The Department of Defense (DoD) has issued a class deviation relating to implementation of the final DFARS rule Enhancing the Effectiveness of Independent Research and Development, which was issued and effective on November 4, 2016. Important aspects of the rule are that (1) proposed new Independent Research and Development (IR&D) efforts must be communicated to appropriate DoD personnel prior to being initiated and (2) IR&D results also must be shared with appropriate DoD personnel. The Steptoe advisory on this final rule titled New DFARS Rule Seeks to Increase “Effectiveness” of IR&D is available here.

What Does the Class Deviation Do?

The class deviation changes the IR&D cost principle for purposes of determining the allowability of IR&D costs for projects initiated in a contractor’s fiscal year 2017. It removes the requirement in the final rule that required a technical interchange to occur “before IR&D costs are generated,” and instead requires that the interchange take place “sometime during the contractor’s fiscal year 2017.” Effective as of the class deviation issuance, contracting officers are to use the following cost principle in place of existing DFARS 231.205-18(c)(iii)(C)(4):

(4) For IR&D projects initiated in the contractor's fiscal year 2017, 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 sometime during the contractor's fiscal year 2017 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).

(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.

(Emphasis added). This class deviation notes that in “alleviat[ing]” the requirement that the technical interchanges occur before costs are generated for IR&D projects initiated in the contractor's fiscal year 2017, it provides DoD contractors with a phase-in period to develop their appropriate processes and procedures. The requirement for allowability in the final rule that interchanges take place before IR&D costs are generated remains unchanged for a contractor’s fiscal years after 2017.