WHAT: The Department of War (DoW) issued a new online Guide to Prototype Other Transactions (Guide) covering prototype and follow-on production Other Transactions (OTs) under 10 U.S.C. § 4022. The Guide carries forward much of the 2023 Other Transactions Guide (2023 OT Guide) but refines DoW’s guidance on eligibility, modifications, pricing, payment, and follow-on production. Unlike the 2023 OT Guide, the Guide mentions research OTs only briefly and refers practitioners to separate guidance from the Under Secretary of War for Research and Engineering.
WHEN: DoW issued the Guide on October 14, 2026, implementing the Deputy Secretary of War’s September 14, 2026 memorandum, Fostering One Strong Industrial Base, which directed a “full Guide reissue within 120 days.”
WHAT IT MEANS FOR INDUSTRY: The Guide signals that DoW wants agreements officers (AOs) to use OTs more often and more flexibly, without importing FAR-based concepts. DoW’s stated policy is to “prefer use of OTs over other acquisition instruments (including FAR procurement contracts)” when the criteria for their use are met. The Guide repeats the 2023 OT Guide’s instruction that, if a practice is in the Government’s best interest and not legally prohibited, the Government “should assume it is permitted.” For contractors, this suggests more OT opportunities and more room to negotiate. Although the Guide is internal and not subject to rulemaking, industry is “invited to consult” it. Contractors can cite it when negotiating Other Transaction Agreements (OTAs). Several notable changes are summarized below.
Eligibility and NDC Status. The most significant changes concern how AOs document OT eligibility. The 2023 OT Guide directed AOs to validate and document nontraditional defense contractor (NDC) status before award. The Guide instead lets AOs confirm eligibility by relying “where lawful on offeror self-certification,” with additional verification “by exception” and a 10-business-day clock on any determination. Scrutiny scales with the effort, however: on larger or more complex efforts, AOs should exercise “greater due diligence” in attempting to independently verify NDC status. The Guide also adopts the September 14 memorandum’s broad reading of “significant extent” (which notably built on the 2023 OT Guide’s already broad interpretation), defining it as “any unique contribution material to the prototype project.” When an award relies on significant NDC participation, the Guide newly recommends that the agreement identify the NDC and its specific work. For offerors relying on cost sharing, the Guide adds new examples of non-cash contributions, such as additional prototype quantities or discounts on labor or materials. These changes ease the path to eligibility, but offerors should ensure their self-certifications are accurate and well supported, since AOs may still verify status.
Modifications. The Guide removes a key constraint on modifications: The “FAR-based notion of ‘scope’ does not apply” to prototype OTs, and the initial award’s value “is not a factor in whether it may be subsequently modified,” though statutory approval thresholds still apply. The Guide is less definitive on NDC status for modified work. Where the 2023 OT Guide said an NDC “is considered” an NDC for the agreement’s duration and any in-scope modifications, the Guide says only that an NDC “may be considered” one for the period of performance, “including modified work.” Contractors thus should not assume NDC status carries over to modified work automatically and may want to address it expressly when negotiating modifications.
Pricing and Payment. The Guide newly says there is “no requirement to consider pricing information” when assessing prototype proposals. However, the Government must still ensure good value, exhausting other means before requesting cost information. To that end, the Guide adds value-analysis techniques, such as comparing proposed labor mix and fully burdened rates to commercial rates or valuing a prototype by the cost of “not developing” it (e.g., the cost of continuing to sustain a legacy item). Consistent with DoW’s goal of attracting new entrants, the Guide says the adequate-accounting-system requirement does not apply to OTAs and directs the Government to rely on performers’ existing records and controls rather than importing government-unique accounting or business-system requirements. Performers paid based on their cost records, however, should still expect AOs to look for a system capable of complying with Generally Accepted Accounting Principles (GAAP). The Guide also expresses a preference for “fixed-amount and milestone-based payment structures.” These structures may reduce administrative burden but shift more cost risk to performers, making well-defined milestones especially important.
Follow-On Production. The Guide calls for follow-on planning “in every prototype OT” and includes a new dedicated section on follow-on production, which recommends that successful completion criteria be “negotiated and explicitly written into the OT agreement itself.” Because a noncompetitive follow-on production award depends on successful completion of the prototype project, contractors should negotiate clear, achievable criteria and consider requesting a copy of the Government’s success determination, which the Guide says may be shared.
Cybersecurity and Supply Chain Requirements. The Guide explains that program managers and requiring activities “should generally require performers to adhere to DFARS cybersecurity requirements applicable to the Department’s contracts.” It also confirms that Defense Priorities and Allocations System (DPAS) ratings “can be required” in prototype OTs without converting them into FAR-based contracts and recommends requiring performers to flow down DPAS requirements to suppliers.
Because the Guide is published online and reserves space for more content, including the new construction OT authority, contractors should check it periodically. Wiley’s Government Contracts Practice will continue to monitor these developments and future changes to DoW’s OTA guidance and keep contractors updated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
