[Federal Register Volume 81, Number 214 (Friday, November 4, 2016)]
[Rules and Regulations]
[Pages 78008-78011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26366]
[[Page 78007]]
Vol. 81
Friday,
No. 214
November 4, 2016
Part V
Department of Defense
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Defense Acquisition Regulations System
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48 CFR Parts 202, 212, 215, et al.
Federal Acquisition Regulations; Final and Proposed Rules
Federal Register / Vol. 81 , No. 214 / Friday, November 4, 2016 /
Rules and Regulations
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 231 and 242
[Docket DARS-2015-0070]
RIN 0750-AI81
Defense Federal Acquisition Regulation Supplement: Enhancing the
Effectiveness of Independent Research and Development (DFARS Case 2016-
D002)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Final rule.
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SUMMARY: DoD is issuing a final rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to improve the effectiveness
of independent research and development (IR&D) investments by the
defense industrial base, by requiring contractors to engage in
technical interchanges with DoD before costs are generated.
DATES: Effective November 4, 2016.
FOR FURTHER INFORMATION CONTACT: Mr. Tom Ruckdaschel, telephone 571-
372-6088.
SUPPLEMENTARY INFORMATION:
I. Background
DoD published a proposed rule in the Federal Register at 81 FR 7723
on February 16, 2016, to revise DFARS 231.205-18, Independent Research
and Development and Bid and Proposal Costs, to require that proposed
new IR&D efforts be communicated to appropriate DoD personnel prior to
the initiation of these investments, and that results be shared with
appropriate DoD personnel. Nine respondents submitted public comments
in response to the proposed rule.
II. Discussion and Analysis
DoD reviewed the public comments in the development of this final
rule. A discussion of the comments and the changes made to the rule as
a result of those comments is provided, as follows:
A. Summary of Changes From the Proposed Rule in Response to Public
Comments
1. The requirement at DFARS 231.205-18(c)(iii)(C)(2) to include a
``summary of results'' with the annual update to online inputs is
removed in the final rule.
2. DFARS 231.205-18(c)(iii)(C)(4)(i) is revised to cite the Office
of the Assistant Secretary of Defense for Research and Engineering
(OASD R&E) as a resource for contractors who do not have a point of
contact for the technical interchange. Contact information for OASD R&E
can be found at http://www.acq.osd.mil/rd/contacts/.
B. Analysis of Public Comments
1. Support for the Rule
Comment: Three respondents expressed positive support of the rule
and DoD's effort to enhance communications between industry and DoD
regarding IR&D efforts.
Response: DoD acknowledges the respondents' support for the rule.
2. Favor Certain Projects/Different Priorities
Comment: One respondent, though generally supportive of the goals
of the rulemaking effort, believed the proposed rule will make it more
difficult to pursue IR&D projects at their infancy for the following
reason: ``. . . by requiring technical interchange with Government
employees before generating IR&D costs, defense contractors will shift
toward IR&D projects that are of perceived interest to identifiable DoD
officials.'' One respondent stated that the rule will favor companies
that have their IR&D (efforts) preapproved. One respondent, though
supportive of technical interchanges, was concerned that DoD
individuals participating in the interchanges may not share the long-
term priorities outlined in Better Buying Power 3.0. Another respondent
is concerned that ``bona fide'' technical interchanges exist outside of
the contractor's controls and that the proposed rule penalizes
contractors without an ``ARDEC like'' agency as their customer.
Response: DoD anticipates that defense contractors will pursue IR&D
projects intended to advance their ability to develop and deliver a
superior and more competitive product to the warfighter. The
requirement to hold a technical interchange is not a de facto approval
process and will not favor one company over another. These technical
interchanges are informal engagements designed to promote transparency,
communication, and dialogue between IR&D participants and DoD. The
intended outcome is to ensure that both IR&D performers and their
potential DoD customers have sufficient awareness of each other's
efforts and to provide industry with some feedback on the relevance of
proposed and completed IR&D work. Consistent with that objective, the
rule requires only that a technical interchange take place and that the
date of the interchange and name of the DoD personnel contacted be
reported to the defense innovation marketplace.
3. Existing Regulations and Practices
Comment: One respondent stated that the rule is not necessary and
that the current text at DFARS 231.205-18 is sufficient. Another
respondent questioned the proposed rule's statement that ``there are no
known significant approaches to the rule that would meet the
requirements'' when agencies are already successfully holding voluntary
technical interchanges that are achieving the regulation's goals.
Response: The existing language at DFARS 231.205-18 does not
include a requirement for technical interchanges. These technical
interchanges are key to ensuring that both IR&D performers and their
potential DoD customers have sufficient awareness of each other's
effort. The fact that voluntary technical interchanges already exist,
and are successfully achieving the regulation's goals, is consistent
with the overall approach to the rulemaking effort.
4. Adverse Impact on Innovation
Comment: Several respondents stated that the proposed rule will
adversely impact innovative ideas. Another respondent cautioned that
the rule will create a barrier to innovation and entry to the
marketplace.
Response: DoD believes that this rule supports and promotes
innovative ideas and technologies, and will incentivize entry into the
marketplace by ensuring that IR&D performers and their potential DoD
customers have sufficient awareness of each other's efforts and that
DoD can provide industry with feedback on the relevance of proposed and
completed IR&D work.
5. Cost/Administrative Burden
Comment: A number of respondents stated that the rule will cost
taxpayers more. One respondent stated that the rule will impose an
administrative burden on contractors, administrative contracting
officers (ACOs), and DoD personnel. Another respondent expressed
concern with the significant costs associated with planning and
conducting technical interchanges and the costs accrued prior to the
technical interchange.
Response: While acknowledging that this rule imposes a slight
administrative burden on contractors, ACOs, and DoD personnel, such
burdens are overshadowed by the net benefit of ensuring that IR&D
performers and their potential DoD customers have sufficient awareness
of each other's efforts and
[[Page 78009]]
that DoD can provide industry with feedback on the relevance of
proposed and completed IR&D work. Moreover, the long-term priorities
outlined in Better Buying Power 3.0 are a strategic imperative for DoD.
6. Process Issues and Practicality
Comment: A number of respondents stated that the rule will create
an unnecessary bureaucracy, citing concerns that the rule will create a
``bottleneck'' that will slow down industry IR&D efforts and require
the shifting of DoD technical resources to evaluate the IR&D projects
and respond to contractors. The respondents claimed that the
requirement to conduct and document the interchange of information
between contractor and DoD personnel with respect to IR&D projects
prior to their commencement is not practical.
Response: The rule does not establish a requirement for DoD to
evaluate or approve IR&D projects; rather, the rule requires
contractors to communicate new IR&D efforts to appropriate DoD
personnel via a technical interchange prior to the initiation of the
investment. The requirement for technical interchanges is an extension
of DoD's long-standing policy to engage in robust communication with
all entities supporting the defense industrial base and promote
transparent engagement with IR&D participants regarding research and
development, including basic research, applied research, and
development. This policy is outlined in DoD Instruction 3204.01, ``DoD
Policy for Oversight of Independent Research and Development (IR&D).''
The technical interchanges are intended to be informal communications
between IR&D participants and DoD. Their objective is to ensure that
both IR&D performers and their potential DoD customers have sufficient
awareness of each other's efforts and to provide industry with some
feedback on the relevance of proposed and completed IR&D work. Note,
the requirement for including a summary of results in the annual update
on IR&D projects is removed in the final rule, thus easing any
administrative burden.
7. Statutory Concerns
Comment: A number of respondents stated that the rule is in
violation of existing statute and recreates the historic DoD technical
reviews rejected by Congress.
Response: This rule is consistent with 10 U.S.C 2372 subsection
(a), Regulations, which states that the Secretary of Defense shall
prescribe regulations governing the payment, by the Department of
Defense, of expenses incurred by contractors for independent research
and development and bid and proposal (B&P) costs. To that extent,
subsection (c), Additional Controls, states that the regulations
prescribed pursuant to subsection (a) may include implementation of
regular methods for transmission from contractors to the Department of
Defense, in a reasonable manner, of information regarding progress by
the contractor on the contractor's independent research and development
programs.
8. DoD Responsiveness
Comment: A number of respondents expressed concern with DoD
responsiveness to requests for technical interchanges, citing that the
rule fails to outline DoD's obligations and unfairly saddles
contractors with the full consequence of DoD's failure to take part in
a technical interchange. One respondent is concerned that the proposed
rule creates practical, time, resource, and data disclosure challenges
for conducting technical interchanges, and that DoD Components will not
have an adequate number of personnel designated to conduct the
technical interchanges in the time mandated. Another respondent
questioned the recourse contractors will have if DoD personnel refuse
to engage.
Response: To assist contractors in ensuring that technical
interchanges take place in a timely manner, the rule has been revised
to identify the primary DoD focal point for technical interchanges as
OASD R&E. Contact information for this office is available at http://www.acq.osd.mil/rd/contacts/. If a Contractor experiences difficulties
scheduling a technical interchange, or does not have a point of contact
for the technical interchange, the contractor may contact OASD R&E.
9. Protection of Data
Comment: Several respondents were concerned about reporting and
protection of proprietary and classified information.
Response: This rule merely requires reporting of the name of the
technical or operational DoD Government employee and the date of the
technical interchange. The requirement to include a summary of results
of the technical interchange in the annual update is removed in the
final rule. There is an existing requirement at DFARS 231.205-
18(c)(iii)(C) for submission of project summaries and annual updates to
the DTIC Web site. It remains DoD policy to protect proprietary
information in accordance with applicable laws and agency regulations.
Firms have discretion regarding presentation of information they regard
as sensitive when they submit project summaries; however, only
unclassified IR&D project summary information should be provided. Both
database screens and printouts will be marked ``Proprietary.'' Any
markings on attachments provided by a contractor will not be altered.
Adequate controls are in place to protect information from
compromise. It is DoD policy to protect national security information
in accordance with national-level policy issuances. In accordance with
DoD Instruction 5200.01, DoD Information Security Program and
Protection of Sensitive Compartmented Information, DoD shall--
Identify and protect national security information and
controlled unclassified information (CUI) in accordance with national
level policy issuances.
Promote information sharing, facilitate judicious use of
resources, and simplify management through implementation of uniform
and standardized processes.
Protect CUI from unauthorized disclosure by appropriately
marking, safeguarding, disseminating, and destroying such information.
10. Additional Information
Comment: One respondent stated that DFARS language should be added
stating that the Government may require additional information from the
contractor.
Response: The objective of the technical interchanges is to ensure
that both IR&D performers and their potential DoD customers have
sufficient awareness of each other's efforts and to provide industry
with some feedback on the relevance of proposed and completed IR&D
work. Within that framework, the DoD personnel involved in technical
interchanges will not be seeking additional information, i.e., formal
documentation from the contractor.
11. Reporting Burden
Comment: One respondent stated that the proposed rule inaccurately
suggests that it does not require changes to reporting or
recordkeeping. Another respondent stated that the rule adds to the
contractor's existing reporting burden.
Response: As stated in the proposed rule, the impact of this rule
on a contractor's reporting burden is negligible. Currently,
contractors are required to (1) report IR&D projects to the Defense
Technical Information
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Center (DTIC) using the DTIC's online IR&D database and (2) update
these inputs at least annually and when the project is completed. This
rule merely changes the web address for submission of this report and
requires major contractors to include in the report the name of the
Government employee with which a technical interchange was held prior
to initiation of the IR&D effort and the date of such interchange. In
addition, the requirement to include a summary of results in the annual
update on IR&D projects is removed in the final rule.
12. DoD Government Employee
Comment: One respondent stated that the rule does not specify the
needed level of detail for the technical interchange or ``who'' in DoD
should receive the technical information. Another respondent is
concerned that the proposed rule does not adequately define the term
``DoD Government employee.''
Response: In accordance with the rule, contractors shall engage in
technical interchanges with a technical or operational DoD Government
employee who is informed of related ongoing and future potential
interest opportunities. If the contractor does not have a point of
contact for the technical interchange, the contractor may contact OASD
R&E. Contact information for OASD R&E can be found at http://www.acq.osd.mil/rd/contacts/.
13. Advance Approval Requirement
Comment: One respondent recommended eliminating the DoD advance
approval requirement of contractor's IR&D efforts.
Response: The rule does not contain a requirement for DoD to
approve a contractor's IR&D efforts in advance.
14. Administrative Guidance/Standards for Technical Interchanges
Comment: One respondent asked if DoD will write additional
administrative rules to outline DoD's obligation to participate in
technical interchanges. Another respondent suggested that DoD adopt
administrative rules, best practices, and guidance to counter the
inconsistent support among DoD agencies and provide uniformity to the
technical interchange process.
Response: The rule is intentionally crafted to allow informal
technical interchanges to ensure that IR&D performers and their
potential DoD customers have sufficient awareness of each other's
efforts and that DoD can provide industry with feedback on the
relevance of proposed and completed IR&D work.
15. Cost Allowability
Comment: One respondent recommended DoD reconsider the prerequisite
for a determination of allowability. Another recommended the rule
include a proviso allowing costs expended before the effective date of
the final rule. One respondent states that DoD should not make
allowability of IR&D costs contingent on the timing of technical
exchange meetings. One respondent was concerned that the proposed rule
restricts the allowability of costs related to mandatory technical
interchanges; specifically, the proposed rule states that the
contractor must engage in a technical interchange ``before IR&D costs
are generated.'' Another respondent was concerned of the lack of
specificity regarding verification for purposes of allowability
determinations.
Response: The requirement to determine the allowability of IR&D
costs is a preestablished requirement in DFARS 231.205-18(c)(iii)(C),
which sets forth the requirement that for a contractor's annual IR&D
costs to be allowable, the IR&D projects generating the costs must be
reported to DTIC using the DTIC's online input form. This rule merely
adds the requirement that contractors also engage in a technical
interchange with a technical or operational DoD Government employee,
and record the name of the employee and the date the technical
interchange occurred using DTIC's online form. The rule applies to IR&D
projects initiated in the contractor's fiscal year 2017 and later.
However, as with all DFARS rules, unless otherwise stated, the rule is
only effective upon publication. Therefore, IR&D costs incurred prior
to the effective date of this rule are not subject to the requirements
of this rule.
16. Dollar Threshold
Comment: Two respondents suggested DoD establish a dollar threshold
for requiring technical interchanges.
Response: The requirements of this rule only apply to major
contractors. Establishing an IR&D project dollar threshold would
require speculative estimate of the IR&D project costs and, as such,
would be impossible to administer, thus defeating the purpose of the
technical interchange.
17. Cost Bases and Pools
Comment: Two respondents stated that the rule will require
contractors to establish multiple accounting costs bases and pools.
Response: This rule does not impose new cost accounting
requirements. The IR&D cost principle at Federal Acquisition Regulation
(FAR) 31.205-18(b) states, ``The requirements of 48 CFR 9904.420,
Accounting for independent research and development costs and B&P
costs, are incorporated in their entirety. . . .'' The cost accounting
standard at 48 CFR 9904.420-40, Fundamental requirement, paragraph (a)
states, ``The basic unit for identification and accumulation of IR&D
and B&P costs shall be the individual IR&D or B&P project.''
18. Annual Briefings/Frequency
Comment: A number of respondents questioned the frequency of the
technical interchanges and whether they will be required annually. One
respondent stated that many IR&D projects span several years, changing
and evolving through the process, and that it is not clear whether
these projects would need to be stopped and briefed annually. One
respondent noted that one of the benefits of contractor IR&D is the
ability to rapidly change direction as result of discovery or in
response to a shifting market or defense environment.
Response: There is no requirement to brief IR&D projects annually.
The rule requires the technical interchange to occur at the onset of
the IR&D project, prior to generating any costs, for the annual IR&D
costs to be considered allowable.
C. Other Changes
This final rule includes the following technical amendments:
1. The proposed paragraph regarding contractors that do not meet
the threshold of major contractor is renumbered as DFARS 231.205-
18(c)(iv) in the final rule.
2. At DFARS 242.771-3, the entity responsible for a regular method
for communication is changed from the ``Director, Defense Research and
Engineering (USD(A&T)DDR&E)'' to the ``Office of the Assistant
Secretary of Defense for Research and Engineering (OASD R&E).''
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold and for Commercial Items, Including Commercially Available
Off-the-Shelf Items
This rule does not add any new provisions or clauses or impact any
existing provisions or clauses.
IV. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits
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(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). E.O. 13563 emphasizes the
importance of quantifying both costs and benefits, of reducing costs,
of harmonizing rules, and of promoting flexibility. This is not a
significant regulatory action and, therefore, was not subject to review
under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated
September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.
V. Regulatory Flexibility Act
A final regulatory flexibility analysis has been prepared
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
and is summarized as follows:
The objective of this final rule is to (1) ensure that both
independent research and development (IR&D) performers and their
potential DoD customers have sufficient awareness of each other's
efforts and (2) provide industry with feedback on the relevance of
proposed and completed IR&D work.
There were no significant issues raised by the public in response
to the initial regulatory flexibility analysis.
DoD does not expect this final rule to have a significant economic
impact on a substantial number of small entities, because DFARS
231.205-18(c)(iii) applies only to major contractors, which are defined
as those whose covered segments allocated a total of more than $11
million in IR&D and bid and proposal costs to covered contracts during
the preceding fiscal year. The final rule requires major contractors to
communicate proposed new IR&D efforts to DoD personnel in a technical
interchange prior to the initiation of such investments.
This rule impacts existing reporting and recordkeeping requirements
in a very minor way. Only one element is being added to the existing
reporting requirement to require major contractors to include the name
of the DoD employee with which a technical interchange was held and the
date of such interchange.
There are no known significant alternatives to the rule. The rule
impacts major contractors and, as such, will have minimal impact on
small entities.
VI. Paperwork Reduction Act
The final rule affects the information collection requirements at
Defense Federal Acquisition Regulation Supplement (DFARS) 231.205-18,
currently approved under the Office of Management and Budget (OMB)
Control Number 0704-0483, entitled ``Independent Research and
Development Technical Descriptions,'' in accordance with the Paperwork
Reduction Act (44 U.S.C. chapter 35); however, the impact of this rule
is negligible. Currently, contractors are required to (1) report IR&D
projects to DTIC using the DTIC's online IR&D database and (2) update
these inputs at least annually and when the project is completed. This
rule merely changes the web address for submission of this report and
requires major contractors to include in the report the name of the DoD
Government employee with which a technical interchange was held and the
date of such interchange.
List of Subjects in 48 CFR Parts 231 and 242
Government procurement.
Jennifer L. Hawes,
Editor, Defense Acquisition Regulations System.
Therefore, 48 CFR parts 231 and 242 are amended as follows:
0
1. The authority citation for 48 CFR parts 231 and 242 continues to
read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES
0
2. Amend section 231.205-18 by--
0
a. Revising paragraph (c)(iii)(C);
0
b. Redesignating paragraphs (c)(iv) and (v) as paragraphs (c)(v) and
(vi), respectively; and
0
c. Adding a new paragraph (c)(iv).
The revision and addition read as follows:
231.205-18 Independent research and development and bid and proposal
costs.
* * * * *
(c) * * *
(iii) * * *
(C) For annual IR&D costs to be allowable--
(1) The IR&D projects generating the costs must be reported to the
Defense Technical Information Center (DTIC) using the DTIC's online
input form and instructions at http://www.defenseinnovationmarketplace.mil/;
(2) The inputs must be updated at least annually and when the
project is completed;
(3) Copies of the input and updates must be made available for
review by the cognizant administrative contracting officer (ACO) and
the cognizant Defense Contract Audit Agency auditor to support the
allowability of the costs; and
(4) For IR&D projects initiated in the contractor's fiscal year
2017 and later, as a prerequisite for the subsequent determination of
allowability, the contractor shall--
(i) Engage in a technical interchange with a technical or
operational DoD Government employee before IR&D costs are generated so
that contractor plans and goals for IR&D projects benefit from the
awareness of and feedback by a DoD Government employee who is informed
of related ongoing and future potential interest opportunities. If the
contractor does not have a point of contact for the technical
interchange, the contractor may contact the Office of the Assistant
Secretary of Defense for Research and Engineering (OASD R&E). Contact
information for OASD R&E can be found at http://www.acq.osd.mil/rd/contacts/; and
(ii) Use the online input form for IR&D projects reported to DTIC
to document the technical interchange, which includes the name of the
DoD Government employee and the date the technical interchange
occurred.
(iv) Contractors not meeting the threshold of a major contractor
are encouraged to use the DTIC online input form to report IR&D
projects to provide DoD with visibility into the technical content of
the contractors' IR&D activities.
* * * * *
PART 242--CONTRACT ADMINISTRATION AND AUDIT SERVICES
242.771-3 [Amended]
0
3. In section 242.771-3, amend paragraph (d) introductory text by
removing ``Director, Defense Research and Engineering
(OUSD(AT&L)DDR&E)'' and adding ``Office of the Assistant Secretary of
Defense for Research and Engineering (OASD R&E)'' in its place.
[FR Doc. 2016-26366 Filed 11-3-16; 8:45 am]
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