On September 14, 2017, the Department of Defense issued a new class deviation that eliminates the requirement on major contractors to engage with the Government in technical interchange meeting prior to the generation of independent research and development (IR&D) costs.  This class deviation represents a continuing reversal in position for the Pentagon, which had been moving forward with placing more guiderails for IR&D spending.

The technical interchange meeting requirement was promulgated on November 4, 2016 and required that for IR&D costs to be allowable, major contractors must engage in technical interchange meetings with operational Department of Defense personnel 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.”  This rule generated significant industry concern that the Government would unduly interfere in independent research and development by becoming a de facto approval process.  After publication of the final rule, on December 1, 2016, DoD issued a class deviation  eliminating the requirement that the technical interchange occur “before IR&D costs are generated.”  Further addressing industry concerns, the Undersecretary for Defense for Acquisition, Technology, and Logistics issued a memorandum clarifying that although the DFARS rule required contractors to share their IR&D plans with DoD, the technical interchange meetings did not represent a government approval process for IR&D projects.

However, these actions did not fully address industry unease with regard to Pentagon restraints on IR&D.  Industry’s concerns are particularly acute in light of the currently proposed DFARS rule that would require contracting officers managing procurements for major defense acquisition programs and major automated information systems in a development phase to adjust the total evaluated cost/price of a proposal to account for the contractor’s proposed reliance on government-funded IR&D projects.  Public comments submitted by the American Bar Association Section of Public Contract Law (SPCL), the Council of Defense and Space Industry Association (CODSIA), and several private law firms uniformly opposed the proposed rule.

In light of these recent regulatory attempts to place guiderails on IR&D spending, this class deviation represents a positive step in the Pentagon’s position and a change that is likely to be welcomed by industry.