Tuesday, December 5, 2017

Requirement to Engage in Technical Exchanges of IR&D Projects Lifted

DFARS (DoD FAR Supplement) 231.205-18 was amended back in November 2016 to require contractors to engage in or document a technical interchange as part of the criteria for determining allowable IR&D (Independent Research and Development) costs. In order for IR&D costs to be determined allowable for IR&D projects initiated in fiscal years 2017 and later, major contractors are required to engage in a technical interchange with a technical or operational DoD Government employee before IR&D costs were incurred. Additionally, the regulations required that contractors document the interchange in the Defense Technical Information Center (DTIC).

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

Realizing the ridiculousness of the requirement, DPAP (Defense Procurement Acquisition Policy) issued a Class Deviation  last September directing contracting officers to not require contractors to engage in the technical interchange. As a result of the Class Deviation, the requirements of DFARS 231.205-18/(c)(iii)(C)(4) are no longer part of the criteria a contracting officer must consider in determining a contractor's allowable IR&D costs.

DCAA (Defense Contract Audit Agency) has now issued conforming guidance to its auditors - not only for current IR&D expenditures but retroactive from when the requirement first became effective (i.e. Fiscal Year 2017). Specifically, the guidance instructs contract auditors "For all current and future audits of any type, no audit procedures should be performed to verify that the contractor engaged in technical interchanges prior to incurring independent research and development (IR&D) costs."

Good news for contractors.

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