Federal Acquisition

Other Transaction Agreements: A Practical Guide for Companies New to Defense Contracting

OTAs are often the first door into defense work. What they are, who qualifies, how they're awarded, and what to negotiate before you sign.

If your company is trying to break into defense work, there's a good chance your first real opportunity won't be a traditional contract at all. It will be an Other Transaction Agreement, or OTA. OTAs have become one of the Department of Defense's most important tools for getting new technology into the hands of warfighters quickly, and they are often the easiest door for a company that has never worked with DoD.

They are also easy to misunderstand. An OTA is flexible, fast, and negotiable, which means the terms you agree to matter more, not less. This article explains what OTAs are, who can use them, how they're awarded, and what to watch before you sign one.

What an OTA is, and what it isn't

An Other Transaction is a legally binding agreement that is not a procurement contract, grant, or cooperative agreement. Because it isn't a procurement contract, it isn't governed by the Federal Acquisition Regulation (FAR) or the Defense FAR Supplement (DFARS). There is no standard clause set. Almost everything, from payment terms to intellectual property, is negotiated between the government and the company.

DoD's authority comes from two sections of Title 10 of the U.S. Code, plus a follow-on production authority built into the second:

Research OTs (10 U.S.C. 4021) for basic, applied, and advanced research. The statute expects the government's share of funding to not exceed what other parties contribute, to the extent practicable.
Prototype OTs (10 U.S.C. 4022) for prototype projects directly relevant to improving mission effectiveness. This is where most of the activity is.
Follow-on production (10 U.S.C. 4022(f)), which lets a successful prototype move into production without a new competition when the right conditions are met.

"Prototype" is interpreted broadly. DoD's definition covers a proof of concept, model, or process, including a business process, so it can reach well beyond hardware into software and new ways of operating.

Why OTAs matter more than ever

OTAs have grown steadily for a decade, and recent policy has pushed them further to the front. Executive Order 14265, Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base, issued in April 2025, directed a preference for commercial solutions, other transaction authorities, and rapid acquisition pathways. The Secretary's November 7, 2025 memo on transforming the Defense Acquisition System into the "Warfighting Acquisition System" built on that order, emphasizing commercial approaches and competitive prototyping.

Congress followed. The Fiscal Year 2026 National Defense Authorization Act, enacted December 18, 2025, directs the new Portfolio Acquisition Executives to prioritize prototype transactions under 10 U.S.C. 4022 and commercial acquisitions to the maximum extent practical. It also created a new OTA authority for military construction and facility repair projects in 10 U.S.C. 2808a.

The practical result: more requirements are being routed through OTAs, and program offices are actively looking for companies that can prototype quickly.

Who can participate

A prototype OTA can only be used when at least one of four conditions in 10 U.S.C. 4022(d) is met:

At least one nontraditional defense contractor or nonprofit research institution participates to a significant extent.
All significant participants other than the federal government are small businesses or nontraditional defense contractors.
At least one third of the total project cost is paid with non-federal funds.
The senior procurement executive determines in writing that exceptional circumstances justify an OTA.

A nontraditional defense contractor, as defined in 10 U.S.C. 3014, is an entity that is not currently performing, and has not performed for at least the one-year period before the solicitation, any DoD contract or subcontract subject to full coverage under the Cost Accounting Standards.

That definition is the key point for new entrants. If you're new to defense work, you almost certainly qualify as nontraditional, and that status is valuable. Large primes often need a nontraditional partner to satisfy the statute, which is why many OTA teams pair an established contractor with a smaller, newer company. Nontraditional status also matters beyond OTAs: the FY2026 NDAA expanded protections for nontraditional contractors on DoD contracts, though implementing DFARS rules were still pending at the time of writing.

How OTAs are awarded

There is no single format, but most opportunities come through one of three routes.

Directly from a DoD organization. Agencies such as the Defense Innovation Unit, the military departments, and their program offices issue their own solicitations, often called area announcements or Commercial Solutions Openings. These typically start with a short solution brief or white paper, followed by a pitch or demonstration, then negotiation.

Through a consortium. Many OTAs are awarded to a consortium, a membership organization of companies and research institutions managed by a consortium manager. The government issues a request to consortium members, members submit proposals, and the award flows through the consortium to the performing company. Membership usually carries fees and sometimes an assessment on awards, so read the membership agreement carefully before joining.

Through a prime or teaming partner. You may join an OTA as a subcontractor or team member to a larger company that needs your technology or your nontraditional status.

Whatever the route, the government is required to use competitive procedures "to the maximum extent practicable." Evaluation tends to focus on technical merit, feasibility, and value rather than the lengthy proposal volumes common in FAR-based source selections.

What's different once you sign

Because the FAR doesn't apply, you won't see the familiar clause list. That doesn't mean there are no rules. It means the rules are whatever the agreement says, plus the statutes and regulations that apply regardless of instrument type, such as export controls, security requirements, and fiscal law. Agencies often negotiate their own versions of provisions you'd find in a FAR contract, including cybersecurity and safeguarding requirements.

The terms that deserve the most attention:

Intellectual property and data rights. There are no default DFARS data rights. Whatever the agreement says is what the government gets. This is the single most negotiated term in most OTAs, and the most important one to your company's long-term value.
Payment structure. OTAs frequently pay on milestones rather than on incurred cost. Make sure each milestone is objectively defined and tied to deliverables you control.
Changes and termination. Understand how the government can change scope, how you get paid for changes, and what happens to your costs and your IP if the agreement is terminated.
Disputes. OTAs are not covered by the Contract Disputes Act, so the agreement's own disputes process governs. Protest rights are also narrower than for FAR contracts, though the Court of Federal Claims does hear some OTA-related protests.
Audit and cost reporting. Requirements are negotiable, but agreements above certain values or with cost-type elements may include audit access. Know what you're agreeing to before you build your accounting around it.

Larger OTAs also require higher-level approval. Under 4022(a), a prototype project over $100 million requires a written determination by the head of the contracting activity, and one over $500 million requires a senior procurement executive determination and 30 days' advance notice to the congressional defense committees. Follow-on production awards over $100 million carry their own determination and notice requirements. That can affect your schedule.

The real prize: follow-on production

A prototype OTA can lead directly to a production contract or production OTA without a new competition. Under 10 U.S.C. 4022(f), that follow-on award is available to participants in the prototype if competitive procedures were used for the original transaction and the participants successfully completed the prototype project.

This is why the prototype agreement matters so much. Plan for production from the start: make sure the original solicitation and agreement contemplate follow-on production, define what "successful completion" means in objective terms, and document when you meet it. A vague prototype agreement can make an otherwise successful project hard to transition.

Common mistakes new entrants make

Giving away more IP than the project requires because the first draft came from the government and nobody pushed back.
Treating "no FAR" as "no compliance." Export control, security, and negotiated cybersecurity terms still apply.
Accepting vague milestones that leave payment open to interpretation.
Joining consortia without reading the membership terms, including fees and how the consortium manager handles award flow-down.
Losing nontraditional status without realizing it by taking on work that triggers full Cost Accounting Standards coverage.
Ignoring the path to production until the prototype is almost finished.

A checklist before you sign

Confirm which statutory authority the agreement uses and which 4022(d) condition it relies on.
Read the IP and data rights section line by line, and map it to what you've developed privately versus with government funds.
Check that every milestone has an objective completion standard and a payment amount.
Understand the termination, changes, and disputes provisions.
Identify every clause or requirement that flows from outside the agreement, including security and export control.
Confirm that follow-on production is contemplated and that "successful completion" is defined.
If you're working through a consortium or prime, review how their terms flow down to you.

Build your team's OTA knowledge

OTAs reward people who understand both the authority and how agreements actually get negotiated. If your company expects to pursue OTAs regularly, formal training is worth the investment. The National Contract Management Association (NCMA), for example, offers a live virtual Mastering Other Transactions Specialized Program on October 13 to 16, 2026, covering how to plan, negotiate, and award OT agreements, for 10 CPE/CLP credits.

Our founder, Cynthia M. Carrington, has completed specialized OTA training of this kind, and brings that grounding, along with years of hands-on acquisition experience, to every OTA engagement.

How C2 Strategies can help

OTAs reward companies that move fast, but the speed comes from the negotiation, not from skipping it. C2 Strategies helps companies new to defense contracting evaluate OTA opportunities, prepare solution briefs, review and negotiate agreement terms, and set up the processes needed to perform and transition to production. If you're looking at your first OTA, or you've already signed one and aren't sure what you agreed to, get in touch. You can also see our full capabilities.

This article is general information, not legal advice. OTA terms and policy change frequently; confirm current requirements with your contracting officer or counsel before relying on them.