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Commercial Solutions Opening Innovation in Contracting

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1 Commercial Solutions Opening Innovation in Contracting
Office of the Under Secretary of Defense for Acquisition, Technology and Logistics (Defense Procurement and Acquisition Policy) May 17, 2017

2 Introduction Public perception is that business arrangements with the federal government cannot keep pace with innovative technologies coming out of Silicon Valley. Reasons most cited are: a culture that is risk averse and adversarial; unyielding statutory and regulatory demands; and a workforce under siege. Today’s Agenda Part 1: Overview Part 2: Other Transactions Agreements (OTA) for Prototype Projects Part 3: Commercial Solutions Opening (CSO)

3 Part 1 Overview A Commercial Solutions Opening (CSO) is a merit-based source selection strategy for the Department of Defense (DoD) to acquire innovative commercial technologies, especially from those entities that have not traditionally done business with the U.S. Government. Over the past year, DoD innovation hubs (e.g., Defense Innovation Unit Experimental (DIUx)) have adopted the model to move at the speed of business to match Silicon Valley counterparts. As a result, DoD has been able to realize the true potential of modular contracting.

4 Contracting Tools and Alternatives
Military Purpose Non-Developmental Items Risk-based Pilot to Apply Reduced TINA Thresholds Streamlined Awards for Contracts Awarded to Small Business or Nontraditional Defense Contractors Commercial Item Acquisitions “Other Transactions” for Experimental Purposes “Other Transactions” for Prototype Projects Commercial Solutions Opening The benefit is speed and flexibility. Each proposal is evaluated on its individual merits rather than on a comparative basis, and the Government has considerable latitude in determining which of the submitted proposals it will fund. Inefficient processes add complexity, cost, and time. While CSOs are similar to BAAs, the latter technique is restricted to only basic and applied research and that portion of development not related to a specific system or hardware program. This restricts the use of BAAs to only those projects funded with early stage research and development (R&D) appropriations within science and technology budget categories 6.1 (Basic), 6.2 (Applied), and 6.3 (Advanced Technology Development). Although section 819 of the NDAA for FY 2010, as amended, provides temporary authority for DoD to use BAAs to acquire projects funded under budget category 6.4 (Advanced Component Development), this authority may only be used by exercising a contract option on a current DoD research project. Accordingly, organizations that acquire commercial items have never had the authority to enter into BAA arrangements. Using CSOs, organizations will be able to quickly adopt and adapt innovative commercial technologies. In this way, the CSO approach is similar to broad agency announcements (BAAs) in that they afford offerors the maximum opportunity to propose specific tasks and a corresponding technical approach of their own choosing in response to a broadly-defined area of Government interest. CSOs contrast with standard source selection processes for acquiring commercial items, which traditionally place transactions on a “best value” continuum. Lowest priced technically acceptable (LPTA) and tradeoff techniques have appropriate uses. Instead, CSOs allow contracting officers to award contracts following a merit-based process.

5 Notice: DFARS Case 2017-D029 Title: Defense Pilot Program to Acquire Innovative Commercial Items (aka CSO) Synopsis: Implements section 879 of the NDAA for FY 2017 (Pub. L ) to establish a pilot program to acquire innovative commercial items, technologies, and services Last Update: DARC received draft proposed DFARS rule from DAR staff and will discuss on May 24, 2017

6 CSO Timeline September 2016 November 2016 December 2016 January 2017
DIUx began the CSO pilot in June 2016 using non-FAR based contracts; ACC-NJ awarded 12 OTAs in 3 months with total value of $36M November 2016 CSO training incorporated into a DoD-wide OTA training event DIUx published lessons learned in a CSO How-to Guide available at USD(AT&L) sent announcing CSO as a new rapid contracting tool December 2016 Section 879 and 880 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 authorized CSO pilots for FAR-based contracts January 2017 DoD opened Defense FAR Supplement (DFARS) case D017-D029 DoD published an updated version of the “Other Transactions Guide for Prototype Projects” that acknowledges the CSO technique In the 3 months after issuing the first CSO, DIUx awarded 12 agreements within 60 days of receiving a company’s initial submission, with DIUx letting its first contract in just 31 days. From June 2016 to February 2017, DIUx has awarded 18 agreements for a total of $42.3M, within an average of 96 days of first contact with a company through the CSO. These 96 days encompass not only the contracting process, but also the collaborative project design between DIUx, the company, and the DoD customer.

7 “Other Transactions” for Prototype Projects
Part 2 “Other Transactions” for Prototype Projects A Commercial Solutions Opening (CSO) is a merit-based source selection strategy for the Department of Defense (DoD) to acquire innovative commercial technologies, especially from those entities that have not traditionally done business with the U.S. Government. Over the past year, DoD innovation hubs (e.g., Defense Innovation Unit Experimental (DIUx)) have adopted the model to move at the speed of business to match Silicon Valley counterparts. As a result, DoD has been able to realize the true potential of modular contracting.

8 Perspective Across Time
1831 Appellate Court Case: United States vs Tingey Contracting Officer Bonds: Protection from “liability for all moneys received for all public property committed to a purser’s care” “It has been the constant practice of the government to take such bonds, without express legislative authority; and it has been the understanding of congress that such bonds were regular” “It is expressly understood and agreed between the secretary of the navy (acting in behalf of the United States) and the within named obligors, that the said obligors are not to be held responsible for any loss …” FAR 1.102(d) in 2017: “In exercising initiative, Government members of the Acquisition Team may assume if a specific strategy, practice, policy or procedure is in the best interests of the Government and is not addressed in the FAR, nor prohibited by law (statute or case law), Executive order or other regulation, that the strategy, practice, policy or procedure is a permissible exercise of authority.”

9 OTA Trend Across DoD 6.2 Source: Federal Procurement Data System

10 OTA for Prototype Projects
Authority to… “…carry out prototype projects that are directly relevant to enhancing mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed….OR to improvement of platforms, systems, components, or materials in use by the armed forces” Prototype Project Participants At least one nontraditional defense contractor participating to a significant extent; All significant participants in the transaction other than the Federal Government are small businesses or nontraditional defense contractors; At least one third cost share for traditional defense contractor; or Senior Procurement Executive Approval for exceptional circumstances

11 The Big Picture 98% < 1% Pathway Acquisition Financial Assistance
Instrument Contracts Other Transactions for Prototype Projects Grants Cooperative Agreements Technology Investment Agreements Authority 10 U.S.C. 2358 10 U.S.C. 2371b 10 U.S.C. 2371 Fiscal Year Obligations 98% < 1% Purpose To acquire via prototyping To support / stimulate To support / stimulate with substantial Gov’t involvement expected Outcome Direct Gov’t benefit or use Carries out a public purpose authorized by U.S. law

12 Commercial solutions Opening
Part 3 Commercial solutions Opening A Commercial Solutions Opening (CSO) is a merit-based source selection strategy for the Department of Defense (DoD) to acquire innovative commercial technologies, especially from those entities that have not traditionally done business with the U.S. Government. Over the past year, DoD innovation hubs (e.g., Defense Innovation Unit Experimental (DIUx)) have adopted the model to move at the speed of business to match Silicon Valley counterparts. As a result, DoD has been able to realize the true potential of modular contracting.

13 Consider: Technical vs Commercial Readiness Levels
Technology Readiness Commercial Readiness Levels Commercial Readiness Technology Readiness Levels Source:

14 $ “Apps” Problem vs. A Serial Model An Opportunistic Model
The rate of innovation exposes a weakness in how commercial technologies are currently acquired. Commercial items built on modularity principles are being competed under a strategy that does not similarly reflect modularity. Consider two very different bid selection processes below: A Serial Model 180+ Days vs. An Opportunistic Model < 180 Days Buy Capitalize Discard $ X $ Evaluate All Proposals $ Make Buy(s) Evaluate and Make Buy(s), as Needed X X Contract and Delivery/Task Order Competitions (All Purposes) Broad Agency Announcement (BAA) Competitions (Basic/Applied Sciences)

15 Limitations of BAAs Broad Agency Announcements (BAAs) have features of the opportunistic model: Award timelines that are consistently less than 180 days Gives agencies the flexibility to hold proposals However, BAAs are limited to basic and applied research Until the FY2017 NDAA, no similar authority existed to use BAAs to acquire late-stage or commercial items under the FAR BAAs cannot address a specific system or hardware solution The benefit is speed and flexibility. Each proposal is evaluated on its individual merits rather than on a comparative basis, and the Government has considerable latitude in determining which of the submitted proposals it will fund. Inefficient processes add complexity, cost, and time. While CSOs are similar to BAAs, the latter technique is restricted to only basic and applied research and that portion of development not related to a specific system or hardware program. This restricts the use of BAAs to only those projects funded with early stage research and development (R&D) appropriations within science and technology budget categories 6.1 (Basic), 6.2 (Applied), and 6.3 (Advanced Technology Development). Although section 819 of the NDAA for FY 2010, as amended, provides temporary authority for DoD to use BAAs to acquire projects funded under budget category 6.4 (Advanced Component Development), this authority may only be used by exercising a contract option on a current DoD research project. Accordingly, organizations that acquire commercial items have never had the authority to enter into BAA arrangements. Using CSOs, organizations will be able to quickly adopt and adapt innovative commercial technologies. In this way, the CSO approach is similar to broad agency announcements (BAAs) in that they afford offerors the maximum opportunity to propose specific tasks and a corresponding technical approach of their own choosing in response to a broadly-defined area of Government interest. CSOs contrast with standard source selection processes for acquiring commercial items, which traditionally place transactions on a “best value” continuum. Lowest priced technically acceptable (LPTA) and tradeoff techniques have appropriate uses. Instead, CSOs allow contracting officers to award contracts following a merit-based process.

16 CSO Purpose and Limits To acquire innovative commercial items, tech, and services Innovation is defined to mean: “Any technology, process, or method, including research and development, that is new as of the date of submission of a proposal; or Any application that is new as of the date of submission of a proposal of a technology, process, or method existing as of such date” Considerations Best-value Continuum vs Merit-based Selection Strategy Limited to $100 million per transaction without written determination from USD(AT&L) or the relevant SAE Limited to fixed-price, including fixed-incentive fee contracts Items, technologies, and services acquired under the pilot, including R&D, shall be treated as commercial items The benefit is speed and flexibility. Each proposal is evaluated on its individual merits rather than on a comparative basis, and the Government has considerable latitude in determining which of the submitted proposals it will fund. Inefficient processes add complexity, cost, and time. Lowest priced technically acceptable (LPTA) and tradeoff techniques have appropriate uses. In this way, the CSO approach is similar to broad agency announcements (BAAs) in that they afford offerors the maximum opportunity to propose specific tasks and a corresponding technical approach of their own choosing in response to a broadly-defined area of Government interest. CSOs contrast with standard source selection processes for acquiring commercial items, which traditionally place transactions on a “best value” continuum. Instead, CSOs allow contracting officers to award contracts following a merit-based process.

17 COMMERCIAL SOLUTIONS OPENING
Fast, Flexible, Collaborative Phase I - Evaluation: Technology and Company Phase II - Pitch: Cost, Schedule, Use Case Phase III - Proposal: Project Design We’ve been able to do this through... None of the work DIUx does would be possible without a way to engage innovative firms at the speed of business. That’s why we established a first-of-its-kind acquisition mechanism called a Commercial Solutions Opening, or CSO, that uses “Other Transaction Authorities” granted by Congress.  This mechanism busts every myth about how hard it can be to work with the government.  Let me take a few minutes to explain how revolutionary the DIUx CSO is. *$250 million approval threshold same for CSO and FAR.

18 Results from Pilot Under OTA Authority
From June 2016 to February 2017, DIUx awarded 18 agreements for a total of $42.3M, within an average of 96 days of first contact with a company This 96 days encompasses not only the contracting process, but also the collaborative project design between DIUx, the company, and the DoD customer Sonitus Shield AI Shield AI creates small quadcopters designed specifically to fly indoors. These unmanned aerial vehicles (UAVs) can autonomously speed through built and natural structures, mapping out their interiors and identifying threats using Light Detection and Ranging (LIDAR) technology without the need for a human pilot or a global positioning system (GPS). U.S. forces are required to fight adversaries in tight, dangerous quarters like caves, tunnel complexes, ships under-way, and enemy strongholds. These environments are often owned by an adversary, and our service members must enter these structures without a complete picture of the lethal threats inside. Tools like Shield AI’s UAVs can provide critical situational awareness that can often mean the difference between life and death. In the commercial sector, these quadcopters are used monitor the progress of building construction projects. (Customer: DoD) Saildrone builds and operates autonomous sailboats that travel on the ocean’s surface, collecting intelligence and other data via onboard, powered sensors. Traditionally, collecting scientific data at sea is challenging in many areas of the world, as manned vessels are expensive, cannot be in enough places at once, and cannot reach certain areas. DIUx’s partnership with Saildrone will allow the Navy to explore the use of these autonomous, unmanned sailboats in place of much more expensive and less agile manned vessels or stationary buoys. (Customer: DoD) Sonitus provides hands-free, ears-free, two-way, and removable communications devices hidden in the mouth that work via bone conduction and integrate wirelessly to radios, offering clear communications in high-noise environments. Warfighters frequently need to communicate with each other in the midst of operations while maintaining situational awareness, for example while parachuting, driving or in a firefight. Existing communication tools -- either through traditional radios or headsets -- add weight to a warfighter’s load, occupy their hands, or restrict visibility. Sonitus’s technology will eliminate these challenges. The project is being piloted with deployed personnel. (Customer: Air National Guard) Saildrone

19 Resources Specific DFARS Case 2017-D029 implements the CSO bid strategy DIUx’s CSO “How-to” guide Coming: DHS pilot program and GSA ordering vehicle… General DPAP Website “Innovation in Contracting” DoD OTA Presentations on OMB’s Max Website (CAC-enabled)

20 Open discussion


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