parameters and timing of the analysis  In particular, all DOD data entered into FPDS-NG are subject to a 90-day delay, and updates to "data, including new actions, modifications, and corrections are made on a regular basis," which could result in changes to "data     for current and/or prior fiscal years " Inconsistencies in FPDS-NG Data Within FPDS-NG, two primary collections of obligation data exist: one associated with standard government procurement contracts or modifications to such contracts, and the other associated with prototype OT agreements or modifications to such agreements  FPDS-NG's collection of prototype OT data allows for the input of additional data elements—such as nongovernment dollars associated with cost-share prototype OT agreements—not included in FPDS-NG's collection of standard government procurement contract data  More consequentially, FPDS-NG's prototype OT data include two similar data elements that allow users to identify the fiscal year a prototype OT agreement was signed or modified  One, labeled in the database as "Fiscal Year," appears to allow users entering data into the system to manually assign a fiscal year to a transaction  FPDS-NG users entering data into the system appear to have interpreted this data element in various, conflicting ways  For example, a Department of the Air Force OT agreement was signed in February 2016 for the development of rocket propulsion system prototypes under the Evolved Expendable Launch Vehicle (EELV) program  FPDS-NG records an obligation of $115 million in FY2020 for this agreement  Fiscal law bars DOD from obligating money now for future fiscal years that have not yet occurred  The second, labeled "Contract Fiscal Year," appears to be based on the date the prototype OT agreement was signed or modified  See Table C-1 for a comparison of the "Fiscal Year" and "Contract Fiscal Year" elements for selected new prototype OT agreements signed between FY2013 and FY2017  If a user selects the Fiscal Year data element when attempting to review high-level data on recent trends in the use of prototype OT agreements within DOD—such as the total amount obligated for prototype OT agreements on an annual basis—that user will obtain a substantially different result than if he or she selects the Contract Fiscal Year data element for a similar analysis  See Table C-2 for a comparison of action obligations and nongovernment contributions using the Fiscal Year and Contract Fiscal Year data elements for new prototype OT agreements signed between FY2013 and FY2017  DOD OT Data Analysis Methodological Issues in Congressional Reports A March 2017 report to Congress entitled "An Assessment of Cost-Sharing in Other Transaction Agreements for Prototype Projects," completed by the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics indicated that In FY2016, DOD obligated (Note: Two outliers in 2016 excluded) $1 billion in section 2371b awards and received $68 million in cost-share contributions after excluding two significant trend outliers  DOD cited FPDS-NG as the source for its analysis, and defined the "significant trend outliers" excluded as "two $40 million OTAs with total cost-share of $270 million," likely referring to two DARPA prototype OT agreements conducted on a cost-share basis initiated in FY2016  However, a CRS analysis of the same FPDS-NG data identified numerous inconsistencies in DOD's methodological approach  Recreation of DOD Methodology Specifically, DOD appears to have conducted its analysis using the "Fiscal Year" data element referenced in this report's discussion of FPDS-NG OT data quality and accuracy issues, which would attribute some prototype OT activities to the wrong fiscal year for the purposes of comparative trend analysis  DOD also compared two disparate transaction types: the reported "$1 billion in Section 2371b awards" includes all action obligations associated with ongoing prototype OT activities in FY2016, including transactions associated with prototype OT indefinite delivery contracts, while the "$68 million in cost-share contributions" includes only cost-share contributions associated with new prototype OT agreements  If DOD used the "Contract Fiscal Year" data element, excluded the identified "trend outliers," and focused on all action obligations and cost-share contributions associated with ongoing prototype OT activities, it would have found instead that the department obligated $1 4 billion for prototype OT agreements in FY2016, with an additional $313 5 million in cost-share contributions from the private sector  On the other hand, if DOD used the "Contract Fiscal Year" data element, excluded the identified "trend outliers," and focused on only action obligations and cost-share contributions associated with new prototype OT agreements, it would have found instead that the department obligated $400 million for prototype OT agreements in FY2016, with an additional $272 1 million in cost-share contributions from the private sector  Appendix D  Other Transaction Authority Statutes 10 U S C  §2371  Research projects: transactions other than contracts and grants (a) ADDITIONAL FORMS OF TRANSACTIONS AUTHORIZED — The Secretary of Defense and the Secretary of each military department may enter into transactions (other than contracts, cooperative agreements, and grants) under the authority of this subsection in carrying out basic, applied, and advanced research projects  The authority under this subsection is in addition to the authority provided in Section 2358 of this title to use contracts, cooperative agreements, and grants in carrying out such projects  (b) EXERCISE OF AUTHORITY BY SECRETARY OF DEFENSE — In any exercise of the authority in subsection (a), the Secretary of Defense shall act through the Defense Advanced Research Projects Agency or any other element of the Department of Defense that the Secretary may designate  (c) ADVANCE PAYMENTS — The authority provided under subsection (a) may be exercised without regard to Section 3324 of Title 31  (d) RECOVERY OF FUNDS — (1) A cooperative agreement for performance of basic, applied, or advanced research authorized by Section 2358 of this title and a transaction authorized by subsection (a) may include a clause that requires a person or other entity to make payments to the Department of Defense or any other department or agency of the Federal Government as a condition for receiving support under the agreement or other transaction  (2) The amount of any payment received by the Federal Government pursuant to a requirement imposed under paragraph (1) may be credited, to the extent authorized by the Secretary of Defense, to the appropriate account established under subsection (f)  Amounts so credited shall be merged with other funds in the account and shall be available for the same purposes and the same period for which other funds in such account are available  (e) CONDITIONS — (1) The Secretary of Defense shall ensure that- (A) to the maximum extent practicable, no cooperative agreement containing a clause under subsection (d) and no transaction entered into under subsection (a) provides for research that duplicates research being conducted under existing programs carried out by the Department of Defense; and (B) to the extent that the Secretary determines practicable, the funds provided by the Government under a cooperative agreement containing a clause under subsection (d) or a transaction authorized by subsection (a) do not exceed the total amount provided by other parties to the cooperative agreement or other transaction  (2) A cooperative agreement containing a clause under subsection (d) or a transaction authorized by subsection (a) may be used for a research project when the use of a standard contract, grant, or cooperative agreement for such project is not feasible or appropriate  (f) SUPPORT ACCOUNTS — There is hereby established on the books of the Treasury separate accounts for each of the military departments and the Defense Advanced Research Projects Agency for support of research projects and development projects provided for in cooperative agreements containing a clause under subsection (d) and research projects provided for in transactions entered into under subsection (a)  Funds in those accounts shall be available for the payment of such support  (g) EDUCATION AND TRAINING —The Secretary of Defense shall— (1) ensure that management, technical, and contracting personnel of the Department of Defense involved in the award or administration of transactions under this section or other innovative forms of contracting are afforded opportunities for adequate education and training; and (2) establish minimum levels and requirements for continuous and experiential learning for such personnel, including levels and requirements for acquisition certification programs  (h) REGULATIONS — The Secretary of Defense shall prescribe regulations to carry out this section  (i) Protection of Certain Information From Disclosure -(1) Disclosure of information described in paragraph (2) is not required, and may not be compelled, under Section 552 of Title 5 for five years after the date on which the information is received by the Department of Defense  (2)(A) Paragraph (1) applies to information described in subparagraph (B) that is in the records of the Department of Defense if the information was submitted to the Department in a competitive or noncompetitive process having the potential for resulting in an award, to the party submitting the information, of a cooperative agreement for performance of basic, applied, or advanced research authorized by Section 2358 of this title or another transaction authorized by subsection (a)  (B) The information referred to in subparagraph (A) is the following: (i) A proposal, proposal abstract, and supporting documents  (ii) A business plan submitted on a confidential basis  (iii) Technical information submitted on a confidential basis  10 U S C  §2371b  Authority of the Department of Defense to carry out certain prototype projects (a) AUTHORITY — (1) Subject to paragraph (2), the Director of the Defense Advanced Research Projects Agency, the Secretary of a military department, or any other official designated by the Secretary of Defense may, under the authority of Section 2371 of this title, carry out prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to improvement of platforms, systems, components, or materials in use by the armed forces  (2) The authority of this section- (A) may be exercised for a transaction (for a prototype project) that is expected to cost the Department of Defense in excess of $100,000,000 but not in excess of $500,000,000 (including all options) only upon a written determination by the senior procurement executive for the agency as designated for the purpose of Section 1702(c) of Title 41, or, for the Defense Advanced Research Projects Agency or the Missile Defense Agency, the director of the agency that- (i) the requirements of subsection (d) will be met; an d (ii) the use of the authority of this section is essential to promoting the success of the prototype project; and (B) may be exercised for a transaction (for a prototype project) that is expected to cost the Department of Defense in excess of $500,000,000 (including all options) only if- (i) the Under Secretary of Defense for Acquisition, Technology, and Logistics determines in writing that- (I) the requirements of subsection (d) will be met; an d (II) the use of the authority of this section is essential to meet critical national security objectives; and (ii) the congressional defense committees are notified in writing at least 30 days before such authority is exercised  (3) The authority of a senior procurement executive or director of the Defense Advanced Research Projects Agency or Missile Defense Agency under paragraph (2)(A), and the authority of the Under Secretary of Defense for Acquisition, Technology, and Logistics under paragraph (2)(B), may not be delegated  (b) EXERCISE OF AUTHORITY — (1) Subsections (e)(1)(B) and (e)(2) of such Section 2371 shall not apply to projects carried out under subsection (a)  (2) To the maximum extent practicable, competitive procedures shall be used when entering into agreements to carry out projects under subsection (a)  (c) COMPTROLLER GENERAL ACCESS TO INFORMATION — (1) Each agreement entered into by an official referred to in subsection (a) to carry out a project under that subsection that provides for payments in a total amount in excess of $5,000,000 shall include a clause that provides for the Comptroller General, in the discretion of the Comptroller General, to examine the records of any party to the agreement or any entity that participates in the performance of the agreement  (2) The requirement in paragraph (1) shall not apply with respect to a party or entity, or a subordinate element of a party or entity, that has not entered into any other agreement that provides for audit access by a Government entity in the year prior to the date of the agreement  (3) (A) The right provided to the Comptroller General in a clause of an agreement under paragraph (1) is limited as provided in subparagraph (B) in the case of a party to the agreement, an entity that participates in the performance of the agreement, or a subordinate element of that party or entity if the only agreements or other transactions that the party, entity, or subordinate element entered into with Government entities in the year prior to the date of that agreement are cooperative agreements or transactions that were entered into under this section or Section 2371 of this title  (B) The only records of a party, other entity, or subordinate element referred to in subparagraph (A) that the Comptroller General may examine in the exercise of the right referred to in that subparagraph are records of the same type as the records that the Government has had the right to examine under the audit access clauses of the previous agreements or transactions referred to in such subparagraph that were entered into by that particular party, entity, or subordinate element  (4) The head of the contracting activity that is carrying out the agreement may waive the applicability of the requirement in paragraph (1) to the agreement if the head of the contracting activity determines that it would not be in the public interest to apply the requirement to the agreement  The waiver shall be effective with respect to the agreement only if the head of the contracting activity transmits a notification of the waiver to Congress and the Comptroller General before entering into the agreement  The notification shall include the rationale for the determination  (5) The Comptroller General may not examine records pursuant to a clause included in an agreement under paragraph (1) more than three years after the final payment is made by the United States under the agreement  (d) APPROPRIATE USE OF AUTHORITY — (1) The Secretary of Defense shall ensure that no official of an agency enters into a transaction (other than a contract, grant, or cooperative agreement) for a prototype project under the authority of this section unless one of the following conditions is met: (A) There is at least one nontraditional defense contractor or nonprofit research institution participating to a significant extent in the prototype project  (B) All significant participants in the transaction other than the Federal Government are small businesses (including small businesses participating in a program described under Section 9 of the Small Business Act (15 U S C  638)) or nontraditional defense contractors  (C) At least one third of the total cost of the prototype project is to be paid out of funds provided by sources other than other than the Federal Government  (D) The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract, or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract  (2) (A) Except as provided in subparagraph (B), the amounts counted for the purposes of this subsection as being provided, or to be provided, by a party to a transaction with respect to a prototype project that is entered into under this section other than the Federal Government do not include costs that were incurred before the date on which the transaction becomes effective  (B) Costs that were incurred for a prototype project by a party after the beginning of negotiations resulting in a transaction (other than a contract, grant, or cooperative agreement) with respect to the project before the date on which the transaction becomes effective may be counted for purposes of this subsection as being provided, or to be provided, by the party to the transaction if and to the extent that the official responsible for entering into the transaction determines in writing that- (i) the party incurred the costs in anticipation of entering into the transaction; and (ii) it was appropriate for the party to incur the costs before the transaction became effective in order to ensure the successful implementation of the transaction  (e) Definitions —In this section: (1) The term "nontraditional defense contractor" has the meaning given the term under Section 2302(9) of this title  (2) The term "small business" means a small business concern as defined under Section 3 of the Small Business Act (15 U S C  632)  (f) FOLLOW-ON PRODUCTION CONTRACTS OR TRANSACTIONS — (1) A transaction entered into under this section for a prototype project may provide for the award of a follow-on production contract or transaction to the participants in the transaction  A transaction includes all individual prototype subprojects awarded under the transaction to a consortium of United States industry and academic institutions  (2) A follow-on production contract or transaction provided for in a transaction under paragraph (1) may be awarded to the participants in the transaction without the use of competitive procedures, notwithstanding the requirements of Section 2304 of this title, if - (A) competitive procedures were used for the selection of parties for participation in the transaction; and (B) the participants in the transaction successfully completed the prototype project provided for in the transaction  (3) Contracts and transactions entered into pursuant to this subsection may be awarded using the authority in subsection (a), under the authority of Chapter 137 of this title, or under such procedures, terms, and conditions as the Secretary of Defense may establish by regulation  (g) AUTHORITY TO PROVIDE PROTOTYPES AND FOLLOW-ON PRODUCTION ITEMS AS GOVERNMENT-FURNISHED EQUIPMENT — An agreement entered into pursuant to the authority of subsection (a) or a follow-on contract or transaction entered into pursuant to the authority of subsection (f) may provide for prototypes or follow-on production items to be provided to another contractor as Government-furnished equipment  (h) APPLICABILITY OF PROCUREMENT ETHICS REQUIREMENTS — An agreement entered into under the authority of this section shall be treated as a Federal agency procurement for the purposes of Chapter 21 of Title 41  10 U S C  §2373  Procurement for experimental purposes (a) AUTHORITY — The Secretary of Defense and the Secretaries of the military departments may each buy ordnance, signal, chemical activity, transportation, energy, medical, space-flight, and aeronautical supplies, including parts and accessories, and designs thereof, that the Secretary of Defense or the Secretary concerned considers necessary for experimental or test purposes in the development of the best supplies that are needed for the national defense  (b) PROCEDURES — Purchases under this section may be made inside or outside the United States and by contract or otherwise  Chapter 137 of this title applies only when such purchases are made in quantities greater than necessary for experimentation, technical evaluation, assessment of operational utility, or safety or to provide a residual operational capability 
Report 2: " It added that its reliance on an ad hoc approach "scrutinizing the limited number of specific industries during a year, while worthwhile, leaves unexamined many deserving industries for updating and may create over time a set of illogical size standards " The SBA announced that it would begin its analysis of its size standards by assuming that "$6 5 million [later increased to $7 5 million] is an appropriate size standard for those industries with receipts size standards and 500 employees for those industries with employee size standards " It would then analyze the following industry characteristics: "average firm size; average asset size (a proxy for startup costs); competition, as measured by the market share of the four largest firms in the industry; and, the distribution of market share by firm size—that is, are firms in the industry generally very small firms, or dominated by very large firms " Then, before making its final determination on the size standard, it would "examine the participation of small businesses in federal contracting and SBA's guaranteed loan program at the current size standard level  Depending on the level of small business participation, additional consideration may be given to the level of the current size standard and the analysis of industry factors " In April 2009, the SBA announced that was simplifying the administration and use of its size standards by reducing the number of receipts based size standards from 31 to 8 when establishing a new size standard or reviewing an existing size standard: For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992))  At the start of current comprehensive size standards review, there were 31 different levels of receipts based size standards  They ranged from $0 75 million to $35 5 million, and many of them applied to one or only a few industries  The SBA believes that to have so many different size standards with small variations among them is unnecessary and difficult to justify analytically  To simplify managing and using size standards, SBA proposes that there be fewer size standard levels  This will produce more common size standards for businesses operating in related industries  This will also result in greater consistency among the size standards for industries that have similar economic characteristics  Under the current comprehensive size standards review, SBA is proposing to establish eight "fixed-level" receipts based size standards: $5 0 million, $7 0 million, $10 0 million, $14 0 million, $19 0 million, $25 5 million, $30 0 million, and $35 5 million  These levels are established by taking into consideration the minimum, maximum and the most commonly used current receipts based size standards  These eight receipts based size standards were increased to $5 5 million, $7 5 million, $11 0 million, $15 0 million, $20 5 million, $27 5 million, $32 5 million, and $38 5 million in 2014 to account for inflation  The SBA also announced that it would use eight employee based size standards when establishing a new size standard or reviewing an existing size standard (no more than 50, 100, 150, 200, 250, 500, 750, and 1,000 employees) instead of seven (no more than 50, 100, 150, 500, 750, 1,000, and 1,500 employees); and continue to use one asset based size standard, one megawatt hours size standard (based on electrical output over the preceding fiscal year), and one size standard based on a combination of the number of employees and barrel per day refining capacity  The SBA also announced that "to simplify size standards further" it "may propose a common size standard for closely related industries " The SBA argued although the size standard analysis may support a separate size standard for each industry, SBA believes that establishing different size standards for closely related industries may not always be appropriate  For example, in cases where many of the same businesses operate in the same multiple industries, a common size standard for those industries might better reflect the Federal marketplace  This might also make size standards among related industries more consistent than separate size standards for each of those industries  Because SBA size standards remain in force until after they are reviewed, the number of size standards did not immediately drop from 41 to 19 in 2009  Instead, the number of size standards began to decline gradually as new size standard final rules were issued  In addition, from 2010 through 2016, the SBA decided, in most instances, not to lower size standards (which would have made it more difficult for businesses to qualify) even if the data supported lowering them because unemployment at that time was relatively high and doing so would "run counter to numerous Congressional and Administration's initiatives and programs to create jobs and boost economic growth " As a result of this policy decision, several size standards that would have otherwise been eliminated remained in place  Also, in 2016, the SBA added a new employee based size standard (no more than 1,250 employees) and reinstated the use of another (no more than 1,500 employees) when establishing a new, or revising an existing, size standard  The SBA's decisions in 2009 to reduce the number of receipts based size standards and to propose a common size standard for closely related industries were opposed by some industry groups  They argued that these policies could lead to the SBA to classify an industry "for the sake of convenience" into a size standard that the agency's own economic analysis indicates should be in a different (easier to qualify) size standard  Congress adopted legislation in 2013 ( P L  112-239 , National Defense Authorization Act for Fiscal Year 2013) that included provisions directing the SBA not to limit the number of size standards and to assign the appropriate size standard to each NAICS industrial classification  The SBA currently has 27 SBA industry size standards in effect (16 receipts based size standards, 9 employee based sized standards, 1 asset based size standard, and 1 size standard based on a combination of the number of employees and barrel per day refining capacity)  That number is expected to increase given the SBA's directive not to limit the number of size standards  As mentioned previously, P L  111-240 requires the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards during the 18-month period beginning on the date of enactment (September 27, 2010) and during every 18-month period thereafter  The act directs the SBA to "make appropriate adjustments to the size standards" to reflect market conditions, and to report to the House Committee on Small Business and the Senate Committee on Small Business and Entrepreneurship and make publicly available "not later than 30 days" after the completion of each review information regarding the factors evaluated as part of each review, the criteria used for any revised size standard, and why the SBA did, or did not, adjust each size standard that was reviewed  The act also requires the SBA to ensure that each industry size standard is reviewed at least once every five years  On July 7, 2011, the SBA announced that its "comprehensive review of all small business size standards" would begin with the following six industries: Educational Services (final rule was issued on September 24, 2012); Health Care and Social Assistance Services (final rule was issued on September 24, 2012); Real Estate Rental and Leasing (final rule was issued on September 24, 2012); Administrative and Support, Waste Management and Remediation Services (final rule was issued on December 6, 2012); Information (final rule was issued on December 6, 2012); and Utilities (final rule was issued on December 23, 2013)  The SBA subsequently completed size standard reviews for all industries in January 2016 (listed by when the final rule was issued): Professional, Scientific and Technical Services (final rule was issued on February 24, 2012); Transportation and Warehousing (final rule was issued on February 24, 2012); Agriculture, Forestry, Fishing and Hunting (final rule was issued on June 20, 2013); Arts, Entertainment, and Recreation (final rule was issued on June 20, 2013); Finance and Insurance (final rule was issued on June 20, 2013); Management of Companies (final rule was issued on June 20, 2013); Support Activities for Mining (final rule was issued on June 20, 2013); Construction (final rule was issued on December 23, 2013); Wholesale Trade (final rule was issued on January 25, 2016); Industries with Employee Based Size Standards not Part of Manufacturing, Wholesale Trade, or Retail Trade (final rule was issued on January 26, 2016); and Manufacturing (final rule was issued on January 26, 2016)  A summary of the final rules issued for each industry is provided in Table A-1   During the first five-year review cycle, the SBA increased 621 size standards, decreased 3 (to exclude potentially dominant firms from being considered small), and retained 388 at their pre-existing levels  Of the 388 retained size standards, 214 were retained based on the results of the SBA's economic analysis and 174 were retained based on the SBA's policy of generally not lowering any size standard, even though the results of the economic analysis supported lowering them, due to national economic conditions  The SBA has started its second five-year review of its size standards and anticipates issuing its first final rules in the second five-year review cycle in 2019, using new size standard methodology announced in April 2018 (discussed in the next section)  The SBA also announced in April 2018 that its policy of generally not lowering size standards when the analysis indicates that a lower standard is justified would no longer be in force, at least initially, during the second five-year review cycle: the decision to raise, lower, or retain a size standard will primarily be driven by analytical results, with due considerations of public comments, impacts of changes on the affected businesses, and other factors SBA considers important  All of these decisions will be detailed in individual rulemakings  It will take several years to complete the five-year review of all size standards … during which the state of the economy may change  It is, therefore, not possible to state now … what impact, if any, the future economic environment would have on the SBA's policy decision regarding size standards  As mentioned earlier, the SBA, relying on statutory language, defines a small business as a concern that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis  The business may be a sole proprietorship, partnership, corporation, or any other legal form  The SBA uses two measures to determine if a business is small: industry specific size standards or a combination of the business's net worth and net income  For example, the SBA's Small Business Investment Company (SBIC) program allows businesses to qualify as small if they meet the SBA's size standard for the industry in which the applicant is primarily engaged, or an alternative net worth and net income based size standard which has been established for the SBIC program  The SBIC's alternative size standard is currently set as a maximum net worth of not more than $19 5 million and average after-tax net income for the preceding two years of not more than $6 5 million  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  The SBA decided to apply the net worth and net income measures to the SBIC program "because investment companies evaluate businesses using these measures to decide whether or not to make an investment in them " Businesses participating in the SBA's 504/Certified Development Company (504/CDC) loan guaranty program are to be deemed small if they did not have a tangible net worth in excess of $8 5 million and did not have an average net income in excess of $3 million after taxes for the preceding two years  As discussed below, P L  111-240 increased these threshold amounts on an interim basis to not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes for the two full fiscal years before the date of the application  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  Also, before May 5, 2009, businesses participating in the SBA's 7(a) loan guaranty program, including its express programs, were deemed small if they met the SBA's size standards for firms in the industries described in NAICS  Using authority provided under P L  111-5 , the American Recovery and Reinvestment Act of 2009, the SBA temporarily applied the 504/CDC program's size standards as an alternative for 7(a) loans approved from May 5, 2009, through September 30, 2010  Firms applying for a 7(a) loan during that time period qualified as small using either the SBA's industry size standards or the 504/CDC program's size standard  The provision's intent was to enhance the ability of small businesses to access the capital necessary to create and retain jobs during the economic recovery  P L  111-240 made the use of alternative size standards for the 7(a) program permanent  The act directs the SBA to establish an alternative size standard for both the 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards  The act also establishes, until the date on which the alternative size standard is established, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application  The SBA Administrator has the authority to establish and modify size standards for particular industries  Overall, about 97% of all employer firms qualify as small under the SBA's size standards  These firms account for about 30% of industry receipts  The SBA generally "prefers to use average annual receipts as a size measure because it measures the value of output of a business and can be easily verified by business tax returns and financial records " However, historically, the SBA has used the number of employees to determine if manufacturing and mining companies are small  Before a proposed change to the size standards can take effect, the SBA's Office of Size Standards (OSS) undertakes an analysis of the change's likely impact on the affected industry, focusing on the industry's overall degree of competition and the competitiveness of the firms within the industry  The analysis includes an assessment of the following four economic factors: "average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms " The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors "as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses " The specifics of SBA's size standards methodology have evolved over the years with the availability of new industry and federal procurement data and staff research  For example, the SBA previously presumed less than $7 0 million (increased to less than $7 5 million in 2014 to account for inflation) as an appropriate "anchor" size standard for the services, retail trade, construction, and other industries with receipts based size standards; 500 or fewer employees as an appropriate anchor size standard for the manufacturing, mining and other industries with employee based size standards; and 100 or fewer employees as an appropriate anchor size standard for the wholesale trade industries  These three anchor size standards were used as benchmarks or starting points for the SBA's economic analysis  To the extent an industry displayed "differing industry characteristics," a size standard higher, or in some cases lower, than an anchor size standard was used  In April 2018, the SBA replaced the "anchor" approach with a "percentile" approach, primarily because the anchors were no longer representative of the size standards being used (just 24% of industries with receipt-based size standards and 22% of those with employee based size standards have the anchor size standards) and the anchor approach entails "grouping industries from different NAICS sectors thereby making it inconsistent with section 3(a)(7) of the [Small Business] Act," which limits the SBA's ability to create common size standards by grouping industries below the 4-digit NAICS level  Specifically, when assessing the appropriateness of the current size standards, the SBA now evaluates the structure of each industry in terms of four economic characteristics or factors, namely average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms using the Gini coefficient  For each size standard type     SBA ranks industries both in terms each of the four industry factors and in terms of the existing size standard and computes the 20 th percentile and 80 th percentile values for both  SBA then evaluates each industry by comparing its value for each industry factor to the 20 th percentile and 80 th percentile values for the corresponding factor for industries under a particular type of size standard  If the characteristics of an industry under review within a particular size standard type are similar to the average characteristics of industries within the same size standard type in the 20 th percentile, SBA will consider adopting as an appropriate size standard for that industry the 20 th percentile value of size standards for those industries  For each size standard type, if the industry's characteristics are similar to the average characteristics of industries in the 80 th percentile, SBA will assign a size standard that corresponds to the 80 th percentile in the size standard rankings of industries  A separate size standard is established for each factor based on the amount of differences between the factor value for an industry under a particular size standard type and 20 th percentile and 80 th percentile values for the corresponding factor for all industries in the same type  Specifically, the actual level of the new size standard for each industry factor is derived by a linear interpolation using the 20 th percentile and 80 th percentile values of that factor and corresponding percentiles of size standards  Each calculated size standard will be bounded between the minimum and maximum size standards levels [see Table 2 ]     the calculated value for a receipts based size standard for each industry factor is rounded to the nearest $500,000 and the calculated value for an employee based size standard is rounded to the nearest 50 employees for Manufacturing and industries in other sectors (except Wholesale and Retail Trade) and to the nearest 25 employees for employee based size standards for Wholesale Trade and Retail Trade  The SBA anticipates that its shift from using the anchor approach to the percentile approach will have minimal impact, both in terms of the direction and magnitude of changes, to its industry size standards  Any changes to size standards must follow the rulemaking procedures of the Administrative Procedure Act  A proposed rule changing a size standard is first published in the Federal Register , allowing for public comment  It must include documentation establishing that a significant problem exists that requires a revision of the size standard, plus an economic analysis of the change  Comments from the public, plus any other new information, are reviewed and evaluated before a final rule is promulgated establishing a new size standard  The SBA currently uses employment size to determine eligibility for 505 of 1,036 industries (48 6%), including all 360 manufacturing industries, 24 mining industries, and 71 wholesale trade industries  As of October 1, 2017, 98 manufacturing industries have an upper limit of 500 employees (27 2%); 91 have an upper limit of 750 employees (25 2%); 89 have an upper limit of 1,000 employees (24 7%); 56 have an upper limit of 1,250 employees (15 6%); and 26 have an upper limit of 1,500 employees (7 2%)  3 of the 24 mining industries have an upper limit of 250 employees (12 5%), 7 have an upper limit of 500 employees (29 2%), 7 have an upper limit of 750 employees (29 2%), 2 have an upper limit of 1,000 employees (8 3%), 3 have an upper limit of 1,250 employees (12 5%), and 2 have an upper limit of 1,500 employees (8 3%)  25 of the 71 wholesale trades industries have an upper limit of 100 employees (35 2%), 16 have an upper limit of 150 employees (22 5%), 21 have an upper limit of 200 employees (29 6%), and 9 have an upper limit of 250 employees (12 7%)  The SBA currently has nine employee based industry size standards in effect (no more than 100, 150, 200, 250, 500, 750, 1,000, 1,250, and 1,500 employees)  The SBA uses average annual receipts over the three (soon to be five) most recently completed fiscal years to determine program eligibility for most other industries (526 of 1,036 industries, or 50 8%)  The SBA also uses average asset size as reported in the firm's four quarterly financial statements for the preceding year to determine eligibility for five finance industries, and a combination of number of employees and barrel per day refining capacity for petroleum refineries  The SBA currently has 16 receipts based industry size standards in effect  In some instances, there is considerable variation in the size standards used within each industrial sector  For example, the SBA uses 11 different size standards to determine eligibility for 66 industries in the retail trade sector  In general, most administrative and support service industries have an upper limit of either $15 0 million or $20 5 million in average annual sales or receipts; most agricultural industries have an upper limit of $0 75 million in average annual sales or receipts; most construction of buildings and civil engineering construction industries have an upper limit of $36 5 million in average annual sales or receipts, and most construction specialty trade contractors have an upper limit of $15 0 million in average annual sales or receipts; most educational services industries have an upper limit of either $7 5 million or $11 0 million in average annual sales or receipts; most health care industries have an upper limit of either $7 5 million or $15 0 million in average annual sales or receipts; most social assistance industries have an upper limit of $11 0 million in average annual sales or receipts; there is considerable variation within the professional, scientific, and technical service industries, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million; there is considerable variation within the transportation and warehousing industrial sector, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million for 43 industries and from an upper limit of 500 employees to 1,500 employees for 15 industries); and most finance and insurance industries have an upper limit of $38 5 million in average annual sales or receipts  The SBA also applies a $550 million average asset limit (as reported in the firm's four quarterly financial statements for the preceding year) to determine eligibility in five finance industries: commercial banks, saving institutions, credit unions, other depository credit intermediation, and credit card issuing  Many federal statutes provide special considerations for small businesses  For example, small businesses are provided preferences through set-asides and sole source awards in federal contracting and pay lower fees to apply for patents and trademarks  In most instances, businesses are required to meet the SBA's size standards to be considered a small business  However, in some cases, the underlying statute defines the eligibility criteria for defining a small business  In other cases, the statute authorizes the implementing agency to make those determinations  Under current law, a federal agency that decides that it would like to exercise its authority to establish its own size standard through the federal rulemaking process is required to, among other things, (1) undertake an initial regulatory flexibility analysis to determine the potential impact of the proposed rule on small businesses, (2) transmit a copy of the initial regulatory flexibility analysis to the SBA's Chief Counsel for Advocacy for comment, and (3) publish the agency's response to any comments filed by the SBA's Chief Counsel for Advocacy in response to the proposed rule and a detailed statement of any change made to the proposed rule in the final rule as a result of those comments  In addition, the federal agency must provide public notice of the proposed rule and an opportunity for the public to comment on the proposed rule, typically through the publication of an advanced notice of proposed rulemaking in the Federal Register and notification of interested small businesses and related organizations  Also, prior to issuing the final rule, the federal agency must have the approval of the SBA's Administrator  Under current practice, the SBA's Administrator, through the SBA's Office of Size Standards, consults with the SBA's Office of Advocacy prior to making a final decision concerning such requests  The Office of Advocacy is an independent office within the SBA  During the 112 th Congress, H R  585 , the Small Business Size Standard Flexibility Act of 2011, was reported by the House Committee on Small Business on November 16, 2011, by a vote of 13 to 8  The bill would have retained the SBA's Administrator's authority to approve or disapprove size standards for programs under the Small Business Act of 1953 (as amended) and the Small Business Investment Act of 1958 (as amended)  The Office of Chief Counsel for Advocacy would have assumed the SBA Administrator's authority to approve or disapprove size standards for purposes of any other act  Similar legislative provisions have been introduced during the 113 th Congress ( H R  2542 , the Regulatory Flexibility Improvements Act of 2013, and included in H R  4 , the Jobs for America Act), 114 th Congress ( H R  527 , the Small Business Regulatory Flexibility Improvements Act of 2015, and its Senate companion bill, S  1536 ), and 115 th Congress ( H R  33 , the Small Business Regulatory Flexibility Improvements Act of 2017, and its Senate companion bill, S  584 , and included in H R  5 , the Regulatory Accountability Act of 2017)  Advocates of splitting the SBA Administrator's small business size standards' authority between the Office of Chief Counsel for Advocacy and the SBA's Administrator have argued that Should an agency wish to draft a regulation that adopts a size standard different from the one already adopted by the Administrator in regulations implementing the Small Business Act, the agency must obtain approval of the Administrator  However, that requires the Administrator to have a complete understanding of the regulatory regime of that other act—knowledge usually outside the expertise of the SBA  However, the Office of the Chief Counsel for Advocacy, an independent office within the SBA, represents the interests of small businesses in rulemaking proceedings (as part of its responsibility to monitor agency compliance with the Regulatory Flexibility Act, 5 U S C  601-12, (RFA)) does have such expertise  Therefore, it is logical to transfer the limited function on determining size standards of small businesses for purposes other than the Small Business Act and Small Business Investment Act of 1958 to the Office of the Chief Counsel for Advocacy…  the Administrator is not the proper official to determine size standards for purposes of other agencies' regulatory activities  The Administrator is not fluent with the vast array of federal regulatory programs, is not in constant communication with small entities that might be affected by another federal agency's regulatory regime, and does not have the analytical expertise to assess the regulatory impact of a particular size standard on small entities  Furthermore, the Administrator's standards are: very inclusive, not developed to comport with other agencies' regulatory regimes, and lack sufficient granularity to examine the impact of a proposed rule on a spectrum of small businesses  Opponents have argued that When an agency is seeking to use a size standard other than those approved by the SBA, the agency may consult with the Office of Advocacy  Such consultation is sensible, as the Office of Advocacy has significant knowledge of the regulatory environment outside of the canon of SBA law  However, the SBA's Office of Size Standards, with its historical involvement, expertise, and staff resources in this area, remains the appropriate entity to approve such size standards…  While the legislation permits the SBA to continue to approve size standards for its enabling statutes, it removes SBA's authority to do so for other statutes  The result would be to create a duplicate size standard authority in both the SBA and the Office of Advocacy  Both the SBA and the Office of Advocacy would have personnel who would analyze and evaluate size standards  Through the bifurcation of these responsibilities, taxpayers would effectively be forgoing the economies of scale that are currently enjoyed by the operation of a single Office of Size Standards in the SBA…  Having two such entities that have the same mission is not a transfer of function, but an inefficient and duplicative reorganization … Instead of having one central office, there will now be two—further muddling small businesses' relationship with the federal government  Two bills were introduced during the 114 th Congress ( H R  3714 , the Small Agriculture Producer Size Standards Improvements Act of 2015, and H R  4341 , the Defending America's Small Contractors Act of 2016) to authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment  The size standard for agricultural enterprises was, at that time, set in statute as having annual receipts not in excess of $750,000  H R  4341 , among other provisions, would have also limited an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted  H R  4341 was introduced on January 7, 2016, and ordered to be reported with amendment by the House Committee on Small Business on January 13, 2016  H R  3714 was introduced on October 8, 2015, considered by the House under suspension of the rules on April 19, 2016, and agreed to by voice vote  P L  114-328 , the National Defense Authorization Act for Fiscal Year 2017, includes a provision which authorizes the SBA to establish different size standards for agricultural enterprises using existing methods and appeal processes  Also, as mentioned previously, P L  115-324 , the Small Business Runway Extension Act of 2018, directs federal agencies proposing a size standard (and, based on report language accompanying the act, presumably the SBA as well) to use the average annual gross receipts from at least the previous five years, instead of the previous three years, when seeking SBA approval to establish a size standard based on annual gross receipts  The SBA has not announced if it will continue to use the average annual gross receipts over three years to determine receipts-based size standards or if it will use the average annual gross receipts from the previous five years  Historically, the SBA has relied on economic analysis of market conditions within each industry to define eligibility for small business assistance  On several occasions in its history, the SBA attempted to revise its small business size standards in a comprehensive manner  However, because (1) the Small Business Act provides leeway in how the SBA is to define small business; (2) there is no consensus on the economic factors that should be used in defining small business; (3) federal agencies have generally opposed size standards that might adversely affect their pool of available small business contractors; and (4) the SBA's initial size standards provided program eligibility to nearly all businesses, the SBA's efforts to undertake a comprehensive reassessment of its size standards met with resistance  Firms that might lose eligibility objected  Federal agencies also objected  As a result, in each instance, the SBA's comprehensive revisions were not fully implemented  The SBA's congressionally mandated requirement to conduct a detailed review of at least one-third of the SBA's industry size standards every 18 months was imposed by P L  111-240 , the Small Business Jobs Act of 2010, to prevent small business size standards from becoming outdated  More frequent reviews of the size standards were expected to increase their accuracy and, generally speaking, result in (1) increased numbers of small businesses found to be eligible for SBA assistance and (2) an increase in the number and amount of federal contracts awarded to small businesses (primarily by preventing large businesses from being misclassified as small and by increasing the number of small businesses eligible to compete for federal contracts)  As expected, the SBA's economic analyses during the recent five-year review cycle often supported an increase in the size standards for many industries  However, the SBA's economic analyses also occasionally supported a decrease in the size standards for some industries  Despite the SBA's decision to, in most circumstances, make no changes when their economic analyses indicated that a decrease was warranted, it could be argued that the increased frequency of the reviews has generally prevented the SBA's size standards from becoming outdated  This, in turn, has, at least to a certain extent, improved the accuracy of the size standards (as measured by the extent to which the size standard is in alignment with the SBA's economic analyses)  In a related matter, the SBA continues to adjust its receipts based size standards for inflation at least once every five years, or more frequently if inflationary circumstances warrant, to prevent firms from losing their small business eligibility solely due to the effects of inflation  The most recent adjustment for inflation took place on July 14, 2014  Prior to that, the last adjustment for inflation took place in 2008  The SBA also continues to review size standards within specific industries whenever it determines that market conditions within that industry have changed  Congress has several options related to the SBA's ongoing review of its size standards  For example, as part of its oversight of the SBA, Congress can wait for the agency to issue its proposed rule before providing input or establish a dialogue with the agency, either at the staff level or with Members involved directly, prior to the issuance of its proposed rule  Historically, Congress has tended to wait for the SBA to issue proposed rules concerning its size standards before providing input, essentially deferring to the agency's expertise in the technical and methodological issues involved in determining where to draw the line between small and large firms  Congress has then tended to respond to the SBA's proposed rules concerning its size standards after taking into consideration current economic conditions and input received from the SBA and affected industries  Waiting for the SBA to issue its proposed rule concerning its size standards before providing congressional input has both advantages and disadvantages  It provides the advantage of insulating the proposed rule from charges that it is influenced by political factors  It also has the advantage of respecting the separation of powers and responsibilities of the executive and legislative branches  However, it has the disadvantage of heightening the prospects for miscommunication, false expectations, and wasted effort, as evidenced by past proposed rules concerning the SBA's size standards that were either rejected outright, or withdrawn, after facing congressional opposition  Another policy option that has not received much congressional attention in recent years, but which Congress may choose to address, is the targeting of the SBA's resources  When the SBA reviews its size standards, it focuses on the competitive nature of the industry under review, with the goal of removing eligibility of firms that are considered large, or dominant, in that industry  There has been relatively little discussion of the costs and benefits of undertaking those reviews with the goal of targeting SBA resources to small businesses in industries that are struggling to remain competitive  GAO recommended this approach in 1978 and Roger Rosenberger, then SBA's associate administrator for policy, planning, and budgeting, testified at a congressional hearing in 1979 that it was debatable whether the SBA should provide any assistance to any of the businesses within industries where "smaller firms are flourishing " Revising the SBA's size standards using this more targeted approach would likely reduce the number of firms eligible for assistance  It would also present the possibility of increasing available benefits to eligible small firms in those industries deemed "mixed" or "concentrated" by the SBA without necessarily increasing overall program costs  Perhaps because previous proposals that would result in a reduction in the number of firms eligible for assistance have met with resistance, this alternative approach to determining program eligibility has not received serious consideration in recent years  Nonetheless, it remains an option available to Congress should it decide to change current policy 

ground_truth: The Department of Defense (DOD) obligates more than $300 billion annually to buy goods and services, and to support research and development. Most of these acquisitions are governed by procurement statutes and regulations found in Title 10 (and parts of other select titles) of the United States Code, the Federal Acquisition Regulation (FAR), and the Defense Federal Acquisition Regulation Supplement. Under certain circumstances, DOD can enter into an other transaction (OT) agreement instead of a traditional contract. OT agreements are generally exempt from federal procurement laws and regulations. These exemptions grant government officials the flexibility to include, amend, or exclude contract clauses and requirements that are mandatory in traditional procurements (e.g., termination clauses, cost accounting standards, payments, audit requirements, intellectual property, and contract disputes). OT authorities also grant more flexibility to structure agreements in numerous ways, including joint ventures; partnerships; consortia; or multiple agencies joining together to fund an agreement encompassing multiple providers. Other transaction agreements are legally binding contracts; they are referred to as agreements to distinguish them from the traditional procurement contracts governed by the FAR and procurements laws. Other transaction authorities are set forth in two sections of law: 10 U.S.C. 2371—granting authority to use OTs for basic, applied, and advanced research projects. 10 U.S.C. 2371b—granting authority to use OTs for prototype projects and follow-on production. Under this authority, a prototype project can only be conducted if at least one nontraditional defense contractor significantly participates in the project; all significant participants are small businesses or nontraditional defense contractors; at least one-third of the total cost of the prototype project is provided by nongovernment participants; or the senior procurement acquisition official provides a written justification for using an OT. Follow-on production can only be conducted when the underlying prototype OT was competitively awarded, and the prototype project was successfully completed. OTs have the potential to provide significant benefits to DOD, including attracting nontraditional contractors with promising technological capabilities to work with DOD, establishing a mechanism to pool resources with other entities to facilitate development of, and obtain, state-of-the-art dual-use technologies, and offering a unique mechanism for DOD to invest in, and influence the direction of, technology development. A number of analysts warn that along with the potential benefits come significant risks, including potentially diminished oversight and exemption from laws and regulations designed to protect government and taxpayer interests. In FY2017, DOD obligated $2.1 billion on prototype OT agreements, representing less than 1% of contract obligations for the year. However, the use of OTs is expected to grow at a rapid pace, due in part to recent statutory changes expanding other transaction authorities. A number of analysts and officials have raised concerns that if DOD uses OTs in ways not intended by Congress—or is perceived to abuse the authority—Congress could clamp down on the authority. Generally, DOD lacks authoritative data that can be used to measure and evaluate the use of other transaction authorities.