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GAO Releases OTA Decision in REAN CLOUD, LLC

by Dennis J. Callahan

Antagonistic Stance Toward DoD OTA Authority

The Government Accounting Office (GAO) released its long-awaited Other Transactions Authority (OTA) decision in the REAN Cloud, LLC case on May 31.

While the agency paid homage to the “limited” nature of its jurisdiction over OTAs to review only whether the agency’s use of its OTA authority was proper, REAN Cloud strikes us as fairly antagonistic to DoD’s aggressive use of its OTA authority under the NDAAs.

Rather than allow DoD to apply a rapid and flexible prototype-to-production deployment of new technologies of interest to the military – which is certainly the spirit of the NDAA OTA provisions — GAO took an approach that requires DoD to follow a procurement contract-like process with OTAs.

The entire decision is well worth looking at, especially for government contracts litigation wonks.

 

Here are a few highlights:

— Standing

Even though Oracle did not submit a prototype OTA proposal, it did have standing to contest the production OTA. This follows the established rule that allows contractors to protest whether contract mods exceed the scope of the contract, and whether task and delivery orders exceed the scope of an IDIQ.

GAO found that DoD’s announcement of the OT opportunity did not give Oracle adequate notice of the intended award. Oracle’s standing was closely tied to the merits. Because DoD did not provide adequate notice of its intent to award the eventual follow-on production OTA, Oracle could show that it had a direct economic interest, as it would have competed for award had DIUx and USTRANSCOM reasonably described the intended procurement.

 

— Definition of “prototype”

GAO rejected Oracle’s argument that REAN Cloud’s tailoring of its commercially available cloud migration tool to USTRANSCOM’s use was not a “prototype.” GAO accorded what amounted to Chevron deference to the DoD OT Guide’s broad definition of “prototype” to include any “proof of concept; a pilot; [or] a novel application of commercial technologies for defense purposes.”

 

— Ground for Sustaining #1

Both of the grounds on which GAO sustained are rooted in a narrow interpretation of the term “transaction” in 10 USC 2371(b)(f). First, 10 USC 2371(b)(f)(2) states: “A follow-on production contract or transaction provided for in a [prototype] transaction [] may be awarded to the participants in the transaction without the use of competitive procedures,” so long as two conditions are met.

Although the Commercial Solutions Opening published by DIUx stated that there was “[p]otential follow-on funding for promising technologies…and possible follow-on production,” GAO sustained the protest because the prototype OTA itself – the singular “transaction” in GAO’s view – did not “provide for” a production OTA.

 

— Ground for Sustaining #2

GAO also determined that DoD had no authority to enter into the production OTA because REAN Cloud had not successfully completed the prototype, as required under § 2371b(f)(2)(B). The prototype OTA was modified to include “enclave migration,” i.e., moving sets of interrelated applications to the cloud, and REAN Cloud did not complete those tasks prior to award of the production OTA.

DoD argued that REAN Cloud had successfully completed the original scope of the prototype (migration of six stand-alone applications) and therefore the production OTA was authorized.

Concluding that the relevant “transaction” under Section (f)(2)(B) was the entire prototype OTA as modified, however, GAO sustained because that work was not completed.

 

Summary

REAN Cloud puts a damper on DoD’s ability to use its OTA authority, at least for now. The decision may cause some agencies to think twice about attempting OTAs. And, it may dissuade some Non-Traditional Defense Contractors from engaging with DoD.

Certainly, GAO has signaled that OTAs are not a free pass to avoid the Office’s scrutiny. It will be interesting to see if DoD continues aggressively to press its OTA authority while answering the concerns expressed in REAN Cloud, and whether DoD attempts to convince Congress to make GAO back off in the next NDAA.

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