K. Allowability of IR&D Costs

Comment: DoD should not make IR&D cost allowability contingent on reporting. Under the proposed rule, IR&D costs would be unallowable for projects exceeding $50,000 unless the project(s) are reported in the DTIC.

Using the disallowance of costs to enforce the proposed reporting requirement is unnecessary and unreasonable and would result in sanctions that are disproportional to the potential harm to DoD. Normally, if a contract fails to comply with such a contractual reporting requirement, the noncompliance would be treated as a breach of contract judged on the basis of its materiality. Moreover, claimed contractor IR&D costs are currently auditable by the Defense Contract Audit Agency to support G&A rate audits. DoD already is protected from improper charging including the remedy of double damages and interest on expressly unallowable costs.

Response: The requirement to determine the allowability of IR&D costs is a pre-established requirement in the DFARS. Specifically, 231.205-18(c)(iii)(B) sets forth that allowable IR&D/B&P costs are limited to those costs for projects that are of potential interest to DoD. Further, 231.205-18(c)(iv) states that for major contractors, the cognizant ACO or corporate ACO shall determine whether IR&D/B&P projects are of potential interest to DoD. This rule establishes reporting requirements to provide necessary information to DoD cognizant ACOs to make the required allowability determinations.