To determine whether DHS has developed policies and established a workforce to use other transactions, we analyzed DHS’s organization, and policy and draft guidance for using these authorities. We interviewed DHS contracting officials and representatives from the DOD agencies that DHS has used for contracting support, officials in its S&T Directorate, and contractors to whom it made initial other transactions awards. We collected and reviewed other transactions agreement documents for DHS’s Countermeasures for Man-Portable Air Defense System (Counter- MANPADS) and Chemical and Biological Countermeasures (Chem-Bio) projects, the only two projects with other transactions awards as of the time of our review. We also reviewed other S&T Directorate solicitations that could result in other transactions agreements, but which had not yet resulted in awards as of the completion of our audit work. We analyzed information obtained from our interviews and file reviews using criteria that we found are generally important to federal acquisitions, namely, planning, reviews and approvals, market knowledge, and monitoring of contractor performance. We derived these criteria from our prior reports on other transactions and knowledge-based acquisition principles, DOD’s policies for other transactions, and selected parts of the FAR. To determine how effectively DHS used its other transactions authority to attract nontraditional government contractors, we analyzed DHS’s reported results from using these authorities in the Counter-MANPADS and Chem-Bio programs. We also reviewed other DHS acquisitions that could result in other transactions awards but for which DHS had not yet made awards. DHS relies on contractors to self-certify their status as a nontraditional government contractors during agreement negotiation. In analyzing the reported results from DHS’s other transactions awards, we did not independently verify a contractor’s reported status as a nontraditional contractor. We also compared DHS’s practices to attract nontraditional government contractors against policies and practices used by DOD. In addition, we interviewed DHS contracting and project management officials, contractors that DHS made other transactions awards to, and representatives from the commercial research and development and technology communities to gain their perspectives on DHS’s use of other transactions to attract nontraditional government contractors. We performed our review from February through October 2004 in accordance with generally accepted government auditing standards. The acquisition function plays a critical role in helping federal agencies fulfill their missions. DHS is expected to spend billions of dollars annually to acquire a broad range of products, technologies, and services from private-sector entities. Other transactions authority is one of the acquisition tools—in addition to standard FAR contracts, grants, and cooperative agreements—available to DHS to help support its mission. Other transactions were created to enhance the federal government’s ability to acquire cutting-edge science and technology. They help agencies accomplish this, in part, through attracting nontraditional contractors from the private sector and other areas that typically have stayed away from pursuing government contracts. There are two types of other transactions authorities—(1) research and (2) prototype. Other transactions for research are used to perform basic, applied, or advanced research. Other transactions for prototypes are used to carry out projects to develop prototypes used to evaluate the technical or manufacturing feasibility of a particular technology, process, or system. A single S&T program could result in multiple awards using other transactions. Because they are exempt from certain statutes, other transactions permit considerable latitude by agencies and contractors in negotiating agreement terms. For example, other transactions allow the federal government flexibility in negotiating intellectual property and data rights, which stipulate whether the government or the contractor will own the rights to technology developed under the other transactions agreement. Table 1 shows the statutes that DHS has determined are generally inapplicable to its other transactions agreements. Because other transactions agreements do not have a standard structure based on regulatory guidelines, they can be challenging to create and administer. Experts on other transactions and industry officials who have used these procurement arrangements told us that other transactions agreement terms are significantly different from FAR contracts and more closely resemble procurement agreements between private-sector firms. According to DHS, the unique nature of other transactions agreements means that federal government acquisition staff who work with other transactions 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. DHS views the use of other transactions as key to attracting nontraditional government contractors—typically high-technology firms that do not work with the government—that can offer solutions to meet agency needs. As defined by the Homeland Security Act, a nontraditional government contractor is 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 transactions agreement, entered into or performed any contract subject to full coverage under the cost accounting standards 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 FAR. The S&T Directorate of DHS supports the agency’s mission by serving as its primary research and development arm. According to a senior DHS Chief Procurement Office official, the S&T Directorate currently is the only DHS organization using the other transactions authority provided in the Homeland Security Act. As of September 2004, other transactions agreements accounted for about $125 million (18 percent) of the S&T Directorate’s fiscal year 2004 total acquisition activity of $715.5 million. The S&T Directorate’s fiscal year 2004 total acquisition activity is depicted in figure 1. After DHS was established in 2003, the department rapidly established the S&T Directorate, which issued several solicitations using other transactions authority. These solicitations used some commonly accepted acquisition practices and knowledge-based acquisition principles. DHS issued a management directive, drafted guidance, and recruited additional program and contracting staff, which now provide a foundation for using other transactions authority; however, refinements in these policies and attention to workforce issues are needed to promote success in the department’s future use of other transactions. DHS’s policy guidance does not specify when audit requirements should be included in its other transactions agreements to help ensure, for example, that payments to contractors are accurate. Also, the department’s guidance does not address training requirements for its contracting and program staff to ensure that staff understand and leverage the use of other transactions. In addition, the limited size and capacity of DHS’s internal contracting workforce to conduct other transactions may hamper DHS’s goal to internally manage its increasing number of mission programs that could use its other transactions authority. DHS was directed by Congress and the executive branch to quickly initiate and execute R&D projects to help strengthen homeland security. The S&T Directorate at DHS was largely established to centralize the federal government’s homeland security R&D efforts, a function that was not the responsibility of any of DHS’s legacy agencies. Figure 2 depicts the Directorate’s four offices and their functions. The S&T Directorate initiated various projects to address homeland security concerns, including two prototype projects using other transactions authority. Initiating and executing these first projects took priority over establishing the Directorate’s operating procedures. The S&T Directorate’s need to rapidly initiate and execute projects forced a reliance on other federal agencies’ acquisition offices to award and administer its project agreements. (HSARPA) (SED) The S&T Directorate hired program managers and staff with R&D expertise from other government agencies and the private sector to manage its other transactions authority and other acquisitions. These initial hires included several former Defense Advanced Research Projects Agency (DARPA) officials experienced in R&D and other transactions authority acquisitions. In the absence of DHS policies and procedures for other transactions, the S&T Directorate relied on these key officials and other staff with R&D expertise in their former organizations to implement its early projects. These experienced staff helped train DHS program and contracting staff in other transactions and supervised and managed the acquisition process. For example, one official drafted a model other transactions agreement and guided program managers and contracting officers through the other transactions process. In addition to these officials, the S&T Directorate obtained portfolio and program managers from other government agencies and federal laboratories to act in key programmatic positions in their areas of expertise. Some of these portfolio and program managers serve on detail from their home agency. The S&T Directorate’s workforce strategy is to have its program and technical staff serve term appointments, most of which will not be longer than 4 years, in order to promote the influx of leading-edge science and technology skills to DHS. DHS’s planning and budget documents identified the need to develop countermeasures and detection systems against chemical-biological (Chem-Bio) and radiological-nuclear attacks. Under one area of the Chem- Bio project, being implemented by the S&T Directorate using other transactions, DHS is developing mobile laboratories to be rapidly deployed in the field to detect and analyze chemical warfare agents and toxic industrial chemicals in the environment. Figure 3 depicts a mobile laboratory being developed for DHS. The S&T Directorate also initiated projects to address homeland security needs identified by Congress and the executive branch. One such project is aimed at protecting commercial aircraft against possible terrorist use of shoulder-fired missiles, sometimes referred to as man-portable air defense systems (MANPADS). The Counter-MANPADS other transaction project is a multiyear development and demonstration program that will produce prototype systems to be used on commercial aircraft to defend against shoulder-fired missiles. An illustration of a proposed Counter-MANPADs technology being considered by DHS is depicted in figure 4. The S&T Directorate and Office of the Chief Procurement Officer (CPO) used Federal Acquisition Regulation principles as a framework for other transactions solicitations.