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44–511 PDF 2008

OTHER TRANSACTION AUTHORITY: FLEXIBILITY 

AT THE EXPENSE OF ACCOUNTABILITY? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON EMERGING 

THREATS, CYBERSECURITY, 

AND SCIENCE AND TECHNOLOGY 

OF THE

COMMITTEE ON HOMELAND SECURITY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

FEBRUARY 7, 2008 

Serial No. 110–92 

Printed for the use of the Committee on Homeland Security 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 
COMMITTEE ON HOMELAND SECURITY 

BENNIE G. THOMPSON, Mississippi, Chairman 

LORETTA SANCHEZ, California 

EDWARD J. MARKEY, Massachusetts 

NORMAN D. DICKS, Washington 

JANE HARMAN, California 

PETER A. DEFAZIO, Oregon 

NITA M. LOWEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

DONNA M. CHRISTENSEN, U.S. Virgin Islands 

BOB ETHERIDGE, North Carolina 

JAMES R. LANGEVIN, Rhode Island 

HENRY CUELLAR, Texas 

CHRISTOPHER P. CARNEY, Pennsylvania 

YVETTE D. CLARKE, New York 

AL GREEN, Texas 

ED PERLMUTTER, Colorado 

BILL PASCRELL, JR., New Jersey 

PETER T. KING, New York 

LAMAR SMITH, Texas 

CHRISTOPHER SHAYS, Connecticut 

MARK E. SOUDER, Indiana 

TOM DAVIS, Virginia 

DANIEL E. LUNGREN, California 

MIKE ROGERS, Alabama 

DAVID G. REICHERT, Washington 

MICHAEL T. MCCAUL, Texas 

CHARLES W. DENT, Pennsylvania 

GINNY BROWN-WAITE, Florida 

GUS M. BILIRAKIS, Florida 

DAVID DAVIS, Tennessee 

PAUL C. BROUN, Georgia 

JESSICA HERRERA-FLANIGAN, Staff Director & General Counsel 

TODD GEE, Chief Counsel 

MICHAEL TWINCHEK, Chief Clerk 

ROBERT O’CONNOR, Minority Staff Director 

SUBCOMMITTEE ON EMERGING THREATS, CYBERSECURITY, AND 

SCIENCE AND TECHNOLOGY 

JAMES R. LANGEVIN, Rhode Island, Chairman 

ZOE LOFGREN, California 

DONNA M. CHRISTENSEN, U.S. Virgin Islands 

BOB ETHERIDGE, North Carolina 

AL GREEN, Texas 

BILL PASCRELL, JR., New Jersey 

BENNIE G. THOMPSON, Mississippi (Ex Officio) 

MICHAEL T. MCCAUL, Texas 

DANIEL E. LUNGREN, California 

GINNY BROWN-WAITE, Florida 

PAUL C. BROUN, Georgia 

PETER T. KING, New York (Ex Officio) 

JACOB OLCOTT, Director and Counsel 

DR. CHRIS BECK, Senior Advisor for Science and Technology 

CARLA ZAMUDIO-DOLAN, Clerk 

KEVIN GRONBERG, Minority Professional Staff Member 

(II) 
(III) 

C O N T E N T S 

Page 

STATEMENTS

The Honorable James R. Langevin, a Representative in Congress From the 

State of Rhode Island, and Chairman, Subcommittee on Emerging Threats, 

Cybersecurity, and Science and Technology ...................................................... 1 

The Honorable Michael T. McCaul, a Representative in Congress From the 

State of Texas, and Ranking Member, Subcommittee on Emerging Threats, 

Cybersecurity, and Science and Technology ...................................................... 2 

WITNESSES

Mr. Thomas W. Essig, Chief Procurement Officer, Department of Homeland 

Security, Accompanied by Dr. Keith B. Ward, Chief Research and Development Branch, Chemical and Biological Division, Science and Technology, 

Department of Homeland Security: 

Oral Statement ..................................................................................................... 4 

Prepared Statement ............................................................................................. 6 

Dr. L. Elaine Halchin, Analyst, American National Government, Congressional Research Service, Accompanied by Dr. John D. Moteff, Specialist, 

Science and Technology Policy, Congressional Research Service: 

Oral Statement ..................................................................................................... 13 

Prepared Statement ............................................................................................. 15 

Mr. John K. Needham, Acting Director, Acquisition and Sourcing Management, Government Accountability Office: 

Oral Statement ..................................................................................................... 21 

Prepared Statement ............................................................................................. 23 

(1) 

OTHER TRANSACTION AUTHORITY: FLEXIBILITY AT THE EXPENSE OF ACCOUNTABILITY? 

Thursday, February 7, 2008 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON HOMELAND SECURITY, SUBCOMMITTEE ON EMERGING THREATS, CYBERSECURITY, AND

SCIENCE AND TECHNOLOGY, Washington, DC. 

The subcommittee met, pursuant to call, at 2:11 p.m., in Room 

311, Cannon House Office Building, Hon. James R. Langevin 

[Chairman of the subcommittee] presiding. 

Present: Representatives Thompson, Langevin, Etheridge, Green, 

Pascrell, McCaul, and Broun. 

Mr. LANGEVIN [presiding]. The subcommittee will come to order. 

The subcommittee today is hearing testimony on other transaction authority, or OTA, answering the question, flexibility at the 

expense of accountability. 

Good afternoon, and I want to welcome our witnesses to today’s 

hearing on other transaction authority at the Department of Homeland Security. 

I would like to begin by thanking my Ranking Member, Mr. 

McCaul, for working with me on this issue and the Chairman of 

the full committee, Mr. Thompson, for his leadership and continued 

oversight over procurement matters within the Department. 

We are here today to consider the arguments for and against extending the Department’s use of other transaction authority, which 

is scheduled to sunset in September 2008. Other transaction authority, abbreviated as OTA, was originally created to attract nontraditional commercial firms to do business with the Federal Government. Within that definition are those firms that either refuse 

or could not participate in such contractual agreements with the 

Federal Government. 

This authority is based on the premise that it is in the Federal 

Government’s best interest to attract nontraditional contractors 

who are at the cutting edge of technology, which can lead to new 

homeland security or defense products that companies might not 

otherwise have adequate resources to invest in on their own. 

The Department of Homeland Security is one of several agencies, 

including NASA, the Department of Defense, the Department of 

Energy and the Department of Health and Human Services, that 

use OTA. 

OTA applies only two types of awards at DHS. One award is 

known as other transactions for research, which are typically used 

for basic, applied or advanced research. This type of transaction 
2 

does not call for a deliverable product but rather provides a support 

to broaden the homeland technology knowledge base. 

The other award is known as other transactions for prototypes, 

which are used to help the Department develop or acquire a prototype. 

Companies who receive awards under OTA are granted exceptional benefits. For instance, an other transaction is not subject to 

the Federal acquisition regulation, or FAR, most procurement status or the Government’s cost accounting standards. Companies are 

also usually granted greater rights to intellectual property that is 

produced under the agreement. 

The subcommittee seeks answers to two questions today: First, 

is OTA premised on sound policy, and, second, given the incredible 

flexibility granted under OTA, are there adequate protections in 

place to reduce or eliminate any potential abuses? 

We are not the first to examine these questions. Reports issued 

earlier this decade suggested other transactions do indeed expand 

Government’s access to commercial technology and production capacity and because of the cost-sharing provisions, do result in lower 

overall transaction costs. 

However, people closely associated with OTA, including a former 

Department of Defense inspector general, note that the potential 

for abuse exists without the traditional protections of the procurement system. 

The DOD IG noted during its review of OTA that contracting officers failed, in this case, to sufficiently document justification for 

using other transactions, to document the review of cost proposals 

and to monitor the actual research costs itself. This led to the IG’s 

testimony in 2002 where the Department concluded that based 

upon the DOD experience, we believe other transactions should be 

considered only when it is clear that the Government is unable to 

acquire goods, services and even technologies through existing vehicles. 

In short, though the freedoms associated with OTA may attract 

more businesses to participate, they also carry significant risks for 

the Federal Government. While we all want technology faster and 

cheaper, we also have to be mindful that we are stewards of American tax dollars. 

If we are going to allow this kind of flexibility at the Department, the Department must demonstrate to this committee that it 

can be trusted to handle the authority. This means showing that 

adequate protections are in place to reduce or eliminate any potential abuses of OTA. 

Then Mr. Essig can provide us with assurances that the Department has conducted robust oversight over this process before we 

consider extending OTA beyond 2008. We will have several questions on this front when we get to that point. 

With that, I conclude my remarks, and the Chair now recognizes 

the Ranking Member of the subcommittee, the gentleman from 

Texas, Mr. McCaul, for the purpose of an opening statement. 

Mr. McCaul. 

Mr. MCCAUL. I thank the Chairman. I thank you for honoring 

my request for this hearing. You are certainly a man of your word 

and, as usual, conducting yourself in a very bipartisan way, which 
3 

is a good way to conduct ourselves in this very important committee. 

I believe this is an important issue. This is a tool that the Department uses to protect our country. 

Part of our duty as a committee is to ensure that DHS has the 

best technology and training available. I see the authority to engage in the other transactions is a critical tool, which allows the 

Department to partner with nontraditional Government contractors 

to develop state-of-the-art technologies faster and more efficiently 

than would be possible under a traditional procurement contract. 

The Department of Defense has used this authority to enter into 

other transactions for many years within DARPA where they have 

had many incredible technological breakthroughs. These agreements are not used to purchase office supplies or other commodities 

for which a traditional contract is perfectly acceptable. 

Other transactions cover the development of technology to fill a 

particular unmet need, such as automated biowarfare agent detectors or a system to knock missiles out of the sky before they bring 

down an airliner. 

The traditional requirements of Government contracting do not 

provide the flexibility necessary, in my judgment, to develop such 

projects and can be cost-prohibitive to smaller companies or those 

that don’t regularly do business within the Government. 

I understand that my colleagues may have questions regarding 

the accountability of these other transactions, and I, too, share 

their concern. Because they are not subject to the traditional Federal acquisition requirements, or the FAR, other transactions do 

not have the same checks and balances required by traditional procurement contracts. Considering the increased risk inherent in 

other transactions, they should not be entered into for inappropriate goals nor should they be entered into lightly. 

It is my understanding that the Department only allows its most 

experienced and highly trained contracting officers to enter into 

other transactions and even competes such contracts despite there 

being no requirement that it do so. I believe that this shows that 

the Department approaches the negotiations of other transactions 

with the appropriate gravity, and I look forward to hearing how the 

Department has put forth this authority to use and the technologies that it has developed as a result of these agreements. 

I also hope to find out more about the nontraditional Government contractors with which the Department has been able to 

work. At the same time, I am looking forward to the testimony 

from GAO and hearing their recommendations to improve the success of these types of agreements. 

The Department’s authority to use other transactions expires at 

the end of September 2008. Late last year, I introduced H.R. 4290, 

which would extend the authority for another 5 years. Without that 

authority, in my judgment, the next administration could be unnecessarily hamstrung in their pursuit of the best technology to fit 

their needs. 

I thank the Chairman, and I yield back. 

Mr. LANGEVIN. I thank the Ranking Member. 
4 

Other Members of the subcommittee are reminded that under 

the committee rules, opening statements may be submitted for the 

record. 

I now want to welcome our witnesses today. Our first witness is 

Tom Essig, chief procurement officer of the Department of Homeland Security. Mr. Essig came to his position January 10, 2008, so 

he is definitely new on the job, but he has a wealth of experience 

behind him. Prior to this appointment, he was deputy chief procurement officer. Before coming to DHS, Mr. Essig worked in the 

Navy’s Office of the Assistant Secretary and was the services director of the Program Analysis and Business Transformation Division. 

During the questioning period, Mr. Essig will be joined by Keith 

Ward, chief of the Chem-Bio R&D branch within Science and Technology Directorate. 

Our second witness is Dr. Elaine Halchin, analyst in American 

National Government at Congressional Research Service. Dr. 

Halchin’s principal areas are research responsibility, government 

procurement, sports and the Senior Executive Service and the government travel policy. 

During the questioning period, she will be joined by her CRS colleague, Jack Moteff. 

Our third witness is John Needham, assistant director, Acquisition and Sourcing Management, Government Accountability Office. 

Mr. Needham leaves reviews of acquisition contracting practices at 

the Department of Homeland Security and Defense. 

I want to welcome all of our witnesses. Without objection, the 

witnesses’ full statements will be inserted into the record, and I 

now ask each witness to summarize his or her statement for 5 minutes, beginning with Mr. Essig. 

Welcome. 

STATEMENT OF THOMAS W. ESSIG, CHIEF PROCUREMENT OFFICER, DEPARTMENT OF HOMELAND SECURITY, ACCOMPANIED BY KEITH B. WARD, CHIEF RESEARCH AND DEVELOPMENT BRANCH, CHEMICAL AND BIOLOGICAL DIVISION, 

SCIENCE AND TECHNOLOGY, DEPARTMENT OF HOMELAND 

SECURITY 

Mr. ESSIG. Mr. Chairman, Ranking Member McCaul and Members of the subcommittee, thank you for this opportunity to appear 

before you to discuss the Department of Homeland Security’s use 

of its other transaction authority. 

I am the Department’s chief procurement officer, or CPO, and I 

am responsible for the management, administration and oversight 

of the Department’s acquisition programs. With me here today is 

Dr. Keith Ward from the Department’s Science and Technology Directorate. 

Before addressing the subject of today’s hearing, DHS’ other 

transaction authority, I would like to take this opportunity to summarize my background. I am a career Federal employee with more 

than 30 years of public service in the acquisition career field. I 

began my career in 1976 as a contracting intern with the Navy Department. I was selected as a member of the Senior Executive 

Service in 1995 and held several senior acquisition positions with 

the Navy Department, including executive director of the Office of 
5 

Special Projects and director for Program Analysis and Business 

Transformation. 

I joined DHS in May 2006 as a deputy chief procurement officer 

and was selected as the chief procurement officer last month. I am 

also certified at level three, the highest level, in both the contracting and program management career fields at both DOD and 

DHS. 

In my written statement, I identified my top priorities as CPO. 

The first, to make good business deals, is intended to ensure that 

we accomplish our mission while also being good stewards of taxpayer dollars. Other transactions, or OTs, are a very useful took in 

helping us achieve that goal. 

OTs differ from traditional contracts in a number of ways. Contracts are governed by the Federal acquisition regulation, or the 

FAR, and as a result include a number of terms and conditions not 

seen in commercial transactions. OTs, however, are not subject to 

the FAR, so we are able to tailor terms and conditions in order to, 

No. 1, attract business entities that do not normally do business 

with the Government and, No. 2, enhance our ability to share the 

cost of maturing certain dual-use technologies with industry, thereby lowering the overall cost to the taxpayer. 

OTs have only been used by two of DHS contracting activities, 

the Transportation Security Administration, TSA, and the Office of 

Procurement Operations in support of DHS Science and Technology 

Directorate. Their respective OT authority comes from different 

sources. 

TSA’s OT authority is derived from the Aviation and Transportation Security Act, and its primary use has been for the explosive 

baggage screening and closed-circuit TV programs at the Nation’s 

airports. Because airport operators are public entities, TSA’s ability 

to enter into traditional contracts for these programs is limited. 

TSA’s OT authority provides the necessary flexibilities to meet 

their mission requirements. 

The focus of my testimony today, however, is on the Department’s OT authority in support of the S&T Directorate. That authority stems from the Homeland Security Act of 2002, which allows DHS to enter into other transactions for basic, applied and advanced research and development and prototype projects. The Department appreciates that the recently passed DHS Appropriations 

Act includes a provision extending our OT authority through September 30 of this year, and we are grateful for, and fully support, 

Ranking Member McCaul’s efforts to further extend that authority 

through September 2012. 

In my written statement, I identified four S&T projects that were 

made possible with this OT authority. One of these is the lightweight autonomous chemical identification system, or LACIS 

project, which is developing handheld chemical agent detectors for 

our first responders, including fire departments and HAZMAT 

teams. The project resulted from a broad agency announcement designed to reach a broad segment of the market and attract traditional and nontraditional firms, both individually and as teams. 

In a December 2004 report, the Government Accountability Office, GAO, reported on DHS’ used of its OT authority under the 

Homeland Security Act and recommended that DHS provide guid-
6 

ance on including audit provisions in OTs, develop a training program on the use of OTs and capture knowledge gained during the 

acquisition process. I am pleased to report that we have implemented all three recommendations. 

In summary, OT authority provides a tool that is especially useful when bringing nontraditional contractors to the Federal research and development environment, gives the Department access 

to more commercially available technologies than would otherwise 

be the case, promotes the development of dual-use technologies at 

a reduced overall cost to the taxpayer and allows the Department 

to obtain proposals from teams that cut across organizational 

boundaries to achieve optimal mixes of talent and innovation. 

We also recognize that OTs are not right for every situation and 

have implemented guidance, training, knowledge sharing and oversight procedures to ensure that OTs are used appropriately. 

Thank you, Mr. Chairman, for your interest in and continued 

support of the DHS acquisition program and for the opportunity to 

testify before the subcommittee about the Department’s OT authority. 

I would be glad to answer any questions you or other Members 

of the subcommittee may have for me. 

[The statement of Mr. Essig follows:] 

PREPARED STATEMENT OF THOMAS W. ESSIG

FEBRUARY 7, 2008 

Chairman Langevin, Ranking Member McCaul and Members of the subcommittee, 

thank you for this opportunity to appear before you to discuss the Department of 

Homeland Security’s (DHS) acquisition program and in particular, DHS’ use of its 

Other Transaction Authority (OTA). I am the Chief Procurement Officer (CPO) for 

the Department. With me here today is Dr. Keith Ward from DHS’ Science & Technology (S&T) Directorate. 

As DHS’ CPO, I am the lead executive responsible for the management, administration and oversight of the Department’s acquisition programs. In that capacity, I 

oversee and support eight procurement offices within DHS—Customs and Border 

Protection (CBP), Federal Emergency Management Agency (FEMA), Immigration 

and Customs Enforcement (ICE), Transportation Security Administration (TSA), 

United States Coast Guard (USCG), United States Secret Service (USSS), Federal 

Law Enforcement Training Center (FLETC), and the Office of Procurement Operations (OPO). My office provides the acquisition policies, procedures, training and 

workforce initiatives that will that enable our acquisition professionals to support 

mission accomplishment while also being good stewards of taxpayer dollars. 

Before addressing the subject of today’s hearing, DHS’ Other Transaction Authority, I would like to take this opportunity to summarize my background and convey 

my top priorities as the CPO. I am a career Federal employee, with more than 30 

years of public service in the acquisition career field. I began my Federal career in 

1976 when I entered the Navy’s Contracting Intern Development Program. My initial assignment was with the Naval Sea Systems Command (NAVSEA), where I 

served as a contract specialist supporting various Naval weapon systems and shipbuilding programs. I was selected as a member of the Senior Executive Service in 

1995 and served as the Director of the Surface Systems Contracts Division of 

NAVSEA. I have also held Senior Executive Service positions with the Navy Department as the Executive Director of the Office of Special Projects, Director of the Navy 

Engineering Logistics Office, and Director for Program Analysis and Business 

Transformation in the Office of the Assistant Secretary of the Navy for Research, 

Development, and Acquisition. I joined DHS in May 2006 as the Deputy Chief Procurement Officer and was selected as the Chief Procurement Officer in January 

2008. While most of my career has been in the area of contracting, my assignments 

have also given me responsibility for leadership of other critical acquisition functions. As a result, I am certified at Level III (the highest level) in both the contracting and program management career fields at both the Department of Defense 

(DoD) and DHS. 
7 

Earlier this year, I identified my top priorities for fiscal year 2008. The first three 

priorities were initially established by my predecessor, Ms. Elaine Duke. While we 

have made significant progress on all three priorities, more remains to be done and 

I have, therefore, retained them for fiscal year 2008. 

Priority No. 1: To Make Good Business Deals 

We need to make business decisions that enable us to accomplish our mission, 

while also being good stewards of taxpayer dollars. Within the Office of the CPO 

(OCPO), we are developing and implementing a policy and oversight framework that 

will facilitate the Department’s ability to achieve this objective. We have, for example, recently issued policy and guidance on topics that include: goals for contract 

awards to small business and other socio-economic concerns; judicious use of the 

Alaska Native Corporation 8(a) program, including requirements to ensure the 

award is in the best interest of the Government; increasing the use of competition; 

and guidance documents on Source Selection, the use of Other Than Full and Open 

Competition, and acquisition planning. 

Priority No. 2: To Build and Sustain the DHS Acquisition Workforce 

A key enabler of our ability to make good business deals is a highly skilled and 

motivated acquisition workforce. In fiscal year 2008, we are focusing on four acquisition workforce initiatives: establishment of an acquisition intern program; identification of certification and training requirements for all acquisition functional areas; 

a centralized acquisition training fund; and centralized recruitment and hiring of acquisition personnel. I greatly appreciate the funding we received in fiscal year 2008 

in support of these initiatives. 

Priority No. 3: To Perform Effective Contract Administration 

In addition to making sure that our contract awards represent good business 

deals, we must perform effective contract administration in order to ensure that we 

get what we bargained for. In this area, we are leveraging support from the Defense 

Contract Management Agency to support a number of contract administration areas, 

including the performance of Earned Value Management (EVM) on DHS contracts. 

We are also conducting comprehensive reviews and improving communications with 

our contracting activities to identify and remedy issues that may occur over the life 

cycle of our contracts. Recently, these reviews led to a change in our Acquisition 

Manual to address specific Contracting Officer’s Technical Representative oversight 

responsibilities associated with the review of contractor invoices (also referred to as 

vouchers) for reasonableness and accuracy, and to ensure that deliverables have 

been provided in accordance with the terms of our contracts. 

These first three priorities are largely focused on the contracting function. Recognizing, however, that successful acquisition programs require more than just good 

contracting, I have added a fourth priority this year: 

Priority No. 4: To Improve the Quality of Program Management Throughout DHS 

In order to deliver the capabilities to meet DHS’ mission on schedule and within 

budget, we are working to strengthen program management, including related functions such as cost analysis, logistics, systems engineering, and test and evaluation. 

During the past year, we established a core group within OCPO and partnered with 

the Defense Acquisition University and the Homeland Security Institute to ensure 

we have the skills and experience necessary to assess the status of DHS’ acquisition 

programs and put policies and procedures in place to improve the management of 

our acquisition programs. We are also working to ensure that our program management teams are appropriately staffed and trained. Our goal is to make certain we 

have the policies, processes, and skilled people in place to effectively manage our 

programs and ensure the successful achievement of our mission objectives. 

OTHER TRANSACTION AUTHORITY (OTA)

There are many differences between a FAR-based contract and an Other Transaction or ‘‘OT ’’. Contracts are procurement instruments and, as such, are governed 

by the FAR. Contracts are to be used when the principal purpose of the project is 

the acquisition of goods and services for the direct benefit of the Federal Government. In contrast, DHS OTs used by the DHS Science & Technology Directorate for 

prototype projects are used to acquire technologies that provide counter-terrorism 

tools and resources for our agents and first responders in the field to combat against 

those threatening our Homeland. Unlike traditional contracts, these OTs attract 

business entities that do not normally do business with the Federal Government, 

exploit the cost-reduction potential of accessing innovative or commercially developed technologies, and tend to increase competition for follow-on efforts. The Con-
8 

tract Disputes Act and GAO protest rules do not apply to OTs for prototype projects; 

procedures for resolving disputes and filing protests are addressed in the actual OT. 

OTs have only been issued by two of DHS’ contracting activities: the Transportation Security Administration (TSA) and the Office of Procurement Operations 

(OPO) in support of DHS’ Science & Technology Directorate. Their respective OT 

Authority comes from different sources. 

The focus of much of my testimony today is on the Department’s OT Authority 

stemming from the Homeland Security Act of 2002 as well as the subject of the Government Accountability Office’s (GAO) 2004 audit. However, I would first like to address the TSA’s OT Authority which is derived from the Aviation and Transportation Security Act (Pub. L. 107–71). 

TSA’s OT Authority 

TSA’s primary use of its OT Authority has been for its Explosive Baggage Screening Program (EBSP) and its Closed Circuit TV (CCTV) Program at the Nation’s airports. TSA’s use of OTs is primarily as a mechanism for providing reimbursement 

funding and outlining the roles and responsibilities associated with these shared 

airport projects. 

1. Explosive Baggage Screening Program (EBSP) 

TSA’s EBSP projects involve the modification and/or construction of a checked 

baggage inspection system in the Airport/Air Carrier baggage handling system 

through the installation of Explosive Detection Systems (EDS). The scope of each 

project includes, but is not limited to, design, construction of installation of new or 

renovation of existing baggage conveyor systems, modification and upgrade of existing mechanical, electrical, telecommunications infrastructure and plumbing equipment, and baggage handling screening matrix able to support EDS machines, and 

the installation of hardware and software for use with in in-line baggage screening 

applications. 

Each airport uses established contracting processes and contractors to design and 

perform necessary airport site preparation to support the project. The variety of 

local factors and conditions that affect airport funding and design decisions requires 

a partnership between TSA and each airport. Teaming with each airport ensures 

a mutually acceptable baggage screening solution to TSA and each airport and its 

associated air carriers. By providing funding to each airport via an OT that allows 

for the reimbursement of the baggage screening project costs, TSA benefits as the 

burden of the airport design work and the responsibility of the construction management, logistics, and work performance is shared with each airport. The OT outlines 

the responsibilities of the airport and the TSA as well as provides the funding for 

each airport project. 

TSA uses an integrated and participatory approach to the project planning and 

design process with each airport to appropriately size the system for EDS equipment, providing the most cost-effective solution and ensuring optimal baggage 

screening performance standards are met. Using industry standards, TSA validates 

the cost estimate of the project based on information provided by each airport. Once 

the design effort is completed, the TSA Technical Representative monitors the airport construction effort. 

TSA retains a percentage of the OT funds until the airport has successfully 

passed the TSA administered integrated baggage screening test. Reimbursement of 

costs by TSA is made to the airport on a documented cost basis. The use of an OT 

provides for airport performance of site preparation work, but allows TSA to retain 

oversight of the project and control over the reimbursement of costs. Additionally, 

TSA submits an annual spend-plan to congressional appropriators detailing planned 

locations and funding for its in-line systems. To date, for the EBSP, TSA has executed 53 OTs valued at approximately $320 million. All of these OTs have been with 

airport operators which are public entities. 

2. Closed Circuit Television (CCTV) Other Transaction Agreements 

Expanding the views of an airport’s CCTV camera system to include views of the 

passenger checkpoints and baggage screening areas allows TSA to enhance security 

situation awareness, deter theft, aid in the resolution of claims, and assist in the 

resolution of law enforcement issues. Each airport uses established contracting processes to perform installation work (electrical, network connectivity, camera mounting, media storage capability) necessary to support the TSA camera views of passenger screening and baggage screening areas. Given the variety of local factors and 

conditions that affect airport funding and design decisions, developing a partnership 

between TSA and each airport ensures a mutually acceptable CCTV screening solution. 
9 

TSA benefits from the business relationships each airport establishes with their 

CCTV vendors as each CCTV system is unique to a particular airport. By providing 

funds to each airport via an OT that allows for the reimbursement of the costs of 

the installation of CCTV cameras and media storage capability, TSA benefits by 

sharing the burden of the installation management, logistics, and work performance. The OTA outlines the responsibilities of the airport and the TSA as well as 

provides the funding for the project. 

Each airport provides TSA a statement of work with a cost estimate for the camera views to be installed. The cost estimate is validated and an OT is executed with 

the airport for the project and monitored during the project’s performance. Installed 

CCTV products supplement each airport’s current CCTV system and are not owned 

by the TSA. Each airport is responsible for maintenance and repairs to ensure the 

uninterrupted operation of the CCTV system. To date, TSA has executed 32 OTs 

valued at approximately $32 million for CCTV projects. All of these OTs have been 

with airport operators which are public entities. 

S&T’s OT Authority 

DHS’ OT Authority exercised by OPO in support of S&T is very different from 

that used by TSA. The OPO Authority is derived from the Homeland Security Act 

of 2002 and the subject of GAO’s 2004 audit. Section 831 of Public Law 10–296, the 

Homeland Security Act of 2002, granted DHS its authority to enter into transactions 

(other than contracts, cooperative agreements, and grants) for basic, applied, and 

advanced research and development (R&D) projects as well as for prototype projects. 

This authority has since been codified in Title 6 of the United States Code (Subchapter VIII Part D Section 391, as amended. DHS’ R&D OT Authority is based on 

DoD’s authority (Section 2371 of Title 10, United States Code and Section 845 of 

Public Law 103–160). DHS appreciates that the recently passed DHS Appropriations Act (Public Law 110–161) includes a provision extending our OT R&D Authority through September 30, 2008, and we very much appreciate and fully support 

Ranking Member McCaul’s efforts through H.R. 4290 Homeland Security Technology Advancement Act to further extend our R&D OT Authority through September 30, 2012. 

This DHS R&D OT Authority provides a useful tool that enhances the Department’s ability to carry out basic, applied and advanced research and development; 

advance the development, test and evaluation, and deployment of critical homeland 

security technologies; and accelerate the prototyping and deployment of technologies 

to address homeland security vulnerabilities. This type of R&D OT Authority is especially useful in bringing non-traditional Government contractors to the Federal 

Research & Development environment, because the resultant OTs permit flexibilities in key areas to include application of cost accounting standards, submission of 

cost and pricing data, specific Federal Acquisition Regulation (FAR) provisions, and 

intellectual property rights. They are also useful for dual-use (Government/commercial) technologies in cases where the estimated cost of advancing those technologies 

is too great for industry to invest on its own or the risk is too immense for companies to commit to traditional contract terms and conditions. In these cases, OT Authority gives the Department access to more companies and commercially available 

technologies than would otherwise be the case and, in certain situations, is the only 

way to affordably advance the maturity level of technologies that will help us 

counter homeland security vulnerabilities. 

I previously mentioned that my first priority as CPO is to ‘‘make good business 

deals.’’ R&D OT Authority supports that goal by enhancing our ability to share the 

costs of maturing certain dual-use technologies with industry, thereby lowering the 

overall cost to the taxpayer. In a traditional contract, the Government usually pays 

the full cost of maturing that technology. Our OT Authority also gives us the ability 

to reach agreements with a consortium of providers, where such arrangements are 

more advantageous to the Government than traditional contracts (through prime 

and subcontractor agreements or establishment of joint ventures). 

I would like to take this opportunity to elaborate on several examples of DHS’ use 

of its OT Authority in support of the Under Secretary for Science & Technology: 

1. Lightweight Autonomous Chemical Identification System (LACIS) Project 

Under the LACIS Project, hand-held chemical agent detectors for first responders, 

e.g., fire departments, military HAZMAT teams, and industrial HAZMAT teams, are 

being developed by Sensor Research and Development, Corp., Smiths Detection— 

Edgewood, Inc., and Purdue University in collaboration with ICx Griffin Analytical 

Technologies. The current detectors, normally spectrometers, for chemical warfare 

agents and toxic industrial chemicals, tend to have a limited range, are expensive 

and are subject to false alarm from interference. The LACIS Project has been on 
10 

time and is overcoming limitations of the current technology at a relatively affordable cost. The use of an OT for this requirement has promoted flexibility in forming 

teaming arrangements involving both traditional and non-traditional participants. 

2. Autonomous Rapid Facility Chemical Agent Monitor (ARFCAM) 

Under the ARFCAM Project, autonomous chemical detectors for monitoring facilities, e.g., airports and train stations as well as other high-asset venues, are being 

developed by Hamilton Sundstrand Space Systems, Inc., Smiths Detection—Watford 

Inc., and Bruker Daltonics. The current commercial detectors, normally spectrometers, for chemical warfare agents and toxic industrial chemicals, tend to have a 

limited range, are expensive and are subject to false alarm from interference. The 

ARFCAM Project has been on time and is overcoming limitations of the current 

technology at a relatively affordable cost. The use of an OT for this requirement has 

promoted flexibility in forming teaming arrangements involving both traditional and 

non-traditional participants. 

3. BioWatch Generation 3 (BioAgent Autonomous Network Detector (BAND)) 

Program 

The purpose of the BAND Program is to develop a detect-to-treat biological detection sensor system that provides more rapid indications of the presence of biological 

agents compared to current state-of-the-art technology. This program is developing 

the next generation of BioWatch detectors and is critical to the BioWatch program. 

Currently, the BioWatch system consists of distributed collectors that sample on filters that are collected and centrally processed at local laboratories. This process has 

not provided information in as timely a response as the Department would have 

liked. 

With the use of our OT Authority, DHS has been able to prototype and test three 

BAND systems from three firms, IQuum, Inc., Microfluidic Systems, Inc., and U.S. 

Genomics, Inc. While each system is different, the systems have performed up to 

the rigorous objectives set by DHS. DHS objectives include having: a very high sensitivity in a cluttered background; an extended coverage area, i.e., with a networked 

system as opposed to a manual collection system; a very low false alarm rate, range 

of 1 per 10 to 100 years; and a low cost of ownership. Due to the projected reduced 

costs of these systems, a larger portion of the Nation’s population will be protected 

without incurring additional costs and with equivalent or better performance. 

Both the LACIS and BAND Programs resulted from Broad Agency Announcements (BAAs) designed to obtain proposals from teams that cut across organizational boundaries to achieve optimal mixes of talent and innovation. The BAAs specified that DHS would use its OT Authority to attract traditional and non-traditional 

firms individually and as teams. 

4. Countermeasures for the Man-Portable Air Defense System (Counter 

MANPADS) Program 

Under the DHS Counter-MANPADS Program, we have adapted military Directed 

InfraRed Counter Measure (DIRCM) technology to protect commercial transports 

from shoulder-launched surface-to-air missiles, called Man-Portable Air Defense 

Systems (MANPADS). The systems use existing military missile warning systems 

to detect MANPADS and cue an infrared laser to jam the missile guidance system. 

At the completion of the program, DHS expects to have two counter-MANPADS systems capable of being deployed on commercial transports. 

DHS realized savings in time by the use of OT agreements. After a full and open 

competition, three 6-month OTs were awarded for Phase I, which was less than 8 

weeks following program initiation. This rapid schedule was several months shorter 

than what would have been experienced for comparable programs of similar size and 

complexity using a FAR-based solicitation and contract award. The use of OT Authority for prototype projects will allow DHS to complete a three-phase system development, test, and operational evaluation program in 5 to 6 years compared to 

similar DoD programs that have been programmed since the mid-1990’s. The use 

of OT Authority also allowed us to select teams that included non-traditional mixtures of military and commercial contractors that would not have been possible 

under FAR-based contracts. 

In the second phase of the program, accomplished through a modification to an 

existing OT, design solutions were completed through prototype development and 

Federal Aviation Administration (FAA) certification for airworthiness. For this 

phase, the contractors fabricated, installed, and tested their prototypes on commercial aircraft. In the latest phase, the OT holders delivered and installed several complete countermeasure prototypes on commercial cargo and passenger aircraft and 

have continued demonstrating system performance. DHS is now evaluating the 

operational suitability and anticipated costs by collecting data during commercial 
11 

airline operations for each of the systems. Performance results achieved to date 

would not have been possible without the OTs because the non-traditional contractors (commercial airlines and associated operation and maintenance companies) 

would not have participated under a FAR-based contract. 

The following are Counter-MANPADS Program Highlights and Key Points: 

• Program on schedule—to be completed early 2009; • Systems can protect commercial transports; • Live fire test demonstrations Fall 2007 (October–December); • Four different FAA-certified installations; • Phase III reduced risk and cost of ownership; • DHS results are also improving DoD systems’ reliability and performance; • No deployment decision yet made. 

OTs, however, are not right for every situation, as the rights provided to the Government under an OT differ significantly from those provided under a traditional 

contract. While OTs are an extremely useful tool, they should only be used in appropriate situations by personnel that are knowledgeable of the advantages and disadvantages of OTs versus contracts and who are able to make informed decisions 

regarding which method is anticipated to provide better value to the Government. 

In that regard, on July 8, 2005, DHS issued Management Directive (MD) 0771.1, 

‘‘Other Transaction Authority,’’ to align OT Authority and accountability and provide policy and guidance on the Department’s use of OT Authority for research as 

well as for prototype projects. In accordance with this MD, I, as the Chief Procurement Officer, am responsible for setting policy, conducting oversight, and approving 

the use of OT Authority pursuant to the Homeland Security Act of 2002. I have further designated the DHS Director, Strategic Initiatives within OCPO as the authority to make Department-level decisions on R&D OTs. As indicated earlier, the only 

Heads of Contracting Activity within the Department with approval to use OT Authority are the Head of the Contracting Activity (HCA) for the Office of Procurement 

Operations (OPO), who reports directly to me, and the HCA for TSA under the authority of the Aviation and Transportation Security Act. 

While Other Transactions are not covered by the Competition in Contracting Act, 

OPO uses competitive procedures to the maximum extent practicable for its R&D 

OTs including soliciting through FedBizOpps and utilizing Broad Agency Announcements to reach a broad segment of the marketplace. For OTs where competition is 

determined not to be available or not appropriate (e.g., unsolicited proposals), the 

OT file is fully documented and, for OTs exceeding $550,000, documentation supporting the use of non-competitive procedures must be approved by the OPO Competition Advocate or higher (depending on OT total dollar value). Furthermore, OPO 

utilizes the audit services of the Defense Contract Audit Agency (DCAA) during its 

pre- and post-award phases for its R&D OTs, as it normally would for traditional 

contracts. 

GAO REVIEW OF DHS’ USE OF ITS RESEARCH & DEVELOPMENT OTHER TRANSACTION

AUTHORITY

In December 2004, the Government Accountability Office (GAO) released its report, HOMELAND SECURITY: Further Action Needed to Promote Successful Use of 

Special DHS Acquisition Authority in accordance with The Homeland Security Act 

of 2002 requirement for GAO to report annually to Congress on DHS’ use of its OT 

Authority. To fulfill this obligation, GAO: (1) Evaluated whether DHS has developed 

polices and established a workforce to manage other transactions effectively; and, 

(2) evaluated how effectively DHS has used its other transactions authority to attract non-traditional Government contractors. In its report, GAO made the following 

recommendations: 

(1) Provide guidance on including audit provisions in other transactions agreements; 

(2) Develop a training program in the use of other transactions; and 

(3) Capture knowledge obtained during the acquisition process for use in planning and implementing future other transactions projects. 

I am pleased to report that DHS has implemented all three GAO recommendations, as follows: 

Recommendation No. 1: Provide guidance on including audit provision in other 

transactions agreements. 

The Director of the Office of Procurement Operations (OPO), the primary HCA 

holding the Department’s Other Transaction Authority, has established procedures 

for conducting internal reviews and audits of all procurement documentation to ensure compliance with applicable Federal and departmental regulatory guidelines. 

The review and approval process for OTs has been integrated into OPO standard 
12 

business processes. In accordance with established procedures, all OTs valued at 

$550,000 or greater are reviewed by the Office of General Counsel and OPO Division Directors. OTs with an estimated value greater than $10 million are subject 

to additional review by the OPO Policy, Oversight and Customer Support Division, 

and OTs with an estimated value of $25 million or greater are reviewed by the OPO 

Acquisition Review Board, chaired by the OPO HCA and comprised of OPO Division 

Directors and representatives from S&T General Counsel. As the CPO, I approve 

all OPO OTs with a value over $50 million. OPO Contracting Officers assigned to 

support S&T are required to complete OT training. This training includes guidance 

on the appropriate audit provisions that should be included in OTs and securing 

audit services where appropriate. Currently, OPO Contracting Officers utilize the 

services of DCAA whenever possible for pre- and post-award support in evaluating 

proposals and auditing of OTs. 

Recommendation No. 2: Develop a training program in the use of other transactions. 

Recognizing the specialized nature and inherent complexities required to establish 

and effectively administer OTs for research and development and prototype requirements, the DHS OPO established specialized, recurring OTA Training for the OPO 

Contracting Workforce supporting S&T and their customers. During fiscal year 

2006, two 3-day OTA training sessions were conducted, and an additional two 3-day 

sessions were conducted in fiscal year 2007. OPO plans to continue this training in 

fiscal year 2008. This comprehensive OTA training provides specific guidance on 

OTAs for Prototype Projects, Assistance OTs, the acquisition of property, and foreign access to technology. Very importantly, the class also includes the necessary 

foundation in FAR-based research and development contracting, with a particular 

emphasis on the contract types suitable for S&T contracts. This foundational knowledge provides the Contracting Officer and members of the program office with the 

understanding of R&D contracting to ensure that the appropriate method of acquisition is selected. 

Recommendation No. 3: Capture knowledge obtained during the acquisition process 

for use in planning and implementing future other transactions projects. 

In July 2005, DHS OPO solicited support services from leading industry experts 

on the appropriate use and implementation of OTs. This expertise was utilized by 

DHS to develop policies and procedures for implementing the OT Authority within 

the Department, and to maximize lessons-learned from the application of OT Authority by defense agencies, military services and other Federal agencies. OPO continues to enlist the services of these industry experts to provide specialized OT 

training for the DHS acquisition workforce. OPO personnel refer to the OTA lessons-learned and training material when formulating OTs and conducting OTA policy reviews. 

In summary, OTs provide an essential tool to assist DHS with accomplishment 

of its mission. The tool is: especially useful in bringing non-traditional contractors 

to the Federal Research & Development environment; gives the Department access 

to more commercially available technologies than would otherwise be the case; promotes the development of dual-use technologies at a reduced overall cost to the taxpayer; and allows the Department to obtain proposals from teams that cut across 

organizational boundaries to achieve optimal mixes of talent and innovation. The 

tool, however, is not appropriate for all actions and requires an appropriate level 

of knowledge and experience to determine whether an OT or traditional contract 

provides the better value to the Government. As Chief Procurement Officer, I am 

responsible for setting policy, conducting oversight, and approving the use of OT Authority within DHS. We concur with the recommendations of the GAO and have implemented guidance, training, and knowledge sharing to ensure that our OTs are 

used appropriately. I have also directed that a statistical sample of TSA and OPO 

OTs be reviewed during regular Procurement Reviews and will update Departmental guidance, training and lessons-learned as appropriate. Additionally, I have 

directed a review of Management Directive (MD) 0771.1, ‘‘Other Transaction Authority,’’ and am assessing whether both OT Authorities should be covered by a single MD. 

Thank you, Mr. Chairman for your interest in and continued support of the DHS 

Acquisition Program and for the opportunity to testify before the subcommittee 

about the Department’s Other Transaction Authority. I would be glad to answer any 

questions you or other Members of the subcommittee may have for me. 

Mr. LANGEVIN. Thank you, Mr. Essig, and I thank you for your 

testimony. 
13 

I now recognize Ms. Halchin to summarize your statement for 5 

minutes. 

STATEMENT OF L. ELAINE HALCHIN, ANALYST, AMERICAN NATIONAL GOVERNMENT, CONGRESSIONAL RESEARCH SERVICE, ACCOMPANIED BY JOHN D. MOTEFF, SPECIALIST, 

SCIENCE AND TECHNOLOGY POLICY, CONGRESSIONAL RESEARCH SERVICE 

Ms. HALCHIN. Mr. Chairman and Members of the subcommittee, 

thank you for inviting me here today to offer testimony regarding 

the subject matter of this hearing, other transaction authority. 

I am Elaine Halchin, an analyst in American National Government with the Congressional Research Service of the Library of 

Congress. 

Other transaction authority originated 50 years ago. The Space 

Act of 1958, as amended, authorized the National Aeronautics and 

Space Administration to enter into and perform such contracts, 

leases, cooperative agreements or other transactions as may be necessary in the context of its work. However, other transaction authority, as it exists today, began in 1989. 

The Department of Defense received statutory authority to engage in other transactions through the Defense Advanced Research 

Projects Agency for research projects. Other executive departments 

that have been authorized by statute to engage in other transactions are the Department of Transportation, the Department of 

Energy and of course the Department of Homeland Security. 

Other Federal agencies that engage in research also may use OT 

authority for projects designed to facilitate defending against or recovering from acts of terrorism or nuclear, biological, chemical or 

radiological attacks. Other transaction authority may be used for 

research and for prototypes. 

Providing OT authority to DARPA and later expanding the authority for use within DOD was part of an effort by the Defense 

Department and Congress to seek ways to better leverage the commercial technology and industrial base. This effort was based on 

the argument that the technical capabilities of the commercial 

technology industrial base exceeded those of the traditional defense 

sector in some areas and that such transactions would cost the 

Government less money due to greater economies of scale and preexisting investments. 

However, the regulations and statutes governing traditional procurement methods were a barrier to some businesses. Companies 

that were unable or unwilling to comply with the Federal acquisition regulation did not enter into contracts with the Federal Government OT authority is a wholesale way of waiving these and 

other procurement requirements. 

In addition, it was anticipated that other transactions would encourage cost sharing, which would result in savings for the Government. 

Since an other transaction is not a contract, the FAR, a number 

of procurement statutes and the Government’s cost accounting 

standards do not apply to such transactions. In 2000, an ad hoc 

working group affiliated with the public contract law section of the 

American Bar Association published a monograph on the applica-
14 

bility of relevant statutes to DOD’s OT authority. Although the 

monograph includes some statutes and provisions that apply only 

to DOD, the analysis of other statutes is applicable to non-DOD 

agencies. 

Upon analyzing 30 statutes or statutory provisions, the working 

group determined that 20 of them do not apply to other transactions. Two others that do not apply to research OTs may apply 

to prototype OTs. The list of statutes, which may be found in table 

one of my testimony, includes, for example, the Competition and 

Contracting Act, the Procurement Protest System and the Procurement Integrity Act. 

Freedom from Federal procurement requirements is an overarching advantage of the use of OT authority, but, at the same 

time, problems associated with other transactions may follow from 

this exemption. Agencies and companies that engage in OTs might 

face uncertainties and increased risk regarding, for example, funding limitations, dispute resolution and data rights. 

Also, the protection and tools that contracting officers have to negotiate fair and reasonable prices and to ensure that costs are allowable and consistent with Federal procurement policies do not 

apply to other transactions. 

Additionally, the DOD inspector general has reported that some 

contracting officers fail to sufficiently document the justification for 

using research OTs, to document the review of cost proposals and 

to monitor actual research costs. Thus, the flexibility inherent in 

OT authority, which is a significant advantage of using this method, might also result in fewer protections and decreased transparency and accountability when compared to conventional procurement methods. 

A DOD IG summary of several audits that it had conducted 

found that other transactions had not attracted a significant number of nontraditional defense contractors. Data for the period, fiscal 

year 1994 through fiscal year 2001, showed that traditional defense 

contractors received nearly 95 percent of the $5.7 billion in funds 

for 209 prototype other transactions. 

In 2002, the RAND Corporation evaluated the effectiveness of 

using OT authority for prototypes within DOD. The study examined 21 of the 72 prototype projects that at the time of the study 

had been awarded using other transaction authority. Due to a 

number of challenges that involved devising metrics for determining whether OT projects achieved policy objectives and comparing other transactions with traditional procurements, the study 

relied largely on the judgments and opinions provided by DOD and 

private sector program managers. 

The RAND study concluded that, first, DOD had gained access 

to important, new industrial resources; second, the flexibility permitted by other transaction authority meant that more of the 

project cost was spent on the product, then on the acquisition process; and, third, the Government did incur some risks but RAND 

considered the risks to be low. 

On the one hand, it is not possible to determine conclusively 

whether the use of OT authority accomplishes what is intended, including higher performance and less expensive Government end 

products; however, the RAND study and the judgments of many 
15 

1 American Bar Association, Section of Public Contract Law, Ad Hoc Working Group on Other 

Transactions, Department of Defense ‘‘Other Transactions’’: An Analysis of Applicable Laws, 

American Bar Association (Chicago: 2000), p. 3. The statutory authority for NASA to engage in 

‘‘other transactions’’ may be found at 42 U.S.C. § 2473 (Pub. L. 85–569; 72 Stat. 426, at 430). 2 Nancy O. Dix, Fernand A. Lavallee, and Kimberly C. Welch, ‘‘Fear and Loathing of Federal 

Contracting: Are Commercial Companies Really Afraid to Do Business with the Federal Government? Should They Be?’’ Public Contract Law Journal, vol. 33, fall 2003, p. 25. The statutory 

authority for DOD to engage in ‘‘other transactions’’ may be found at 10 U.S.C. § 2371 (Pub. 

L. 101–189, as amended; 103 Stat. 1352, at 1403). 3Sec. 251(a) of Pub. L. 101–189. 

4Sec. 845 of Pub. L. 103–160; 107 Stat. 1547, at 1721. The authority for DOD to use other 

transaction authority for advanced research and prototype projects is codified in 10 U.S.C. 

§ 2371 and 10 U.S.C. § 2371 note, respectively. 5The statutory authority for each department is as follows: Department of Transportation, 23 

U.S.C. § 502; Pub. L. 105–178; 112 Stat. 107, at 422; the Department of Homeland Security, 

Pub. L. 107–296; 116 Stat. 2135, at 2224; and the Department of Energy, 42 U.S.C. § 7256; Pub. 

L. 109–58; 119 Stat. 594, at 932. 6 41 U.S.C. § 428a note; Sec. 1441(a)(B) of Pub. L. 108–136; 117 Stat. 1392, at 1673. 

people involved in OTs suggests that the use of this authority does 

expand Government access to commercial technology and production capacity and involves lower transaction costs and reduced 

risks for the projects. 

Evaluating how DHS has used other transaction authority and 

whether the use has been successful would be a complex undertaking for several reasons, including some of the challenges encountered by RAND in the course of conducting its study. 

Adding to the complexity of such an undertaking would be the 

need to do field research to obtain information that is sufficiently 

detailed and comprehensive. 

This concludes my statement. Thank you for your attention. I am 

accompanied by a colleague, Dr. Jack Moteff, who is a specialist in 

science and technology policy with CRS. We welcome your questions. 

[The statement of Dr. Halchin follows:] 

PREPARED STATEMENT OF L. ELAINE HALCHIN

FEBRUARY 7, 2008 

Mr. Chairman and Members of the subcommittee, thank you for inviting me here 

today to offer testimony regarding the subject matter of this hearing, other transaction authority. I am Elaine Halchin, an Analyst in American National Government with the Congressional Research Service of the Library of Congress. 

ORIGIN AND EXPANSION OF OTHER TRANSACTION (OT) AUTHORITY

Other transaction (OT) authority originated 50 years ago.1 The Space Act of 1958, 

as amended, authorized the National Aeronautics and Space Administration (NASA) 

to ‘‘enter into and perform such contracts, leases, cooperative agreements, or other 

transactions as may be necessary in the conduct of its work... ’’. However, other 

transaction authority, as it exists today, began in 1989.2 With the enactment of Public Law 101–189, the Department of Defense (DOD) was authorized to use cooperative agreements and ‘‘other transactions,’’ through the Defense Advanced Research 

Projects Agency (DARPA), for advanced research projects.3 Subsequent legislation 

broadened this authority so that, first, it could be used for prototype projects and, 

second, it could be used throughout DOD, including the military departments.4

Other executive departments that have been authorized, by statute, to engage in 

‘‘other transactions’’ are the Department of Transportation (DOT), the Department 

of Energy (DOE), and the Department of Homeland Security (DHS).5 Additionally, 

executive agencies that engage in research as well as research and development 

projects that have the potential to facilitate defense against, or recovery from, acts 

of terrorism or nuclear, biological, chemical, or radiological attacks are authorized 

to engage in ‘‘other transactions.’’6
16 

7One of the many influential recommendations of the President’s Blue Ribbon Commission 

on Defense Management (known as the Packard Commission), in its report A Quest for Excellence (June 1986), was that the Department of Defense should expand the use of commercial 

products. See also Defense Science Board, Use of Commercial Components in Military Equip- ment, 1986 and 1989; The Center for Strategic and International Studies, Integrating Commercial and Military Technologies for National Strength: An Agenda for Change (Washington: 1991); 

and U.S. Office of Technology Assessment, Assessing the Potential for Civil-Military Integration, OTA–ISS–611, 1994. 8 Nancy O. Dix, Fernand A. Lavallee, and Kimberly C. Welch, ‘‘Fear and Loathing of Federal 

Contracting: Are Commercial Companies Really Afraid to Do Business with the Federal Government? Should They Be?’’ p. 26. 9 Richard N. Kuyath, ‘‘The Untapped Potential of the Department of Defense’s ‘Other Transaction’ Authority,’’ Public Contract Law Journal, vol. 24, summer 1995, pp. 526–527. 10Diane M. Sidebottom, ‘‘Intellectual Property in Federal Government Contracts: The Past, 

the Present, and One Possible Future,’’ Public Contract Law Journal, vol. 33, fall 2003, p. 65. 11See Center for Strategic and International Studies, Integrating Commercial and Military 

Technologies for National Strength: An Agenda for Change. Another barrier was the use of military specifications (MilSpecs). 12 Executive agencies, contractors, and subcontractors are required to use the cost accounting 

standards developed by the Cost Accounting Standards Board (CASB) ‘‘in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of 

disputes concerning, all negotiated prime contract and subcontract procurement within the 

United States in excess of $500,000.’’ (U.S. Office of Management and Budget, ‘‘Cost Accounting 

Standards Board,’’ available at http://www.whitehouse.gov/omb/procurement/casb.html.) The 

CASB is located within the Office of Management and Budget, Office of Federal Procurement 

Policy. 

RATIONALE FOR OTHER TRANSACTION AUTHORITY

Providing OT authority to DARPA and, later, expanding the authority for use 

within DOD, was part of an effort by the Defense Department and Congress to seek 

ways to better capitalize on the commercial technology and industrial base. This effort was based on the argument that the technical capabilities of the commercial 

technology and industrial base exceeded those of the traditional defense sector in 

some areas, and cost less due to greater economies of scale and pre-existing investments.7 One element of this effort was to encourage greater cooperation between 

DOD and companies (or vendors) in developing new technologies of mutual interest. 

Specifically, the purpose of OT authority for DOD, in particular, was, and ‘‘is to enhance the state-of-the-art, demonstrate technology, transfer technology, establish industrial capabilities, and otherwise advance national capabilities so that the United 

States’ technological base will be capable of supporting the most advanced defense 

systems in the future.’’8

However, the regulations and statutes governing traditional procurement methods 

were a barrier to some businesses. Companies that were unable, or unwilling, to 

comply with the Federal Acquisition Regulation (FAR) and procurement statutes did 

not enter into contracts with the Federal Government. For example, prior to the enactment of OT authority, DARPA missed ‘‘numerous opportunities to contract with 

companies that were developing some of the most promising new technologies’’ reportedly because they had ‘‘neither the capability nor the desire to do business with 

the Government through the procurement process.’’9 Two particular areas of concern 

for some companies were data rights and the Federal Government’s cost accounting 

standards. As the value of intellectual property, or data, has grown, companies are 

said to be less willing ‘‘to accept the standard clauses [on data rights] required 

by . . . Federal procurement laws and regulations.’’10 As for cost accounting standards, the often-heard complaint was that commercially oriented firms would have 

to establish separate divisions or contracting functions to accommodate the relatively unique Federal cost accounting standards.11 Other transaction authority was 

a wholesale way of waiving these and other procurement requirements that served 

as barriers to some companies. In addition, it was anticipated that ‘‘other transactions’’ would encourage cost sharing, which would result in savings. Commercial 

firms agree to cost sharing because the technology under development benefits the 

company commercially, and, typically, commercial markets are much larger than 

the Government market. 

APPLICABILITY OF THE FEDERAL ACQUISITION REGULATION AND PROCUREMENT

STATUTES TO OTHER TRANSACTIONS

Since an ‘‘other transaction’’ is not a contract, the Federal Acquisition Regulation, 

a number of procurement statutes, and the Government’s Cost Accounting Standards do not apply to such transactions.12 Determining which procurement statutes 

do not apply to ‘‘other transactions’’ is a lengthy, involved process. In 2000, an ad 

hoc working group affiliated with the Public Contract Law Section of the American 
17 

13 American Bar Association, Section of Public Contract Law, Ad Hoc Working Group on Other 

Transactions, Department of Defense ‘‘Other Transactions’’: An Analysis of Applicable Laws, pp. 

27–31. 14 Ibid., p. 26. 

Bar Association (ABA) published a monograph on the applicability of relevant statutes to DOD’s other transaction authority. Although the monograph includes some 

statutes and provisions that apply only to DOD procurement, the analysis of other 

statutes is applicable to non-DOD agencies. 

Upon analyzing 30 statutes or statutory provisions, the working group determined 

that 20 of them do not apply to ‘‘other transactions,’’ and two others that do not 

apply to research OTs may apply to prototype OTs.13 The list of statutes, shown in 

Table 1, includes, for example, the Competition in Contracting Act, the Procurement 

Protest System, and the Procurement Integrity Act. 

Finally, it should be noted that, in describing the challenges of analyzing each 

statute, the Ad Hoc Working Group pointed out that its analysis of statutes may 

not be conclusive in some cases.14

TABLE 1.—STATUTES AND STATUTORY PROVISIONS THAT DO NOT APPLY 

TO OTHER TRANSACTIONS 

Statute or Statutory Provision * Purpose of Statute or Statutory Provision ** 

Competition in Contracting Act (CICA) ..

10 U.S.C. §§ 2301 et seq.; 

41 U.S.C. §§ 253 et seq. 

‘‘To promote the use of competitive procedures and prescribe uniform Government-wide policies and procedures regarding contract formation, award, 

publication, and submission of cost or 

pricing data.’’ 

Contract Disputes Act ..............................

41 U.S.C. §§ 601 et seq. 

‘‘To create a comprehensive, fair, and 

balanced statutory scheme of administrative and legal remedies for claims 

under Government contracts.’’ 

Procurement Protest System (Subtitle D 

of CICA).

‘‘To provide a statutory basis for procurement protests by interested parties to 

the Comptroller General.’’ 

Kinds of Contracts ....................................

10 U.S.C. § 2306 

‘‘To establish various restrictions on the 

terms and conditions of contracts.’’ 

Examination of records of contractor ......

10 U.S.C. § 2313 

‘‘To provide authority to the contracting 

agency to access a contractor’s records 

or plants in order to perform audits of 

the contractor.’’ 

Contracts: acquisition, construction, or 

furnishing of test facilities and equipment [to R&D contractors].

10 U.S.C. § 2353 

‘‘To provide authority for acquisition, 

construction, or furnishing of test facilities or equipment in connection 

with R&D contracts.’’ 

Contracts: indemnification provision ......

10 U.S.C. § 2354 

‘‘To authorize the Military Departments 

to include provisions in DOD R&D 

contracts indemnifying the contractor 

for certain claims and losses.’’ 

Prohibition against doing business with 

certain offerors.

10 U.S.C. § 2393 

‘‘To prohibit the award by the Department of Defense of contracts, or in 

some cases subcontracts, to firms that 

have been debarred or suspended by 

another agency.’’ 

Major weapon systems: contractor guarantees.

10 U.S.C. § 2403 

‘‘To provide warranty protection to the 

Government for major weapons systems it acquires.’’ 

Prohibition on persons convicted of defense contract related felonies and related criminal penalties as defense 

contractors.

10 U.S.C. § 2408 

‘‘To prevent persons convicted of fraud or 

any other felony arising out of a defense contract from further participating in contracts with the Department of Defense for a specified statutory period.’’ 
18 

TABLE 1.—STATUTES AND STATUTORY PROVISIONS THAT DO NOT APPLY 

TO OTHER TRANSACTIONS—Continued 

Statute or Statutory Provision * Purpose of Statute or Statutory Provision ** 

Contractor employees: protection from 

reprisal for disclosure of certain information.

10 U.S.C. § 2409 

‘‘To prohibit contractors from discharging, demoting, or discriminating 

against employees who disclose substantial violations of law related to 

contracts.’’ 

Limitation on the use of appropriated 

funds to influence certain Federal contracting and financial transactions.

31 U.S.C. § 1352 

‘‘To prohibit recipients and requesters of 

Federal contracts, grants, or cooperative agreements from using appropriated funds to pay any person to influence or to attempt to influence executive or legislative decisionmaking in 

connection with the awarding of any 

Federal contract or grant, the making 

of any Federal loan, or the entering 

into of any cooperative agreement.’’ 

Anti-Kickback Act .....................................

41 U.S.C. §§ 51–58c 

‘‘To eliminate the practice of subcontractors paying kickbacks in the form of 

fees, gifts, gratuities, or credits to 

higher tier subcontractors or prime 

contractors for the purpose of securing 

the award of subcontracts or orders.’’ 

Procurement Integrity Act .......................

41 U.S.C. § 423 

‘‘To ensure the ethical conduct of Federal 

agency procurements by prohibiting 

certain Government officials from accepting compensation from or discussing future employment with bidders or offerors, and prohibiting the 

unauthorized receipt or disclosure of 

contractor bid and proposal information or source selection information before the award of a Federal agency 

procurement contract.’’ 

Walsh-Healey Act .....................................

41 U.S.C. §§ 35–45*** 

‘‘To require all covered contracts to contain stipulations regarding minimum 

wages, maximum hours, safe and sanitary working conditions, child labor, 

and convict labor requirements.’’ 

Drug-Free Workplace Act .........................

41 U.S.C. §§ 701–707 

‘‘To eliminate any connection between 

drug use or distribution and Federal 

contracts, cooperative agreements, or 

grants.’’ 

Buy American Act .....................................

41 U.S.C. § 10a–10d 

‘‘To provide a preference for domestic 

products in Government acquisition for 

public use.’’ 

Bayh-Dole Act ...........................................

35 U.S.C. §§ 200–212 

‘‘To set forth Government’s policy regarding allocation of patent rights to inventions conceived or first actually reduced to practice under contracts, 

grants, and cooperative agreements 

with small business firms and educational and other nonprofit organizations.’’**** 

Technical data provisions applicable to 

DOD.

10 U.S.C. §§ 2320 and 2321 

‘‘To provide for regulations to define the 

legitimate interest of the United 

States and of a contractor or subcontractor in technical data pertaining to 

an item or process.’’ 

Truth in Negotiations Act ........................

10 U.S.C. § 2306a 

‘‘To require the submission of cost or 

pricing data on negotiated contracts in 

excess of $500,000, as well as for certain subcontracts and contract modifications.’’ 
19 

15 Ibid., p. 2; U.S. Department of Defense, Office of the Inspector General, ‘‘Statement for the 

Record, Robert J. Lieberman, Deputy Inspector General, Department of Defense, to the Subcommittee on Technology and Procurement Policy, House Committee on Government Reform, on 

The Services Acquisition Reform Act (SARA) of 2002,’’ Mar. 12, 2002, Report No. D–2002–064, 

p. 14. 16 Ibid., p. 11. 17 Ibid. 18 Ibid., p. 12. 19 A ‘‘nontraditional defense contractor’’ is ‘‘an entity that has not, for a period of at least 1 

year prior to the date that a transaction (other than a contract, grant, or cooperative agreement) 

for a prototype project under the authority of this section [Sec. 845 of Pub. L. 103–160] is entered into, entered into or performed with respect to—(1) Any contract that is subject to full 

coverage under the cost accounting standards prescribed pursuant to section 26 of the Office 

of Federal Procurement Policy Act (41 U.S.C. 422) and the regulations implementing such section; or (2) any other contract in excess of $500,00 to carry out prototype projects or to perform 

basic, applied, or advanced research projects for a Federal agency, that is subject to the Federal 

Continued 

TABLE 1.—STATUTES AND STATUTORY PROVISIONS THAT DO NOT APPLY 

TO OTHER TRANSACTIONS—Continued 

Statute or Statutory Provision * Purpose of Statute or Statutory Provision ** 

Cost Accounting Standards ......................

41 U.S.C. § 422 

‘‘To provide for the promulgation of uniform standards for allocating costs to 

Government contracts.’’ 

Cost Principles ..........................................

10 U.S.C. § 2324 

‘‘To provide for the disallowance of certain costs under flexibly priced contracts and prescribe penalties for the 

submission of claims for unallowable 

costs.’’ 

Source: American Bar Association, Section of Public Contract Law, Ad Hoc Working Group 

on Other Transactions, Department of Defense ‘‘Other Transactions’’: An Analysis of Applicable 

Laws, American Bar Association, (Chicago: 2000), pp. 27–31. 

* The source of the name or descriptive information in this column is American Bar Association, Section of Public Contract Law, Ad Hoc Working Group on Other Transactions, Department of Defense ‘‘Other Transactions’’: An Analysis of Applicable Laws, pp. 27–29. 

** Ibid., pp. A–1—A–57. 

*** This provision or statute does not apply to ‘‘other transactions’’ involving research and 

development, but it may apply to ‘‘other transactions’’ involving prototypes. (Ibid., pp. 30–31.) 

**** The phrase ‘‘first actually reduced to practice’’ refers to a working model of the idea or 

invention. 

CONCERNS REGARDING THE USE OF OTHER TRANSACTION AUTHORITY

Freedom from Federal procurement requirements is an overarching advantage of 

the use of OT authority, but, at the same time, problems associated with ‘‘other 

transactions’’ may follow from this exemption. In the absence of certain statutes and 

regulations that apply to traditional procurements, agencies and companies that engage in OTs might face uncertainties, and increased risk, with regard to some issues 

or procedures, such as funding limitations, dispute resolution, and data rights.15 Additionally, the protections and tools that contracting officers have ‘‘to negotiate fair 

and reasonable prices, and to ensure that taxpayer dollars are expended for costs 

which are allowable and consistent with Federal procurement policies’’—such as the 

Truth in Negotiations Act, cost accounting standards, and various audit provisions— 

do not apply to ‘‘other transactions.’’16 These are some of the tools ‘‘that have provided contracting officers’ visibility into contractor costs and help the government 

ensure that prices negotiated and eventually paid are reasonable.’’17 As the DOD 

Inspector General (IG) found, even within the contracting office, problems may 

arise. The IG reported that ‘‘some contracting officers [failed:] (a) to sufficiently document the justification for using [research and development] OTs, (b) to document 

the review of cost proposals, and (c) to monitor actual research costs.’’18 Thus, the 

flexibility inherent in OT authority, which is a significant advantage of using this 

method, might also result in fewer protections and decreased transparency and accountability when compared to conventional procurements. 

HOW WELL DOES OT AUTHORITY WORK?

A DOD IG summary of several audits that it had conducted found that ‘‘other 

transactions’’ had not attracted a significant number of nontraditional defense contractors.19 Data for the period fiscal year 1994 through fiscal year 2001 showed that 
20 

Acquisition Regulation.’’ (10 U.S.C. § 2371 note.) Apparently, this definition also applies to 

‘‘other transactions’’ that involve research. 20 U.S. Department of Defense, Office of the Inspector General, ‘‘Statement for the Record, 

Robert J. Lieberman, Deputy Inspector General, Department of Defense, to the Subcommittee 

on Technology and Procurement Policy, House Committee on Government Reform, on The Services Acquisition Reform Act (SARA) of 2002,’’ Mar. 12, 2002, Report No. D–2002–064, pp. 11– 

12. 21 Ibid., p. 12. 22 Ibid. 23 RAND, National Defense Research Institute, Document Briefing, Assessing the Use of 

‘‘Other Transactions’’ Authority for Prototyping Project (Santa Monica: 2002). 24 Another earlier assessment of DARPA’s use of ‘‘other transactions’’ for research and development was prepared for DARPA by the Institute for Defense Analyses, Participant Views of 

Advanced Research Projects Agency ‘‘Other Transactions’’, IDA Document D–1793, Nov. 1995. 

The observations recorded in this report are generally similar to those in the RAND report; i.e., 

flexibility was important, and the work would not have occurred without using ‘‘other transactions’’ agreements. 25 RAND, National Defense Research Institute, Document Briefing, Assessing the Use of 

‘‘Other Transactions’’ Authority for Prototyping Project, pp. 9–10. 26 Ibid., pp. 27–28. 

traditional defense contractors received nearly 95 percent of the $5.7 billion in funds 

for 209 prototype ‘‘other transactions.’’20

The DOD IG also provided the following suggestions involving OT authority: (a) 

Consider the use of OT authority only when it is clear that the agency cannot acquire the goods, services, and technologies through existing vehicles (for example, 

contracts, grants, or cooperative agreements); and (b) tailor OT legislation so that 

such transactions are used only to attract nontraditional contractors and only for 

transactions involving technologies, research capabilities, and processes that are not 

available through traditional procurement methods.21 The DOD IG also recommended that audit access rights be given to the Government for OTs, and that, 

for research OTs, agency heads be required to make a determination that an OT 

is necessary to convince a nontraditional contractor to engage in a project with the 

Government. Additionally, the determination would include a finding that a contract, grant, or cooperative agreement is not appropriate or feasible and a statement 

that waivers to procurement regulations and statutes are not sufficient for meeting 

the agency’s needs.22

In 2002, the RAND Corporation evaluated the effectiveness of using other transaction authority for prototypes within DOD.23 Although the study focused on prototypes, it seems likely that most of the findings of the study might equally apply to 

research projects.24 Specifically, the RAND study asked the following question: Do 

the benefits expected from waiving the Federal Acquisition Regulation justify the 

possible costs that might be incurred? The study examined 21 of the 72 prototype 

projects that, at the time of the study, had been awarded using other transaction 

authority. The study noted the difficulties involved in devising metrics for determining whether ‘‘other transaction’’ projects achieved policy objectives. In this study, 

the number of nontraditional contractors was ruled out as a potential metric for 

being an unreliable measure. Another potential metric, cost avoidance, was rejected 

for being unverifiable. Additionally, the authors of the study noted that it is not 

practical to compare ‘‘other transactions’’ with traditional procurements for two reasons: (a) It is impossible to find truly analogous projects; and, (b) there is no way 

to determine what would have occurred if a different procurement method had been 

used. Therefore, the study relied largely on the judgments and opinions provided by 

DOD and contractor program managers who had experience with both types of 

OTs.25 The RAND study concluded that: (a) DOD had gained access to important 

new industrial resources; (b) the flexibility permitted by other transaction authority 

meant that more of the project cost was spent on the product than on the acquisition process; and, (c) the Government did incur some risks, but those risks were low. 

Another finding of the study was that those transactions in which data rights and 

cost accounting standards had been loosened the most involved firms that expected 

the commercial sector to be the main market for the technology under development 

with the Government. These firms had already expended their own resources on the 

technology, and they brought their own commercial assets and funds to the Government project. The study suggested that applying acquisition regulations to this type 

of project would most probably mean that such projects would not be accomplished.26

On the one hand, it is not possible to determine conclusively whether the use of 

other transaction authority accomplishes what is intended, including higher performance and less expensive Government end-products. However, the RAND study 

and the judgments of many people involved in OTs suggest that the use of OT au-
21 

27The term ‘‘nontraditional Government contractor’’ has the same meaning as ‘‘nontraditional 

defense contractor,’’ which is defined in Sec. 845(e) of Pub. L. 103–160 and 10 U.S.C. § 2371 

note. The definition also is included above, in another footnote. 

thority does expand Government access to commercial technology and production capacity and involves lower transaction costs and reduced risks for the projects. 

DHS’S EXPERIENCE WITH OTHER TRANSACTION AUTHORITY

Evaluating how DHS has used other transaction authority, and whether the use 

has been successful, would be a complex undertaking for several reasons, including 

some of the challenges encountered by RAND in the course of conducting its study. 

Adding to the complexity of such an undertaking would be the need to do field research to obtain information that is sufficiently detailed and comprehensive. An 

evaluation might include a series of questions such as these: 

• What companies are involved in OT projects? 

• What does each company bring to the project in terms of technology, manufacturing capability, or engineering resources? 

• To what extent do each company’s resources reside in, or take advantage of, the 

commercial market? 

• How much cost sharing, if any, has occurred? 

• Has the Department experienced any unintended consequences as a result of 

using OT authority? 

• How have DHS and its partners addressed certain elements of their transactions, such as data rights and cost accounting standards? 

• For OTs that have been completed, did the terms and results of the transactions 

match the rationale for and expected benefits of the transactions? 

• How many nontraditional Government contractors and traditional contractors 

have participated in DHS transactions? 27

• Finally, based on these questions and possibly others, has OT authority enabled 

DHS to acquire research, technologies, and prototypes that it would not have 

been able to acquire otherwise? 

This concludes my remarks. Thank you for your attention. I am accompanied by 

a colleague, Dr. John Moteff, who is a Specialist in Science and Technology Policy 

with CRS. We welcome your questions. 

Mr. LANGEVIN. Thank you, Ms. Halchin. Thank you for your testimony. 

I now recognize Mr. Needham to summarize your statement for 

5 minutes. 

Welcome. 

STATEMENT OF JOHN K. NEEDHAM, ACTING DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT 

ACCOUNTABILITY OFFICE 

Mr. NEEDHAM. Thank you, Mr. Chairman, Ranking Member 

McCaul and other Members of the subcommittee. I appreciate the 

opportunity to discuss the Department of Homeland Security’s use 

of other transaction authorities under the Homeland Security Act. 

I am John Needham, acting director of the Acquisition and 

Sourcing Management Team of the Government Accountability Office. 

In my statement, I am going to cover three points. First is the 

extent of DHS’ use of OT authority under the Homeland Security 

Act, the status of DHS’ implementation of GAO’s previous recommendations and accountability challenges associated with the 

use of these agreements based on GAO’s previous work at the Department of Homeland Security and the Department of Defense. 

While OTs provide great flexibility in attracting contractors that 

have not typically pursued Government contracts, they also carry 

the risk of reduced accountability and transparency, and fewer 

safeguards have been found FAR-based procurements. Accordingly, 
22 

GAO will be continuing to review DHS’ use of OT agreements this 

year. 

In discussing the extent to which DHS has used its authority, I would point out that the $153 million that DHS spent on OTAs in 

the Science and Technology Directorate in 2006 is approximately 1 

percent of DHS’ total procurement obligations. Based on data that 

we recently reviewed, DHS entered into 37 OT agreements between 

fiscal years 2004 and 2007, most of which were initiated in 2004 

and 2005. 

Though it is using its authority less frequently, it continues to 

obligate funds for its earliest agreements. The agreements from the 

first 2 years account for 88 percent of OT spending by DHS in its 

Science and Technology Directorate. Furthermore, about 77 percent 

of dollars spent on these agreements have been obligated under 

seven of DHS’ 37 agreements. According to DHS, all the agreements to date were for prototype projects and that each included 

at least one nontraditional contractor. 

Regarding the recommendations that we made in our 2004 and 

2005 reports, DHS has taken several steps to address these recommendations. It has created guidance on when to include audit 

provisions in OT agreements, established a training program on 

using these agreements and improved controls over potential conflicts of interest. 

However, it has not implemented all of them. For example, we 

also recommended that DHS capture knowledge gained from OTs 

it has awarded, while DHS has compiled lessons that relate to 

DOD rather than DHS’ experience, as opposed to that of DOD. 

Challenges that I would like to talk about are the four, and they 

are inherent in the flexibilities provided by OT authority. The first 

is attracting and ensuring the use of nontraditional contractors. 

DHS has said that it had the nontraditional contractor involved in 

each of its 37 OT agreements in the Science and Technology Directorate. 

It should be noted that DHS’ management directive identifies 

conditions under which it can enter into OTs without using nontraditional contractors. While we have not assessed the extent of 

the involvement of nontraditional contractors or what portion of 

the funding they receive; however, our review of OT agreements at 

DOD found that DOD departed from the original rationale of using 

these agreements, as most were entered into with traditional DOD 

contractors and nonprofit institutions. 

Second, intellectual property rights. A large appeal of using an 

OT is to provide greater protection to a firm’s intellectual property 

rights. Alternatively, and just as important, insufficient intellectual 

property rights on the part of the Government could hinder the 

Government’s ability to adapt developed technology for use outside 

the initial scope of the project. Therefore, while an OT agreement 

may help reduce the development costs early on, there is no assurance that the total cost to the Government will be reasonable when 

the cost of producing the final product is considered as well. 

Third, financial controls and cost accounting. OTs are exempt 

from cost accounting standards and audit requirements. While OT 

recipients have flexibility in tracking costs, they still need to provide cost information and demonstrate that Government funds are 
23 

being used responsibly. This is particularly true for traditional contractors that are performing work under both FAR-based contracts 

as well as OT agreements. 

Furthermore, DHS also needs a way to assess the reasonableness 

of the contractor’s reported value of in-kind contributions. 

Now, finally, maintaining a skilled acquisition force is also a key 

challenge. As prior GAO work has noted, maintaining institutional 

knowledge sufficient to maintain Government control and contractual-type relationships is critical. The unique nature of OT agreements means that the Federal Government acquisition staff working with these agreements need to be experienced in doing R&D acquisitions, have strong business acumen and sound judgment to operate effectively in a relatively unstructured business environment. 

Retaining a skilled acquisition workforce has been a continual 

challenge at DHS overall, and we have ongoing work in this area 

for this committee. 

Mr. Chairman, this concludes my oral statement. I would be 

pleased to take questions from the subcommittee Members. Thank 

you. 

[The statement of Mr. Needham follows:] 

PREPARED STATEMENT OF JOHN K. NEEDHAM

FEBRUARY 7, 2008 

DEPARTMENT OF HOMELAND SECURITY: STATUS AND ACCOUNTABILITY CHALLENGES

ASSOCIATED WITH THE USE OF SPECIAL DHS ACQUISITION AUTHORITY

GAO HIGHLIGHTS: HIGHLIGHTS OF GAO–08–471T, A REPORT TO THE SUBCOMMITTEE ON

EMERGING THREATS, CYBERSECURITY, AND SCIENCE AND TECHNOLOGY, COMMITTEE

ON HOMELAND SECURITY COMMITTEE, HOUSE OF REPRESENTATIVES

Why GAO Did This Study 

Other transaction authority was created to enhance the Federal Government’s 

ability to acquire cutting-edge science and technology by attracting nontraditional 

contractors that have not typically pursued Government contracts. The Homeland 

Security Act of 2002 granted the Department the temporary authority to enter into 

other transactions for research and prototype projects for a period of 5 years. The 

Consolidated Appropriations Act of 2008 extended this authority until September 

30, 2008. 

This testimony discusses: (1) The extent to which DHS has used its other transaction authority, (2) the status of DHS’s implementation of GAO’s previous recommendations, and (3) the accountability challenges associated with the use of 

these agreements. 

What GAO Recommends 

While GAO is not making recommendations in this testimony, GAO has made recommendations over the past few years to help improve DHS’s Science and Technology Directorate’s use its other transaction authority. The Department has generally concurred with these recommendations and has taken action to improve its 

use of other transaction authority, but has not fully addressed all of GAO’s recommendations. 

DEPARTMENT OF HOMELAND SECURITY: STATUS AND ACCOUNTABILITY CHALLENGES

ASSOCIATED WITH THE USE OF SPECIAL DHS ACQUISITION AUTHORITY

What GAO Found 

DHS entered into 37 other transaction agreements between fiscal years 2004 and 

2007, most of which were entered into in the first 2 years. Though it has since used 

this authority less frequently, it continues to obligate funds for its earliest agreements. Furthermore, about 77 percent of the dollars spent on these agreements have 

been for 7 of DHS’s 37 agreements. Contracting representatives also told us that 

all of the agreements to date were for prototype projects and that each agreement 

included at least one nontraditional contractor. GAO plans further review of DHS’s 
24 

1We followed up on recommendations made in GAO, Homeland Security: Further Action Needed to Promote Successful Use of Special DHS Acquisition Authority; and GAO–05–136 (Washington, DC: Dec. 15, 2004), and GAO, Homeland Security: DHS Needs to Improve Ethics-Related 

Management Controls for the Science and Technology Directorate, GAO–06–206 (Washington, 

DC: Dec. 22, 2005). 

use of other transaction agreements as required by the Homeland Security Act of 

2002. 

DHS has made efforts to improve its use of other transaction agreements and to 

prevent conflicts of interest. The Department has taken the following steps to address prior GAO recommendations including: 

• creating guidance on when to include audit provisions in other transaction 

agreements; 

• creating a training program on using these agreements; and; 

• improving controls over conflicts of interest. 

GAO also recommended that DHS capture knowledge gained from the agreements 

it has entered into. The Department has compiled lessons learned from the Department of Defense, but the document is not related to DHS’s experience. Furthermore, 

while DHS created guidance on when to include audit provisions in agreements, its 

guidance only applies to certain prototype projects and only in certain circumstances. 

Risks inherent with the use of other transaction agreements create several accountability challenges. These challenges include attracting and ensuring the use of 

nontraditional contractors, acquiring intellectual property rights, ensuring financial 

control, and maintaining a skilled acquisition workforce with the expertise to create 

and maintain these agreements. 

Mr. Chairman and Members of the subcommittee, thank you for inviting me here 

today to discuss the Department of Homeland Security’s (DHS) use of its other 

transaction authority. According to DHS officials, this authority, which is set to expire in September 2008, is a critical tool because it has given the Department the 

flexibility to attract new contractors to help develop and manage the mission of an 

integrated program of science and technology from basic research to production. 

However, the flexibility afforded by other transaction authority also carries the risk 

of reduced accountability and transparency. For this reason, it is important to monitor the use of this authority to help ensure that the benefits outweigh the risks 

to the Government. We have previously reviewed DHS’s use of this authority and 

ethics-related management controls and made recommendations for improvements. 

My statement today will focus on: (1) The extent to which DHS has used its other 

transaction authority, (2) the status of DHS’s implementation of GAO’s previous recommendations, and (3) the accountability challenges associated with the use of 

these agreements. In preparation for this hearing, we obtained recent data on other 

transaction agreements from DHS and looked at several of these agreements, interviewed DHS representatives from the Science and Technology Directorate, reviewed 

related reports and studies, and identified the efforts DHS has made to address our 

previous recommendations.1 We conducted our work from January to February 2008 

and in accordance with the generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We 
25 

2DHS’s Management Directive No. 0771.1, July 8, 2005, defines a nontraditional Government 

contractor as a business unit that has not, for at least a period of 1 year prior to the date of 

entering into or performing an other transaction agreement, entered into or performed: any contract subject to full coverage under Federal Cost Accounting Standards (CAS); or any 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 compliance with the Federal Acquisition 

Regulation (FAR). 3 Consolidated Appropriations Act, 2008, Pub. L. No. 110–161, Dec. 26, 2007. 

4The Homeland Security Act of 2002, Pub. L. 107–296, Sec. 101, Nov. 25, 2002, defined the 

Department’s missions to include preventing terrorist attacks within the United States; reducing U.S. vulnerability to terrorism; and minimizing the damages, and assisting in the recovery 

from, attacks that occur within the United States. 

plan to conduct additional audit work on DHS’s use of other transaction authority 

as required by the Homeland Security Act of 2002. 

SUMMARY

In fiscal years 2004 through 2007, DHS entered into 37 other transaction agree- ments with a total value of $443 million. DHS entered into most of the agreements 

in the first 2 fiscal years, with only seven new agreements in 2006 and 2007 combined. Most of the spending was for a small number of its earliest agreements. 

Science and Technology (S&T) Directorate contracting representatives stated that 

all of the 37 agreements were for prototype projects and included at least one nontraditional contractor. 

DHS has taken steps to improve its use of other transaction agreements and to 

avoid conflicts of interest. Specifically, the Department has developed guidance on 

when to include audit provisions in agreements, developed an other transaction 

agreement training program, and improved management controls over conflicts of 

interest. DHS also created a document on lessons learned to capture knowledge 

gained from using other transactions, but the document is not specific to DHS’s experience. 

Risks inherent with the use of other transaction agreements create several accountability challenges. These challenges include attracting and ensuring the use of 

nontraditional contractors, acquiring intellectual property rights, ensuring financial 

control, and maintaining a skilled acquisition workforce. 

BACKGROUND

Other transaction authority was created to enhance the Federal Government’s 

ability to acquire cutting-edge science and technology by attracting nontraditional 

contractors that have not typically pursued Government contracts. Other transactions are agreements other than Government contracts, grants, or cooperative 

agreements and may take a number of forms. These agreements are generally not 

subject to the FAR. This authority originated in 1958 when Congress gave the National Aeronautics and Space Administration (NASA) the authority to enter into 

contracts, leases, cooperative agreements, or ‘‘other transactions.’’ In 1989, Congress 

granted the Defense Advanced Research Projects Agency (DARPA) temporary authority to use other transactions for advanced research projects. In 1991, Congress 

made this authority permanent and extended it to the military services. In 1993, 

Congress temporarily expanded DARPA’s other transaction authority, allowing the 

agency to use the agreements for prototype projects. The Homeland Security Act of 

2002 created DHS and granted the agency the authority to enter into other transactions for research and development and prototype projects for a period of 5 years. 

Congress granted DHS this authority to attract nontraditional 2 firms that have not 

worked with the Federal Government, such as high-tech commercial firms that have 

resisted doing business with the Government because of the requirements mandated 

by the laws and regulations that apply to traditional FAR contracts. The Consolidated Appropriations Act for 2008 extended this authority until September 30, 

2008.3

DHS began operations in March 2003 incorporating 22 Federal agencies to coordinate and centralize the leadership of many homeland security activities under a single department.4 Since then, DHS has become the third largest agency for procurement spending in the U.S. Government. DHS’s acquisition needs range from basic 

services to complex investments, such as sophisticated screening equipment for air 

passenger security and upgrading the Coast Guard’s offshore fleet of surface and air 

assets. In fiscal year 2006, according to agency data, the Department obligated 

$15.9 billion for goods and services to support its broad and complex acquisition 

portfolio. DHS’s S&T Directorate supports the Department’s mission by serving as 

its primary research and development arm. In fiscal year 2006, according to S&T 
26 

5 According to S&T, total spending through other transaction agreements includes four that 

are managed by DHS’s Domestic Nuclear Detection Office (DNDO). S&T contracting representatives told us that these agreements were entered into by the S&T Directorate before DNDO was 

created. 

data, S&T obligated over $1.16 billion dollars to fund and develop technology in support of homeland security missions. The directorate has funded technology research 

and development in part through the use of other transaction authority. According 

to agency officials, S&T is the only component within DHS that uses this authority. 

Because of their flexibility, other transactions give DHS considerable latitude in negotiating with contractors on issues such as intellectual property, reporting on cost, 

and data rights. In addition, it may relieve the parties from certain contract administration requirements that nontraditional contractors find burdensome. 

DHS’S USE OF OTHER TRANSACTION AUTHORITY HAS DECLINED SINCE FISCAL YEAR 2005

The number and value of DHS’s other transaction agreements has decreased since 

2005. Its recent other transaction agreements represent just a small portion of its 

total procurement spending. Most of the Department’s use of other transaction authority to date occurred between fiscal years 2004 and 2005. Though it has since 

used this authority less frequently, it continues to obligate funds for its earliest 

agreements. About 77 percent of the $443 million spent on DHS’s agreements has 

been on 7 of the 37 agreements. S&T contracting representatives reported that all 

of these agreements were for prototype projects. 

In fiscal year 2006, other transactions accounted for almost $153 million of DHS’s 

reported $15.9 billion in procurement obligations, approximately 1 percent (see fig. 

1). In addition, other transactions represent only a small portion of S&T spending. 

For example, the Department estimates that from fiscal years 2004 through 2007, 

S&T spent 13 percent of its total obligations on its other transaction agreements.5

DHS reported a total of 37 other transaction agreements, 30 of which were entered into in fiscal years 2004 and 2005. Accordingly, 88 percent of total spending 

was for agreements reached in fiscal years 2004 and 2005 (see fig. 2). While the 

total number of new agreements has decreased since 2005, the total obligations 

under these agreements have generally increased because funds are obligated for 

agreements made in prior years (see fig. 3). 
27 
28 

6Payable milestones are predetermined, observable technical events or other measures of 

progress that the contractor and government agree upon in advance. 

About 77 percent of obligations was for the seven largest other transaction agreements (see appendix I). According to S&T, all of these agreements included at least 

one nontraditional contractor, most commonly as a subcontractor. 

Though the acquisition outcomes related to DHS’s use of other transaction authority have not been formally assessed, the Department estimates that at least some 

of these agreements have resulted in time and cost savings. According to an S&T 

contracting representative, all of its current agreements are for development of prototypes, but none of the projects have yet reached production. Therefore, it is too 

soon to evaluate the results. However, the Department believes that some of these 

agreements have reduced the time it takes to develop its current programs, as compared to a traditional FAR-based contract. In addition, DHS has stated that its two 

cost-sharing agreements for development of its Counter-MANPADS technology have 

resulted in savings of over $27 million and possibly more. However, the extent to 

which these savings accrue to the Government or to the contractor is unclear. 

DHS Has Made Progress in Improving Its Use of Its Other Transaction Authority, 

But Has Yet To Fully Address Prior GAO Recommendations 

Soon after DHS established the S&T Directorate, S&T issued other transaction 

solicitations using some commonly accepted acquisition practices and knowledgebased acquisition principles. For example, DHS used integrated product teams and 

contractor payable milestone evaluations to manage other transaction agreements.6

To quickly implement its early projects, S&T relied on experienced staff from 

DARPA, other Government agencies, and industry to help train S&T program and 

contracting staff in using other transactions and help DHS create and manage the 

acquisition process. S&T also brought in program managers, scientists, and experts 

from other Government agencies on a temporary basis to provide assistance in other 

areas. Beyond these efforts, GAO found some areas for improvement and recommended that: DHS provide guidance on when to include audit provisions in 

agreements; provide more training on creating and managing agreements; capture 

knowledge gained from current agreements for future use; and take measures to 
29 

7The guidance grants GAO access for a period of 3 years after the final payment is made. 

8The Intergovernmental Personnel Act (IPA) of 1970, U.S.C. §§ 3371–76, allows employees to 

be temporarily assigned to a Federal agency. 

help rotational staff avoid conflicts of interest. DHS has implemented some measures to address many of these recommendations; however, it has not addressed all 

of them. 

• Provide guidance.—We recommended that DHS develop guidance on when it is 

appropriate to include audit provisions in other transaction agreements. Subsequently, DHS modified its management directive to add guidance on including 

GAO audit provisions in agreements.7 However, the guidance only addresses 

prototype agreements over $5 million. While S&T contracting officials recently 

told us that they have only issued other transaction agreements for prototypes, 

they noted that the Department intends to issue agreements for research 

projects in the future. In addition, it is unclear how the $5 million threshold 

is to be applied. In at least one agreement, the audit provision did not apply 

to subcontractors unless their work also exceeded the $5 million threshold. 

• Provide additional training.—We recommended that DHS develop a training 

program for staff on the use of other transactions. DHS has developed a training program on other transactions, and S&T contracting representatives said 

they have plans to conduct additional sessions in 2008. The training includes 

topics such as intellectual property rights, acquisition of property in other transactions, and foreign access to technology created under other transaction authority. An S&T contracting representative told us the Directorate currently has 

three staff with other transaction warrants and has additional in-house expertise to draw on as needed, and they said S&T no longer needs to rely on other 

agencies for contracting assistance. 

• Capture lessons learned.—We recommended that DHS capture knowledge obtained during the acquisition process for use in planning and implementing future other transaction projects. In 2005, DHS hired a consultant to develop a 

‘‘lessons learned’’ document based on DOD’s experience using other transactions. This is included in DHS’s other transaction training. However, it was 

not evident based on our follow-up work that DHS has developed a system for 

capturing knowledge from its own experience regarding other transaction agreements the directorate has executed since it was created. 

• Ethics.—We made a number of recommendations regarding conflicts of interest 

and ethics within S&T. When the S&T Directorate was established in 2003, it 

hired scientists, engineers, and experts from Federal laboratories, universities, 

and elsewhere in the Federal Government for a limited time under the Intergovernmental Personnel Act (IPA) with the understanding that these staff 

would eventually return to their ‘‘home’’ institution.8 This created potential conflicts of interest for those staff responsible for managing S&T portfolios as these 

staff could be put in a position to make decisions on their ‘‘home’’ institutions. 

We recommended that DHS help the portfolio managers assigned through IPA 

comply with conflict of interest laws by improving the S&T Directorate’s management controls related to ethics. DHS has complied with these recommendations to define and standardize the role of these portfolio managers in the research and development process; provide regular ethics training for these portfolio managers; and determine whether conflict of interest waivers are necessary. The only outstanding recommendation concerns establishing a monitoring and oversight program of ethics-related management controls. Furthermore, an S&T official told us the use of rotational portfolio managers has largely been eliminated with the exception of one portfolio manager who is currently 

serving a 2-year term. 

Inherent to Other Transactions’ Flexibility Are Certain Accountability Challenges 

With Federal agencies’ increased reliance on contractors to perform mission-related functions comes an increased focus on the need to manage acquisitions in an 

efficient, effective, and accountable manner. The acquisition function is one area 

GAO has identified as vulnerable to fraud, waste, abuse, and mismanagement. An 

unintended consequence of the flexibility provided by other transaction authority is 

the potential loss of accountability and transparency. Accordingly, management controls are needed to ensure intended acquisition outcomes are achieved while minimizing operational challenges. Operational challenges to successfully making use of 

other transaction authority include: attracting and ensuring the use of non-traditional contractors; acquiring intellectual property rights; financial control; and maintaining a skilled acquisition workforce. 
30 

9GAO, Acquisition Reform: DOD’s Guidance on Using Section 845 Agreements Could Be Improved, GAO/NSIAD–00–33 (Washington, DC: April, 2000). 10Government purpose rights enable the Government to allow others to use the data for Government purposes. See GAO, Intellectual Property: Information on the Federal Framework and 

DOD’s Other Transaction Authority, GAO–01–980T (Washington, DC: July 2001). 11GAO–01–980T. 

Nontraditional Contractors.—One of the goals of using other transactions is to attract firms that traditionally have not worked with the Federal Government. S&T 

contracting officials confirmed that at least one nontraditional contractor participated in each other transaction agreement, generally as a partner to a traditional 

contractor. We have not assessed the extent of the involvement of nontraditional 

contractors or what portion of the funding they receive. However, we have reported 

in the past that DOD had a mixed record in attracting nontraditional contractors.9

Intellectual Property Rights.—One reason companies have reportedly declined to 

contract with the Government is to protect their intellectual property rights. Alternatively, insufficient intellectual property rights could hinder the Government’s ability to adapt developed technology for use outside of the initial scope of the project. 

Limiting the Government’s intellectual property rights may require a trade-off. On 

the one hand, this may encourage companies towork with the Government and 

apply their own resources to efforts that advance the Government’s interests. However, it also could limit the Government’s production options for items that incorporate technology created under an other transaction agreement. For example, we 

previously reported that DARPA received an unsolicited proposal from a small commercial firm to develop and demonstrate an unmanned aerial vehicle capable of 

vertical take-off and landing based on the company’s existing proprietary technology. DARPA agreed not to accept any technical data in the $16.7 million agreement. To obtain Government purpose rights,10 DOD would have to purchase 300 vehicles or pay an additional $20 million to $45 million.11 Therefore, using an other 

transaction agreement could potentially limit competition and lead to additional 

costs for follow-on work. 

Financial Controls and Cost Accounting.—Other transactions are exempt from 

CAS. While other transaction recipients have flexibility in tracking costs, they still 

need to provide cost information and demonstrate that Government funds are used 

responsibly. This is particularly true for traditional contractors that are performing 

work under both FAR-based contracts as well as other transaction agreements. For 

example, contractors may use in-kind donations to satisfy cost-sharing requirements; therefore, it is important that DHS has a means to ensure that companies 

do not satisfy their other transaction cost-sharing requirements with work funded 

under a FAR-based contract. 

Maintaining a Skilled Acquisition Workforce.—Other transactions do not have a 

standard structure based on regulatory guidelines and therefore can be challenging 

to create and administer. Prior GAO work has noted the importance of maintaining 

institutional knowledge sufficient to maintain Government control. The unique nature of other transaction agreements means that Federal Government acquisition 

staff working with these agreements should have experience in planning and conducting research and development acquisitions, strong business acumen, and sound 

judgment to enable them to operate in a relatively unstructured business environment. Retaining a skilled acquisition workforce has been a continual challenge at 

DHS, and we have ongoing work in this area for this committee. 

Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other Members of the committee may have at this 

time. 
31 

APPENDIX I: SELECTED DHS OTHER TRANSACTION AGREEMENTS

Mr. LANGEVIN. Thank you, Mr. Needham. 

I want to thank the witnesses for their testimony, and I will remind each Member that he or she will have 5 minutes to question 

the panel. 

I will now recognize myself for questions. 

Mr. Essig, let me begin with you. Basically, three areas I want 

to get into. Just briefly, first, is the Department still planning on 

asking this committee for an extension of the other transaction authority beyond the 2008 sunset? 

Next, I want to point out and ask this question: On section 831 

of the Homeland Security Act, it requires that a report be submitted to Congress each year for awards made in the preceding fiscal year, pursuant to OT authority. This includes all initial awards 

and options exercised. My question here is, where are these reports? 

Then, finally, I would like you to address Mr. Needham’s point 

with respect to those recommendations that have not been implemented that GAO had recommended. Why haven’t you addressed 

those areas? 

If you would start with the sunset question first. 
32 

Mr. ESSIG. Thank you, Mr. Chairman. As I mentioned in my 

opening comments, we are very appreciative and fully support 

Ranking Member McCaul’s proposal to extend our authority to 

2012. We believe that other transaction authority is an absolutely 

critical tool for us to close some critical homeland security 

vulnerabilities. 

Regarding the second question, regarding section 831 and the requirement for an annual report to Congress, I have been the chief 

procurement officer just since last month, and I am now aware that 

the Department has not submitted the reports as required by section 831. As the chief procurement officer, I am responsible for ensuring that those reports are submitted, and I will commit and go 

on the record as indicating that I will have that report submitted 

this year. I will also put procedures in place to ensure that those 

reports are submitted on a timely basis in the future. 

Regarding the specific GAO recommendations, regarding full implementation of the knowledge capturing system, what I would like 

to identify for the group, the book I have in front of me—it is about 

a 2-inch binder—is a training manual we use for all of our OT contracting officers. Now, my background is primarily in the area of 

DOD, but one thing that DHS does over and above what I have 

seen before is we only warrant our contracting officers to do other 

transactions after they have successfully completed this training 

course. 

Now, the manual you see here is the guide book they are given 

in the class. It includes the lessons learned from the Department 

of Defense. It includes some recommendations from the Logistics 

Management Institute on actions taken at the Department of 

Homeland Security. All of this information is available to our OT 

contracting officers when they evaluate whether or not to do OTs 

in the future. 

This is a living document. This is a document which will be updated for every successive class. Our intention is as we identify additional lessons learned, we incorporate this into the manual so 

that as people go through training they have the latest available 

lessons learned, both from other agencies as well as DHS. So if we 

find cases where the Department has not yet fully implemented a 

GAO recommendation, I can tell you, I fully concur with the recommendations of GAO, and we will fully implement those recommendations. 

Mr. LANGEVIN. Thank you. Well, that certainly is reassuring, and 

I appreciate that answer. 

Let me ask this: The DOD audit found departures from the original rationale for using OT agreements, which was to attract nontraditional defense contractors. Data collected from fiscal year 1990 

to 1997 revealed that 85 percent of the funds for other transactions 

went to traditional DOD contractors, which isn’t quite how Congress envisioned the authority. According to the 2004 GAO report, 

DHS relied on self-certification by contractors of their status as a 

nontraditional Government contractor. Is this still the practice 

today? 

Mr. ESSIG. Actually, at the time DOD received its authority for 

other transactions on prototypes, I was the director for surface systems contracts with the Naval Sea Systems Command, so I was 
33 

with DOD at that time. I recall very specifically when DOD received this authority there was heavy interest in demonstrating 

that we are able to implement the authority received. The unfortunate consequence, in my perception, the unfortunate consequence 

of that is that it was used in cases where it did not provide the 

greatest value to the Government. It was used in cases with traditional Government contractors. It did not provide the benefits, it 

did not give us access to those nontraditional contractors, it did not 

provide the cost-sharing arrangements we have seen. 

That is one of the lessons learned, okay, I think that we have 

now. We understand how it was incorrectly used in the past. It was 

a lesson learned for the future. At DHS, every one of our OTs is 

reviewed, not only by the contracting officer but by a review panel 

that includes both the Office of General Counsel and some senior 

personnel within the contracting office, and the goal is to ensure 

that the justification and the documentation for an other transaction at DHS meets the appropriate measures. 

Mr. LANGEVIN. So the answer is that this issue of these contractors of self-certifying is no longer the case? 

Mr. ESSIG. As I said, I have been at this for a month. I do not 

have the information in front of me. I can take that question for 

the record and get back to you as to whether or not we are using 

any self-certification within the Department. 

Mr. LANGEVIN. Okay. Thank you. I would hope that the answer 

comes back, ‘‘No,’’ but I will wait to hear from you. 

Mr. ESSIG. Yes, sir. I would like to confirm that. 

Mr. LANGEVIN. Thank you. 

With that, I will stop now and recognize the Ranking Member, 

Mr. McCaul, the gentleman from Texas, for 5 minutes. 

Mr. MCCAUL. I thank the Chairman, and I thank the witnesses. 

Mr. Essig, congratulations on your new position. I must say, we 

both met with you prior to this, and I was impressed by your professionalism, your sincerity and your experience in terms of procurement. I think you are going to be a great asset to the Department. 

There are some concerns and reservations that have been raised, 

but I believe that, in my view, the benefits of these other transactions far outweigh the risk. 

Now, we talked about innovation, flexibility, bringing barriers 

down to businesses, some small businesses, the cost savings, costsharing arrangements, the fact that we, through this other transaction authority, developed handheld chemical agent detection systems, which have been used in larger cities, the fact that the DOD 

has been doing this for quite some time, and the RAND study 

seemed to be somewhat favorable that this has worked quite well 

in areas where we really need it. NASA has used it, the Department of Energy. 

My question to Mr. Essig is, this is getting ready to expire in 

September 2008, it will sunset: If Congress allows this to expire, 

what will be the impact at the Department of Homeland Security 

and your ability to protect this Nation from potential terrorist 

threats? 

Mr. ESSIG. Thank you for that question. I believe that the loss 

of the other transaction authority would have at least two serious 
34 

and possibly devastating consequences from the ability of the Department to meet its mission requirements. 

First, given the nature of the homeland security mission, it is essential that we have access to all available commercial technologies, including those that are from companies that do not currently or traditionally do business with the Government. Technologies such as the four S&T systems I identified in my written 

statement, including the LACIS project, which you just mentioned, 

sir, on the chemical agent detectors, would not have been achievable without this authority. 

The second consequence of the loss of this authority would be 

that it would significantly reduce the ability of the Department to 

share the cost of developing dual-use technologies with industry. 

Now, these are technologies that may have application both commercially and for homeland security where the cost of developing 

that technology is too great for industry to develop it on its own. 

So in the absence of the OT authority where we can share the 

cost of developing that with industry, the Department would be 

forced either to forego the development of technology and be unable 

to close those areas of identified risk or bear the full cost of its development, increasing the cost to the taxpayer. 

If I could ask, I guess, Keith, if he had anything to add to that? 

Mr. WARD. Yes, I would be happy to. 

Mr. Essig has asked me to give a few examples of particular 

products that have come out of some of our currently funded R&D 

efforts in the Department of Homeland Security S&T Directorate. 

The first I want to show you—and I apologize for the committee 

Members not being able to see this, but I am not going to apologize 

for how small it is, because, in fact, one of the goals of this particular project—it is part of the Autonomous Rapid Facility Chemical Agent Monitoring System, which is specifically being developed 

to protect the facilities, rail and transport security systems and infrastructure protection—is small affordable systems. 

This particular gadget name is actually longer and bigger than 

the gadget itself. This is a differential mobility spectrometer combined with a convention ion mobility spectrometer. How about 

that? 

It was developed by a company called Sionex out of New Bedford, 

Massachusetts. They were the nontraditional contractor that the 

prime, Hamilton Sundstrand, teamed with in response to our initial broad agency announcement, which encouraged people to team 

with unconventional contractors. 

This is an extremely innovative technical solution to the general 

problem of building affordable, lightweight, highly effective chemical monitoring systems, and I think it is an excellent example of 

the power of OTAs. This particular company, in my opinion, would 

not have been able to provide this sort of technology to homeland 

security without our having other transaction authority. 

One final example, if I may mention it briefly, is in the biological 

defense arena. As many of you know, one of our projects, called the 

Bioagent Autonomous Network Detector, BAND, aims to develop 

the third generation biowatch system. One of the major performers 

of the three that are left in the program is a company called 
35 

Microfluidics, Incorporated. They chose to team with a small company called Cycle Smart, Incorporated in Sunnyvale, California. 

This particular gadget that I hold in my hand is a highly innovative and clever Microfluidic Systems made with this nontraditional 

contractor. It is this particular part of the overall third generation 

biowatch system. It is the actual part that—both the whole organisms and spores from biological agents so that the system can get 

to the DNA to allow it to identify exactly what the agent is. 

Another great example of a nontraditional contractor coming to 

the fore. Again, it is my professional opinion that we would have 

never been able to capture this sort of innovative technology had 

we not had other transaction authority for prototype development. 

Mr. MCCAUL. Thank you, Dr. Ward. 

I submit, then, Mr. Chairman, that we work with the GAO to 

better improve the other transaction authority but that we not 

throw out the baby with the bath water. I think that it provides 

innovation, flexibility, cost savings, it is good for the American taxpayer, and, ultimately, it is the kind of flexibility that, in my view, 

the Department needs to protect this Nation. So I hope that this 

committee and this Congress will reauthorize this provision and 

give DHS the tools that it needs. 

Thank you. 

Mr. LANGEVIN. I thank the gentleman for his questions and his 

comments. 

Mr. Ward, just as a followup, on that third generation biodetector 

you were holding up, that is something that requires little to no 

human interaction, and that is something that is real time? 

Mr. WARD. Yes, sir, Mr. Chairman. We have currently three performers all competing to see who can build the best system, and 

all of those systems will be completely autonomous, work in real 

time and conduct all of the analysis of the biological agent in place, 

on the box. That is quite different from what our current biowatch 

system does, as you probably know. 

Mr. LANGEVIN. Well, I agree. I am not at all satisfied with our 

current biodetection system we have in place, and I am anxious to 

get to that third generation technology as quickly as possible. 

Do you have, as a side note, a best guess as to when that technology will be ready to be fielded? 

Mr. WARD. Yes, sir, Mr. Chairman. Currently, there will be the 

final stages of the developmental testing and evaluation, which will 

allow us to hand this off to the Office of Health Affairs, the DHS 

customer who is actually running biowatch, and that will occur in 

the latter part of 2009, with early deployment in 2010. 

Mr. LANGEVIN. Thank you. The sooner the better, as far as I am 

concerned. We are all concerned about our preparedness in that 

area, which is sorely lacking, and I am anxious to get that new 

equipment fielded. 

So thank you for the brief on that and the update. 

With that, the Chair now recognizes the gentleman from North 

Carolina, Mr. Etheridge, for 5 minutes. 

Mr. ETHERIDGE. Thank you, Mr. Chairman, and let me thank our 

witnesses for being here. 

If OT is designed to allow nontraditional commercial firms to do 

business with the Federal Government and inject entrepreneurial 
36 

energy into the Federal research enterprise, one would expect that 

small business would be the prime benefactors. However, there are 

still a lot of large businesses making agreements under OT. 

Mr. Needham and Dr. Halchin, can you describe some of the impediments to using OT for small businesses? 

Mr. NEEDHAM. Congressman, when we did our work back in 

2004, one of the things that we did was spend time with the procurement effort in terms of the outreach that DHS did. One of the 

things we were impressed with was they did an extensive outreach. 

They used what they called industry days where they would basically go out and discuss what some of the technology they were 

looking for. They tried to do a fairly wide announcement as to 

bring as many small businesses as possible. 

They then followed that up with technical conferences where 

businesses could come in and kind of get a closer—— 

Mr. ETHERIDGE. No, I understand the process, but what are the 

impediments? 

Mr. NEEDHAM. Well, the impediments are that they have a good 

knowledge of what small businesses are out there, what kind of 

knowledge base they have and where they are located and are they 

reaching them. One of the things that they would have to do is 

evaluate how well their outreach has been. 

Mr. ETHERIDGE. Okay. 

Dr. Halchin, do you have anything to add to that? 

Ms. HALCHIN. I would agree with Mr. Needham. One other item 

I could add, I know that DHS and DOD do post at least some if 

not all of their—I guess usually they use something called a broad 

agency announcement when they are about to embark on some sort 

of other transaction, and they may post it on their Web site. I am 

not sure if it always gets posted on the Federal Business Opportunities Web site. It is possible but that could be an impediment if 

these types of opportunities are not publicized as widely as traditional procurements are. 

Mr. ETHERIDGE. Thank you, because that is one of the issues 

that this was all about initially, trying to reach out to small folks. 

Mr. Essig, do you know what percentage of OT agreements go to 

large versus small businesses? 

Mr. ESSIG. There are a couple of different things there. In 2006, 

approximately 34 percent of our S&T other transaction dollars 

went to small businesses as small business prime contractors. I do 

not have the visibility into how—— 

Mr. ETHERIDGE. What is your definition of small versus large? 

Mr. ESSIG. It depends upon the particular category. That is defined by the Small Business Administration. 

Mr. ETHERIDGE. So you use the Small Business Administration 

as your cut line. 

Mr. ESSIG. Yes, sir. 

Mr. ETHERIDGE. You are saying 34 percent? 

Mr. ESSIG. Thirty-four percent in 2006, and the good news here, 

two things: One, in 2007, 54 percent of our S&T OT dollars went 

to small businesses, and one of the things we do with our use of 

broad agency announcements and the use of OTs is we are looking 

for participation from as broad a sector of the marketplace as pos-
37 

sible, be it small businesses, large businesses or mid-size businesses. 

We are also looking at promoting unusual teaming arrangements. We are not constrained by traditional prime subcontractor 

relations. We could get consortiums to apply. It gives us opportunities to reach teams of companies, which may involve, again, a mixture of large, small and mid-size. The data we capture on awards, 

as it reflects the awards to prime contractors, and, again—so small 

businesses can get a portion of the total work without necessarily 

being prime contractors. Notwithstanding that, the results for 

small businesses looks fairly good at this point. 

Mr. ETHERIDGE. Well, since we are on that topic, let me ask you 

another one. OT, as you know, was originally created to attract 

nontraditional commercial firms to do business with the Federal 

Government, small business, et cetera, but there is some flexibility 

in DHS’ management directive for implementing OT that allows 

traditional firms to enter agreements in exceptional circumstances. 

Can you offer examples of these exceptional circumstances that 

would allow DHS to issue an OT for a prototype project without the 

participation of a nontraditional Government contract, and how 

often does this exceptional circumstance clause apply? 

Mr. ESSIG. First off, again, and having only been the chief procurement officer for a month, I am not personally aware of any exceptions approved. In accordance with the management directive 

that you are speaking to, any of those agreements would have to 

be approved as the senior procurement executive. 

I have not seen any since I have been at DHS, but I can take 

the question and get back to you as to whether or not there have 

been any—— 

Mr. ETHERIDGE. Would you? And submit that to the committee 

for the record. 

Mr. ESSIG. Now, I could speculate as to some reasons for that, 

but I have no concrete examples of where that authority has been 

used. What it does is recognize the opportunity that if we find an 

arrangement which is basically advantageous and helps us basically close a critical vulnerability in homeland security, if it doesn’t 

meet one of those two conditions, it gives us a way to implement 

it, nonetheless. 

Mr. ETHERIDGE. So you will submit that in writing for the committee. 

Mr. ESSIG. Yes, sir. 

Mr. ETHERIDGE. Thank you. 

I yield back. 

Mr. LANGEVIN. I thank the gentleman. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Broun, for 5 minutes. 

Mr. BROUN. Thank you, Mr. Chairman. 

Mr. Essig, what are the most important protections that the Federal acquisition regulation-based contracts contained in other 

transactions do not? Also, how does DHS plan to monitor the benefits, dollars, time saved from using its other transaction agreements? 

Mr. ESSIG. The other transactions, as you indicate, they are exempt from the Federal acquisition regulations. They are also ex-
38 

empt from a number of statutory requirements that apply to procurement transactions, which include cost and pricing data, which 

include standard provisions for disputes and protests. 

As a result of that, the level of expertise that is required from 

our other transaction contracting officers is higher than it is for 

contracting officers in general. The reason for that is, is when we 

are using standard, what I call, boiler-plate provisions that are 

identified in the Federal acquisition regulations, mandatory provisions, we know what they do, we know why they are included, and 

it really doesn’t require a significant level of expertise. 

When you start to eliminate those, you really need to—or you 

modify a clause, you really need to understand why it was there 

in the first place and what the implications are for changing it. 

Some of the keys areas, as I said, and probably one of the key 

areas I ran into in my work while still within the Department of 

the Navy had to do with the issue of cost and pricing data. In the 

absence of cost and pricing data, how do you assure that the price 

you are getting is fair and reasonable for the Government? That is 

less of a problem in areas where we are having cost-sharing arrangements, in which case we are really concerned with before we 

pay, for example, 50 cents on the dollar, did the company reasonably and accurately incur the dollar? 

But there are other techniques which are used. Many of those 

are identified. There are some other pricing techniques that can be 

used. But it becomes critical that basically our contracting personnel understand appropriate measures for analyzing costs in the 

absence of certified cost and pricing data. 

Now, within the Office of the Chief Procurement Officer, we have 

recently hired somebody—we have basically hired from the Department of Defense who is an expert, both in the cost accounting 

standards and an expert in cost analysis of contracts. He is setting 

up some training opportunities for the contracting personnel within 

DHS, and the goal is to improve the capability of our OT contracting officers, all of our contracting personnel in being able to 

analyze proposed costs. 

So we understand there are some risks. We are putting together 

some basic things to assure that the proper reviews are in place. 

Previously, I mentioned that we have reviews over and above the 

level of the contracting officer. For OTs valued at greater than $25 

million, those are approved by an acquisition review board. For 

those over $50 million, they have to come to me for approval. So 

I think we have proper protections in place on a pre- and postaward side. It requires a more detailed review of the business deal 

than your normal contract does. 

Mr. BROUN. When those contracts come to you, what kind of 

thought process do you go through to approve or disapprove those 

contracts? 

Mr. ESSIG. One of the things we are trying to get all of our contracting personnel to understand—and the training manual, by the 

way, is not a training manual in other transactions. Critical to 

really understanding this is, this is a training manual that is Federal acquisition regulation-based, research and development contracting and other transactions. 
39 

The assurance is we need to be sure that our contracting personnel and our program personnel understand the implications and 

the benefit and disadvantages of each approach, and they both 

have pros and they both have cons. So we are looking at basically 

ensuring that they are properly trained, we have proper checks and 

balances in place to understand under the situations where an 

other transaction is the greatest benefit. 

One of the things we are starting to use in our broad agency announcement is we are not specifying that this will result in an 

other transaction. We are saying it may result in an other transaction, it may result in a contract, it may result in a grant. 

What that gives is the ability for us to weigh the actual proposals, not speculate as to which of these will likely provide the 

greatest benefit but to have real data to look at, where you can 

take a look at what the company has proposed in terms of price, 

terms and conditions on a contractual basis and what they have 

proposed if we are willing to change some of the intellectual property rights or we are willing to waive cost and pricing data. Based 

on real data we can then make an informed decision as to which 

of those two approaches provides the greater value for the Government. 

Mr. BROUN. All right. I thank you very much. 

Dr. Ward, I want to associate myself with the Chairman’s comments about getting that biological piece of equipment that you 

had. I am a physician, and certainly I would like to see it on the 

ground as quickly as we possibly can. 

I have some other questions that I would like to submit to you 

all for you all to answer and put in the record. 

Mr. Chairman, I ask permission to do so. 

Mr. LANGEVIN. Without objection. 

Mr. BROUN. I thank you all for coming today and appreciate you 

all participating in this panel. 

Thank you, Mr. Chairman. I will yield back. 

Mr. LANGEVIN. I thank the gentleman for his questions. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

Pascrell, for 5 minutes. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Mr. Needham, are you convinced that our homeland security, before it considered nontraditional contracting or whatever, were they 

unable to, let’s say, acquire goods or services or the needed technologies through existing vehicles and more traditional? Are you 

convinced that that is the case or are you not convinced? 

Mr. NEEDHAM. At the time we did our review, we didn’t have any 

data related to that particular question, but this authority was put 

into the act when the Department was created, so they had it from 

the get-go. 

Mr. PASCRELL. But how you use the authority should be determined by some oversight—— 

Mr. NEEDHAM. Right. 

Mr. PASCRELL [continuing]. Other than the Department. I am 

asking you whether or not all other means were exhausted? That 

is a very direct and simple question. You had reviews in the Department of Defense to that effect, did you not? 

Mr. NEEDHAM. Yes. 
40 

Mr. PASCRELL. What did you conclude? 

Mr. NEEDHAM. There was mixed use. I mean, that they were able 

to get—about 13 percent of the companies they were able to get 

were nontraditionals when we looked at them, and that was in 

2000. 

We also have found at the time they didn’t have a condition specified as to when to use nontraditional contractor or to use an OT. 

One of the things that the Department of Defense changed was 

they put these things into policy as well as symmetrics for measuring what they were doing with OTs. In fact, when the Department of Homeland Security was created and the OT authority was 

given to them, they basically modeled their directives and their 

processes on what was done at DARPA and brought in DARPA personnel. Much of what we recommended to DARPA was embedded 

into the management directive at DHS. 

But we only looked at—at that time, there were only two projects 

that were underway. They have now completed 37, or have 37 underway, so we are going back in this year to look at—— 

Mr. PASCRELL. So you already had a review of two, so they have 

35 really to review. 

Mr. NEEDHAM. Right. 

Mr. PASCRELL. So the information you are providing to us is not 

complete, by any stretch. 

Mr. NEEDHAM. No. 

Mr. PASCRELL. Let me ask you this question: So you only looked 

at two of them. Would you say any percentage of the dollar, each 

dollar that was extended, was in these other transactions that we 

have talked, other traditional contracts, is every cent of the dollar 

accounted for in those two projects? 

Mr. NEEDHAM. We can’t answer that question. We didn’t get in— 

in fact, as I mentioned in my statement, we didn’t look at that, but 

we will be looking at the financial aspects of this when we go back 

in next month. 

Mr. PASCRELL. Now, why would I be asking that question, Mr. 

Needham? 

Mr. NEEDHAM. Because it is about dollars. It is tax dollars going 

into these agreements, and what is the accountability there? 

Mr. PASCRELL. Well, what did the Department of Homeland Security in its own oversight, what did it find in the accountability 

of those dollars wherever procurement was necessary, be it traditional or nontraditional? 

Very simple question, Mr. Chairman, very simple question. 

Mr. NEEDHAM. What I can speak to is what I saw in terms of 

the inspector general’s reviews that they did in the chem-bio program, and it was dealing with the fact that there were needs for 

more controls to make sure that improvements were actually happening. I have seen a limited number of reviews based on what I 

looked at in the last year. 

Mr. PASCRELL. So I can conclude—correct me if I am wrong— 

that we are nowhere near coming to a conclusion of the review of 

such contracts so that we can make decisions in this committee and 

in the Congress of the United States. We are now in 2008, and 

there have been many contracts, both traditional and nontraditional, that have been accepted, and we don’t really have a firm 
41 

conception—I don’t, let me speak for myself—I don’t have a firm 

conception as to whether this works or doesn’t work since there has 

only been a review of two contracts. I mean, have I—— 

Mr. NEEDHAM. That was early on, sir. 

Mr. PASCRELL. Yes. And who is reviewed? Is there any mechanism within the Department that reviews since those first two contracts to the present time? 

Mr. NEEDHAM. There is an internal review process between the 

Program Office and the Chief Procurement Office. 

Mr. PASCRELL. Who is in charge of that? 

Mr. NEEDHAM. The chief procurement—— 

Mr. PASCRELL. If I may ask Mr. Essig, who is in charge of that? 

Mr. ESSIG. I am sorry, sir. Who is in charge of oversight of OTs? 

Mr. PASCRELL. Yes. 

Mr. ESSIG. I am, sir. I am responsible for oversight of acquisition 

within the Department. 

Mr. PASCRELL. Now, you are just in the job. 

Mr. ESSIG. Yes, sir. 

Mr. PASCRELL. Did you review the reports made by your predecessor about what occurred from these two contracts to the present 

time? Have you reviewed that? 

Mr. ESSIG. Well, I have reviewed the GAO recommendations. I 

have reviewed the—— 

Mr. PASCRELL. But the GAO recommendations are based upon 

only two contracts. What happened between the two contracts and 

the other 35, you don’t have any idea yet. 

Mr. ESSIG. I have not reviewed them. I have reviewed the processes that have been put in place to ensure that they are properly 

reviewed and that proper oversight procedures are in place. As a 

result of that review, I have recently directed that a review of other 

transactions that are contracting activities be included as a portion 

of our periodic procurement management reviews, okay? That is a 

change that I have implemented within the last week. So I have 

reviewed the processes, I have not reviewed individual other transactions. 

Mr. PASCRELL. Thank you. 

Mr. Chairman, I would hope that this committee would be able 

to obtain within the next 2 or 3 weeks the reports about those 

other 35 contracts. This is unacceptable. Can’t blame this young 

man, he just got the job, but it is unacceptable that the Department does not have a review. There is no oversight, there is no 

oversight in any part of these departments. You know it, and I 

know it, and anything I have heard today is simply in the future, 

what we are going to do in the future. 

Mr. Chairman, you go back over the meetings over the past 3 

years, we always hear about the future, we never hear or have any 

accountability. The citizens do not have any idea how their money 

is being spent, none, zero. 

Thank you. 

Mr. LANGEVIN. Certainly, this is part of that effort to exercise the 

oversight that needs to be exercised in this area, and we will continue to give both the contracts and this process and the OT contract awards great scrutiny. 
42 

Just as a follow-up, Mr. Essig, so that I am clear, and it is for 

the record, the reports that we required under the contracts, have 

they in fact been done or is this something that had not been done 

but will be as we go forward? Could you clarify that point? I was 

not clear. 

Mr. ESSIG. Yes, sir. It is my understanding the reports have not 

been done. I have directed that those reports be completed, and 

they are now in the process of being completed. I have ensured that 

among the changes, we incorporate that requirement, not only into 

our overall schedules to make sure we don’t miss them, but that 

the requirement is included in our training manuals so it is one of 

the things we don’t miss then. 

Mr. LANGEVIN. I appreciate that answer, for the record. We will 

want to follow up on those reports, and as the gentleman from New 

Jersey points out, you can’t be—the blame can’t be put on your 

shoulders for what happened prior to your arrival, which is just recent, but certainly we will want to hear about the outcome of those 

reports and then give greater scrutiny to this as we go forward. 

To Mr. Needham, for the record, will you be following up on 

these reviews? Also, I am interested in knowing, will you be looking further at the percentage of these contracts that does in fact 

go to nontraditional contractors? 

Mr. NEEDHAM. Mr. Chairman, we have a review scheduled. The 

team has been selected, and they are going to start work next 

month, and we will do a full scope initially to look at all aspects 

of the program, and we will be meeting with your office to arrange, 

in terms of the questions and the work, how we will be approaching it. 

Mr. LANGEVIN. Thank you. 

I thank the gentleman from New Jersey for that robust line of 

questioning. 

The gentleman from Texas, Mr. Green, is now recognized for 5 

minutes. 

Mr. GREEN. Thank you, Mr. Chairman. After hearing my colleague from New Jersey, I am tempted to say, ‘‘Amen,’’ but I will 

simply say, ‘‘A-woman.’’ 

Let us start with thanking you for appearing today and giving 

us your testimony. 

Ms. Halchin, you have indicated that 95 percent of the proceeds 

from $5.7 million—proceeds of $5.7 million went to traditional defense contractors; is that correct? 

Ms. HALCHIN. Yes, sir; that is correct. The data relates to DOD, 

but that is correct. 

Mr. GREEN. Mr. Essig, how do you explain how that could occur, 

95 percent? It is a pretty large number. How does that happen? 

Mr. ESSIG. Sir, here again, I don’t have data to be able to answer 

for DOD. I can only tell you based on my personal involvement 

while working for the Navy Department was we were looking for 

ways, basically, to implement other transaction authority. We had 

no group of lessons learned back then such as we have today. 

When you try things with no experience, with no background, you 

have some successes and you have some failures. I think what I am 

looking at in my position, as the chief procurement officer, is where 
43 

is the Department today, how did we get here, and where do we 

need to go? 

Mr. GREEN. Do we know what an OTA looks like today? 

Mr. ESSIG. In our training manual, we include several examples 

of OTAs that have been used. Again, each OTA is negotiated individually. What we are trying to do is put together some samples, 

some models of prior OTAs, of prior provisions that have been used 

successfully without taking authority away from the OT contracting officer to tailor that to the unique needs. 

Mr. GREEN. Do we have a definition of an OTA? 

Mr. ESSIG. We have a specific definition of an OT in our management directive and—— 

Mr. GREEN. An OT, excuse me. Continue, an OT. 

Mr. ESSIG [continuing]. And I believe that comes from the Homeland Security Act. It is modeled on DOD’s authority. The language, 

though, about other transactions comes specifically from the Homeland Appropriation Act, and it talks to the use of transactions other 

than contracts, grants or a cooperative agreement. 

Mr. GREEN. Is a small business, by virtue of being a small business, considered an OT? 

Mr. ESSIG. No, sir. However, small businesses have an opportunity under OTs because of the way the definition of a nontraditional contractor is worded. The way it is worded is a nontraditional contractor is a company that has not in the past year performed on a contract that is subject to full coverage under the cost 

accounting standards, which is $15 million worth of contracts or a 

contract in excess of $500,000 to carry out prototype projects or 

perform basic, applied, or advanced research projects for a Federal 

agency subject to compliance with the FAR. 

Now, what that means, if you have a business that hasn’t had $15 million of work in the past year, is not subject to cost accounting standards, and has not had $500,000 of R&D contracts with a 

FAR-covered Federal agency, it qualifies as a nontraditional source. 

Many small businesses would meet those requirements even if they 

had contracts with the Federal Government. Those could be support contracts, they could be supply contracts, or research and development contracts that don’t reach that threshold. 

Mr. GREEN. So do you have any other examples of nontraditional 

businesses that you can call to our attention, small businesses? 

What other categories do you have? 

Mr. ESSIG. We do. I think Keith has some examples. 

Mr. GREEN. Okay. Thank you. 

Mr. WARD. Yes, sir. 

Mr. GREEN. Would a business owned by a female be considered 

a traditional or nontraditional business? 

Mr. WARD. Actually, the definition of a nontraditional contractor, 

which would be necessary in order for a team to qualify for an 

other transaction agreement, actually is the definition that Mr. 

Essig just gave you, and that has to do not with their ownership 

but how much previous work they have done under FAR contracts 

or other sorts of contracts. 

However, I might point out, because it may be of interest, that 

this third generation biowatch system that seeing developed now 

started out with eight to 10 major performers. The only ones that 
44 

are left are three. They have done the best work, and the other 

ones have all dropped off. Every one of those happens to be small 

businesses, just by accident and the good work that they happen 

to have been done. 

We also have some examples of nontraditional contractors who 

have qualified and allowed their teams to qualify for OTAs that do 

happen to be women-owned small businesses. The particular one 

there is—— 

Mr. GREEN. What percentage have been women-owned? 

Mr. WARD. I am sorry, I don’t have that in front of me. I will be 

happy to take that for the record. Maybe Mr. Essig knows. 

Mr. ESSIG. Our contract database and our other transaction database captures information on the prime contractors. It will identify 

them as small businesses. I will verify but I do not believe we have 

visibility into which specific small or socioeconomic category they 

may fall into. 

Now women-owned small business is one of the socioeconomic 

categories that we identify goals for contract awards within the Department. Within the Department, we support all of our small business and socioeconomic preference programs. So, again, we look at 

them every year. 

Basically, we establish goals for contracting within each of those 

groups, and each of those goals is identified and provided to the 

heads of the contracting activities at the beginning of each year. 

But I will verify, I can take it for the record and get back to you. 

I don’t believe we have visibility into the award data by socioeconomic category. 

Mr. GREEN. If I can ask one more question, Mr. Chairman? 

Mr. LANGEVIN. Briefly. 

Mr. GREEN. Okay. Is there a reason why you don’t have that 

kind of visibility? Is there some rule that prohibits that kind of visibility? 

Mr. ESSIG. Two things. The Federal Procurement Data System, 

FPDS, currently data on procurement contracts. Other transactions 

are not procurement vehicles, and, as a result, they are not currently captured in FPDS. Because that data is important to us at 

the Department of Homeland Security, all of the other transactions 

issued by the Office of Procurement Operations is included in our 

contract database, our prism contract database. So we are gathering that data for Department of Homeland Security. 

One of the other things I have done is I have had discussions 

with the director of our Office of Small and Disadvantaged Business Utilization looking at establishing goals for the Department 

that go beyond just contracting goals, that include other transactions in the base. So what we would identify is we are looking 

at goals for awards for small and other socioeconomic organizations, firms, okay, regardless of whether or not it is an other transaction or a contract. We are looking at total awards from the Department, how much is going to these organizations. 

Mr. GREEN. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. LANGEVIN. I thank the gentleman. 
45 

Before the hearing concludes, the Ranking Member and I just 

wanted something clarified, Mr. Needham, that you had brought 

up. 

With respect to the teams you are putting in place, the reviews 

you are conducting, when do you expect that those would be concluded? 

Mr. NEEDHAM. Mr. Chairman, what we typically do is go in and 

do a period of work where we survey what is being done in the Department and then come back and then meet with the various committee staffs to lay out what would be an approach that we would 

take. At that point, we would lay out when we would conclude the 

work. We would expect, though, after several months we would be 

able to kind of define what that period would be. But I would expect that we are going to be able to brief you prior to September 

2008 on what we are getting at that point. Whether we will hope 

to conclude the work at that point is another question, depending 

on the scope of what we cover. 

Mr. LANGEVIN. We will look forward to the reports when they are 

done. 

Mr. NEEDHAM. Okay. 

Mr. LANGEVIN. With that, I want to thank the witnesses for their 

valuable testimony and the Members for their questions. 

Members of the subcommittee may have additional questions for 

the witnesses, and I would ask that you respond expeditiously in 

writing to those questions. 

Hearing no further business, the subcommittee stands adjourned. 

[Whereupon, at 3:25 p.m., the subcommittee was adjourned.] 

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