Non-traditional defense contractor sounds like a start-up that has decided to sell its cutting-edge tech to the Department of Defense when it has never before done so.
That is not the case.
In fact, some very traditional defense contractors are actually “non-traditional defense contractors.”
That statement seems to make no sense. Let me explain.
The term “non-traditional defense contractor” is actually a legal definition straight from the Defense Federal Acquisition Regulations (DFAR).
The legal definition of “non-traditional defense contractor” is an entity that is not performing and has not performed, for at least one year, a DoD contract or DoD subcontract that is subject to full coverage under the Cost Accounting Standards (CAS).
What does that even mean?
Let’s break it down starting with the phrase “full coverage under Cost Accounting Standards.” “CAS covered” is the lingo in Federal Government contracting speak.
Cost Accounting Standards, “CAS”, are a set of nineteen Government accounting standards that contractors must use when they are awarded a Government contract over $2 million that was awarded after the Government and the contractor negotiated the contract.
The Government forces contractors, through regulations, to use these accounting standards so there is some uniformity in how contractors account for their costs when bidding on a Government project. This allows the Government to theoretically do an apple-to-apple comparison of bids because the contractors are using the same methods to allocate costs related to the stuff they sell to the Government.
Full CAS covered contractors are Government contractors who have been awarded at least one CAS-covered contract of $50 million or more or who received several CAS-covered contracts that add up to $50 million or more during the contractor’s previous cost-accounting period.
There are a lot of exemptions to being a CAS covered contractor which we won’t discuss here.
One CAS exemption we will discuss – small businesses. Small businesses are exempt from CAS. So since a non-traditional defense contractor is a defense contractor without a CAS covered contract, by definition small businesses are non-traditional defense contractors.
But, this logic applies to large, traditional defense contractors as well as log as they don’t have a CAS covered contract. In other words, defense contractors who are large businesses; who regularly sell to DoD; who have always sold to DoD; and who maybe even sell exclusively to DoD can be considered a non-traditional defense contractor if they don’t have a CAS covered contract.
Some large, traditional defense contractors purposefully avoid CAS covered contracts so they are not subject to the complex and burdensome CAS requirements. By avoiding CAS covered contracts, any defense contractor can be a non-traditional defense contractor.
Even DoD sort of admits this is a little crazy.
In recent DoD guidance on a type of contract called Other Transaction Authority (“OTA”), DoD said that since the definition of non-traditional defense contractors is so narrow many defense contractors are non-traditional defense contractors.
Even divisions of large CAS covered defense contractors may be considered non-traditional under regulations if the division does not have a CAS covered contract.
Why would a defense contractor want to be “non-traditional”?
Being a non-traditional defense contractor is a plus because:
- Anything they sell to DoD considered may be treated as if it is a commercial item or a commercial service and does not require a commercial item or commercial services determination but, it does not mean the items or services are commercial, just that they can be treated as such when buying from a non-traditional defense contractor.
- They may be awarded an OTA, Other Transaction Authority contract.
Again, what does this even mean and why would a contractor care?
Let’s start with commercial items and services. Sometimes the Government buys stuff that is not commercial – that is, it has no commercial market for example grenade launchers or amphibious combat vehicles. These are two obvious examples but, it is not always obvious whether something is commercial or not. Again, by way of example, is the glass used on a combat vehicle so unique that it has no commercial application? As a result, whether something is “commercial” or not is a whole legal analysis unto itself which for purposes of talking non-traditional defense contractors right now, we will truncate down to this:
If a contractor is selling something that is not generally sold in the commercial world, like a ballistic missile, then it is selling a non-commercial item.
It is generally considered easier to sell commercial items to the Government than to sell the Government non-commercial items because:
- Selling commercial items or services does not require a contractor to comply with a lot of burdensome acquisitions regulations such as a requirement to build up costs for the item being sold and then show that cost build up to the Government.
- If it is not clear whether an item is commercial or not, then, the Government has to make a determination on whether an item is commercial and, that can be a time consuming and challenging process.
Thus being a non-traditional defense contractor gets the contractor the benefit of having the stuff they sell to the Government treated as if it is commercial, even if it is not commercial which lifts off a lot of burdensome acquisitions regulations.
DoD allows non-traditional defense contractors to sell their products and services as if their products and services are commercial because companies that may not otherwise sell to DoD because of the onerous requirements for selling non-commercial items and services to DoD are lifted.
Theoretically this enhances the likelihood that DoD will get more innovative products because truly non-traditional defense contractors, businesses that don’t regularly sell to DoD, will be more likely to sell to DoD if they don’t have to worry about possibly selling a non-commercial item and then being required to follow a lot of costly and generally burdensome regulations.
Being a non-traditional defense contractor also allows contractors to be awarded an OTA. This is a good thing because OTA contracts do not have nearly the regulatory requirements that acquisition contracts have and generally provide more flexibility than regular acquisition contracts.
Bottom Line:
Being categorized as a non-traditional defense contractor, that is different than other defense contractors, can help a contractor be successful in selling to DoD because:
- Products and services sold to DoD can be treated as if commercial
- Selling commercial to DoD lifts a lot of onerous regulations that contractors selling non-commercial items must follow
- They can be awarded on OTA
- Ideally, will get their cutting edge solutions to DoD.
