Independent Research & Development (IR&D) and Bid & Proposal (B&P) Costs - FAR 31.205-18

Allowable or Unallowable: Allowable

Source: DFAR, "CAS" is not in the list of possible values (Other, FAR, DFAR) for this property., FAR

Introduction

Independent Research and Development embraces technical efforts performed by government contractors that is not required for any particular contract. The effort is taken in order that the contractor remain competitive in a world of innovation, and that contractors look for solutions to current and future problems. This helps the US Government develop the latest technologies. Reimbursement of these costs are provided within the G&A pool of a contractor. The practice is never (or should I say the costs) challenged in commercial procurements, competitive procurements, however when cost or pricing data is utilized, government oversight will undoubtedly lead to questions. Government officials have always questioned the benefits, management, and oversight of IR&D reimbursements. The approach has been inconsistent, in that in some instances, the government directly reimburses for these costs through R&D efforts, which are contracts directly associated with R&D, in other cases, the government provides grants for R&D efforts, and finally, the government allows through reimbursement of these costs through a contractors indirect G&A rate. A Flint study, explained it this way. “At its best, reimbursement of IR&D means that the government initiates and encourages research and development in innumerable areas and advances science generally by paying only a fraction of the cost. At its worst, reimbursement of IR&D means that the government has expended public funds on a program of purely commercial interest to a particular contractor, a program which would have been undertaken even without the expenditure of public funds, and a program which is being duplicated elsewhere by another company working without government support. Moreover, there is no assurance that the results of the IR&D, even though supported in part by public funds, will be made available to the scientific community. ”

Independent Research and Development and Bid and Proposal Costs

Generally Allowable

(b) Composition and Allocation of Costs

The requirements of 48 CFR 9904.420, Accounting for independent research and development costs and bid and proposal costs, are incorporated in their entirety and shall apply as follows—

(1) Fully-CAS-covered contracts. Contracts that are fully-CAS-covered shall be subject to all requirements of 48 CFR 9904.420.

(2) Modified CAS-covered and non-CAS-covered contracts. Contracts that are not CAS-covered or that contain terms or conditions requiring modified CAS coverage shall be subject to all requirements of 48 CFR 9904.420 except 48 CFR 9904.420-50(e)(2) and 48 CFR 9904.420-50(f)(2), which are not then applicable. However, non-CAS-covered or modified CAS-covered contracts awarded at a time the contractor has CAS-covered contracts requiring compliance with 48 CFR 9904.420, shall be subject to all the requirements of 48 CFR 9904.420. When the requirements of 48 CFR 9904.420-50(e)(2) and 48 CFR 9904.420-50(f)(2) are not applicable, the following apply:

• (i) IR&D and B&P costs shall be allocated to final cost objectives on the same basis of allocation used for the G&A expense grouping of the profit center (see 31.001) in which the costs are incurred. However, when IR&D and B&P costs clearly benefit other profit centers or benefit the entire company, those costs shall be allocated through the G&A of the other profit centers or through the corporate G&A, as appropriate.

• (ii) If allocations of IR&D or B&P through the G&A base do not provide equitable cost allocation, the contracting officer may approve use of a different base.

(c) Allowability

Except as provided in paragraphs (d) and (e) of this subsection, or as provided in agency regulations, costs for IR&D and B&P are allowable as indirect expenses on contracts to the extent that those costs are allocable and reasonable.

(d) Deferred IR&D costs

(1) IR&D costs that were incurred in previous accounting periods are unallowable, except when a contractor has developed a specific product at its own risk in anticipation of recovering the development costs in the sale price of the product provided that—

• (i) The total amount of IR&D costs applicable to the product can be identified;

• (ii) The proration of such costs to sales of the product is reasonable;

• (iii) The contractor had no Government business during the time that the costs were incurred or did not allocate IR&D costs to Government contracts except to prorate the cost of developing a specific product to the sales of that product; and

• (iv) No costs of current IR&D programs are allocated to Government work except to prorate the costs of developing a specific product to the sales of that product.

(2) When deferred costs are recognized, the contract (except firm-fixed-price and fixed-price with economic price adjustment) will include a specific provision setting forth the amount of deferred IR&D costs that are allocable to the contract. The negotiation memorandum will state the circumstances pertaining to the case and the reason for accepting the deferred costs.

(e) Cooperative arrangements

(1) IR&D costs may be incurred by contractors working jointly with one or more non-Federal entities pursuant to a cooperative arrangement (for example, joint ventures, limited partnerships, teaming arrangements, and collaboration and consortium arrangements). IR&D costs also may include costs contributed by contractors in performing cooperative research and development agreements, or similar arrangements, entered into under—

• (i) Section 12 of the Stevenson-Wydler Technology Transfer Act of 1980 (15 U.S.C. 3710(a));

• (ii) Sections 203(c)(5) and (6) of the National Aeronautics and Space Act of 1958, as amended (42 U.S.C. 2473(c)(5) and (6));

• (iii) 10 U.S.C. 2371 for the Defense Advanced Research Projects Agency; or

• (iv) Other equivalent authority.

(2) IR&D costs incurred by a contractor pursuant to these types of cooperative arrangements should be considered as allowable IR&D costs if the work performed would have been allowed as contractor IR&D had there been no cooperative arrangement.

(3) Costs incurred in preparing, submitting, and supporting offers on potential cooperative arrangements are allowable to the extent they are allocable, reasonable, and not otherwise unallowable.

DFARS 231.205-18 Independent Research and Development and Bid and Proposal Costs

(a) Definitions. As used in this subsection—

(i) “Covered Contract”

(ii) “Covered Segment”

(iii) “Major Contractor”

(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 a contractor's annual IR&D costs to be allowable, 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.dtic.mil/ird/dticdb/index.html. The inputs must be updated at least annually and when the project is completed. 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. Contractors that do not meet the threshold as a major contractor are encouraged to use the DTIC on-line input form to report IR&D projects to provide DoD with visibility into the technical content of the contractors' IR&D activities.

(iv) For major contractors, the cognizant administrative contracting officer (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.

(v) 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)).

Related Pages

Independent Research & Development (IR&D) Reporting

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