What is Defense Innovation Unit (DIU) and what does it do?
DIU is a Department of Defense (DoD) entity, currently reporting to the Secretary of Defense. DIU works directly with its DoD partners (i.e., the Services, Combatant Commands, and DoD agencies) to identify, evaluate, and purchase commercial innovation to solve national defense problems while saving time and money. DIU does this by facilitating pilot contracts — not bound by the Federal Acquisition Regulation (FAR) — between companies and DoD entities. After a successful pilot, any interested DoD entity has sole source justification to procure the piloted solution(s).
How does DIU purchase commercial innovation?
DIU developed a solicitation process with Army Contracting Command - New Jersey (ACC-NJ) called the Commercial Solutions Opening (CSO). The CSO enables DoD to work with nontraditional defense contractors in a fast, flexible, and collaborative manner. The authority governing the CSO is 10 U.S.C. § 2371b
, which falls under the Other Transaction (OT) authority. Work performed leveraging 2371b must meet a few basic requirements:
1. It must be a prototype (what DIUx has often referred to as a “pilot”) relevant to enhancing military effectiveness.
2. Competitive procedures, to the maximum extent practicable, shall be used.
3. Unless a nontraditional defense contractor or small business is participating to a significant extent, one-third of the cost must be borne by someone other than the federal government.
How does DIU define “prototype” (pilot) for purposes of its Commercial Solutions Opening (CSO)?
A prototype can generally be described as a preliminary pilot, test, evaluation, demonstration, or agile development activity used to assess the viability, technical feasibility, application, or military utility of a technology, process, concept, end item, system, methodology, or other discrete feature. The quantity or tenure should be limited to that needed to effectively assess the pilot.
What is a nontraditional defense contractor?
Under 10 U.S. Code 2302, a nontraditional defense contractor is an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources (i.e., solutions) by DoD for the procurement or transaction, any contract or subcontract for DoD that is subject to full coverage under the cost accounting standards (CAS) prescribed pursuant to section 1502 of title 41 of the U.S. Code and the regulations implementing such section. Full CAS coverage applies to contractor business units that either receive a single CAS-covered contract award of $50M or more or received $50M or more in net CAS-covered contracts during its preceding cost accounting period.
What does significant participation of a nontraditional defense contractor mean?
While there is no statutory definition, it generally includes:
- Supplying new key technology or products
- Accomplishing a significant amount of the effort
- Causing a material reduction in the cost or schedule or increase in performance
The nontraditional defense contractor does not necessarily have to be a prime contractor; it can be a subcontractor, lower-tier vendor, intra-company business unit, or teamed with a traditional as long as nontraditional participation is "significant." The determination of what is significant is flexible; however, the final decision is made by DoD.
What are some of the benefits of using DIU’s OT-based Commercial Solutions Opening (CSO) instead of the traditional FAR-based process?
- Negotiable payment milestones
- Negotiable terms & conditions
- Negotiable intellectual property & data rights
- No requirement to adhere to government accounting standards
- Not subject to protest as understood by FAR part 33
- If the DoD partner wants to deploy the piloted solution, OT authorities allow for a follow-on production contract without the need for further competition.
What are the phases involved in selecting a company for a pilot contract using DIU’s Commercial Solutions Opening (CSO)?
There are three key phases in selecting a company for a pilot contract:
- In Phase I, DIU and the DoD partner will evaluate the company’s solution brief based on four factors: relevance, technical merit, company viability, and innovation. If selected, the company will be invited to Phase II.
- In Phase II, the company pitches their solution in person to DIU and the DOD parter. In addition to understanding more about the company’s technology, DIU and the DoD partner will ask for a rough cost estimate and notional schedule. If all evaluation factors are satisfactory, the company may move into Phase III.
- In Phase III, DIU and the DoD partner request a proposal from the company. Together with DIU and the DoD partner, the company will develop a proposal, statement of work, and negotiate cost and terms and conditions. Upon award, the project will begin.
After a successful pilot, the DoD partner and any DoD entity will have sole source justification to procure the piloted solution(s) via a follow-on production OT contract. DIU will facilitate this process as well.
What is expected of DoD partners who would like to work with DIU?
DIU signs a Memorandum of Agreement with each DoD partner to delineate clear roles and responsibilities. The DoD partner is expected to be an active participant in all phases of the project to include pre-solicitation, solicitation, selection process, and oversight of the selected pilot(s).
What qualities make a good DoD partner for DIU?
- Having a plan to actually use a solution (via a follow-on production contract) once it is proven via a pilot contract. This will include plans for accreditation (if applicable), programming of funds, and long-term sustainment. In many cases, this will mean having a transition plan to a program of record and may necessitate bringing an acquisition community representative from the applicable PEO/PM into the process early.
- Having full support for engagement from the DoD partner’s leadership, as evidenced by willingness to put funding and people against their problem.
- Commitment to the competitive nature of the Commercial Solutions Opening (CSO) process.
- Enthusiasm to engage with nontraditional defense contractors.
- Willingness to appoint an Agreements Officer Representative (AOR) at DIUx to fully engage in the entire CSO process, including pilot contract and follow-on production contract management.
What type of funding / appropriation does DIU require for pilot contracts? When does the DoD partner provide funds to DIU?
In general, Research, Development, Test & Evaluation funds (RDT&E) will be appropriated for pilot contracts. However, DIU and its DoD partner examine and analyze each project to determine the appropriate funding on a case-by-case basis. The DoD partner’s Resource / Financial Manager should certify the funds to be used for the effort.
The DoD partner provides funding via a direct cite Military Interdepartmental Purchase Request (MIPR) before a solicitation is posted on DIU’s website. On a case-by-case basis, DIU may provide additional funding to support the effort.
Does the DoD partner need to have a validated requirement before working with DIU?
DIU works with DoD partners who would like to solve mission-critical problems. DIU does not require that a military service have a validated requirement. DIU will work closely with the DoD partner to translate their mission-critical problem for commercial innovators who aren’t familiar with defense-specific contexts.
Is there a ceiling on the pilot contracts that DIU can award?
Pilot contracts below $100M can be awarded by DIU’s contracting partner, Army Contracting Command-New Jersey (ACC-NJ). Pilot contracts in excess of $100M, but less than $500M, may be executed upon the approval of a Senior Procurement Executive. Pilot contracts in excess of $500M may be executed upon the approval of the Under Secretary of Defense for Acquisition, Technology, and Logistics.
What is the role of Army Contracting Command - New Jersey (ACC-NJ)?
ACC-NJ serves as DIUx’s contracting partner. ACC-NJ has a significant amount of expertise with OTs, executing approximately 90% of DoD OT funds. The Agreements Officers (AOs) within ACC-NJ staff play a similar role to what Contracting Officers provide under FAR-based contracts. The AOs are the only individuals who can bind the government into an OT and obligate funding.
Does DIU have a legal team that helps construct the agreements?
DIU and ACC-NJ receive legal support through the U.S. Army Armament Research, Development and Engineering Center (ARDEC) which is co-located with ACC-NJ. ARDEC legal counsel reviews all agreements prior to award.
What is the cost to the DoD partner for the services of ACC-NJ?
There is no cost to the DoD partner. DIU pays ACC-NJ for their level of support to successfully execute the CSO process.
Will ACC-NJ and DIU sign a support agreement with my DoD entity to work together?
No support agreement is needed as DIU covers the services provided by ACC-NJ. The responsibilities of each party are covered by the Memorandum of Agreement that DIU signs with each DoD partner.
Is there a list of DIU projects that we can review?
The Portfolio page on the DIU website, https://diux.mil/portfolio, provides a short synopsis for many of the pilot contracts that DIU has undertaken, including the use case and DoD partner involved. Additionally, you can learn about DIU projects via the quarterly and annual reports hosted at https://diux.mil/library.
My U.S. government entity has heard that we can benefit from production OT contracts that DIU has negotiated. Where can I learn more about how to do that and what’s available?
Does a company need to be part of a consortium in order to compete for a pilot contract?
DIU does NOT use a consortium model. Any commercial entity is able to compete for a contract.
Are companies required to be U.S.-based? What if my DoD entity has specific security requirements?
While a foreign company may compete for a contract, the company must have a DUNS number provided by Dun & Bradstreet. There may be additional operations security, foreign disclosure, or foreign personnel requirements that a DoD partner may have. Security requirements should be clearly identified upfront by the DoD partner so this can be included in the solicitation DIU posts on its website.
What are the close out procedures for a pilot contract?
A pilot contract closes out when all the terms of the contract have been met or the project is terminated due to extenuating circumstances. In the case of the former, this could be when the last deliverable is received or when the final milestone payment is made.
If the Program Office has a requirement to use Government Furnished Equipment (GFE) or a particular contractor, can this be built into the pilot contract?
Yes, there is flexibility within the construct of the pilot contract for the DoD partner to include provisions for GFE and to direct that the company work with directed subcontractors.
What guidance can DIU provide on establishing an OT process in-house for my DoD entity?
Please see the “DIU Commercial Solutions Opening: How-to-Guide” at https://diux.mil/library.
Can you share the terms and conditions of DIU pilot and follow-on production contracts? Can Agreements Officers (AOs) at ACC-NJ provide templates and other documentation?
Our OT-based contracts have some terms and conditions (articles) that you would recognize in a FAR-based contract and some that are more familiar to non-defense commercial contracts. As OTs provide significant flexibility, each OT should be structured to fit the specifics of each individual deal.
How are payment milestones and payments made to companies under pilot contracts?
DIU uses Wide Area Workflow (WAWF) for invoice payments.
How is intellectual property (IP) often treated?
IP rights are fully negotiable under OTs. In general, companies retain ownership of IP assets created during the effort. DoD is usually licensed certain rights to use these assets in accordance with the agreed terms and conditions. These rights control, inter alia, how DoD can use, disclose, or reproduce company-owned proprietary information.