Friday, November 4, 2016

Contractors Must Now Engage in Technical Exchanges with DoD Prior to Incurring IR&D Costs

Last February, DoD published a proposed regulation for its FAR Supplement (DFARS) that would require "major contractors" to engage in technical interchanges with DoD before IR&D costs (Independent Research and Development Costs) are generated. Major contractors in this context are defined as those that allocate more than $11 million in IR&D and B&P (Bid and Proposal) costs per year to DoD prime contracts (see Enhancing the Effectiveness of Independent Research and Development). The effective date of this new requirement is today, November 4, 2016.

The new regulation adds a provision to DoD's cost principle on IR&D costs at DFARS 231.205-18 that reads as follows:
For IR&D projects initiated in the contractor’s fiscal year 2017 and later, as a prerequisite for the subsequent determination of allowability, the contractor shall— 
  1. Engage in a technical interchange with a technical or operational DoD Government employee before IR&D costs are generated so that contractor plans and goals for IR&D projects benefit from the awareness of and feedback by a DoD Government employee who is informed of related ongoing and future potential interest opportunities. If the contractor does not have a point of contact for the technical interchange, the contractor may contact the Office of the Assistant Secretary of Defense for Research and Engineering (OASD R&E). Contact information for OASD R&E can be found at; and 
  1. 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. 
This new provision is essentially unchanged from the proposed revision to which there were significant public concerns raised over the efficiency, efficacy, and practicalities of engaging in a technical dialog with a DoD employee prior to incurring any costs under the IR&D project.

DoD believes that this "dialog" will enhance the effectiveness of IR&D projects by ensuring that both IR&D performers (i.e. contractors) and their potential DoD customers have sufficient awareness of each other's efforts and provide industry with some feedback on the relevance of proposed and completed IR&D work.

DoD, in response to concerns of bureacratic bungling, downplayed such potential, promising that DoD would sufficiently have its act together so as not to pose an impediment to contractor plans. Time will certainly tell on that one. In the meantime, contractors should be aware that the contract auditors now have another tool to question costs - failure to engage in technical interchange.

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