Enhancing the Effectiveness of Independent Research and Development

About four years ago, the Department of Defense (DoD) revised its FAR Supplement (DFARS) to make the allowability of Independent Research and Development Costs (IR&D) contingent upon reporting IR&D projects and costs into on on-line system (see Allowability of IR&D Costs Now Contingent Upon Reporting). Last Fall, DoD issued a "White Paper" recommending an added condition that would require contractors to notify the Government prior to incurring costs on IR&D projects. (see DoD Wants Contractors to Disclose Their IR&D Activities Before Incurring Any Costs, Disclosure of IR&D Projects Prior to Incurring Costs, and Failure to Report IR&D Expenditures May Render Such Costs Expressly Unallowable).

In a step toward making its wish come true, DoD published a revision to its  IR&D cost principle today (DFARS 231.205-18 that, if adopted, will add the pre-notification requirement as a condition of making IR&D expenditures allowable under Defense contracts.

Specifically, the proposal adds the following requirement to the existing cost principle:

For IR&D projects initiated in the contractor's fiscal year 2017 and later, as a prerequisite for the subsequent determination of allowability, major contractors must (i) engage in a technical interchange with a technical or operational DoD Government employee before IR&D costs are generated so that the contractor plans and goals for IR&D projects benefit from the awareness of and feedback by a DoD employee who is informed or related ongoing and future potential interest opportunities and (ii) use the online input form for IR&D projects reported to DTIC to document the technical interchange, which includes the name of the DoD Government employee and the date the technical interchange occurred.

"Major contractors" in the foregoing requirement are those that allocate more than $11 million in IR&D and B&P (Bid and Proposal) costs per  year to DoD prime contracts.

According to the proposal, the intent of such engagement 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.

We can foresee some logistical issues when trying to engage a DoD technical person prior to incurring IR&D costs. Finding someone qualified or with the right clearances to discuss IR&D projects in a timely manner could be problematic. Who in DoD will be responsible for "designating" the responsible person?

If you care to weigh in on this proposal, comments are due by April 18, 2015. Fiscal year 2017 is not that far off. For many contractors, it begins on July 1st of this year.