Pentagon Wants More Accountability for R&D Funds Paid to Contractors

The Defense Department reimburses contractors $4 billion a year for research-and-development projects, and yet has little insight into how companies spend those funds.
Contractors, for their part, say they need a better grasp of what technologies the military wants so they can invest R&D money more wisely.
There is clearly a disconnect, said Ronald Kurjanowicz, senior advisor to the assistant secretary of defense for research and engineering.
Seeking to bridge the communications gap, Kurjanowicz’ office a year ago launched a website, called “Defense Innovation Marketplace,” where the government informs contractors of its future needs, and industry provides a yearly detailed account of how it spends the research dollars that the Pentagon reimburses — also known as “independent research and development,” or IR&D.
The government needs “greater access to information about industry research and development projects,” Kurjanowicz said in an interview. “At the same time, industry wants more insight on where the government is going.”
Federal law dating back to the 1930s has allowed firms to recover some of their research and development costs as administrative expenses that are charged to existing contracts. Contractors have the discretion to decide which technologies to pursue with these funds, so long as the projects are of potential interest to the Defense Department. Currently about 1,300 companies claim IR&D expenses under defense contracts.
Over the past decade, the Defense Department has lost track of how IR&D funds are spent, Kurjanowicz said. It used to be the responsibility of theDefense Technical Information Center to collect that data, but over time company participation dropped off. In 2000, about 10,000 reports were filed, and last year only 700, said Kurjanowicz. “It atrophied,” he said. “Industry would submit data but not get feedback from the government. … We want to reestablish that connection.”
A recently revised rule in the Defense Federal Acquisition Regulation Supplement requires all contractors that spend more than $11 million a year on combined IR&D and bidding/proposal costs to submit detailed project data once a year. Companies already have begun to populate the database in response to the new DFARS rule, Kurjanowicz said.
The increased reporting is not just about stepping up government oversight, he said. It also benefits industry, as the data will be shared across all branches of the military and defense agencies, said Kurjanowicz. That means a company’s invention or new idea will be seen by more potential customers, he said.
Kurjanowicz cautioned that all corporate proprietary information is only viewed by authorized government personnel and is not at risk of being obtained by competitors. “We are aware that industry wants to protect its information,” he said.
Although the Defense Innovation Marketplace was conceived as a “one-stop shopping” site for industry and government, Kurjanowicz recognized that it could take a long time to build up. The site does not include active solicitations, which generally are posted on FedBizOpps. But it does contain white papers, advisories on upcoming “industry day” conferences and other documents that corporate executives might not even be aware that they exist, he said.
The site also could level the playing field for small businesses that typically don’t have manpower to deploy inside the Pentagon, or the cash to hire consultants to help navigate the bureaucratic maze.
“Companies believe they need people in the building to know what’s going on,” Kurjanowicz said. The new website could help change that attitude, he added. “Small firms don’t know what the Defense Department wants so they hire business development people to walk the hallways. … Now you can go to the site. All firms have equal access.” Nonetheless, he added, “Sometimes, follow-up conversations are necessary.”
Some Pentagon officials have grumbled about corporate representatives asking for face-to-face meetings where executives get to pitch their products but don’t always yield the information that the government wants. “Government folks will take an appointment with a firm and they end up not talking about what they wanted to talk about,” said Kurjanowicz. Having access to IR&D reports on the Defense Innovation Marketplace would allow a government official to vet a company’s technology before he or she agrees to a meeting.
In these times of budget cuts, the site could ultimately become a substitute for conferences that increasingly are under scrutiny, Kurjanowicz said. “It’s going to be harder for us to go conferences.”
Because it has been less than 12 months since the site was launched, it is too soon to declare success, however. “Over the next couple of years, we’ll measure it,” Kurjanowicz said. “If it doesn’t work, frankly, we’ll try a new strategy or kill it.”

Topics: Business Trends, Doing Business with the Government, Defense Contracting, Research and Development