When we think of U.S. defense contractors, some big titans in the industry may come to mind. The Pentagon has certainly turned to large corporations for a lot of research-and-development heavy lifting – and still does. But it’s been expanding its circle in recent years to include more small businesses and startups in the mix. With good reason: New partners mean new ideas, and more new innovations to help the U.S. military stay on top of the security challenges of the twenty-first century.
Small Business Examples
Case in point: GEOST, an Arizona software company with only 45 employees and annual revenues averaging just $6 million. The company has ambitions to expand into the U.S. defense sector’s military-satellites market. And it scored big last month, landing a $32 million contract with the U.S. Space Force to equip U.S. satellites with anti-threat sensors that will enable them to evade attack satellites deployed by Russia or China.
This follows other DoD awards to small businesses last year, such as:
- Ology Bioservices, a Florida biopharmaceutical company with less than 300 employees. It received a $176 million DoD contract to develop a new botulism treatment.
- Peraton, a New Jersey technology firm incorporated only five years ago. It was awarded $19 million from DARPA to support DoD’s newly developing Mission-Integrated Network Control communications system.
- Katmai Services, a tech company owned by the indigenous Ouzinkie community of Alaska. It’s just 14 years old, numbers 812 employees, and was the winner of a $21 million contract to operate and maintain software systems for the U.S Marine Corps.
New Trend for DoD
These small-business winners point to a bigger trend under way: DoD leaders are actively courting more “nontraditional” companies–i.e., companies that haven’t previously done business with the government–for military science and tech endeavors. They’ve changed their contracting processes accordingly, to make it easier for such companies to bid for proposals.
“There are companies in the commercial marketplace that have never done business with the DOD,” reads an October 2021 DOD press release. “These companies have the advanced technologies and capabilities needed to support missions in areas like additive manufacturing, robotics, and artificial intelligence.”
Congress got the ball rolling in the 2015 Defense authorization bill, which vastly expanded the kinds of R&D projects eligible for Other Transaction Authorities (OTAs). OTAs are agency-contractor agreements that aren’t subject to all the usual Federal contracting rules and processes, so the agency and its prospective business partner have more flexibility to make an arrangement that works for both parties.
The DoD has used OTAs since the 1980s, though initially for only a narrow range of R&D projects. The 2015 defense bill blew this limited scope wide open, making OTAs an option for anything “directly related to enhancing the effectiveness of military personnel,” including new components, materials, and supporting platforms.
Changing the Contracting Landscape Through OTAs
Lawmakers had the nontraditional companies in mind when they crafted this bill. They knew that the DoD needs these new enterprises and their new ideas. And they knew that these companies often either find the standard Federal contracting-acquisition process too bureaucratic and time-consuming to be worth their while, or they think that they’ll never be able to compete for contracts against bigger, long-standing DoD partners like Boeing or Lockheed Martin.
In a 2016 conference report, the lawmakers wrote that they saw expanding OTAs as a way to “support Department of Defense efforts to access new source of technical innovation” by making OTAs “attractive to firms and organizations that do not usually participate in government contracting due to the typical overhead burden and ‘one size fits all’ rules.”
Their plan seems to have worked. Whereas just 3% of DoD’s research-and-development portfolio was under OTAs in fiscal-year 2015, OTAs accounted for 18% of the portfolio as of fiscal-year 2019.
The Space Force alone issued $1 billion in OTAs this fiscal year through its own OTA, the Space Enterprise Consortium. Nearly 600 companies have contracted with the Space Force via this consortium and developed new ground systems, a new space vehicle, and other in-demand technologies and tools.
Meanwhile, the DoD as a whole reported issuing $80 billion in contracts to small businesses in 2020. It’s seeking to increase that total. Last September, the DoD published a notice in the Federal Register calling for small businesses to share insights on the barriers they’re facing to contracting with DoD.
In government and in business, “who you know” matters. Sometimes more than it should; “old boy networks” emerge and can be hard to break into. But DoD leaders recognize the need to bring businesses they don’t know to the table. It’s the only way to keep the talent pool from going stagnant.
