Wednesday, February 1, 2012

Allowability of IR&D Costs Now Contingent Upon Reporting

The Department of Defense has amended its FAR Supplement (DFARS) to require that "major" contractors report their IR&D (Independent Research and Development) projects to the Defense Technical Information Center (DTIC) in order for those costs to be allowable.

Specifically, DFARS 231.205-18(c)(iii)(C) now states:

For a contractor's annual IR&D costs to be allowable, the IR&D projects generating the costs must be reported to the Defense Technical Information Center (DTIC) using the DTIC's on-line input form and instructions at The inputs must be updated at least annually and when the project is completed. Copies of the input and updates must be made available for review by the cognizant administrative contracting officer (ACO) and the cognizant Defense Contract Audit Agency (DCAA) auditor to support the allowability of the costs. Contractors that do not meet the threshold as a major contractor are encouraged to use the DTIC on-line input form to report IR&D projects to provide DoD with visibility into the technical content of the contractors' IR&D activities.
Major contractors are defined as contractors (including all segments) that allocated more than $11 million in IR&D/B&P costs to contracts during their previous fiscal year. That threshold should eliminate most small businesses however contractors under the threshold are still encouraged to report.

Making the inputs available to the ACO and DCAA to support the allowability of costs is a mechanism to enforce compliance. DCAA would not necessarily have the expertise to evaluate whether costs are for projects of potential interest to DoD (another requirement of the DFARS cost principle), but they can certainly check to see if the projects for which contractors are claiming costs have been reported to DTIC.

The effective date of this change is January 30, 2012.

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