Defense acquisition is changing. For decades, doing business with the U.S. Department of Defense meant navigating a procurement process that was often slow, highly regulated, and difficult for commercial technology companies to enter. While those traditional acquisition methods remain critical, a different contracting mechanism has rapidly become one of the most important drivers of defense innovation: Other Transaction Authority (OTA).

Over the last decade, OTA has evolved from a niche acquisition tool into a mainstream method for funding cutting-edge technologies. According to the U.S. Government Accountability Office (GAO), Department of Defense OTA obligations have grown from approximately $1.8 billion in fiscal year 2016 to more than $18 billion in fiscal year 2024—a nearly tenfold increase. That growth reflects a fundamental shift in how the Pentagon is partnering with industry.

Despite the name, an OTA is not a separate source of government funding. It is a contracting authority that allows certain federal agencies (most notably the Department of Defense) to enter into agreements outside of many of the traditional requirements of the Federal Acquisition Regulation (FAR).

The objective is straightforward: move faster, reduce administrative burden, and attract innovative companies that might otherwise avoid government contracting. OTAs are particularly well suited for technologies such as artificial intelligence, autonomous systems, space technologies, advanced manufacturing, etc. For startups and non-traditional defense contractors, OTAs often provide a much more accessible path to working with the DoD than a conventional procurement.

One of the biggest misconceptions is that Congress appropriates a separate “OTA budget.” It does not. Congress appropriates funding through the normal defense budget process, including accounts such as RDT&E, Procurement and O&M. Once those funds are appropriated, the military services allocate resources to individual programs. Program managers then decide how to execute those dollars—whether through a traditional FAR-based contract, a grant, or an OTA.

Most OTAs are awarded as prototype agreements. If the prototype successfully demonstrates its capabilities, the government can, under certain statutory conditions, award a follow-on production OTA without conducting an entirely new competition. The ability to transition rapidly from development to production is one of OTA’s most powerful features. It reduces procurement timelines and gives both the government and industry a more efficient path to fielding new capabilities. Key organizations include the Defense Innovation Unit (DIU), AFWERX, Army Futures Command, DARPA, and the Space Development Agency.

For aerospace and defense companies, understanding OTAs is no longer optional. Whether you are a startup developing autonomous systems, a middle-market manufacturer expanding into defense, or an investor evaluating emerging technologies, OTAs have become a meaningful signal of where the Department of Defense is directing innovation—and where future opportunities may emerge.

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