Law, Regs, & Policy

Current IR&D/B&P Law. Section 802 of the National Defense Authorization Act for Fiscal Years 1992 and 1993 (Public Law 102-190, December 5, 1991) provides for payment of independent research and development and bid and proposal costs under defense contracts. It requires the Secretary of Defense to prescribe regulations governing the payment of contractor IR&D and B&P costs by the Department of Defense and states that these regulations shall encourage contractors to engage in R&D activities of potential interest to the DoD, shall not infringe on the independence of contractors to choose which technologies to pursue in their IR&D activities, and shall provide that IR&D and B&P costs are allowable as indirect expenses on covered contracts to the extent that those costs are allocable, reasonable, and not otherwise unallowable by law or under the Federal Acquisition Regulation (FAR).

Prior IR&D/B&P Laws. Statutory language governing treatment of IR&D andB&P costs under defense contracts dates back to the Vinson-Trammell Act of 1934. This act allowed a reasonable portion of contractor R&D costs to be recognized as allocable indirect costs under defense contracts. Language that spelled out specific restrictions and requirements relating to recovery of IR&D and B&P costs under defense contracts was first enacted in 1970 in Section 203 of the DoD Military Procurement Authorization Act of 1971 (Public Law 91-441, October 7, 1970) and amended in 1990 by Section 824 of the National Defense Authorization Act for Fiscal Year 1991 (Public Law 101-510, November 5, 1990). The restrictions and requirements were virtually eliminated by the language enacted in 1991.

IR&D/B&P Regulations. The following regulations govern the treatment of IR&D and B&P costs under defense contracts:

• Federal Acquisition Regulation (FAR) 31.205-18. This regulation provides the contract cost principles and procedures for IR&D and B&P costs under government contracts, including: definitions of IR&D and B&P costs, cost allowability, deferred IR&D costs, and cooperative arrangements. The regulation states, in part, that IR&D and B&P costs are allowable as indirect expenses on contracts to the extent that those costs are allocable and reasonable, with certain exceptions.
  
  
• Defense Federal Acquisition Regulation Supplement (DFARS) 231.205-18. This regulation provides the contract cost principles and procedures for IR&D and B&P costs under defense contracts, including: definitions of covered contract, covered segment, and major contractor; cost allowability; and a list of activities that are of potential interest to DoD. For major defense contractors, allowable IR&D/B&P costs are limited to those for projects that are of potential interest to DoD. The cognizant administrative contracting officer (ACO) or corporate ACO determines whether the IR&D/B&P projects are of potential interest to DoD.
  
  
• Defense Federal Acquisition Regulation Supplement (DFARS) 242.771. This regulation provides the contract administration functions relating to IR&D and B&P costs incurred by major defense contractors, including the responsibilities of: the cognizant ACO or corporate ACO, the Defense Contract Management Agency or the Military Department responsible for performing contract administration functions, and the Director of Defense Research and Engineering.
  
  
• Cost Accounting Standard (CAS) 420. This regulation provides criteria for the accumulation and allocation of IR&D and B&P costs to cost objectives based on the beneficial or causal relationship between such costs and cost objectives. (A cost objective is a pool, center, or area established for the accumulation of cost(s), such as organizational units, functions, objects or items of expense, as well as ultimate cost objectives including specific titles, cost categories, grants/awards, program activities, projects, contracts, and/or other activities.) The regulation provides: definitions, fundamental requirement, techniques for application, and illustrations.
  

• DOD IR&D Program Directive. (PDF version) Department of Defense Directive 3204.1, May 10, 1999, establishes policy and assigns responsibilities for both the technical and business aspects of IR&D and B&P activities. The Directive establishes the Technical Coordination Group (TCG) to provide both oversight of the IR&D Program and effective communications between industry and the DoD.
  
  

• Navy Instruction. Navy IR&D Program activities are governed by SECNAVINST 3900.40C, Policy and Assignment of Responsibilities for the Independent Research and Development (IR&D) Program, 23 February 2000.