OTA: The Government’s Favorite Tool for Acquiring Innovative Technology

By: Hunter Conetta

Technological innovation has rapidly become a core feature of national security policy for the United States. The Department of Defense and armed services have prioritized the acquisition of everything from online data collection programs to AI-integrated weapons systems in order to outpace the innovation of adversaries and develop dynamic cyber capabilities. This awakening may best be exemplified in a memo issued by the Secretary of Defense, who wrote, “software-defined warfare is not a future construct, but the reality we find ourselves in today.”[1] The Secretary of Defense is not alone in his belief, as a host of executive branch and legislative officials are enacting policies and making laws to enable the expedited acquisition of software and technology.

The federal government, through executive agency acquisitions, constitutes the world’s single largest buyer of goods and services.[2] Each year, federal agencies and the military acquire goods using the Federal Acquisition Regulation (FAR) and its supplement, the Defense Acquisition Regulations Supplement (DFARS).[3] The FAR alone contains thousands of pages of rules and regulations that determine how the government purchases goods and services.[4] These regulations incorporate various statutory provisions that mandate competition, fair pricing, and dictate which private actors may do business with the federal government. Many laud the FAR and DFARS as robust and necessary for steady acquisition; however, critics argue that these regulations result in wasteful spending. Further, many posit that the FAR unnecessarily imposes serious burdens that exclude new entrants, such as start-ups or small businesses, in favor of large, institutional corporations known as defense prime contractors who receive billions of dollars from the government.[5]

President Trump has adopted the stance of the critics, as evidenced by the Executive Order titled Revolutionary Federal Procurement Overhaul.[6] In this order, President Trump directed the Office of Management and Budget, in concert with its relevant agency counterparts, to rewrite the FAR, citing inefficiencies and wasteful spending in the procurement process.[7] The new FAR promises efficient and fast acquisition, as well as lower barriers to entry—specifically with small businesses and start-ups in mind. The Department of Defense has been particularly eager to participate in the reform of the FAR to streamline acquisition and support innovation.[8]

The impetus of acquisition reform has been driven by legislation that grants officials in the Department of Defense the legal authority to procure software and innovative tech with minimal interference from the FAR or DFARS.[9] Today, the Other Transaction Authority (OTA) is becoming the most popular avenue to operationalize these goals and avoid the weighty burdens of the FAR. Congress codified the OTA under the same act that established NASA in 1958.[10]  For sixty years, NASA used OTAs to foster innovation and exploration with quick transactions. In 2016, Congress extended OTA’s authority to the Department of Defense and the military.[11] The OTA is defined by what it is not: it is not a contract, it is not a grant, and it is not a cooperative agreement.[12] Congress granted the Department of Defense permanent authority to form agreements under the OTA to create prototypes and participate in advanced research projects.[13] The United States Code does not require OTA agreements to comply with the FAR, but the statutory conditions for its use are:

  1. The project subject to the OTA must be relevant to enhancing mission effectiveness;
  2. The agreement must comply with the departmental definition of prototype; and
  3. The OTA agreement must comply with one of the following:
    1. The inclusion of at least one nontraditional defense contractor,
    2. The primary participants must be small businesses or nontraditional defense contractors,
    3. One third of the cost must be paid by the private contractors, or
    4. The procurement executive for the agency states that an exceptional circumstance exists for this transaction.[14]

In addition to these requirements, the statute places oversight functions upon executive officers and grants the Comptroller General the authority to examine records and perform audits of parties to OTAs that are in excess of $5 million.[15] Besides these provisions, parties to an agreement have significant discretion in negotiating the terms of the transaction and setting standards for performance. Essentially, the OTA uses this freedom to enhance collaboration and cost-sharing with commercial start-ups and newcomers that can offer innovative solutions to modernize the armed forces.

The use of OTAs with start-ups and nontraditional contracts for the acquisition of new, commercial software and hardware has already resulted in ambitious projects and hundreds of millions of dollars awarded to non-traditional contractors. The Defense Innovation Unit, which prizes its ability to adapt commercial technology for military use, now conducts over 88% of all transactions under the Other Transaction Authority.[16] Additionally, the Secretary of Defense directed the entire department to solicit and award new commercial software contracts using OTAs.[17] The United States Air Force and Space Force have both also steadily increased their use of OTAs and rely on this agreement mechanism’s ability to attract innovation and build relationships with nontraditional sources of technology.[18]

OTAs have fostered new relationships between the government and companies at the cutting edge of innovation. This past June, the Department of Defense awarded OpenAI under the OTA to embark on a sweeping mission to support administrative operations, develop existing cyber defenses, and even improve healthcare for members of the armed services.[19] Another tech giant, Palantir, recently received a large OTA award to provide the Army with automated target recognition.[20] In sum, the use of OTAs is expanding across many innovative fields and is diversifying the group of businesses and entities that can contract with the United States military.

The judicial impact of the procurement of new technologies by OTAs is being seen with each passing day. The efficacy of a lightly regulated agreement mechanism for procuring new technology appears to be effective in terms of its speed and ability to foster cost-sharing and cooperation. However, some argue that the increased use of OTAs is raising concerns about federal oversight and challenges to the competitive award process. One specific, yet key, issue surrounding the use of OTAs is the judicial review process for solicitation issues, bid protests, or administrative issues with prototyping. For traditional government contracts, the Court of Federal Claims has jurisdiction over protests or objections to solicitations, bids, proposals, or awards by interested parties related to government contracts.[21] The jurisdiction of the Court of Federal Claims over OTAs is often challenged because OTAs are defined in the United States Code as what they are not: contracts, grants, or cooperative agreements.[22] Therefore, parties that seek review from the Court of Federal Claims face a greater burden to show jurisdiction. The party seeking review must demonstrate that the primary purpose of the OTA is for the private company to create an innovative prototype that the government will acquire, or the government contemplates an acquisition of the prototype.[23] Moreover, the Court has held that there is no bright-line case to establish that the OTA project is connected to a proposed procurement; whether or not the Court has jurisdiction depends on the facts of each case.[24] If the Court of Federal Claims does not have jurisdiction (the government did not actually procure a prototype, nor did it intend to), the party must bring suit in a federal district court, which is not a specialized venue for government contracts suits.[25]

The popularity of the OTA is a signal to tech start-ups and innovators that federal national security agencies are opening their doors for business. The executive and legislative branches have collaborated to expand OTA access, fostering the rapid and dynamic procurement of software and cyber capabilities to meet contemporary security challenges and keep pace with global adversaries. The OTA has led to a market shift, where software developers, AI companies, and other innovators can now obtain defense contracts that were previously accessible only to large traditional corporations. While OTAs offer an efficient avenue to easily procure new technology and prototypes, parties entering into these agreements should be aware of the back-end challenges of judicial review over OTA transactions.

 

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[1] Memorandum from Secretary of Defense Hegseth to Senior Pentagon Leadership on Directing Modern Software Acquisition to Maximize Lethality (Mar. 6, 2025).

[2] Exec. Order No. 14,275, 90 Fed. Reg 16447 (Apr. 15, 2025).

[3] Tara Cannon, FAR vs DFARS, Deltek Inc., https://www.deltek.com/en/government-contracting/guide/federal-acquisition-regulation/vs-dfars (Lasted visited January 6, 2026).

[4] See generally Federal Acquisition Regulations, 48 C.F.R. § 1.101 (1983).

[5] Forecast International, Top 100 Defense Contractors 2023, Defense and Security Monitor (Mar. 1, 2024), https://dsm.forecastinternational.com/2024/03/01/top-100-defense-contractors-2023/ (citing Lockheed Martin, RTX Corp, General Dynamics, & Boeing Co. as the top defense contracting primes).

[6] Exec. Order No. 14,275, 90 Fed. Reg 16447 (Apr. 15, 2025).

[7] Id.

[8] GSA, OMB, NASA, DoD Launch Revolutionary FAR Overhaul Website, U.S. General Services Administration (May 6, 2025), https://www.gsa.gov/about-us/newsroom/news-releases/gsa-omb-nasa-dod-launch-revolutionary-far-overhaul-website-05062025.

[9] Thomas Novelly, Lauren C. Williams, & Patrick Tucker, Experts See Promise, Risk in Pentagon’s Draft Acquisition Reforms, Defense One (Nov. 5, 2025), https://www.defenseone.com/policy/2025/11/experts-see-promise-risk-pentagons-proposed-acquisition-reforms/409335/ (providing commentary and analysis on a speech given by the Secretary of Defense on acquisition reforms and priorities).

[10] Major Thomas J. Darmofal, A Brief Overview of Other Transactions Authority, The Judge Advocate General’s Legal Center and School, https://tjaglcs.army.mil/Periodicals/The-Army-Lawyer/tal-2025-issue-2/Post/8323/Practice-Notes-A-Brief-Overview-of-Other-Transactions-Authority (last visited Nov. 29, 2025).

[11] Lauren A. Mayer Et Al., Prototyping Using Other Transactions: Case Study for the Acquisition Community, Rand Corp. 1 (Aug. 31, 2020).

[12] Id. at 4.

[13] Id.

[14] Authority of the Department of Defense to Carry Out certain Prototype Projects, 10 U.S.C. § 4022 (2015).

[15]  Id.

[16] Defense Innovation Unit Who We Are/ Our Mission, Defense Innovation Unit, https://www.diu.mil/about (last visited Nov. 29, 2025).

[17] Memorandum from Secretary of Defense Hegseth to Senior Pentagon Leadership on Directing Modern Software Acquisition to Maximize Lethality (Mar. 6, 2025).

[18] LAUREN A. MAYER ET AL., PROTOTYPING USING OTHER TRANSACTIONS: CASE STUDY FOR THE ACQUISITION COMMUNITY, RAND CORP. (Aug. 31, 2020); Nick Wakeman, Space Force Leans on OTAs to Bring Innovation, Washington Technology (Feb. 7, 2024), https://www.washingtontechnology.com/contracts/2024/02/space-force-leans-otas-bring-innovation/394007/.

[19] Jane Edwards, OpenAI Books $200M DOD OTA for Frontier AI Prototyping Work, GovCon Wire (June 17, 2025), https://www.govconwire.com/articles/openai-dod-ota-frontier-ai-prototyping-work.

[20] Morgan Gress Johnson, Army Selects Palantir to Deliver TITAN Next Generation Deep-Sensing Capability in Prototype Maturation Phase, Palantir Investor Relations (Mar. 6, 2024), https://investors.palantir.com/news-details/2024/Army-Selects-Palantir-to-Deliver-TITAN-Next-Generation-Deep-Sensing-Capability-in-Prototype-Maturation-Phase/.

[21] Telesto Grp., LLC v. United States, 176 Fed.Cl. 711, 729 (June 2, 2025).

[22] LAUREN A. MAYER ET AL., PROTOTYPING USING OTHER TRANSACTIONS: CASE STUDY FOR THE ACQUISITION COMMUNITY, RAND CORP. (Aug. 31, 2020).

[23] Telesto Grp., LLC v. United States, 176 Fed.Cl. 711, 732 (June 2, 2025).

[24] Id.

[25] Id. at 733.