On June 5, 2018, the GAO released its decision sustaining Oracle America, Inc.’s protest of the U.S. Army’s decision to award a $65 million cloud migration deal to REAN Cloud, LLC. Oracle America, Inc., B-416061, May 31, 2018, 2018 WL 2676823. The GAO ruled the U.S. Army had no authority to award the work under an Other Transaction Authority (OTA) prototyping arrangement.

OTAs allow for rapid prototyping work. The Department of Defense (DoD’s) authority to use OTAs for prototype projects is set forth in 10 U.S.C. §2371b. Pursuant to 10 U.S.C. §2371b, companies awarded initial OTA prototyping work can also be awarded a follow-on production OTA deal, or P-OTA, under certain conditions.

Background
In August 2015, the DoD established the Defense Innovation Unit (Experimental) (DIUx) in order to “accelerate the development, procurement, and integration of commercially-derived disruptive capabilities to regain our nation’s technological lead in offensive and defensive capabilities.” Oracle America, Inc., B-416061 at 3. On June 15, 2016, DIUx published a Commercial Solutions Opening (CSO) under the authority of 10 U.S.C. §2371b in order to “award[] funding agreements … to nontraditional and traditional defense contractors to carry out prototype projects that are directly relevant to enhancing … mission effectiveness….” Id.

In Oracle America, the U.S. Transportation Command (TRANSCOM) had sought solutions to address risks associated with local server outages. Because it was unable to find any agency with solutions to this issue, TRANSCOM contacted DIUx. DIUx sent out an announcement (called an AOI) on behalf of TRANSCOM in March 2017, seeking companies to propose cloud-based solutions to address issues caused by outages of local computer servers and related issues encountered by other DoD agencies. REAN Cloud was one of 21 companies to respond, and was chosen for a prototype OTA to move several TRANSCOM applications onto the Amazon Web Services cloud. The prototype OTA was modified six times.

After TRANSCOM determined REAN Cloud had met the requirements of the OTA, the Army Contracting Command announced that it was going to award REAN Cloud a follow-on OTA (P-OTA). REAN Cloud was awarded a P-OTA on Feb. 12, 2018. It was to function like an IDIQ contract, with a cap of $950 million.¹ 

The Protest
Oracle filed a protest with the GAO, arguing the Army’s use of its OTA authority to award the P-OTA did not comply with the statutory requirements in 10 U.S.C. §2371b.

Although OTAs aren’t procurement contracts, the GAO ruled it had jurisdiction over the protest because its bid protest authority extends to instances where an agency is improperly using a non-procurement instrument to procure goods or services. In other words, because Oracle argued that the Army did not appropriately use its authority under 10 U.S.C. §2371b to award the P-OTA to REAN, the GAO concluded that it had jurisdiction to review this limited protest issue. The GAO found Oracle was an interested party to pursue the protest because there were material differences between the initial call for proposals issued by DIUx and the final OTA deal, and Oracle argued it would have submitted a solution brief to DIUx if the AOI and/or the CSO had accurately described the prototype competition or advised the parties that the Army contemplated the award of a P-OTA. Oracle America Inc., B-416061.

The GAO ultimately sustained the protest, finding the Army did not comply with the statutory provisions regarding the award of a P-OTA because: (1) the prototype OTA did not provide for the award of a follow-on production transaction, and (2) the prototype project provided for in the prototype OTA had not been completed.

Relying on 10 U.S.C. §2371b(f)(1),(2), the GAO concluded that a follow-on P-OTA may only be awarded to the prototype transaction participants without the use of competitive procedures if the “transaction entered into under this section for a prototype project” (i.e., the prototype OTA itself) “provided for the award of a follow-on production contract or transaction to the participants in the transaction.” Oracle America Inc., B-416061.

In awarding the P-OTA without competition, the Army had relied on the exception under 10 U.S.C. §2371b(f)(2) that permits such an award if a prototype OTA of similar subject matter was competed. However, the GAO found the P-OTA to be improper because neither the CSO or the AOI contemplated the prototype OTA that was awarded here, or any follow-on P-OTA. According to the statute, for a P-OTA to be awarded, the underlying prototype OTA must “provide for” a follow-on P-OTA. Here, the REAN Cloud prototype deal did not include a provision for a follow-on P-OTA. And, even though there is language in the underlying DIUx charter which contemplates that its prototype projects “may eventually result in follow-on production,” the GAO found this language conflicted with the Army’s own internal guidance and was not sufficient to “provide for” the award of a follow-on production transaction. In other words, potential prototype OTA contractors were not advised that the agency intended to award a follow-on P-OTA to a successful vendor.

Because the plain and unambiguous meaning of the statute provides that the Army only has the authority to award a follow-on P-OTA if it was provided for in the prototype OTA itself, and because the prototype OTA here included no provision for a follow-on production contract or transaction, the GAO concluded that the Army lacked the statutory authority to award the P-OTA. Oracle America Inc., B-416061.

In addition, for a P-OTA to be awarded outside of a competitive process, the participants in the prototype OTA must have “successfully completed the prototype project provided for in the transaction.” 10 U.S.C. §2371b(f)(2)(B). Here, the prototype OTA contemplated the migration of six applications, and the option to migrate an additional six. It was later modified to include enclave migration, and the enclave work was not completed when the Army awarded the P–OTA. Because the prototype OTA was modified to include enclave migration, it became part of the prototype project. Since the statute requires successful completion of “the prototype project provided for in the transaction” prior to the award of a P-OTA, and the Army did not dispute that the enclave migration work was not complete, the GAO concluded that the Army did not comply with the statutory requirements in awarding the P-OTA. Oracle America Inc., B-416061.

The GAO sustained Oracle’s protest and recommended that the Army terminate the award and either conduct a new competitive procurement or justify a decision to make a noncompetitive award.

Going Forward
To avoid similar issues with the award of a P-OTA, ensure that your prototype OTA provides for a follow-on P-OTA and that all work in the prototype project has been completed before award of the P-OTA.

¹For unknown reasons, the cap amount was reduced by the DOD to $65 million on March 1, 2018, and limited to orders for TRANSCOM projects.