In response to the weakness shown by his father, Otto Liao hired as many mercenary units as he could. The Capellan Confederation's chartered mercenary concept was introduced by Otto. Under this system the mercenaries were expected to perform exactly as ordered in their contracts. Any deviation resulted in heavy fines, contract cancellation, or even attack by CCAF units. Several of the larger mercenary commands became virtual house units.
Another major change of Otto's was the "elastic defense" strategy. Instead of maintaining a huge garrison on each Capellan border world (which the Confederation couldn't afford), the CCAF was instead organized to put several combat units on one world with enough transportation assets that the unit could quickly respond to an incursion on several nearby worlds. First tested in 2901, elastic defense proved to be a major boon for the Confederation because it made the Free Worlds League assign more assets to their border with the Lyran Commonwealth. All the Confederation had to deal with were a few FWLM raids.
In 2905 Otto signed the Armistice of Van Diemen IV, as did Joseph Davion II. Among other things this treaty prohibited attacks on JumpShips, and would eventually become an unofficial rule of war throughout the Inner Sphere.
|“||Of course nothing has changed—we haven't won yet, have we? Of course we'll be ready to resume hostilities. We can't give up, we can't surrender. For the Confederation, the choices are fight or die. Our enemies will not be satisfied with tribute. They seek to destroy everything that makes us Capellan. You're damned right we'll fight them, against that.||”|
|— Otto Liao, 2865|
|Chancellor of the Capellan Confederation
| Succeeded by|
- House Liao Sourcebook - Liao Family Tree
- Handbook: House Liao, p. 33
- Handbook: House Liao, p. 41
- Hanbook: House Liao, p. 32, "Third Succession War"