DoD Wants to Add IR&D Costs to "Evaluated" Cost of Proposal

Last Friday, we discussed the new DFARS (DoD FAR Supplement) provision that requires contractors to engage in "technical discussions" with someone withing DoD concerning their IR&D (Independent Research and Development) projects as a precondition to having costs associated with those projects, reimbursed by the Government (see Contractors Must Now Engage in Technical Exchanges with DoD Prior to Incurring IR&D Costs).

The controversies over this provision lies in the perceived bureaucratic obstacles that will get in the way of contractor efficiency and effectiveness in deciding when to initiate new IR&D programs. The Government doesn't seem to think it will be a big deal but such preconditions often become impediments.

Now, DoD is proposing regulations that will take these same IR&D costs and add them to contractors' cost proposals if the two are related. That way, a contractor cannot use IR&D funds to gain a competitive cost advantage over another contractor that is spending its IR&D funds on programs unrelated to the proposed program.

DoD is proposing to amend the DFARS to require contracting officers to adjust the total evaluated price of ... proposals, for evaluation purposes only, to include the amount by which the offerors propose that future independent research and development investments reduce the price of the proposals

The objective of this rule is to ensure that substantial future independent research and development expenses, as a  means to reduce evaluated bid prices in competitive source selections, are evaluated in a uniform way during competitive source selections.

Fortunately, for most contractors, this new requirement will apply only to major defense acquisition programs (10 USC 2430) and major automated information systems acquisitions (10 USC 2445a). Most small entities should not be impacted as major defense acquisition programs and major automated information systems acquisition policies normally apply to large contractors, because the cost, magnitude, and production requirements of such programs are generally beyond the capability or capacity of small entities.

Remember, DoD will already have reams of information concerning the technical direct of contractor IR&D projects as a result of the new requirement for contractors to engage in technical discussions prior to incurring any costs under the programs. You can be certain that that information will be available and used to ensure that contractors comply with this new regulation when it becomes final.