Projects that have incomplete, unclear, or insufficient cost data Projects clearly outside the current capability and/or expertise of the contractor (i.e., attempts to enter new technology markets) “Shoestring” projects that were started but given insufficient budgets, given the project objectives Projects that were started but were subsequently abandoned, especially those that were of a higher dollar value or a large percentage of total IR&D expenditures Issues that have received negative comments from reviewers include. The worry is that these seven “strategic investment priorities” define and limit the types of R&D projects that the Pentagon wants to pay for, such that any project that cannot be shoehorned into one of the seven priorities will have its costs disallowed by DCAA and/or DCMA. Contractors have been provided with an April, 2011, letter from then-Secretary of Defense Robert Gates that lists seven “Science and Technology Priorities” for the Defense Department. The first issue is that DOD reviewers seem to be taking a narrow view of what types of IR&D projects might be “of potential interest” to the Pentagon. Reports are beginning to emerge from several large contractors that the reviews are not going as smoothly as one might have hoped. And the project information (and associated costs) will be reviewed by DOD oversight officials to ensure that they are “of potential interest to DoD.”Īnd, unsurprisingly, those reviews are creating some challenges for defense contractors. The rule was finalized recently so that, for the large defense contractors (i.e., those that have more than $11 million in reimbursed IR&D costs), in order to have their IR&D costs be allowable, they must submit annual reports to the Defense Technical Information Center (DTIC). We wrote about the proposed revisions, and commented on the additional conditions they would create for many defense contractors. Carter’s goal was to be implemented through revisions to the DFARS (the Defense Federal Acquisition Regulation Supplement). Carter clarified what he meant by the phrase, “encourage effective use of IRAD.” He wrote that the goal was to increase the Pentagon’s focus on contractor IR&D expenditures, so as “to improve the return on IRAD investments for industry and government.”ĭr. Limit B&P allowable costs in sole source contracts and encourage effective use of IRAD.Ī few months later, Dr. Identify and eliminate non-value-added overhead and G&A charged to contracts. Carter’s “Better Buying Power Initiative” objectives were: We first mentioned the issue in July, 2010, right here, where we wrote that two of Dr. Like most everything involving Federal funds these days, DOD has been looking at how it can maximize the bang it receives for contractors’ IR&D bucks. It’s not easy, especially for defense contractors, who also need to look the supplemental Cost Principles in the DFARS.Īnother emerging challenge for defense contractors has been the Pentagon’s heightened sensitivity to its reimbursement of contractors’ IR&D expenditures. As we commented in the ATK article- The Court had to interpret the FAR 31.205-18 cost principle, CAS 402, and CAS 420 in arriving at its decision. The parties’ contentions turned on the meaning of the phrase ‘required in the performance of a contract.’ Allowable IR&D costs are those that are not required in the performance of a contract, but the issue was whether the words meant ‘specifically’ or ‘expressly’ required, or whether they meant ‘implicitly’ required.Īs you can see, properly accounting for IR&D costs involves inter-leaving the FAR Cost Principles and at least one (and likely more than one) Cost Accounting Standard.
#IRAD PROGRAM HOW TO#
Federal government through payment of indirect costs allocated to direct contract costs-generally in the General & Administrative (G&A) expense rate.Īccounting for IR&D costs can be tricky, as we discussed in this article that covered the Appellate decision in the matter of ATK Thiokol, which so far is the leading precedent regarding how to account (and allocate) IR&D expenses. As our readers likely know, defense contractors’ IR&D expenditures are largely (if not entirely) reimbursed by the U.S. They need to, if they are going to compete for next generation-type defense programs. Defense contractors spend considerable amounts on “independent” research and development (IR&D or IRAD) efforts.
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