The Times They Are A Changin' - Independent Research and Development May Not Be So "Independent" Any More


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’.”

Background on IR&D

We previously have discussed the slippery and elusive nature of IR&D in this blog (click here and here). IR&D (as well as its sister-category of costs, Bid and Proposal (“B&P”) costs) have been defined by regulation for more than 50 years (currently at FAR 31.205-18). At its core, FAR 31.205-18 allows companies to engage in R&D effort independent of a particular contract or customer, with the Government agreeing to reimburse all reasonable, allowable, and allocable independent R&D costs. Historically, the technology was considered “developed exclusive at private expense” even though it ultimately was reimbursed by the Government as an indirect cost, because the R&D was done independent of any particular contract. The Government hoped that the “independence” of the R&D would help incentivize a Contractor to develop new technologies, where it would be able to reap the full benefit of its innovation without signing away the rights to the Government. Consequently, the Government gained no specific rights in the developed technology.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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