DoD Formally Rescinds IR&D Technical Discussion Regulation

The Defense Department amended it FAR Supplement (DFARS) back in November 2016 to require contractors to engage in and document a technical interchange as part of the criteria for determining the allowability of IR&D (Independent Research and Development) expenses. Before IR&D costs could be considered allowable under Government contracts beginning in 2017, contractors were required to engage in a technical interchange with a technical or operational DoD Government employee before the costs were incurred.

DCAA (Defense Contract Audit Agency) published guidance telling its auditors to question any IR&D expenses that were not supported by documentation that a technical interchange occurred prior to the costs being incurred.

The requirement was essentially unworkable since on one within DoD knew what technical exchanges were supposed to look like. Additionally, there wasn't enough technical people within the procurement community to engage in deep technical discussions with contractors, and tirdly, no one with DoD was volunteering to step up and have such discussions.

Less than a year later, in September 2016, the Defense Department issued a class deviation directing contracting officer to not require contractors to engage in technical exchanges as a condition of cost allowability. DCAA issued conforming guidance that instructed its audit staff to no longer question IR&D costs for lack of technical interchange documentation. This guidance applied to all current and future audits of any type.

Last week, the Defense Department formally and quietly rescinded the requirement.

DoD is amending the DFARS to remove the text at DFARS 231.205-18(c)(iii)(C)(4) which requires major contractors to engage in and document a technical interchange with the Government, prior to generating independent research and development (IR&D) costs for IR&D projects initiated in fiscaal year 2017 and later, in order for those costs to be determined allowable.

DoD further stated that

...the DFARS coverage was outmoded and recommended removal, since requiring a technical interchange between the Government and major contractors is unnecessary. The objective of the interchange can be met through other means.

This is perhaps the quickest that any regulation has become "outmoded" in the history of procurement regulations - 10 months from a necessary regulation to becoming outmoded.