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“Non-traditional defense contractor” – sounds like a start-up run by hipsters that has decided to sell its cutting-edge tech to the Department of Defense when it has never before done so. In other words, an anti-establishment, small business looking to sell to DoD.

That is not really 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 defense regulations. The legal definition of “non-traditional defense contractor” is an entity that is not performing and has not performed, for at least one year before pursuing a DoD opportunity, a DoD contract or DoD subcontract that is subject to full coverage under the Cost Accounting Standards (CAS).

What does that even mean? Lets break it down starting with the phrase “full coverage under Cost Accounting Standards”, “CAS covered” is the lingo.

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.

Cost Accounting Standards, “CAS” are a set of nineteen Government accounting standards contractors must apply when developing their costs for Government contracts over $2 million when the contract will be awarded based on negotiations. CAS is important to the Government because standard accounting requirements assure contractors are consistent in how they account for their costs allowing the Government to compare offers from contractors. There are alog of exemptions to being CAS covered which we won’t discuss here but for one – small businesses are exempt from CAS. Since small businesses are exempt from CAS, they are non-traditional defense contractors – but read on because so are other businesses.

In light of this definition, you can see how a lot of traditional defense contractors can actually be a non-traditional defense contractor. That is contractors regularly selling to DoD, that have always sold to DoD, that maybe even sell exclusively to DoD and, even contractors that are large selling to DoD can be considered a non-traditional defense contractor – as long as they don’t have a CAS covered contract. Often contractors purposefully avoid CAS when selecting the contracts they will pursue.

Even DoD admits this is a little crazy. In recent DoD guidance on a type of contract called Other Transaction Authority (“OTA”), DoD said that the definition of non-traditional defense contractors is so narrow that a lot of contractors will be considered non-traditional defense contractors. Even divisions of large CAS covered defense contractors may be considered non-traditional under regulations.

So, traditional defense contractors, even large defense contractors as long as they don’t have a CAS covered contract, are actually non-traditional defense contractors. Small businesses are non-traditional defense contractors because contracts awarded to small business are exempt from CAS.

Why would a defense contractor even care if they “non-traditional” or not?

Being a non-traditional defense contractor is a plus because anything they sell to DoD is considered a commercial product or a commercial service. And, there is no requirement that DoD formally make a determination if goods and services are commercial.

Being a non-traditional defense contractor is also a plus because non-traditional defense contractors may receive an OTA, Other Transaction Authority contract.

From DoD’s perspective by lifting regulatory burdens off contractors by classifying them as a non-traditional defense contractor DoD may have access to more innovative products and services than what it gets from traditional contractors.

Again what does this even mean and why would a contractor care?

Lets start with commercial services and goods. Sometimes the Government buys stuff that that is not commercial – that it, it has no commercial purpose. 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 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 build up to the Government. And, CAS does not apply to fixed price government contracts when the item or service being sold is commercial. Plus, 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 to go through.

Back to non-traditional defense contractors – so, if you are a non-traditional defense contractor, that is you don’t have really large CAS covered contractors, regulations allow you to sell your stuff to the Government as if it is commercial, even if it is not commercial which lifts a lot of burdensome acquisitions regulations off.

DoD allows non-traditional defense contractors to sell their products and services as if they products and services are commercial because it allows DoD to purchase items from businesses that may not otherwise be interested in selling to DoD. This in turn, theoretically enhances the likelihood that DoD will get more innovative products because truly non-traditional defense contractors, businesses that don’t really 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 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 are just generally provide more flexible than regular acquisition contracts.

Bottom Line:

  • Being a non-traditional defense contractor allows products and services to be considered commercial, even without DoD formally making a commercial determination.
  • Selling commercial products and services to DoD is generally easier than selling DoD non-commercial items because there is regulatory burden
  • OTA’s are available to non-traditional defense contractors
  • Ideally, by creating an environment for non-traditional defense contractors to more easily sell to DoD – DoD will have access to more innovative solutions

I find that the very things that I get criticized for, which is usually being different and just doing my own thing and just being original, is the very thing that’s making me successful. Shania Twain

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