How the Government Buys Software: FAR Part 12, OTA, SBIR Phase III, CSO, MTA & APFIT

FAR Part 12: commercial products and services

FAR Part 12 (48 CFR Part 12) is the standard route for buying commercial products, commercial services, and nondevelopmental items. Agencies must conduct market research and acquire commercial items when they meet the need. Part 12 is written to mirror commercial marketplace practice, so terms are streamlined and firm-fixed-price is common. Where another FAR part conflicts, Part 12 takes precedence for commercial acquisitions. Contracting officers pair it with Parts 13, 14, or 15 depending on the buy.

Best fit: a program office buying software that is already sold commercially, with few or no government-unique modifications.

Other Transaction Authority (OTA)

An Other Transaction (OT) is not a FAR contract, grant, or cooperative agreement. It is a separate instrument authorized by statute, and most of the FAR and DFARS do not apply. DoD uses two OT types.

Research and prototype OTs

• Research OTs under 10 U.S.C. 4021 fund basic, applied, and advanced research. They do not carry a path to follow-on production.
• Prototype OTs under 10 U.S.C. 4022 fund prototype projects relevant to a weapon or weapon system. A prototype OT requires a qualifying condition, such as significant participation by a nontraditional defense contractor or at least one-third cost share from non-federal sources.

Prototype to production

A successful prototype OT can flow to a follow-on production OT or production contract without a new competition, if the original solicitation stated that possibility. Organizations such as the Defense Innovation Unit (DIU), AFWERX, and consortium managers use OTs heavily to reach commercial and nontraditional performers quickly.

Best fit: prototyping a new capability with a nontraditional performer, then transitioning the proven prototype to production.

SBIR/STTR Phase I, II, and III

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs run in phases. Phase I proves feasibility. Phase II develops the prototype. Both are funded with SBIR/STTR dollars.

Phase III is different. It is the commercialization stage, funded by non-SBIR money, whether non-federal capital or follow-on federal procurement funds. Under 15 U.S.C. 638(r)(4), agencies and prime contractors are directed, to the greatest extent practicable, to issue Phase III awards, including sole-source awards, to the firm that developed the technology. This is a statutory preference, not an automatic entitlement. The agency still determines whether the new work derives from, extends, or completes the prior SBIR/STTR effort.

In Digital Force Technologies, Inc., B-423319 (GAO, May 19, 2025), GAO denied a protest of a sole-source Phase III solicitation. The decision supports the view that a single SBIR-derived component of a larger system can be a sufficient link to prior SBIR work. GAO has consistently held that agencies retain broad discretion over Phase III determinations.

Best fit: a company commercializing technology it matured under an earlier SBIR or STTR award, seeking a sole-source production or services contract.

Commercial Solutions Opening (CSO)

A CSO, authorized for DoD by 10 U.S.C. 3458 and implemented through DFARS Subpart 212.70, is a competitive but streamlined way to acquire innovative commercial products and services. It works like a general solicitation: the government publishes areas of interest, and proposals are competitively selected after review by subject-matter experts. A CSO run under DFARS 212.70 counts as a competitive procedure under FAR 6.102, and resulting awards are treated as commercial and are fixed-price. Section 813 of the FY2024 NDAA directs DoD to use this authority at least four times per fiscal year.

Best fit: a competitive buy of an innovative commercial solution where a traditional RFP would be slow or ill-suited.

Middle Tier of Acquisition (MTA)

MTA, codified at 10 U.S.C. 3602, provides two rapid pathways outside the traditional major-program process. Rapid prototyping fields a prototype that can be demonstrated in an operational environment and leaves a residual operational capability. Rapid fielding uses proven technology to produce and field new or upgraded systems with minimal development. Programs are intended to complete in a window of two to five years. A streamlined requirements process produces an approved requirement in no more than six months.

Best fit: a capability mature enough to prototype or field in two to five years without entering the full major-program cycle.

APFIT

Accelerate the Procurement and Fielding of Innovative Technologies (APFIT) originated in the FY2022 NDAA as a competitive, merit-based pilot. It is procurement funding, not research funding, so it buys and fields technology that is ready but stuck between prototype and production, the gap often called the valley of death. Awards are directed toward small businesses and nontraditional defense contractors, with individual awards commonly cited in the $10M to $50M range and eligibility limited to firms below a cumulative DoD contract threshold. Congress appropriated $100M for FY2022 and expanded funding in later years.

Best fit: a small or nontraditional performer with a proven technology that needs procurement dollars to reach first production and fielding.

MOSA and software licensing

Two cross-cutting requirements shape any software acquisition.

• Modular Open Systems Approach (MOSA): Under 10 U.S.C. 4401, major defense acquisition programs that reached Milestone A or B approval after January 1, 2019 must be designed and developed, to the maximum extent practicable, using a modular open systems approach with modular interfaces based on widely supported, consensus standards. MOSA reduces lock-in and keeps systems upgradeable.
• Commercial software licensing: Under DFARS 227.7202, the government acquires commercial software under the license customarily offered to the public and holds only the rights that license grants. If it needs more, it negotiates those rights into the contract or an addendum. In practice the government licenses the software while owning the mission data the software produces.

Pathway comparison

Aligning DaggerOS to your pathway

DaggerOS is built to be acquired through whichever pathway fits your program. It is commercial software, so it can be bought under FAR Part 12 or a CSO, delivered on an OT prototype, procured through a SBIR Phase III sole-source award where the lineage supports it, or fielded under MTA and funded through APFIT. Its interfaces follow a modular open design consistent with the MOSA requirement, and its licensing leaves the government in control of its mission data. Tell us your target pathway and we will map the delivery to it. Start at contact, and review controls and data handling on the security page.

FAQ

Is an OTA a contract?

No. An Other Transaction is a distinct instrument authorized by 10 U.S.C. 4021 and 4022. Most of the FAR and DFARS do not apply. A prototype OT under 4022 can lead to a follow-on production OT or contract without recompeting, when the original solicitation allowed for it.

Does SBIR Phase III guarantee a sole-source award?

No. 15 U.S.C. 638(r)(4) creates a strong preference to direct Phase III work, including sole-source, to the firm that developed the technology. The agency still decides whether the new effort derives from, extends, or completes the prior SBIR or STTR work. GAO gives agencies broad discretion on that call.

What is the difference between a CSO and FAR Part 12?

Both acquire commercial items. FAR Part 12 is the standard FAR process. A CSO under 10 U.S.C. 3458 and DFARS 212.70 is a streamlined, competitive solicitation for innovative commercial items, selected after expert review, and is itself treated as a competitive procedure.

What does APFIT fund that SBIR does not?

SBIR Phase I and II provide research and development funding. APFIT provides procurement funding to buy and field technology that is already proven, helping small and nontraditional performers cross the gap between prototype and production.

Does the government own our software under DFARS 227.7202?

No. Under DFARS 227.7202 the government acquires commercial software under the license offered to the public and receives only the rights that license grants. Additional rights are negotiated into the contract. The government typically owns the mission data the software generates, not the software itself.

Sources: FAR Part 12 (acquisition.gov); 10 U.S.C. 4022 (Cornell LII); 15 U.S.C. 638 (Cornell LII); GAO B-423319, Digital Force Technologies (May 19, 2025); 10 U.S.C. 3458, CSO (Cornell LII); 10 U.S.C. 3602, MTA (Cornell LII); 10 U.S.C. 4401, MOSA (Cornell LII); DFARS 227.7202-3 (acquisition.gov).

Related: Contact BlackByrne & Security & data handling