Defense Innovation Unit prototyping, CSOs, and Other Transactions

The Defense Innovation Unit operates as a Department of War Field Activity that awards prototype agreements to commercial technology companies through Other Transaction authority.

The Defense Innovation Unit (DIU) describes itself as a Department of War Field Activity focused on rapid prototyping and fielding of military technology to solve operational problems identified by the joint force. DIU states its reason for existing is that commercial technology was advancing faster than defense research and development, and adversaries were outpacing the U.S. in developing and adopting critical innovation.

The Commercial Solutions Opening (CSO) is DIU's solicitation process for working with nontraditional defense contractors, resulting in the award of an Other Transaction (OT) agreement. DIU states that its open solicitations and Other Transaction contracting authority award prototype contracts in months rather than years, often within 60 to 90 days, according to DIU.

Origins of the Defense Innovation Unit and Leadership Structure

DIU was established in 2015, though primary sources differ on the month. DIU states it was launched in August 2015 as DIUx by Secretary of Defense Ash Carter. The Government Accountability Office (GAO) states DIU, originally DIUx, was established in April 2015. DIU's initial headquarters was in Mountain View, California, chosen to better coordinate with Silicon Valley technology companies. DIU's current site lists offices in Mountain View and Washington, DC.

The leadership reporting line has changed since establishment. From 2018 the director had reported to the Under Secretary for Research and Engineering. In December 2023 Congress directed that the DIU Director become a principal staff assistant reporting directly to the Secretary of Defense. As of the DIU website and a DIU announcement dated January 14, 2026, Owen West, former Assistant Secretary of War for Special Operations and Low-Intensity Conflict, is named Director. That announcement designates DIU a Department of War Field Activity, part of an innovation ecosystem alongside DARPA, CDAO, TRMC and the Office of Strategic Capital (OSC), led by the Chief Technology Officer (CTO).

Portfolios and Track Record at the Defense Innovation Unit

DIU's site lists five portfolios: Autonomous Warfare (deploying unmanned systems), Kill Web, 10x, AI Crosscutter, and the Bridge Program. DIU says its open solicitations and Other Transaction contracting authority award prototype contracts in months rather than years, often within 60 to 90 days, according to DIU.

In report GAO-25-106856, published on February 27, 2025, the GAO reported that DIU awarded 450 prototype agreements in fiscal years 2016 to 2023, with $1.7 billion in combined obligations. The GAO reported that 62 agreements transitioned to production, representing 51 percent of completed prototypes, with more than $5.5 billion in combined ceiling value for transition projects. The GAO found DIU lacked a complete performance management process and made six recommendations, all open when published, with the Department of Defense concurring.

The GAO report also detailed DIU Research, Development, Test, and Evaluation (RDT&E) funding. DIU RDT&E funding was $86.983 million in fiscal year 2022, $185.046 million in fiscal year 2023, and $983.163 million in fiscal year 2024, which included about $589 million for DIU fielding efforts.

The Commercial Solutions Opening Process Step by Step

The Commercial Solutions Opening is DIU's solicitation process for working with nontraditional defense contractors, resulting in the award of an Other Transaction agreement. Under this process, DIU posts a solicitation on its website. Companies submit a short solution brief, with DIU's homepage stating these are five-page briefs. DIU schedules pitches for interesting solutions. As evaluation progresses, DIU requests increasingly detailed explanations. Awards are for one or more prototype projects. DIU does not publish scoring criteria on its fetched pages.

When we checked DIU's open solicitations page on September 29, 2026, the site listed no active Commercial Solutions Openings or Commercial Acceleration Opportunities. The page listed two Bridge program openings on countering unmanned systems in maritime environments, both closing October 13, 2026. Interested companies can fill out an interest form on DIU's site for notices.

DIU says vendors who execute a prototype to the sponsoring customer's satisfaction receive a Success Memo. DIU states this memorandum lets any federal agency use the solution without re-competing.

Other Transaction Authority Under 10 U.S.C. 4022

DIU executes prototype awards using Other Transaction authority under 10 U.S.C. 4022. The statute names the Director of DARPA, the Defense Innovation Unit, and military department secretaries among officials who may carry out prototype projects. Further details on how this authority fits within federal purchasing are covered in our guide to how defense procurement works.

Under 10 U.S.C. 4022(d), a prototype project must meet at least one condition: at least one nontraditional defense contractor or nonprofit research institution participating to a significant extent; all significant participants being small businesses or nontraditional contractors; at least one third of total cost paid from non-federal sources; or senior procurement executive approval of exceptional circumstances. DIU defines a nontraditional defense contractor by reference to 10 U.S.C. 2302 as an entity not currently performing, and not having performed for at least the one-year period before the solicitation, any Department of War contract or subcontract subject to full cost accounting standards coverage.

The statute specifies approval thresholds and follow-on production terms. Projects of $100 million to $500 million need a written determination from the head of the contracting activity, or agency director for DARPA, DIU, or the Missile Defense Agency. Projects over $500 million need a senior procurement executive determination plus 30-day congressional notice. After a prototype project is successfully completed, the participant may receive a follow-on production contract or agreement without additional competitive procedures, if competitive procedures were used to select the prototype participants.

Status of the Blue UAS Cleared List

DIU's Blue UAS page states that the Blue UAS Cleared List is transitioning to the Defense Contract Management Agency (DCMA). This transition follows the July 10, 2025 Secretary of War memorandum titled 'Unleashing U.S. Military Drone Dominance.' Readers should check DIU's Blue UAS page for current status updates.

Comparing the Defense Innovation Unit to SBIR and the Office of Strategic Capital

The Small Business Innovation Research (SBIR) program provides equity-free funding through federal agencies to American small businesses, across 11 participating agencies, a program that has existed since 1982. As of April 2026, SBIR awards up to $323,090 for Phase I and up to $2,153,927 for Phase II, as outlined in our guide to SBIR and STTR funding. SBIR funds small-business R&D grants, whereas DIU's CSO awards competitive prototype agreements for specific operational problems to nontraditional firms of any size.

The Office of Strategic Capital (OSC) is a finance organization within the Department of Defense created under Section 903 of the FY24 National Defense Authorization Act (NDAA), detailed in our guide to the DoD Office of Strategic Capital. OSC offers direct loans up to $150 million and fund-level leverage up to $175 million per fund, executing its first direct loan in August 2025. OSC lends; DIU buys prototypes. Additionally, the GAO states DIU differs from service-specific organizations such as AFWERX, Army Applications Laboratory, and NavalX by focusing on scaling commercial technologies for joint DoD needs, while those address service-specific needs and different maturity levels.

Evaluating Prototype Agreements and Production Transitions

A prototype agreement from DIU is not itself a revenue or return signal. An Other Transaction prototype agreement and DIU's 60 to 90 day timeline say nothing by themselves about a company's financial results.

Transition rates documented by oversight bodies provide factual context on project progression. In report GAO-25-106856, the GAO reported that out of 450 prototype agreements awarded between fiscal years 2016 and 2023, 62 agreements transitioned to production, representing 51 percent of completed prototypes. The GAO also noted that DIU lacked a complete performance management process, leaving six recommendations open with DoD concurring.

When reviewing companies listed in our defense startups directory, related coverage includes our overview of the U.S. defense budget and our reference on how to invest in defense tech.