Originally published in Law360, March 20, 2012.

Last March, the U.S. Department of Defense issued a proposed rule regarding the reporting requirements for independent research and development, which raised 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 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.

First — three things that the DOD got right:

1) Elimination of the $50,000 Threshold

The proposed rule required IR&D reports from all major contractors generating more than $50,000 annually in IR&D costs. However, the regulations define "major contractors" as contractors whose covered segments are allocated more than $11,000,000 in total IR&D costs during the preceding fiscal year. The two different dollar thresholds created confusion as to who should be reporting and what projects should be included in these reports.