Independent Research and Development (IR&D)

Introduction

IR&D is a source of potential technology solutions for the technology challenges of the DoD. IR&D is defined as an R&D effort that is neither sponsored by a grant, nor required in performing a contract, and which falls under any of the following four areas:

1. Basic Research,

2. Applied Research,

3. Development,

4. Systems and Other Concept Formulation studies.

IR&D costs incurred are allowable as indirect expenses, as part of the general and administrative expenses charged to covered contracts, to the extent they are allocable and reasonable, and not otherwise unallowable by law or regulation. Firms have the independence to decide which technologies to pursue, as long as these efforts are of potential interest to the Department. As IR&D is not federally funded, technical data rights remain with the firm.

After extensive discussions with industry, a Defense Federal Acquisition Regulation Supplement (DFARS) Rule (DFARS 231.205-18) was issued on 30 January 2012, revising reporting requirements for IR&D project data. Major contractors that receive reimbursements totaling more than $11 million in annual IR&D and/or Bid and Proposal (B&P) costs to covered contracts are required to submit IR&D project summaries into the I&RD Secure Portal, and to update these summaries annually and upon completion.

Contractors that fall below the $11 million threshold are encouraged to submit IR&D project summaries to provide DoD with visibility into the technical content of their IR&D efforts. The IR&D Secure Portal provides access to registered and approved DoD government employees and military personnel with R&E/S&T and acquisition responsibilities (only) to review and potentially to leverage these projects.

Independent research and development and bid and proposal costs.

(a) Definitions.

As used in this subsection—

(i) “Covered contract” means a DoD prime contract for an amount exceeding the simplified acquisition threshold, except for a fixed-price contract without cost incentives. The term also includes a subcontract for an amount exceeding the simplified acquisition threshold, except for a fixed-price subcontract without cost incentives under such a prime contract.

(ii) “Covered segment” means a product division of the contractor that allocated more than $1,100,000 in independent research and development and bid and proposal (IR&D/B&P) costs to covered contracts during the preceding fiscal year. In the case of a contractor that has no product divisions, the term means that contractor as a whole. A product division of the contractor that allocated less than $1,100,000 in IR&D/B&P costs to covered contracts during the preceding fiscal year is not subject to the limitations in paragraph (c) of this subsection.

(iii) “Major contractor” means any contractor whose covered segments allocated a total of more than $11,000,000 in IR&D/B&P costs to covered contracts during the preceding fiscal year. For purposes of calculating the dollar threshold amounts to determine whether a contractor meets the definition of “major contractor,” do not include contractor segments allocating less than $1,100,000 of IR&D/B&P costs to covered contracts during the preceding fiscal year.

(c) Allowability

(i) Departments/agencies shall not supplement this regulation in any way that limits IR&D/B&P cost allowability.

(ii) See 225.7303-2(c) for allowability provisions affecting foreign military sale contracts.

(iii) For major contractors, the following limitations apply:

(A) The amount of IR&D/B&P costs allowable under DoD contracts shall not exceed the lesser of—

(1) Such contracts’ allocable share of total incurred IR&D/B&P costs; or

(2) The amount of incurred IR&D/B&P costs for projects having potential interest to DoD.

(B) Allowable IR&D/B&P costs are limited to those for projects that are of potential interest to DoD, including activities intended to accomplish any of the following:

(1) Enable superior performance of future U.S. weapon systems and components.

(2) Reduce acquisition costs and life-cycle costs of military systems.

(3) Strengthen the defense industrial and technology base of the United States.

(4) Enhance the industrial competitiveness of the United States.

(5) Promote the development of technologies identified as critical under 10 U.S.C. 2522.

(6) Increase the development and promotion of efficient and effective applications of dual-use technologies.

(7) Provide efficient and effective technologies for achieving such environmental benefits as: improved environmental data gathering, environmental cleanup and restoration, pollution reduction in manufacturing, environmental conservation, and environmentally safe management of facilities.

(C) For annual IR&D costs to be allowable—

(1) 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 http://www.defenseinnovationmartketplace.mil;

(2) The inputs must be updated at least annually and when the project is completed;

(3) 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 auditor to support the allowability of the costs; and

(4) 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—

(i) 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 http://www.acq.osd.mil/rd/contacts/; 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.

(iv) Contractors not meeting the threshold of a major contractor are encouraged to use the DTIC online input form to report IR&D projects to provide DoD with visibility into the technical content of the contractors' IR&D activities.

(v) For major contractors, the ACO or corporate ACO shall—

(A) Determine whether IR&D/B&P projects are of potential interest to DoD; and

(B) Provide the results of the determination to the contractor.

(vi) The cognizant contract administration office shall furnish contractors with guidance on financial information needed to support IR&D/B&P costs and on technical information needed from major contractors to support the potential interest to DoD determination (also see 242.771-3(a)).

Also See

Independent Research & Development (IR&D) and Bid & Proposal (B&P) Costs

Independent Research & Development (IR&D) Reporting

CAS 420 - Accounting for Independent Research & Development and Bid & Proposal Costs