The Pentagon has gone too far in using the Other Transaction Authority. Congress should act.

In the past decade, the Pentagon has increasingly relied on the Other Transaction Authority (OTA) to advance major weapon programs while skirting competition requirements and cost transparency standards. If lawmakers don’t narrow the authority, they risk sleepwalking the American people into a generation of Pentagon boondoggles.

Congress created the OTA in 1958 to provide the newly-established NASA with a flexible tool to pursue “research, development and exploration” in its race to space after the Soviets’ successful Sputnik launch. In the decades since then, lawmakers have dramatically expanded the OTA’s usage and scope, enabling elements of the Pentagon to rely on it not only for research and development, but also for weapons prototyping and production. As a result, Other Transactions have become the predominant approach to military contracting, at great risk to taxpayers.

Under the OTA, contractors are exempt from standard procurement rules specified in the Federal Acquisition Regulation (FAR), including competition standards, cost and pricing data requirements and accounting principles designed to protect the government from unreasonable expenses on military contracts. Put simply, the authority grants contractors the freedom to set prices on military contracts practically unilaterally, simultaneously foreclosing the possibility of government recourse should contractors price gouge the military. 

Policymakers should narrow OT use for research and development purposes only, given both an increased risk of waste as well as their uncertain impact on delivery speed. The consequences of expanded OT usage simply outweigh any potential benefits. 

The primary argument for increased OT use is that they deliver capabilities to the military faster than traditional FAR-based procurement contracts. However, there is little if any evidence to substantiate this claim, as the Pentagon fails to track how quickly production OTs deliver capabilities to service members relative to traditional contracts subject to competition requirements and cost transparency standards. The department releases information about how many prototyping OTs result in the production of new capabilities, either through production OTs or traditional FAR-based contracts; but according to the Government Accountability Office (GAO), past findings have been “unreliable and inaccurate.”

Another justification for OTs is that they attract new or non-traditional companies to the defense sector, increasing competition in a consolidated industry. The problem with this argument is that the Pentagon doesn’t even know what contractors are doing the work for OTs awarded through consortia. These are groups of vendors focused on specific technology domains, like naval energetic systems or aviation and missile technology. They are led by managers who receive awards from the government and then distribute work among vendors. From 2021 to 2024, the government made half of its OT obligations through consortia, yet a 2025 GAO report claims that the Pentagon cannot fully account for which vendors are carrying out OT awards. 

Significant non-traditional participation in OTs is one of the four requirements that the Pentagon must fulfill to grant a prototyping project to a contractor through the OTA. In FY24, the department claimed that 93 percent of OT obligations were agreements awarded to companies in which non-traditional contractors “significantly participate.” However, the GAO maintains that the Pentagon’s ability to analyze engagement by non-traditional defense contractors (NDCs) remains limited. It lacks department-wide “aggregated data on whether OTA awardees are NDCs, the obligations they have received and their contributions to OTA projects,” casting doubt on that 93 percent claim. 

To make matters worse, the legal definition of “non-traditional” is not based on the size of a company or the value of their Pentagon contracts, but on whether a company has received a Pentagon contract subject to certain accounting principles in the last year. I wrote about the importance of these principles, the Cost Accounting Standards, in Breaking Defense last year. Companies use them to determine the costs that should be charged to government contracts. Without them, contractors can assign costs to government contracts, even if they have nothing to do with government work. Despite this, Congress ultimately exempted non-traditional contractors from the Cost Accounting Standards in the FY26 NDAA. In so doing, lawmakers expanded the number of contractors considered non-traditional without broadening its legal definition – an effort that failed in the same bill. 

OTs In Context

Democratic and Republican administrations alike have relied on the OTA to kickstart the prototyping and production of major weapons programs. The Biden administration relied on it to kickstart its “Replicator” program, which the Trump administration renamed the Defense Autonomous Warfare Group (DAWG). This White House has likewise relied on the OTA to advance key components of programs like the president’s theoretical missile defense shield, Golden Dome, announcing the award earlier this year of up to $3.2 billion in OTA agreements to advance the Space-Based Interceptor program and $6.5 billion in OTs to develop the Space-Based Airborne Moving Target Indicator program and the Space Data Network.

However, the OTA obfuscates contractors’ costs, a particularly alarming lack of transparency in the case of major programs like Golden Dome or the DAWG. In FY27, the Trump administration requested nearly $55 billion for the latter program, up from $225 million in FY26. By pursuing DAWG through the OTA, the Pentagon essentially forfeits insight into the costs and profitability of components and systems integral to the program. The department effectively legalizes whatever overcharging may occur on OT agreements, making it practically invisible to the public and impeding future efforts not only to control program cost growth, but to seek reimbursement should military contractors overcharge on components.

A quick review of recent OTs suggests that typical prime contractors are significant beneficiaries of the OTA. Twelve companies received OTs to prototype Golden Dome’s Space-Based Interceptors, a third of which are prime contractors: General Dynamics Mission Systems (a business unit of General Dynamics), Lockheed Martin, Northrop Grumman and Raytheon (a business unit of RTX). Other recipients include Anduril, Booz Allen Hamilton and SpaceX. In addition to Space-Based Interceptors, SpaceX has also received a combined total of $6.5 billion in OTs to develop the Space-Based Airborne Moving Target Indicator program and the Space Data Network, upon which a hypothetical Golden Dome system would depend. 

OTs Gone Wild

OTs were once the exception in government contracting, but from 2016 to 2024, Pentagon obligations for prototyping and production agreements through the OTA increased tenfold, reaching over $18 billion in 2024. Defense Secretary Pete Hegseth has taken it a step further, releasing in 2025 two memorandums establishing OTs as a default contracting approach and directing their maximal usage. Since he released the first of these memos, Space Systems Command has increased the number of OTs by at least 470 percent, escalating an already established shift toward OTs and away from traditional FAR-based contracts. 

Ultimately, prototyping and production OTs greatly increase the risk of overcharging by military contractors while doing little to ameliorate acquisition ills like schedule delays and cost overruns. However, there are options to curb the situation.

Lawmakers should help mitigate this risk by limiting OTA usage to research and development only. If they don’t, they will likely end up rubberstamping billions of dollars of Pentagon waste. Lawmakers may also rein in the OTA by repealing the non-traditional exemption from the Cost Accounting Standards, narrowing the number of contractors deemed non-traditional. Finally, the Pentagon should track how fast OTs deliver capabilities to the military relative to traditional, FAR-based contracts. 

It’s irresponsible to assume, without evidence, that OTs deliver capabilities at speed. It is incumbent upon lawmakers to require the Pentagon to fill this data gap and narrow the OTA, on behalf of constituents and taxpayers.

Julia Gledhill is a Research Analyst at the Stimson Center, a foreign policy think-tank in Washington, DC. She focuses her research and writing on Pentagon spending, military contracting and weapons acquisition. She has appeared on various outlets including Al Jazeera, CNBC, NPR and Bloomberg. Julia is a regular contributor for Forbes.com, and her writing is featured in publications including The Nation, The National Interest, The Baffler and Responsible Statecraft.