DoD Wants Contractors to Disclose Their IR&D Activities Before Incurring Any Costs

The Department of Defense (DoD) issued a white paper on August 26, 2015 entitled "Enhancing the Effectiveness of Independent Research and Development (IR&D)". The Department's idea of enhancing effectiveness in this case is requiring contractors to notify the Department prior to initiating an IR&D project. Failure to notify the Government will render the costs potentially unallowable.

"... the Department and the Industrial Base need to work together to ensure the department has visibility into the opportunity created by government-reimbursed IR&D efforts performed by defense contractors. "

Contractor investments are not directed by the Government. They are identified by contractors to advance a particular ability to develop and deliver superior and more competitive products. According to DoD however, contractor IR&D efforts can have the best payoff when the Government is well informed of the investments that contractors are making and when contractors are well informed about related investments being made elsewhere in the Government's R&D portfolios and about Government plans for potential future acquisitions where this IR&D may be relevant.

To ensure that a two-way dialogue occurs and to provide some minimum oversight of IR&D expenditures, DoD believes that proposed new IR&D efforts should be communicated to appropriate DoD personnel. The Department's intent is not to reduce the independence of IR&D investment selection, nor to establish a bureaucratic requirement for Government approval prior to initiating an IR&D project. Instead, the objective of this engagement is to ensure that both IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and to provide industry with some feedback on the relevance of proposed and completed IR&D work.

The intent of this new policy is that by fiscal year 2017, every new IR&D project will be preceded by an engagement with appropriate DoD technical or operational staff to ensure that the department is award of the goals and plans for the effort. To document this interchange, DoD will require contractors to record the name and Government party with whom, and date when, a technical interchange took place prior to the IR&D project initiation.

Allowability Determinations.  Under DoD's proposal, the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA) will use the coordination information to make allowability determinations. Projects that haven't been "coordinated" prior to initiating work, may very well be determined unallowable. Expect auditors to test whether any costs were incurred prior to the coordination date. If they find any pre-agreement costs, expect the auditors to question them.