This article was authored in conjunction with
Kelley Drye’s participation in Space Beach Law Lab 2024

Many laws and regulations governing U.S. Government contracts do not apply to Other Transactions” (“OTs”). Since the first days of the space program, Congress has authorized the National Aeronautics and Space Administration (“NASA”) to use OTs as may be necessary” and on such terms as it may deem appropriate” to carry out its mission, going beyond contracts, leases, and cooperative agreements. NASA OTs, called Space Act Agreements” (“SAAs”), remove potential obstacles to attaining the fullest commercial use of space.” In addition to NASA’s SAAs, Congress has granted OT authority to other agencies, including the Department of Defense (“DoD”), which awards OTs for research, prototype, and production purposes. Exemption from the voluminous Federal Acquisition Regulation (“FAR”) system makes OTs particularly attractive to non-traditional contractors and small startup companies.

However, OT support for innovative projects is not completely free from rules and regulations. Fundamentally, OTs still are formal agreements with the U.S. Government. Limitations exist as to how OTs may be used, and industry needs to understand what rights and obligations arise from these agreements. Negotiating OTs can involve the project scope, budget, funding and cost share terms, intellectual property rights, reporting, and cost provisions. The parties also will need to consider if any clauses should be flowed down to subcontractors. Although OT agreements are intended to provide flexibility, some terms appear mandatory (or, at least, are treated by agencies as such).

Below, we answer questions about statutory and regulatory requirements, as well as policies for OTs, some significant differences between FAR-based agreements and OTs, and distinctions among OTs with NASA, DoD, and other government agencies.


  1. Since OTs are supposed to provide flexibility, does this mean there are no required provisions?

Although NASA has broad authority to work with private industry on many types of projects to advance its space program, SAAs must be in NASA’s mission interest, should not put NASA in the position of competing with the private sector, and generally are made on a nonexclusive basis to foster commercial industry. NASA does not acquire goods and services for the direct benefit of the government through SAAs. NASA publishes a SAA Guide with sample SAA clauses to facilitate consistency, without establishing strict substantive or procedural requirements. A review of SAAs (available online) shows that different clauses are used depending on the type of SAA (nonreimbursable, reimburseable, unfunded, or funded).

DoD has its own guide (“DoD Guide”). The DoD Guide recognizes the need for the flexibility necessary to adopt and incorporate business practices that reflect commercial industry standards and best practices.” DoD’s use of OTs focuses on research and prototyping, although unlike NASA, DoD can pursue these projects for its direct benefit.

OTs are subject to fiscal law (e.g., the Anti-Deficiency Act), so funding limitations clauses may apply. As with any government contract, a contractor should confirm whether a specific agency representative has sufficient authority to award or modify an OT agreement. Also relevant will be government safeguards (security classifications, export control) and fraud remedies (e.g., False Claims Act). Provisions addressing the handling of counterfeit parts also may be required. Transparency remains important under the Freedom of Information Act (“FOIA”), with FOIA exceptions to protect proprietary information. Laws that govern any business (e.g., environmental) still apply. Thus, while NASA SAAs and DoD OTs offer flexibility, the parties will be negotiating a formal legal agreement using established frameworks, as further defined by each agency and the type of SAA or OT.

  1. Is there a changes” clause in OTs?

In traditional procurement contracts, the contracting officer has a unilateral right to make changes to contract requirements within the contract’s general scope. Although the contractor is entitled to an equitable adjustment of a contract price, schedule, or both, the contractor still must perform changed work. The contracting officer, however, lacks this authority in commercial procurements under FAR part 12, where changes must be the subject of a mutual agreement.

During the period of performance, either party to an OT might decide that changes to milestones or other terms are desirable or necessary. Like FAR commercial procurement contracts, these changes generally must be bilateral (i.e., agreed-to by both parties). As stated in the SAA Guide, modifications must be executed, in writing, and signed by an authorized representative of NASA and the [contractor].” This does not address the scenario where, for example, a contractor believes it deserves more time to meet a milestone or obtain additional funding, but the government, for whatever reason, does not agree. Adding a provision when negotiating a SAA to address funding for changes caused by the government, even if not acknowledged as such (“constructive changes”), could be appropriate in some circumstances.

DoD’s OT Guide contemplates unilateral changes by the government, suggesting that if the government makes such changes without the [contractor’s] consent, the AO should consider addressing, as part of the agreement, whether the [contractor] will be entitled to compensation for such unilateral changes.” During OT negotiations, contractors should use caution before granting the government this right without taking into consideration the cost and time impact of potential changes.

  1. What about terminations?” Can the government walk away” from an OT? What if funding or costs are an issue?

Procurement contracts include a standard termination for convenience” (“T4C”) clause, which allows the government to terminate a contractor’s performance when it is in the government’s interest.” Courts have required some reason to support a T4C, but it can be fairly easy for the government to end a contract. The T4C clause generally requires the government to reimburse a contractor’s wind-down costs.

For SAAs, NASA originally did not allow itself convenience terminations unless a contractor failed to perform or in national emergencies to further encourage private investment and participation. Current NASA guidance, however, includes the possibility of convenience terminations at the election of either party.

The DoD Guide leaves the topic open for discussion, but states, “[t]he OT agreement should address when each of the parties may terminate the agreement in whole or in part.” The DoD Guide goes further to suggest, “[t]ermination by one party does not necessarily mean that the other party should be compensated for expended efforts,” telling AOs to take into account contractor risk factors, milestones, percentage of completion. Contractors should consider carefully the parties’ respective rights and obligations in the event a party terminates an agreement, including who should be responsible for termination costs. These rights and obligations could vary based on the type of SAA or OT. Here, as elsewhere, even if FAR clauses do not automatically apply, the parties could still use a modified FAR provision. Finally, if a T4C clause is included in the OT agreement, subcontracts (governed by state law) also will need a provision that takes into account the possibility of a termination, including access to records in the event of a termination.

  1. What about a default termination? Can the government terminate an OT for default?”

A default termination is not impossible. Draft U.S. Department of Energy (“DOE”) OT guidance refers to a government right to terminate OTs for default, mutual agreement or as negotiated by the parties before award, but any “[t]erminations for default will be reported to the Federal Awardee Performance and Integrity Information System (FAPIIS).” Not only does a default termination often give the government remedies, a contractor will not want negative information entered in FAPIIS, a source of government-wide past performance information for a 5-year period.

NASA SAAs and DoD OTs seem to allow the parties to pre-negotiate any termination without resorting to the possibility of a default. However, the NASA guidance refers to a right to terminate, at least in some circumstances, upon [contractor’s] failure to meet its obligations under the Agreement …,” with the provision that “[f]or use of property or services provided on a cost basis, [the contractor] will be liable for all costs … incurred by NASA … including termination costs.” This should be the subject of negotiations before the SAA agreement is signed.

  1. Do OT awardees need to register with a government contractor database?

All companies that are interested in contracting with the government must register with the System for Award Management (“SAM”), the central repository for standard government-wide assurances. DoD now requires OT contractors to register, and at least for some programs, NASA also requires SAM registration. It may take several weeks before an entity’s registration is active in SAM. All registrants are required to review and update the representations and certifications submitted to SAM as necessary, but at least annually, to ensure they are current, accurate, and complete. In the case of an OT award to a consortium” (group of entities), the lead/manager and lead performer(s) must be registered.

SAM encompasses a wide variety of certifications, representations, as well as substantive performance and corporate status commitments, many based on FAR provisions, including those related to ownership, telecommunications equipment, data rights, labor laws, Buy American/Trade Agreements, and cybersecurity. Because it carries the potential risk of exposure for making false certifications, SAM is not a simple check the box” exercise.

  1. May an OT awardee use any subcontractors or vendors it chooses?

A basic requirement is that the contractor or key personnel must not be listed in SAM as suspended or debarred from receiving federal funding. This restriction also applies to major subcontractors. Suspensions and debarments are issued by FAR-based and Non-Procurement-based (e.g., grants) offices. Federal agencies will consult SAM” before making OT awards.

Suspension and debarment protect the government from fraud, waste, and abuse that could result from working with non-responsible contractors. OTs by no means dispense with requiring high standards of ethics and conduct. As always, contractors are expected to turn square corners” in dealing with the government. Federal ethics laws and standards of conduct also require that government employees avoid unjustifiable favoritism, whether actual or perceived, and take into account potential conflicts of interest and the travel and gift rules. The DoD Guide emphasizes that OT agreements are subject to the ethics requirements of the Procurement Integrity Act, which prohibits the release of source selection and contractor bid or proposal information.

  1. What about consortia?

DoD OTs often are awarded to consortia,” through which established contractors, non-traditional contractors, financial contributors, potential end users, or other interested parties, group together to support projects of mutual interest. These consortium members together execute a consortium agreement or articles of collaboration. The OT consortium then negotiates a base agreement with the sponsoring government agency. The updated DoD Guide has expanded its discussion of consortia, and provides an initial checklist of issues for the government and a consortium or consortium manager to consider. In response to a perceived lack of transparency with consortia OT awards, the DoD Guide also identifies enhanced reporting, competition requirements, and approval levels. Consortia bring with them an added level of legal planning, because the relationship among consortia members will be governed primarily by state law. The DoD Guide emphasizes these and other similar teaming relationships are industry’s responsibility.”


  1. If an OT is not a government procurement contract, or if no government funding is involved, does a contractor need to be concerned with export controls?

Although OT flexibility de-emphasizes government management of a project, industry must not ignore export controls. Under United States law and regulations, spacecraft and their specifically designed, modified, or configured systems, components, and parts may be considered Defense Articles” on the U.S. Munitions List subject to the International Traffic in Arms Regulations (“ITAR”). Other items or information may be covered by the Export Administration Regulations (“EAR”).

  1. What are the restrictions on working with foreign companies or foreign nationals?

Both the ITAR and EAR impose restrictions on releasing controlled technology (e.g., blueprints, designs, know-how) related to spacecraft to foreign persons, including foreign nationals working in the United States. Contractors need to develop a system to identify controlled technology and keep it separated from foreign national access (including over Sharefile or email), until export authorizations can be acquired. In some cases, a general license might authorize employees to access technology, but only with recordkeeping requirements that a contractor must have in place. Foreign proposals and proposals with foreign participation must include a section discussing compliance with U.S. export laws and regulations.

  1. A contractor is not intending to use any foreign companies or foreign nationals in a project, is it still necessary to implement any export controls procedures?

It still may be necessary to register under the ITAR if the contractor is manufacturing defense articles.” Some systems, components, and parts of spacecraft are considered defense articles on U.S. Munitions List. Registration involves submitting an application, paying a fee, implementing ITAR compliance procedures, including annual re-registration and updates as necessary.

  1. Are there any specific export or sanctions obligations related to subcontractors or suppliers?

There are specific restrictions related to subcontractors and suppliers owned by Chinese or Russian parent companies. The U.S. Government also maintains watchlists” for countries, companies, and individuals that the U.S. Departments of State, Commerce, and Treasury have determined constitute a potential threat to domestic export control. Supply chain diligence procedures need to screen subcontractors and suppliers against the watchlists, review beneficial ownership, and flag any ties to the countries of concern.

  1. A contractor is in the middle of a fundraising cycle looking at a variety of investors. Anything to keep in mind?

Foreign investment can disqualify companies from specific government work, even if foreign investors have only a minority stake in a contractor. A know-your-customer (“KYC”) review of investors is essential to confirm identities, locations, and beneficial ownership. Ties to countries of concern (e.g., China, Russia) may need to be disclosed to the U.S. Government. Where the investor is a holding company or an investment vehicle, the contractor must make accurate representations regarding foreign ownership. Foreign investment also can trigger notifications to the U.S. Committee on Foreign Investment in the United States.


  1. Discussions leading up to an OT could refer to new science and technical approaches, so should government employees sign a Nondisclosure Agreement (“NDA”), which commonly are used in industry?

There have been court decisions holding that the government was not liable for breach of NDAs signed by government employees or support personnel because they did not have adequate authority to enter into the NDAs. Some agencies, however, still refer to the possibility of NDAs to address trade secret concerns. At least until an OT agreement with appropriate intellectual property provisions is signed, there are reasons not to rely on a generic NDA, which may be unenforceable due to lack of underlying statutory authority. At a minimum, though, government personnel acting in an official capacity should be subject to the Trade Secrets Act, 18 U.S.C. § 1905, which prohibits them from disclosing contractor proprietary information.

  1. If a contractor is not awarded an OT, is there a clear route to obtain administrative or judicial review?

OT guidance refers to promoting competition, without following the formal structure of the Competition in Contracting Act (“CICA”) and FAR. Indeed, one of the potentially useful characteristics of OTs that is they are not procurements” and would not seem subject to protest delays. However, OTs should not be treated as a protest-proof substitute for a FAR-based procurement. What if a contractor, after a significant investment in a proposal, believes an agency did not allow for fair competition? After all, as one example, Congress has said that “[t]o the maximum extent practicable, competitive procedures shall be used” for DoD OT prototype projects.” Together with recent legislative fine-tuning, the DoD Guide requires that after a prototype, for the follow-on production OT or non-competitive procurement contract, the original OT prototype award must have been competitive and successfully completed, and AO’s are encouraged to share information with industry regarding the anticipated dollar value or quantity of an eventual production award when that information is known.” NASA SAAs also are said to be built for fairness and consistency,” and NASA’s SAA Guide states that when SAAs are used to establish an exclusive arrangement, competition should be used to the maximum extent practicable to select the [contractor].”

There is nothing prohibiting agencies from establishing a process for an agency-level protest, and stating this in solicitations. For its part, although the Government Accountability Office (“GAO”) has confirmed that OTs are not procurement contracts” within its bid protest jurisdiction, GAO has carved out an exception for timely (usually before the closing date for proposals), pre-award protests alleging that an agency is improperly exercising its OT authority to avoid using a procurement contract. Under different statutory authority, there are U.S. Court of Federal Claims (“COFC”) decisions going both ways on the question of its jurisdiction over OT bid protests. There is also uncertainty whether a U.S. District Court will review an OT award. Despite the lack of a clear path for protests, where business interests are sufficiently important, unsuccessful OT proposers have continued to pursue protests.

  1. If there are disagreements regarding the performance of an OT, is it difficult to find a court to decide disputes?

Like the uncertainty surrounding OT bid protests, court jurisdiction over disputes that might occur during performance is not completely clear. Previously, DoD guidance stated that an OT dispute could be the subject of a claim in the COFC, but court jurisdiction for claims is not currently addressed in the DoD Guide. The COFC has taken jurisdiction over at least one OT dispute. The DoD Guide does suggest considering alternative dispute resolution (“ADR”) and, if so, what terms are appropriate for using ADR for resolving disagreements. The best practice is to negotiate clauses at the time of award to allocate as many risks as possible by the terms of the agreement. Without losing the spirit partnership that underlies OTs, the parties can still include language providing for the possibility, however remote, of disputes requiring monetary remedies.


  1. Are government cost accounting rules irrelevant to OTs?

The cost principles at FAR Part 31 and 2 C.F.R. 200 Subpart E define specific allowable costs” under contracts and grants. Federal agencies rely on these rules when reviewing budgets or proposed costs submitted by contractors, or later when analyzing requests for additional funding, reimbursements, change orders, or claims. Federal Cost Accounting Standards” (“CAS”) are different from the FAR cost principles”— CAS are a set of standards that are designed to achieve uniformity and consistency in cost accounting practices” with a focus on procedures for classification, measurement, and assignment of revenue. OTs typically are not subject to CAS.

NASA SAAs and DoD OTs do not incorporate the FAR cost principles. This allows for flexibility in negotiating any cost and accounting aspect of an OT project. However, when it comes to resource sharing or government funding, federal agencies need a consistent basis to understand costs that are paid with taxpayer dollars, so the cost principles remain a point of reference. In its oversight capacity, for funded SAAs, GAO also has emphasized that NASA must be able to assess the fairness and reasonableness of the costs it is contributing” to a SAA.

When negotiating OT agreements for an expenditure-based or resource-shared project, DoD focuses on accounting systems with complete, accurate, and current records that document the sources of funds and the purposes for which they are disbursed.” This requires that contractors have adequate financial records, and that prices and costs should be reasonable and auditable. DoD AOs are told to consider defining what costs may or may not be considered allowable up front in the agreement.” Here again, the FAR cost principles are a helpful point of reference, and even refer to the allowability of Independent Research and Development (“IR&D”) costs under OTs.

As a matter of policy, the DoD Guide calls out that some costs might not be appropriate for resource-sharing, such as foregone profit or fee, cost of money, previously funded government research, or costs incurred prior to an OT award, since these costs would not be consistent with general cost principles.”

Contractors might assume that cost principles are irrelevant for fixed-price work. While a government agency cannot ignore a contractor’s financial management system, and even if CAS or the cost principles do not apply, contractors should maintain policies and procedures that enable an accounting of costs appropriate for the terms and form of the federal award, particularly if there could be changes in the work or a termination of the agreement. This is also sound contract administration and business practice as it allows companies to understand the actual costs of performance and better manage OTs, contracts, or grants in the future.

Finally, fixed amount OTs generally will not require an audit, however, the DoD Guide states that audits and access to financial records are subject to negotiation,” and price reasonableness” is a key consideration. Furthermore, DoD OT prototype agreements in excess of $5 million must include a Comptroller General Access to Records” clause to keep open the possibility (with some exceptions) of a government examination of records relating to the agreement for a period of three years after final payment.

  1. If an OT does not involve any payments, is there any other need to address cost accounting in the agreement?

Intellectual property (“IP”) terms and conditions for OTs are negotiable. An underlying concept to reinforce a contractor’s IP position in performing an agreement is an allocation of rights based the contractor’s tracking its sources of funding, and distinguishing between government expense versus private expense, or mixed funding. For example, NASA guidance defines Proprietary Data” as data embodying trade secrets developed at private expense.” The allocation of IP rights thus involves an accounting test. Contractors need to understand what IP (e.g., an item, component, process, or software) is developed” (at a component or module level), when, and who directly paid for it. Contractors are then in a position to make clearly identified assertions, which should be supported by contemporaneous timekeeping and accounting records to support their rights. Each of these concepts requires careful consideration, which begins with a contractor internally assessing its own baseline IP before becoming involved with an OT.

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OTs can be a beneficial tool to advance research and drive innovation for the U.S. Government, but they are not free from unique rules and requirements. If you have questions about the use of OTs, please contact Dorn McGrath (dmcgrath@​kelleydrye.​com) or Ken Kanzawa (kkanzawa@​kelleydrye.​com).