Independent Research and Development

Independent Research and Development (IRAD) is an allowable cost that allows companies to initiate and conduct research and development (R&D) projects of potential interest to DoD, and is reimbursed through overhead cost rates. IRAD was originally utilized due to practical necessity, a cost of doing business with the DoD, as a result of DoD’s strict cost-based business practices, and as such, was subjected to rigorous oversight to ensure projects were of interest to DoD. In time, a combination of widespread concern for the health of the defense industrial base following a decline in defense spending after the Cold War and that the current IRAD process was overly burdensome, lead to statutory changes in the early 1990’s that provided companies greater autonomy in choosing IRAD projects to emphasize innovation and encourage development of dual use technologies.

In 2012, DoD added a new requirement that for major contractors, all IRAD projects must be reported to the Defense Technical Information Center (DTIC) annually, in order for their costs to be allowable. Over the past year, DoD has made proposals that further reduce the independence of IRAD as part of Better Buying Power 3.0 that is inconsistent with DoD’s emphasis on maintaining technological superiority. One of these proposals would require a “technical interchange” at initiation of an IRAD project for its costs to be allowable, while the other seeks to incorporate costs of related future IRAD projects into the evaluation of proposals in competitive source selections.

NDIA agrees with Under Secretary Kendall’s Better Buying Power principle that “incentives work and we get what we reward,” and sentiments in his August, 2015 White Paper that improved government-industry dialogue will enhance the effectiveness of IRAD. Unfortunately, this is not reflected in the approach taken on IRAD in Better Buying Power 3.0. Rather than try to regulate its way to innovation and technological superiority, DoD should rely on leveraging incentives. Further, DoD should send clear demand signals to inform industry IRAD investment and then reward innovation in programmatic decisions and through source selection.