DATE: March 30, 2004

SUBJECT: Department of Defense; Follow-On Production Contracts to Awardees of "Other Transactions"

SOURCE: Federal Register, March 30, 2004, Vol. 69, No. 61, page 16481

AGENCIES: Department of Defense (DOD)

ACTION: Final Rule

SYNOPSIS: DOD is revising its regulations to implement Section 822 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107), which provides for award of a follow-on production contract to traditional defense contractors, without further competition, when the other transaction (OT) agreement for the prototype project provides for at least one-third non-federal cost-share.

EDITOR'S NOTE: The regulations for OTs ("transactions other than contracts, grants, or cooperative agreements for prototype projects") are in Title 32 of the Code of Federal Regulations (CFR), Chapter 1, Office of the Secretary of Defense, Part 3, Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects. Additional guidance on OTs can be found on the Defense Procurement website at http://www.acq.osd.mil/dp/dsps/ot/dspsot.htm.

For more on the proposed rule being finalized, see the May 20, 2003, FEDERAL CONTRACTS DISPATCH "Department of Defense; Follow-On Production Contracts to Awardees of 'Other Transactions'."

For more on the acquisition-related provisions of Public Law 107-107, see the January 2, 2002, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2002."

DATES: The final rule is effective March 30, 2004, and its provisions may be used for new prototype awards that result from solicitations issued prior to March 30, 2004.


SUPPLEMENTAL INFORMATION: Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Public Law 103-160) authorized the secretary of a military department, the director of Defense Advanced Research Projects Agency (DARPA), and any other official designated by the Secretary of Defense, to enter into "transactions other than contracts, grants or cooperative agreements for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense." These are commonly referred to as "other transactions" (OTs) and they are generally exempt from all the statutes and regulations that govern federal contracts and grants. The purpose of OTs is to overcome the reluctance of many firms with significant technological advances and innovations to share their innovations with the government because of the significant statutory and regulatory requirements involved in government contracts and grants. When using OTs, DOD contracting officials are not required to include standard contract provisions that typically address such issues as financial management or intellectual property rights, but may structure the agreements as they consider appropriate.

Use of OT authority is authorized by law in the absence of the significant participation of a nontraditional defense contractor, and when at least one-third of the costs of the prototype project are to be provided by non-federal parties to the agreement. The authority granted by Section 822 of Public Law 107-107 provides the authority to continue such prototype projects into production without competition in certain circumstances (for more on the proposed Defense Federal Acquisition Regulation Supplement (DFARS) change that would exempt such production contracts from further competition, see the June 3, 2003, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Follow-On Production Contracts to Awardees of 'Other Transactions'").

On May 20, 2003, DOD published a proposed rule that would add 32 CFR 3.9, Follow-On Production Contracts, to implement Section 822 of Public Law 107-107. No comments on the proposed rule were received, so DOD is finalizing the proposed rule without change.

The following are the key provisions of 32 CFR 3.9:

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2004 by Panoptic Enterprises. All Rights Reserved.

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