The calendar year ended December 31st and you are closing your books and gathering information for your incurred cost submission that is due June 30th. There is one more requirement you should consider that may have been overlooked. Does your company meet the requirement to input independent research and development (IR&D) costs into the Defense Technical Information Center (DTIC)?
What is DTIC?
DTIC is the Defense Technical Information Center which provides a centralized resource for the Department of Defense Acquisition, Science, and Technology professionals on information about industry’s independent research and development activities.
How Do I Know if My Company is Required to Report IR&D Project Costs?
If you qualify as a “major contractor” you must input your IR&D costs in DTIC no later than 3 months after your fiscal year end. You may say, “I am not a major contractor”. After all you are not one of the top 10 defense contractors (e.g., Lockheed, Boeing, etc.) nor do you meet DCAA’s definition of a “major contractor” which is a contractor with $100 million of auditable dollar volume (ADV). Well, there is another definition of a “major contractor”, and it may impact your company.
What is a Major Contractor?
DFARS 231.205-18 defines a “Major contractor’” as a 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.
So, what is a covered contract? A covered contract is a DoD prime or subcontract above the simplified acquisition threshold (currently $250,000) other than firm-fixed price contracts. Firm fixed price contracts with incentives are considered covered contracts.
Am I considered a “covered segment”? A covered segment is a product division that allocated more than $1,100,000 in IR&D/B&P to covered contracts during the preceding fiscal year. Contractors with divisions that do not meet the $1,100,000 in IR&D/B&P threshold or do not have covered contracts, would not be included in determining whether the contractor is a “major contractor”. DoD made this as clear as mud as we see it.
So, the $11,000,000 is Based on IR&D Costs in the Prior Year?
While the requirement is to report IR&D costs in DTIC, the criteria is $11,000,000 of IR&D and B&P costs in the preceding year. That is correct, B&P is added into the equation of $11,000,000 to determine whether the “major contractor” threshold is met.
When Do I Have to Report the Information into DTIC?
Contractors are required to report the IR&D projects in DTIC using the form on the DTIC website, no later than 3 months after the company year end. THIS IS VERY IMPORTANT. In addition to inputting the IR&D project costs, this data needs to be updated annually and upon project completion. Copies of the information needs to be available for the DCMA Administrative Contracting Officer (ACO) and DCAA auditor to support the allowability of the costs. While DFARS 231.205-18 does not reference the 3-month time period, it is included in the Director, Defense Procurement and Acquisition Policy Memorandum on Clarification of Defense Federal Acquisition Regulation Supplement Requirement of Major Contractors to Report Independent Research and Development Projects, dated February 3, 2014.
What Happens if I Don’t Report IR&D Project Costs Within the 3-Month Time Period After Year End?
If a contractor meets the reporting criteria in DFARS 231.205-18 and fails to report IR&D project data in DTIC no later than 3 months after the contractor FYE, DCAA will question these costs as expressly unallowable and subject to penalties. DFARS 231.205-18(c)(iii)(C) states for annual IR&D costs to be allowable they must be reported to DTIC using the DTIC’s online input form and must be updated at least annually and when the project is completed.
There is no expectation that the IR&D costs recorded in the DTIC database reflect the actual amounts claimed in the incurred cost proposal, but contractors are required to input the project costs, update annually and when the project is complete. Contractors not meeting the threshold of a major contractor are encouraged to report IR&D projects in DTIC to provide DoD visibility, but it is not a requirement. Reporting of classified IR&D projects is not required.
Redstone GCI is available to assist contractors in assessing their IR&D reporting requirements as well as assist in the development of the incurred cost proposal. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying FAR Part 31, Cost Principles and completing incurred cost proposal requirements.