United States: DoD Effectively Recognizes That Issues With Its New IR&D "Technical Interchange" Rule Are More Significant Than Previously Acknowledged

Last Updated: January 11 2017
Article by Cameron S. Hamrick

In a January 4, 2017 Memorandum, the Under Secretary of Defense for Acquisition, Technology and Logistics ("Under Secretary"), discussed implementation of a problematic DFARS rule issued on November 4, 2016, requiring "major contractors" to engage in a "technical interchange" with a DoD employee before IR&D costs are generated as a prerequisite for the allowability of such costs ("IR&D Rule"). The Memorandum effectively recognizes that issues with the IR&D Rule are more significant than DoD previously acknowledged. However, although the Memorandum addresses certain issues arising out of the IR&D Rule, it remains to be seen whether contractors will encounter different types of problems as the Rule is implemented.

The IR&D Rule requires major contractors, for IR&D projects initiated in the contractor's fiscal year 2017 and later, to 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 ongoing and future potential interest opportunities," as a prerequisite for the subsequent determination of allowability. "Major contractors" are those whose covered segments allocated a total of more than $11,000,000 in IR&D and B&P costs to covered contracts during the preceding fiscal year.

DoD issued an earlier version of the IR&D Rule on February 16, 2016, as a proposed rule. The proposed rule generated several issues, such as the fact that DoD did not define the term "feedback," which raised the question of whether DoD approval of proposed IR&D costs was required. Also, there was no requirement for DoD to provide "feedback" within a certain time period, thus raising the possibility that DoD could materially delay a contractor's pursuit of IR&D projects. As another example, IR&D costs are supposed to be "independent" – 10 U.S.C. § 2372(f) states that regulations governing DoD's payment of IR&D and B&P costs "may not include provisions that would infringe on the independence of a contractor to choose which technologies to pursue in its independent research and development program." Understandably, DoD received several comments on the proposed rule, including comments from the ABA's Public Contract Law Section.

Notwithstanding the material issues raised by the proposed rule, DoD made only two changes when it issued the final IR&D Rule: DoD (1) eliminated a requirement to include a "summary of results" in reporting IR&D projects, and (2) identified the Office of the Assistant Secretary of Defense for Research and Engineering as a resource for contractors who do not have a point of contact for the technical interchange. The substance of the technical interchange requirement remained the same. In issuing the final IR&D Rule, DoD attempted to downplay the impact of the Rule, stating, for example, that the rule "merely requires reporting of the name of the technical or operational DoD Government employee and the date of the technical interchange," and also stating that "the impact of this rule on the contractor's reporting burden is negligible." The ABA's Public Contract Law Section noted that the proposed rule "appears to be inconsistent with the longstanding policy that the Government should not direct contractor IR&D projects, which is embodied in 10 U.S.C. § 2372(f)." DoD indicated that a number of respondents stated that the rule is "in violation of existing statute." Yet, in response, DoD avoided the critical provision at 10 U.S.C. § 2372(f), and instead claimed that the 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 [DoD], of" IR&D and B&P costs.

Despite issuing the final IR&D Rule with commentary that attempts to downplay the impact of the Rule, DoD now appears to recognize that the issues with the Rule are more significant than it previously acknowledged. Last week, the Under Secretary issued the January 4, 2017 Memorandum concerning "[i]mplementation" of the IR&D Rule. The first paragraph states that on December 1, 2016 – after issuance of the final IR&D Rule – DoD issued a "Class Deviation to address industry concerns that the required technical exchanges occur before costs are generated for IR&D projects." The Class Deviation, which is Enclosure 1 to the Under Secretary's Memorandum, "alleviates the requirement that the technical interchanges occur before costs are generated for IR&D projects initiated in a contractor's Fiscal Year 2017 so as to afford contractor's a phase-in period to develop processes and procedures."

The Memorandum also addresses certain logistical issues, stating that while face-to-face discussions are the preferred approach for the technical interchange, the interchange may be accomplished by alternate means. In addition, the Memorandum states that for companies that may not have access to an informed DoD official "with which to discuss their project, we are developing an additional approach using the existing IR&D database hosted in the Defense Innovation Marketplace," and that by January 31, 2017, DoD will implement an electronic process to facilitate this approach.

The Under Secretary is aware of the issue of contractor independence. He states that the DoD employee "may provide feedback on relevance to DoD missions, but in no case has the authority to stop the project. The DoD Government employee will not issue any official declaration stating whether any project should or should not be pursued and/or whether project costs are reimbursable or that they should be declined." This raises the question of whether the DoD employee will issue an "unofficial declaration stating whether any project should or should not be pursued and/or whether project costs are reimbursable or that they should be declined," and whether the DoD employee will use any means to influence a contractor's decisions concerning what IR&D projects to pursue. The Under Secretary also states: "I want to emphasize that this is a requirement on industry to communicate its IR&D plans to some relevant Government individual and record that this has been done. There is no Government approval required or expected." This is a welcome clarification of the term "feedback."

However, it remains to be seen whether other aspects of the Rule will pose problems for contractors. For example, while the Rule includes a website for contractors that do not have a point of contact for the technical interchange, access to the website does not guarantee that DoD will always engage in the technical interchange in a timely fashion. This raises the possibility that contractors could experience material delays in pursuing IR&D projects, which in turn could influence business decisions about such projects. Also, the Rule states that the technical interchange will be with a DoD employee "who is informed of related ongoing and future potential opportunities." This suggests the possibility that the DoD employee will discuss ongoing or future efforts of other contractors; even if the other contractors are not specifically named, this possibility raises concerns about disclosing proprietary efforts of competitors. In addition, the Rule does not explain how contractors will receive "feedback" in a fair or equitable manner – for example, DoD may provide an inordinate amount of information to one contractor that provides a competitive advantage. Finally, while the Under Secretary's Memorandum recognizes the issue of contractor independence, and provides some language attempting to address that issue, there can be no question that DoD seeks to influence contractor IR&D efforts through technical interchanges. The Under Secretary indicates that the intent of the Rule includes providing "industry with some feedback on the relevance of proposed IR&D work," a point that is made repeatedly in the commentary accompanying the final Rule.

Originally published on January 10, 2017

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.