A Beginner’s Guide to Understanding OTAs
Considering that only 4 in 10 people receive a government contract, the odds are stacked against you. As a small business owner, you need the right tools to stand out from the crowd. One of those tools is understanding how government agencies award contracts and how they work with other transaction agreements (OTAs).
In this guide, we’ll cover how OTAs differ from other contracting methods and why you should use them in your business. As it turns out, they may be cheaper and will make your IT project run more smoothly. Keep reading if you want to hear more about OTAs, how they work, and what you need to know before signing one.
What Is an OTA?
The question of “What is an OTA?” has probably never crossed your mind until you started financing projects. But when you look into how businesses usually fund their IT projects, you’ll see that they often use OTAs to cut costs.
An OTA is an agreement between a government agency and an external company for the provision of IT solutions and services. OTAs are often used to buy newer technology that isn’t on the market yet.
Funding Projects With OTAs vs. Government Contracting
In order to fully appreciate the value of OTAs and how they can help your organization, you need to understand the difference between a government contract and an OTA.
Unlike government contracts, most laws and regulations do not apply to OTAs. This is important because it gives you the flexibility to establish your own working relationship without strict government laws stepping in.
As long as all parties agree on how they will work together within this framework, there are no limits. The flexibility afforded by this approach makes it attractive for fresh projects seeking to increase their impact.
How Do OTAs Impact Contractors?
In today’s marketplace, both government agencies and contractors are constantly looking for ways to reduce the costs of doing business. One way that they can accomplish this is through the use of OTAs.
An OTA can reduce government oversight. This means that contractors can use nontraditional resources for their projects. As a result, contractors experience greater affordability, efficiency, and productivity.
Types of OTAs
OTAs aren’t a recent phenomenon. In fact, they’ve been around since the 1950s and are used by many government agencies today. There are three different OTAs:
Research-Based OTA
While most OTA contracts are for production, there is a growing interest in opportunities for research and development. These opportunities are often referred to as Research, Development, Test, and Evaluation (RDT&E) or Experimentation (EXPER) contracts. These contracts represent an opportunity for nontraditional contractors to form new partnerships.
Research OTAs should include a cost-sharing arrangement that doesn’t exceed 50/50 between the government and the contractor. This means that the government will fund no more than half of the cost of the research. The contractor funds the other half.
The cost-sharing agreement should cover the full scope of work and be calculated fairly. Also, the costs included in the agreement should be specific to RDT&E efforts.
Prototype OTA
You can use a prototype OTA to develop new technologies. The final prototype can be physical or digital.
Prototype OTAs allow for a long-term production agreement provided by the same supplier who designed and built the prototype. This provides an opportunity to leverage existing relationships with vendors.
Prototype OTAs offer more flexibility than other standard OTA terms in that they typically provide for:
- Reduced documentation requirements
- Fewer limitations on performance guarantees (where appropriate)
- Less risk mitigation language
In addition, prototype OTAs let you test new ideas or concepts before committing resources to commercial production.
Production Purpose OTA
The production purpose OTA supports the end product of a technology solution.
Under this type of OTA, there is a fixed price added to the contract, and there must be a conventional design, manufacturing process, and standard materials. The end product must be an item that is ready for use and not just a prototype.
The Pros and Cons of Other Transaction Agreements
Other transaction agreements (OTAs) are contracts used by the U.S. government to fund projects that traditional government contracts would not support. These include:
- Projects that are too small for a full-size contract
- Risky projects and research
OTAs can help companies develop new technologies and products without bearing the costs of maintaining a large staff. However, many OTAs require repayment from any income generated from the project.
If you’re considering an OTA, make sure you understand the terms of the agreement before signing on the dotted line.
Should You Use an OTA?
Companies with innovative ideas but not much capital to develop those products often use OTAs.
First, the government provides the funding for this development. Afterward, when the product is ready for commercialization, you can sell it to the government at a profit. This allows small businesses to compete against larger firms that may have more financial resources.
OTAs can also help generate jobs in the community where they’re located and provide new technologies that benefit society. If this sounds like a good deal to you, then an OTA may be right for your company.
Secure Your Next Other Terms Agreement
OTAs are an important part of the government contracting process. It’s difficult for small businesses and new startups to compete with larger companies. OTAs help smaller firms get their foot in the door by allowing them access to contracts they may not have been able to win otherwise.
To get government lenders to take you seriously, it’s important that you learn how to represent your business and yourself properly. Check out our business and finance articles for tips on doing so!
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