Other transactions: what an OTA is and is not

An other transaction (OT) is an agreement the Department of Defense (DoD) enters under a separate statutory authority instead of a procurement contract, and the Federal Acquisition Regulation (FAR) does not govern it. Congress grants the authority in two sections of Title 10 of the U.S. Code: section 4021 for research and section 4022 for prototype projects and the production that follows them. The Government Accountability Office (GAO) reports in its September 2025 report that DoD's OT obligations grew from $1.8 billion in fiscal year 2016 to over $18 billion in fiscal year 2024.

What the two statutes authorize

Section 4021(a), as codified in the 2024 edition of the U.S. Code, lets the Secretary of Defense and the Secretary of each military department enter into transactions "other than contracts, cooperative agreements, and grants" to carry out basic, applied, and advanced research projects. The Secretary of Defense acts through the Defense Advanced Research Projects Agency (DARPA), the Defense Innovation Unit (DIU), or another designated element. The section also directs that, to the maximum extent practicable, a research transaction not duplicate research in existing DoD programs, and that Government funds not exceed what the other parties provide, to the extent the Secretary determines practicable.

Section 4022 lets designated officials carry out prototype projects under the authority of section 4021. The officials are the DARPA and DIU directors, a military department Secretary, or another official the Secretary of Defense designates. The statute says a prototype project includes a proof of concept, model, or process, including a business process, and agile development activity.

Section 4022(f) covers follow-on production. If a prototype transaction was competitively awarded to its participants and was successfully completed, a follow-on production award may go to those participants without competitive procedures. GAO adds that the follow-on work can be issued as another OT or as a FAR-based contract.

Who can take part

For a prototype transaction, section 4022(d)(1) requires that at least one of four conditions be met:

• At least one nontraditional defense contractor or nonprofit research institution participates to a significant extent.
• All significant non-Federal participants are small businesses or nontraditional defense contractors.
• At least one third of the total cost of the prototype project is paid from non-Federal sources.
• The agency's senior procurement executive determines in writing that exceptional circumstances justify the transaction.

The first two conditions turn on the term defined in 10 U.S.C. 3014. A nontraditional defense contractor, for a procurement or for a transaction under section 4021(a) or 4022, is an entity that is not currently performing, and has not performed for at least the year before DoD solicited sources, any DoD contract or subcontract subject to full cost accounting standards coverage. The cost-share and exceptional-circumstances conditions do not turn on that term.

How an OT differs from a FAR-based contract

OTs are not governed by the FAR, so DoD officials customize the terms they consider necessary instead of starting from standardized clauses, according to the GAO report. GAO also notes that the exemption removes some oversight mechanisms that come with FAR-based contracts. GAO cites DoD's July 2023 Other Transactions Guide, Version 2.0, for two further points: research OTs are meant to spur dual-use work without imposing government regulations on companies, and OTs are not always faster to award than FAR contracts.

The statute itself sets several terms that differ from a typical contract:

• Competition. Competitive procedures are to be used to the maximum extent practicable when entering prototype agreements.
• Cost share. Section 4022(b)(1) states that the limit on Government funds in section 4021(e)(2) does not apply to prototype projects, which are instead governed by the conditions listed above.
• Audit access. An agreement with total payments above $5,000,000 must include a clause allowing the Comptroller General to examine the records of the parties, with exceptions and a waiver provision in subsection (c).
• Approvals. For prototype projects expected to cost from $100 million to $500 million, including options, the head of the contracting activity, or the agency director for DARPA, DIU, or the Missile Defense Agency, must determine in writing that the section 4022(d) conditions are met and that the authority is essential to the project's success. Above $500 million, the senior procurement executive or that agency director makes a written determination, and the congressional defense committees receive written notice at least 30 days before the authority is used. These approval authorities cannot be delegated.
• Procurement ethics. Section 4022(h), headed procurement ethics, treats these agreements as Federal agency procurements for purposes of chapter 21 of title 41.
• Training. Section 4021(g) directs the Secretary of Defense to give personnel who award or administer these transactions education and training, and to set minimum levels for continuous learning.

How DoD uses them

GAO sorts DoD's use into three categories: research, prototype, and production. Of the fiscal year 2024 total, prototype OT obligations were over $16 billion, and DoD reported $2 billion in production OT use.

What to check

• Does the agreement rest on section 4021 (research) or section 4022 (prototype projects)?
• Which of the four conditions in section 4022(d)(1) does a prototype transaction meet, and does the participant fit the definition of a nontraditional defense contractor in 10 U.S.C. 3014?
• Do total payments exceed $5,000,000, and if so does the agreement include the Comptroller General records clause?
• For a prototype project expected to cost from $100 million to $500 million, or above $500 million, is the required written determination on file?
• Was the prototype transaction competitively awarded and successfully completed before a follow-on production award under section 4022(f)?

Sources

1. 1United States Code, 2024 Edition, Title 10, Section 4021 - Research projects: transactions other than contracts and grants · U.S. Government Publishing Office
2. 2United States Code, 2024 Edition, Title 10, Section 4022 - Authority of the Department of Defense to carry out certain prototype projects · U.S. Government Publishing Office
3. 3United States Code, 2024 Edition, Title 10, Section 3014 - Nontraditional defense contractor · U.S. Government Publishing Office
4. 4GAO-25-107546, Other Transaction Agreements: Improved Contracting Data Would Help DOD Assess Effectiveness · U.S. Government Accountability Office