USD(A&T) Memo dtd 14 DEC 96

THE UNDER SECRETARY OF DEFENSE
3010 DEFENSE PENTAGON
WASHINGTON, D.C. 20301-3010

14 DEC 1996

MEMORANDUM FOR SECRETARIES OF THE MILITARY DEPARTMENTS

DIRECTORS OF DEFENSE AGENCIES

SUBJECT:

10 U.S.C. 2371, Section 845, Authority to Carry Out Certain Prototype Projects

Section 845 of the National Defense Authorization Act for Fiscal Year 1994, Public Law 103-160, authorizes the Director of DARPA to enter into transactions (other than contracts) under 10 U.S.C. 2371, for certain prototype projects. The authority under section 845 was to terminate November 30, 1996. Section 804 of the National Defense Authorization Act for Fiscal Year 1997, Public Law 104-201, extends the authority of section 845 through September 30, 1999, and makes it available to the Secretaries of the Military Departments and any other official designated by the Secretary of Defense. The Secretary of Defense delegated his authority and assigned his responsibilities, under the amendments made to section 845 by section 804, to me. I designate the Directors of the Defense Agencies as having the authority to use section 845 as authorized by subsection 804(a).

Section 845 authorizes use of instruments that are alternatives to contracts for the covered prototype projects. Section 845 requires, to the maximum extent practicable, use of competitive procedures when entering into "other transactions." To the extent that a particular statute or regulation is limited in its applicability to the use of a contract, it would generally not apply to an "other transaction." Attachment 1 is a list of statutes that apply to procurement contracts, but that are not necessarily applicable to "other transactions." The list is provided for guidance only, and is not intended to be definitive. To the extent that a particular requirement is a funding or program requirement or is not tied to the type of instrument used, it would generally apply to an "other transaction." Each statute must be looked at to assure it does or does not apply to a particular funding arrangement using an "other transaction." Use of section 845 authority does not eliminate the applicability of all laws and regulations. Thus, it is essential that counsel be consulted when an "other transaction" will be used.

Section 845 may be used to carry out prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department. When a prototype project, under the authority of section 845, is used as a precursor to a major defense acquisition program, I expect to be advised of the transition strategy for follow-on contracts at least 30 days prior to award of the "other transaction" that initiates the prototype project. The transition strategy must also address how the DoDD 5000.1 and DoD 5000.2R requirements will be applied to the acquisition program.

I believe it is essential that section 845 instruments incorporate good business sense and appropriate safeguards to protect the government's interest. This includes assurances that the cost to the government is reasonable, the schedule and other requirements are enforceable, and the payment arrangements promote on-time performance.

Annual congressional reporting requirements are established in 10 U.S.C. 2371(h), as modified by section 267 of Public Law 104-201. These requirements also apply to prototype projects under section 845. Each military department and defense agency using section 845 authority shall submit a report to OUSD(A&T)/DDP annually, by November 15, that includes all information required by 10 U.S.C. 2371(h), and that summarizes section 845 lessons learned for each prototype project. The format and content for this submission are at Attachment 2. In addition, users of section 845 may submit lessons learned at any time for inclusion in the Defense Acquisition Deskbook. The Deskbook will also be used to provide discretionary guidance and further information.

I encourage you to use the flexibility provided by this authority and to issue any further guidance you deem necessary. If you delegate authority to use section 845, I expect it will be to officials whose level of responsibility, business acumen, and judgment enable them to operate in this relatively unstructured environment. If we use this authority wisely, I will request that it be extended or made permanent by the Congress.