[Federal Register Volume 64, Number 35 (Tuesday, February 23, 1999)]
[Rules and Regulations]
[Pages 8729-8730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4343]


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DEPARTMENT OF DEFENSE

48 CFR Parts 225, 231, and 242

[DFARS Case 95-D040]


Defense Federal Acquisition Regulation Supplement; Independent 
Research and Development and Bid and Proposal Costs for Fiscal Year 
1996 and Beyond

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

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SUMMARY: The Director of Defense Procurement has issued a final rule 
amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
to reflect changes to the Federal Acquisition Regulation (FAR) that 
treat independent research and development and bid and proposal costs 
for fiscal year 1996 and beyond as fully allowable, subject only to the 
FAR normal standards of reasonableness and allocability.

EFFECTIVE DATE: February 23, 1999.

FOR FURTHER INFORMATION CONTACT:
Ms. Sandra Haberlin, Defense Acquisition Regulations Council, PDUSD 
(A&T) DP (DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-
3062. Telephone (703) 602-0131; telefax (703) 602-0350. Please cite 
DFARS Case 95-D040.

SUPPLEMENTARY INFORMATION: 

A. Background

    This final rule amends DFARS 225.7303-2, 231.205-18, and 242.771 to 
reflect FAR changes that were published as Item VIII of Federal 
Acquisition Circular 97-03 (62 FR 64931, December 9, 1997). The FAR 
changes treat independent research and development and bid and proposal 
costs for fiscal year 1996 and beyond as fully allowable, subject only 
to the FAR normal standards of reasonableness and allocability.
    A proposed DFARS rule was published on January 3, 1997 (62 FR 374). 
Two sources submitted comments in response to the proposed rule. All 
comments were considered in the development of the final rule.

B. Regulatory Flexibility Act

    The Department of Defense certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
601, et seq., because most contracts awarded to small entities use 
simplified acquisition procedures or are awarded on a competitive, 
fixed-price basis, and do not require application of the cost principle 
contained in this rule.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the final rule 
does not impose any information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

List of Subjects in 48 CFR Parts 225, 231, and 242

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore, 48 CFR Parts 225, 231, and 242 are amended as follows:
    1. The authority citation for 48 CFR Parts 225, 231, and 242 
continues to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 225--FOREIGN ACQUISITION

    2. Section 225.7303-2 is amended in paragraph (c) introductory text 
by revising the first sentence to read as follows:


225.7303-2  Cost of doing business with a foreign government or an 
international organization.

* * * * *
    (c) The cost limitations for major contractors on independent 
research and development and bid and proposal (IR&D/B&P) costs for 
projects that are of potential interest to DoD, in 231.205-18(c)(iii), 
do not apply to FMS contracts, except as provided in 225.7303-5. * * *
* * * * *

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

    3. Section 231.205-18 is revised to read as follows:


231.205-18  Independent research and development and bid and proposal 
costs.

    (a) Definitions. As used in this subsection--
    (i) Covered contract means a DoD prime contract for an amount 
exceeding the simplified acquisition threshold, except for a fixed-
price contract without cost incentives. The term also includes a 
subcontract for an amount exceeding the simplified acquisition 
threshold, except for a fixed-price subcontract without cost incentives 
under such a prime contract.
    (ii) Covered segment means a product division of the contractor 
that allocated more than $1,100,000 in independent research and 
development and bid and proposal (IR&D/B&P) costs to covered contracts 
during the preceding fiscal year. In the case of a contractor that has 
no product divisions, the term means that contractor as a whole. A 
product division of the contractor that allocated less than $1,100,000 
in IR&D/B&P costs to covered contracts during the preceding fiscal year 
is not subject to the limitations in paragraph (c) of this subsection.
    (iii) Major contractor means any contractor whose covered segments 
allocated a total of more than $11,000,000 in IR&D/B&P costs to covered 
contracts during the preceding fiscal year. For purposes of calculating 
the dollar threshold amounts to determine whether a contractor meets 
the definition of ``major contractor,'' do not include contractor 
segments allocating less than $1,100,000 of IR&D/B&P costs to covered 
contracts during the preceding fiscal year.
    (c) Allowability.
    (i) Departments/agencies shall not supplement this regulation in 
any way that limits IR&D/B&P cost allowability.
    (ii) See 225.7303-2(c) for allowability provisions affecting 
foreign military sale contracts.
    (iii) For major contractors, the following limitations apply:
    (A) The amount of IR&D/B&P costs allowable under DoD contracts 
shall not exceed the lesser of--
    (1) Such contracts' allocable share of total incurred IR&D/B&O 
costs; or
    (2) The amount of incurred IR&D/B&P costs for projects having 
potential interest to DoD.
    (B) Allowable IR&D/B&P costs are limited to those for projects that 
are of potential interest to DoD, including activities intended to 
accomplish any of the following:
     (1) Enable superior performance of future U.S. weapon systems and 
components.
     (2) Reduce acquisition costs and life-cycle costs of military 
systems.
    (3) Strengthen the defense industrial and technology base of the 
United States.
    (4) Enhance the industrial competitiveness of the United States.
    (5) Promote the development of technologies identified as critical 
under 10 U.S.C. 2522.
    (6) Increase the development and promotion of efficient and 
effective applications of dual-use technologies.
    (7) Provide efficient and effective technologies for achieving such

[[Page 8730]]

environmental benefits as: Improved environmental data gathering, 
environmental cleanup and restoration, pollution reduction in 
manufacturing, environmental conservation, and environmentally safe 
management of facilities.
    (iv) For major contractors, the cognizant administrative 
contracting officer (ACO) or corporate ACO shall--
    (A) Determine whether IR&D/B&P projects are of potential interest 
to DoD; and
    (B) Provide the results of the determination to the contractor.
    (v) The cognizant contract administration office shall furnish 
contractors with guidance on financial information needed to support 
IR&D/B&P costs and on technical information needed from major 
contractors to support the potential interest to DoD determination 
(also see 242.771-3).

PART 242--CONTRACT ADMINISTRATION

    4. Sections 242.771, 242.771-1, 242.771-2, and 242.771-3 are 
revised to read as follows:


242.771  Independent research and development and bid and proposal 
costs.


242.771-1  Scope.

    This section implements 10 U.S.C. 2372, Independent research and 
development and bid and proposal costs: Payments to contractors.


242.771-2  Policy.

    Defense contractors are encouraged to engage in independent 
research and development and bid and proposal (IR&D/B&P) activities of 
potential interest to DoD, including activities cited in 231.205-
18(c)(iii)(B).


242.771-3  Responsibilities.

    (a) The cognizant administrative contracting officer (ACO) or 
corporate ACO shall--
    (1) Determine cost allowability of IR&D/B&P costs as set forth in 
231.205-18 and FAR 31.205-18.
    (2) Determine whether IR&D/B&P projects performed by major 
contractors (see 231.205-18(a)) are of potential interest to DoD; and
    (3) Notify the contractor promptly of any IR&D/B&P activities that 
are not of potential interest to DoD.
    (b) The Defense Contract Management Command of the Defense 
Logistics Agency or the military department responsible for performing 
contract administration functions is responsible for providing the 
Defense Contract Audit Agency (DCAA) with IR&D/B&P statistical 
information, as necessary, to assist DCAA in the annual report required 
by paragraph (c) of this subsection.
    (c) DCAA is responsible for submitting an annual report to the 
Director of Defense Procurement (USD(A&T)DP) setting forth required 
statistical information relating to the DoD-wide IR&D/B&P program.
    (d) The Director, Defense Research and Engineering (USD(A&T)DDR&E), 
is responsible for establishing a regular method for communication--
    (1) From DoD to contractors, of timely and comprehensive 
information regarding planned or expected DoD future needs; and
    (2) From contractors to DoD, of brief technical descriptions of 
contractor IR&D projects.

[FR Doc. 99-4343 Filed 2-22-99; 8:45 am]
BILLING CODE 5000-04-M