On November 4, 2016, the Department of Defense (DoD) published a proposed rule that continues its efforts to address concerns regarding substantial future independent research and development (IR&D) investments when such effort is undertaken as a means of reducing evaluated bid prices in competitive source selections. The proposed rule, if made final, would establish a new DoD Federal Acquisition Regulation Supplement (DFARS) clause, DFARS 252.215-70XX, "Notification of Inclusion of Evaluation Criteria for Reliance Upon Future Government-reimbursed Independent Research and Development Investments," which would require the government to add costs (for proposal evaluation purposes) to contractor offers for major defense acquisitions and major automated information system acquisitions that rely on IR&D efforts. 

Dentons' US Government Contracts and Global Procurement Practice partners Thomas A. Lemmer and Steven M. Masiello, along with Denver associate K. Tyler Thomas, submitted comments on the proposed rule. Notably, the DoD previously sought industry input on the proposed rule through an advanced notice of proposed rulemaking (ANPR). Dentons, along with numerous others in the industry, provided significant comments challenging the ANPR. The DoD, however, disregarded the industry input it received and published the proposed rule containing nearly identical language to the ANPR, thereby failing to abide by the requirements imposed on the DoD when it engages in rulemaking. In light of the DoD's disregard of ANPR responses and its apparent commitment to forging ahead with this proposed rule, we resubmitted our prior comments in their entirety for the DoD's reconsideration. 

In addition to resubmitting our prior comments, we provided new comments emphasizing the following four significant flaws related to the proposed rule:

  1. The DoD's failure to define the problem it seeks to alleviate through the proposed rule, resulting in the inability of commenters to provide potential alternative solutions
  2. The proposed rule being based upon a fundamentally flawed premise because a contractor's ability to obtain price advantage via reduced costs from the use of IR&D is at least an ancillary purpose acknowledged within the current IR&D statute, as recognized by the US Court of Appeals for the Federal Circuit
  3. The proposed rule remaining far too vague, such that practical implementation of the rule by a contracting officer risks IR&D costs being attributed in full and repetitively to every new program to which they relate
  4. The timing of the rule being illogical, since two Congressional panels are currently reviewing fundamental aspects that underlie it. 

We strongly believe that these comments, in addition to our prior comments, support the withdrawal of the proposed rule. Importantly, irrespective of the current regulatory freeze put into place by the Trump administration, contractors should remain wary of the DoD's persistence on this rule and of the potential finalization of the proposed rule when the freeze is lifted. Thus, industry should continue to submit comments and support the withdrawal of the proposed rule. The comment period closes February 2, 2017.

You can read Dentons' comments in full here.

Additionally, Dentons lawyers advised the American Bar Association Section of Public Contract Law on its comments on the proposed rule.

In a prior alert, Dentons provided its comments, as well as those of the American Bar Association Section of Public Contract Law, in response to the ANPR.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.