DIU, AFWERX, and OTA Pathways for Commercial Companies, US Defense Group

DIU, AFWERX, and OTA Pathways for Commercial Companies

If you build technology that works in the commercial market and believe it has a defense application, there is a path into the Department of Defense that does not require you to become a traditional defense contractor first. That path runs through Other Transaction Authorities (OTAs) and the innovation organizations that use them: the Defense Innovation Unit (DIU), AFWERX, NavalX, and several others. This guide explains how OTAs work, how they differ from traditional acquisition, and exactly how to engage with each organization.

What Other Transaction Authorities Are

Other Transaction Authorities are a contracting mechanism that allows the Department of Defense to enter into agreements for prototype projects and follow-on production outside the Federal Acquisition Regulation (FAR). Congress first authorized OTAs for research in 1958 and expanded them to prototyping in 2015. The critical distinction: OTAs are not procurement contracts, grants, or cooperative agreements. They are a separate legal instrument with their own rules (Source: Other Transaction Authority, AiDA, MITRE).

This matters for one reason above all others: OTAs remove most of the regulatory overhead that makes traditional defense contracting inaccessible to commercial companies. No DFARS compliance requirements. No Cost Accounting Standards. No mandatory government data rights clauses. The Bayh-Dole Act does not apply. Terms are negotiable in the same way commercial contracts are negotiable (Source: OTA Agreements: Practical Guidance, BuildSmart, May 2026).

OTA Spending Growth: The Numbers

The scale of OTA usage has transformed defense acquisition. DoD obligations through OTAs for prototyping and production grew from $1.8 billion in fiscal year 2016 to over $18 billion in fiscal year 2024 (Source: GAO-25-107546, U.S. Government Accountability Office, September 2025). In FY 2024 alone, the Department executed 7,409 OT actions, a more than fourfold increase in actions since FY 2019 (Source: DoD OT for Prototype Reports to Congress FY2024, Office of the Under Secretary of Defense for Acquisition and Sustainment).

Two statistics from that GAO report define why this pathway matters for commercial companies:

93% of FY 2024 OTA obligations involved significant participation by non-traditional defense contractors (Source: GAO-25-107546, U.S. Government Accountability Office)
61% of prototype projects included or enabled follow-on production contracts (Source: GAO-25-107546, U.S. Government Accountability Office)

OTAs are not a niche mechanism. They are now a primary acquisition pathway, and they are designed specifically to bring commercial technology into the defense ecosystem.

How OTAs Differ from FAR-Based Contracts

Feature	Traditional FAR Contract	OTA Agreement
Regulatory framework	Full FAR/DFARS compliance	Negotiable terms outside FAR
Cost accounting	CAS compliance required	Commercial accounting accepted
IP and data rights	Government gets broad rights under DFARS 252.227	Fully negotiable; company can retain commercial IP
Audit requirements	DCAA audit rights	Negotiable audit provisions
Proposal format	Rigid, often hundreds of pages	Streamlined; often 10-20 pages
Award timeline	12-18 months typical	Weeks to months
Non-traditional access	High barriers to entry	Designed for commercial companies

The Defense Innovation Unit (DIU)

DIU is the Department of Defense’s primary organization for rapidly identifying and deploying commercial technology to military operations. Headquartered in Mountain View, California, with offices in Austin, Boston, Chicago, and the Pentagon, DIU operates as a direct report to the Secretary of Defense (Source: DIU FY2024 Annual Report, Defense Innovation Unit).

How DIU Works

DIU follows a four-step process:

Problem identification. DIU works with military services and combatant commands to identify operational capability gaps where commercial technology could provide a solution.
Commercial Solutions Opening (CSO). DIU publishes a CSO describing the capability gap and inviting commercial companies to submit solutions. CSOs remain open on a rolling basis; you do not need to wait for a specific solicitation window.
Prototype agreement. Selected companies receive an OTA prototype agreement, typically funded at $1-5 million, to demonstrate their technology in a relevant military environment.
Transition to production. Successful prototypes transition to production contracts or programs of record with the military services.

DIU’s Track Record

DIU has successfully transitioned 62 prototype agreements to production awards or contracts, representing a 51% transition rate for projects with at least one completed prototype agreement (Source: GAO-25-106856, U.S. Government Accountability Office, February 2025). In FY 2023, DIU issued 33 solicitations and received 1,768 proposals (Source: GAO-25-106856, U.S. Government Accountability Office). The average time from CSO publication to prototype award was 197 days in FY 2023 (Source: GAO-25-106856, U.S. Government Accountability Office).

DIU’s available funding grew to nearly $1 billion in FY 2024, up from approximately $191 million the prior year (Source: Defense Innovation Unit Funding, C4ISRNet, March 2024). This increase reflects Congressional confidence in DIU’s model and signals sustained growth in the pipeline of available prototype opportunities.

How to Apply

DIU’s CSOs are posted at diu.mil. Your solution should already work in the commercial market or be in late-stage development. DIU evaluates existing commercial capability, not promises of future technology (Source: DIU CSO Guide for Startups, Cada, 2026). The evaluation criteria prioritize:

Demonstrated commercial traction
Technical feasibility for military application
Company’s ability to support a prototype engagement
Potential for scalable production

AFWERX and SpaceWERX

AFWERX is the Air Force’s innovation arm, created to expand the defense industrial base and accelerate technology transition. Since 2019, AFWERX and its space-focused counterpart SpaceWERX have built a portfolio of 3,379 companies, with 45% new to government contracting (Source: AFWERX/SpaceWERX SBIR/STTR Reauthorization, DVIDS, June 2026).

AFWERX by the Numbers

In FY 2025, AFWERX awarded more than 1,000 contracts totaling $1.37 billion and achieved 438 Phase III transitions valued at $8.1 billion (Source: FY2024 Annual Report, AFWERX/SpaceWERX). These Phase III transitions represent the point where prototype technology moves into production contracts with military end users.

AFWERX Pathways

AFWERX offers three primary pathways for commercial companies:

SBIR/STTR Open Topics: Unlike traditional SBIR programs that define narrow technical requirements, AFWERX Open Topics allow companies to propose solutions to broadly defined Air Force and Space Force challenges. This is particularly effective for companies whose technology has applications the military may not have considered.

AFVentures: AFWERX’s strategic financing arm connects Air Force needs with private capital. AFVentures identifies commercial technologies with dual-use potential and facilitates connections between startups, investors, and Air Force end users.

Spark: AFWERX Spark is a network of innovation cells embedded across Air Force installations. Spark teams identify local operational problems and connect them with commercial solutions, providing a bottom-up pathway for companies whose technology addresses specific unit-level needs.

How to Apply

Visit afwerx.com/get-funded for current solicitations. AFWERX publishes SBIR/STTR topics on a rolling basis and maintains an open-topic structure that accepts proposals from companies with commercially viable technology.

NavalX and the Naval Innovation Ecosystem

NavalX serves as the Department of the Navy’s innovation facilitation layer, connecting commercial solutions to Navy and Marine Corps operational requirements. Rather than operating its own funding programs, NavalX connects companies with the right Navy or Marine Corps organizations and helps navigate the acquisition process.

NavalX Tech Bridges

NavalX’s signature initiative is its network of Tech Bridges: regional innovation hubs that connect Naval laboratories, warfare centers, industry partners, and academic institutions. These Tech Bridges create local ecosystems where commercial companies can engage with Navy end users and technology developers directly, reducing the distance between a commercial capability and a Navy requirement.

How to Engage

NavalX does not publish traditional solicitations. Instead, engagement begins through the Tech Bridge network or through NavalX-facilitated events. Visit navalx.mil to identify the Tech Bridge nearest to your location and explore current challenge areas.

Army Futures and Transformation

In October 2025, the Army inactivated Army Futures Command and activated the U.S. Army Transformation and Training Command (T2COM), merging futures and training functions into a single organization (Source: Army Futures Command, U.S. Army). The Army’s innovation programs continue under this new structure.

Army xTech

The Army’s xTech program uses prize competitions and accelerator-style engagements to identify commercial technologies with Army applications. xTech competitions are open to any company, including those with no prior government contracting experience, and winning companies receive both prize funding and introductions to Army program managers who can sponsor follow-on prototype agreements.

Chief Digital and AI Office (CDAO) Tradewinds

The CDAO’s Tradewinds marketplace uses CSO processes and OTA vehicles to match commercial AI, data analytics, and digital capabilities with DoD end users. Tradewinds operates a solutions marketplace where companies can register their capabilities and be matched to government requirements as they arise (Source: Tradewinds Solutions Marketplace, CDAO).

The Prototype-to-Production Transition

Winning a prototype OTA is the beginning, not the end. The strategic value of the OTA pathway lies in what comes after the prototype: the transition to a production contract.

Under 10 U.S.C. Section 4022, a successful prototype OTA can be transitioned to a follow-on production contract or transaction without full and open competition, provided that the prototype was competitively awarded and successfully completed. This is the mechanism that makes OTAs a genuine on-ramp to sustained defense revenue rather than one-time prototype funding.

The 61% follow-on rate reported by GAO for FY 2024 (Source: GAO-25-107546) demonstrates that this transition pathway is not theoretical. The majority of prototype projects that reach completion move into production.

Key factors that determine whether your prototype transitions successfully:

Demonstration of operational value. The prototype must solve a real operational problem for a real military end user. Technology demonstrations that lack an identified user rarely transition.
Affordability at scale. Your production cost structure must be viable for government budgets. Prototypes funded at $3 million are not useful if production requires $300 million.
Program of record alignment. The strongest transitions occur when a military service identifies budget and a program of record to absorb the production contract. Working closely with the sponsoring service during the prototype phase to identify this funding source is essential.

Retaining Your Intellectual Property Under OTA

For commercial technology companies, IP protection is often the deciding factor in whether to engage with the Department of Defense. OTAs offer structurally different IP terms than traditional contracts.

Under FAR-based contracts, the government receives extensive rights to technical data and computer software under DFARS 252.227. These rights can include unlimited rights to data developed entirely with government funding and limited rights even to privately developed technology that is used in contract performance.

Under OTA agreements, IP and data rights are fully negotiable. The FAR and DFARS data rights clauses do not apply. Companies can negotiate terms similar to commercial licensing agreements that allow the government to use the technology for its intended purpose while the company retains full commercial rights (Source: Protecting IP, Data Rights in OTA Agreements, National Defense Magazine, July 2025).

Practical guidance for protecting your IP in an OTA negotiation:

Identify and segregate pre-existing IP. Before entering an agreement, catalog all background IP and ensure it is explicitly identified in the agreement as company-owned.
Define “developed under” precisely. Ambiguity in what constitutes IP developed under the agreement creates future disputes. Define it narrowly and specifically.
Negotiate government purpose rights, not unlimited rights. Government purpose rights allow DoD to use the technology for its own purposes while you retain full commercial rights.
Address data deliverables separately. What data you deliver to the government and what rights the government receives in that data are two different questions. Negotiate each independently.

(Source: Viewpoint: Protecting IP, Data Rights In Other Transaction Agreements, National Defense Magazine, July 2025)

Why OTA Is the Fastest Path for Commercial Companies

Traditional defense acquisition takes 12-18 months from solicitation to contract award. The compliance infrastructure required to compete (CAS, DCAA-auditable accounting systems, DFARS cybersecurity requirements) can take a year or more to build. For a commercial technology company, the total time from decision to first revenue is often two to three years.

The OTA pathway compresses this timeline dramatically:

No FAR compliance required. Your existing commercial accounting, HR, and business systems are acceptable.
Streamlined proposals. CSO responses are typically 10-20 pages, not hundreds.
Faster awards. DIU’s average award timeline is under 200 days. AFWERX SBIR/STTR awards can move even faster.
Negotiable terms. You negotiate the contract terms the way you would negotiate a commercial agreement.
IP protection. You retain your commercial IP rights, making the engagement accretive rather than dilutive to your core business.

For companies with working commercial technology and a credible defense application, OTA represents the most direct, least bureaucratic, and most IP-protective pathway into the defense market.

How US Defense Group Can Help

US Defense Group works with commercial technology companies to identify, pursue, and win OTA prototype opportunities across DIU, AFWERX, NavalX, and other defense innovation organizations. We help companies determine which organization and pathway best matches their technology, develop competitive CSO submissions, negotiate favorable OTA terms (particularly around IP protection), and position prototypes for successful transition to production contracts. Our team understands both the commercial technology landscape and the defense acquisition system, and we bridge the gap between the two.

Next Steps

If you build technology that has a defense application and want to explore the OTA pathway, we can help you identify the right entry point and build a strategy for getting from prototype to production contract.

Sources

Questions about DIU and Other Transaction pathways

What is Other Transaction authority?

Other Transaction authority allows an authorized federal organization to enter research, prototype, or follow-on production agreements outside the standard procurement contract structure when statutory conditions are satisfied. The agreement remains a government instrument with its own eligibility, competition, intellectual property, and performance terms.

Source: Defense Innovation Unit, Open Solicitations

How does the Defense Innovation Unit use Commercial Solutions Openings?

The Defense Innovation Unit publishes mission problems through Commercial Solutions Openings and asks companies to submit concise solution briefs. DIU can use Other Transaction authority for prototype agreements and may pursue follow-on production when the prototype and statutory requirements support that path.

Source: Defense Innovation Unit, Solutions

Last reviewed July 13, 2026, by US Defense Group Editorial Team.

DIU, AFWERX, and OTA Pathways for Commercial Companies