Last April, we wrote about proposed changes to Department of Defense ("DoD") reporting requirements for independent research and development ("IR&D"), raising concerns about how the proposed change would tie recoverability of IR&D costs to new reporting and disclosure requirements. Recently, Defense Federal Acquisition Regulation Supplement ("DFARS") 231.205-18(c) was finalized, with changes. See 77 Fed. Reg. 4632 (Jan. 30, 2012). This final rule is a mixed bag that got some things right, but also leaves some of the most serious issues unresolved.
CAS 402 has long provided that B&P costs incurred pursuant to a specific requirement of an existing contract may be distinguished from B&P generally and treated as direct costs of the requiring contract. As CAS 402-61 states:
The circumstances are different because the costs of preparing proposals specifically required by the provisions of an existing contract relate only to that contract while other proposal costs relate to all work of the contractor.
B&P is a precious resource, a pool of investment dollars. Used wisely, B&P can perpetuate one’s existing position in the market, grow existing product lines, and expand into new fields of endeavor. The prudent use of B&P can be the difference between achieving short, intermediate and/or long term business goals and failing to do so. All too often, however, companies can fall into patterns of conduct that effectively vitiate that investment.
Those familiar with Government contracting know at least a little bit about the elusive and fickle regulatory requirements for Independent Research and Development (“IR&D” or “IRAD”) costs. IR&D is a means by which the U.S. Government supports a Contractor’s independent R&D efforts. By reimbursing a Contractor’s independent R&D costs, the Government long has hoped to advance the state of the art without stifling a contractor’s innovation under the weight of a federal bureaucracy, while simultaneously banking on the fact that the U.S. Government also will benefit from the technology advancements. But two recent developments may change the essential nature of IR&D, making it less “independent” and more “dependent” on Government rights and oversight. To quote Bob Dylan – “the times they are a changin’.”
A great deal of discussion has transpired regarding recent legislation that reportedly could alter significantly the established “follow-the-funds” test used for the allocation of intellectual property rights in data developed under a government contract. The legislation involved is a provision of the National Defense Authorization Act for Fiscal Year 2011 (the “Act”), signed into law on January 7, 2011. In particular, Section 824 of the Act provides “Guidance Relating to Rights in Technical Data” and, more importantly, amends Section 2320(a) of Title 10 of the United States Code, the provision that defines the allocation of rights in intellectual property under Government contracts.