Innovation By and For the Government

In 2001, on its second birthday, the CIA’s venture catalyst, In-Q-Tel, still was a novelty. “It’s like a baby with a beard. Everyone is rushing to see it,” said A.B. “Buzzy” Krongard, then the CIA’s executive director. He wasn’t interested in selling every agency in government on the CIA’s idea for luring innovators into the federal market.

“If [the National Reconnaissance Organization] and [the National Security Agency] and [the National Geospatial-Intelligence Agency] and the Army and Air Force and Navy and Marines all do In-Q-Tels, the competition is going to be enormous. And I question how much return on investment you get as a community," he said.

Fast forward to today, and government is bristling with In-Q-Tel impressionists—innovation scouts using an array of lean procurement techniques to attempt to attract novel technology and techniques, especially from nontraditional government contractors, to solve seemingly intractable challenges. Like the CIA in the late 1990s, the rest of government has realized it’s fallen far behind the innovation evolution curve.

The private sector has taken over from government as the driver of U.S. innovation. In 1987, 40 percent of U.S. research and development spending came from the Defense Department, according to the Government Accountability Office. By 2013, DOD provided less than 20 percent, while commercial R&D spending shot up 200 percent between 1987 and 2013.

Industry innovators adapted for speed don’t want to sell to the government due to the long, onerous and costly federal acquisition process. GAO reported that it took one company 25 full-time employees, 12 months and millions of dollars to prepare a bid for work at DoD. Proposing to produce a similar product for a company took the same firm just three part-time employees, two months, and thousands of dollars.

Companies outside the federal market also chafe at agencies’ stringent control of intellectual property rights, software certifications, long-delayed funding, socioeconomic and cost accounting obligations.

Then-CIA Director George Tenet said In-Q-Tel was created to enable the CIA “to swim in the Valley.” In recent years, more and more agencies are following the CIA’s lead and building Silicon Valley outposts to make it easier for emerging companies and products to get to them. The Defense Innovation Unit Experimental (DIUx), Department of Homeland Security Silicon Valley Office and the National Geospatial Agency Outpost Valley all have set up shop in Northern California.

But proximity alone will not draw innovators to government. In fact, co-location might not even be a deciding factor. What can bridge the chasm is reducing the strictures of federal procurement. Last fiscal year, Congress did just that, purposely setting off even greater proliferation of innovation centers using other transaction agreements (OTAs).

OTAs are transactions other than grants, contracts or cooperative agreements. Almost none of the federal acquisition laws and rules apply to OTAs, so agencies can customize them to help meet project requirements and mission needs and to attract companies that traditionally have not done business with federal agencies.

Under an OTA, government rights to intellectual property are loosened and are negotiable. OT agreements cannot be protested and competition requirements are reduced. Agencies using OTAs openly discuss requirements and collaborate with contractors, and payment plans are flexible based on measurable milestone achievements.

In 2015, lawmakers expanded the pool of possible recipients of OTAs, raised the value trigger for additional approvals and eased the requirements for awarding follow-on production contracts without further competition.

To participate in an OTA, recipients must include significant participation by at least one nontraditional defense contractor, all be small businesses or nontraditional contractors or, absent nontraditional contractors, companies must cover at least one-third of the costs of the project.

Nontraditional contractors are generally those that have not performed work for the federal government that was covered by cost accounting standards for at least one year prior to receiving an OTA.

The authority to use OTAs was first given to NASA in 1958 and has expanded over the years to include the Defense, Energy, Homeland Security, Health and Human Services, and Transportation departments, as well as the Federal Aviation Administration, Transportation Security Administration, Advanced Research Projects Agency-Energy, Domestic Nuclear Detection Office and National Institutes of Health.

The Army Contracting Command-New Jersey has become the Defense Department’s leading center of OTA expertise and created a consortium acquisition model for administering the agreements, now in use by at least 13 OTAs with at least three more in the works right now (See box).

ACC-NJ defines a consortium as “an association of two or more individuals, companies, organizations or governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal.”

Government organizations generally establish OTAs with consortium management firms that attract innovative, nontraditional providers as members. The firms present events and conferences for their members, translate the challenges and requirements of their sponsors into non-government language and announce them to elicit white paper responses from the consortium, liaise between the sponsor and members, assist in running the OTA response evaluations and negotiations with awardees and manage consortium business.

Consortia charge annual fees, usually $500 to $1,000, for membership, though some can be larger. It’s a small enough amount not to bar to start-ups, small companies, colleges or even individuals. The consortium helps manage competition, as well, since only by joining do entities gain access to the sponsor’s requests for white papers, which can lead to awards.

ACC-NJ has issued OTAs on behalf of sponsoring organizations with firms managing the majority of DoD consortia. Most consortia are managed by a handful of firms, mostly nonprofits, which have been in the OTA business for a number of years (See box below).

Beyond OTA consortia and Silicon Valley outposts, DoD and other agencies have created other ways to lure innovators.

The military special operations forces (SOF) have SOFWERX and soon DroneWERX, which are designed to promote “collisions” among SOF and “a healthy mix of academia, industry, hackers and makers.” The goal is to facilitate an ecosystem of innovators to promote divergent thought and “bring the right minds together to solve challenging problems,” according to the SOFWERX website.

The Commerce Department’s Joint Venture Partners program advises agencies on data projects, putting together business cases and partnering with the private sector to design solutions in 60 to 90 days. DoD’s National Security Technology Accelerator is public-private partnership—including the National Defense University, New York University, and a network of national research universities—with a goal of reinvigorating civil-military technology collaboration among “entrepreneurs and intrapreneurs solving high-tech problems in the interest of national security.”

Then there is Hacking for Defense, a series of classes at universities across the United States. Student teams develop technology solutions to help solve national security problems using Lean Startup theory to discover and validate customer needs. The teams then build iterative prototypes in close engagement with military, defense and other agencies. H4D, as it’s known, began at Stanford University and with its sister programs, such as Hacking 4 Diplomacy, now runs classes at 23 universities in concert with 22 federal agencies and nine corporations.

Meanwhile, the Defense Entrepreneurs Forum (DEF) is a “self-organized” nonprofit group of “emerging defense leaders, civilian innovators, and social entrepreneurs.” The forum is a place for them “to express themselves, network with other like-minded individuals and gain the ideas, mentorship and support necessary to bring ideas to execution.”

As agencies compete to attract companies and inventors and new forms of innovation scouting proliferate, Buzzy Krongard’s prophecy is a reminder that government as a whole may not get full return on its innovation investment without coordination and collaboration.  So we need to ask how to start harvesting and using the value of these important initiatives across the landscape of invention, taking advantage of vital lessons, leveraging efforts in similar areas, enhancing communications and achieving greater returns on government investments in realizing the benefits of bringing innovative new companies and capabilities to achieve government’s missions and goals.  

When the Trump administration names a new Office of Federal Procurement Policy Administrator, this opportunity is one that deserves attention as a capstone to rationalizing, guiding and harvesting the benefits of the explosion of innovation initiatives across government.  It seems a natural for OMB’s recent Management Memorandum 17-22 on reorganization, performance and acquisition effectiveness and efficiency.