DOD Research: Acquiring Research by Nontraditional Means
(Letter Report, 03/29/96, GAO/NSIAD-96-11)
GAO reviewed the Department of Defense's (DOD) use of cooperative
agreements and other transactions to improve its research acquisition,
focusing on: (1) the reduction of barriers to integrating the industrial
base's defense and civilian sectors; (2) new relationships and practices
within the defense industry; (3) government leverage for defense
purposes of the private sector's financial investments in research and
development of commercial products and processes; and (4) issues
concerning the selection and structure of the transaction instruments.
GAO found that: (1) transaction instruments have reduced barriers
between the civilian and defense industrial bases and have allowed DOD
to do business with a large number of firms with greater technical
knowledge that have not traditionally done DOD research; (2) the
government's use of these instruments has reduced accounting procedures,
audit oversight, and property rights, but these risks are somewhat
mitigated by recipients' interest in the project's success and
cost-sharing, and self-policing among consortium members; (3) the
instruments appear to foster new practices and relationships within the
defense industry; (4) consortia in particular have improved information
flow, expedited technological development, and spurred ongoing cultural
changes, although traditional DOD contractors will likely retain systems
that comply with procurement regulations; (5) DOD has partially offset
its research costs through cost-sharing with recipients, but making
certain administrative costs reimbursable and crediting firms with past
research projects increases the actual DOD share of projects' costs; (6)
the military services and the Defense Advanced Research Projects Agency
(DARPA) have not consistently selected and structured transaction
instruments, which has created negotiating confusion; and (7) there is
no consensus between DARPA and the services on the government's
intellectual property rights under the instruments, but DOD is revising
its guidance on the instruments' selection, use, and structure.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-96-11
TITLE: DOD Research: Acquiring Research by Nontraditional Means
DATE: 03/29/96
SUBJECT: Defense industry
Cooperative agreements
Military research
Defense procurement
Research and development costs
Cost sharing (finance)
Research and development contracts
Accounting procedures
IDENTIFIER: DOD Technology Reinvestment Project
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Cover
================================================================ COVER
Report to Congressional Committees
March 1996
DOD RESEARCH - ACQUIRING RESEARCH
BY NONTRADITIONAL MEANS
GAO/NSIAD-96-11
DOD Research
(705045)
Abbreviations
=============================================================== ABBREV
DARPA - Defense Advanced Research Projects Agency
DOD - Department of Defense
FAR - Federal Acquisition Regulation
GAO - General Accounting Office
IR&D - Independent Research and Development
OMB - Office of Management and Budget
TRP - Technology Reinvestment Project
Letter
=============================================================== LETTER
B-270789
March 29, 1996
The Honorable Strom Thurmond
Chairman
The Honorable Sam Nunn
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Floyd Spence
Chairman
The Honorable Ronald V. Dellums
Ranking Minority Member
Committee on National Security
House of Representatives
With considerable congressional support, the Department of Defense
(DOD) has made acquisition reform one of its highest priorities as it
attempts to reduce the cost of maintaining technological superiority
in an era of constrained defense budgets. Acquisition reform efforts
generally focus on actions that affect DOD procurements. DOD is also
experimenting, however, with new approaches to accomplish similar
objectives in its science and technology efforts, including using
cooperative agreement and other transaction instruments to enter into
research projects with commercial firms and consortia. The use of
cooperative agreements and other transactions has been cited by DOD
officials as a means to (1) help reduce the barriers to integrating
the defense and civilian sectors of the industrial base, (2) promote
new relationships and practices within the defense industry, and (3)
allow the government to leverage for defense purposes the private
sector's financial investments in research and development of
commercial products and processes.
This report discusses DOD's use of these instruments to further these
three objectives. We also discuss two emerging issues concerning the
selection and structure of the instruments. We did not review the
technical merits of the research and did not attempt to quantify the
benefits to be derived from such research. We performed our review
as part of our basic legislative responsibility and have addressed
our report to you because of the key role your committees have played
in providing the authority for using these instruments.
In 1989, your committees were instrumental in enacting legislation\1
· subsequently codified in part at 10 U.S.C. 2371·to provide the
Defense Advanced Research Projects Agency (DARPA)\2 authority to
enter into cooperative agreements and "other transactions" for
advanced research projects. The legislation did not define "other
transactions," thus giving DARPA flexibility to deal with unique
situations encountered when fostering technology, especially dual-use
technology. Congress limited the authority to a 2-year trial period
and restricted its use to those situations in which the use of
standard contracts or grants was not feasible or appropriate.
Congress also required that, to the extent the Secretary of Defense
determined practicable, recipients should provide at least 50 percent
of the project's funding. In 1991, Congress made the authority
permanent and subsequently permitted the military services to use
these instruments. Legislative changes in 1993 and 1994 now enable
DOD to use cooperative agreements as part of its basic authority
under 10 U.S.C. 2358 to conduct research.\3 Other transactions,
however, may be used only when other instruments are not appropriate.
--------------------
\1 Public Law 101-189, µ 251, November 1989.
\2 Between March 1993 and February 1996, the agency was known as the
Advanced Research Projects Agency.
\3 Under this authority, cooperative agreements are to be entered
into in accordance with chapter 63 of title 31 of the U.S. Code.
These agreements are generally subject to various Office of
Management and Budget (OMB) circulars and agency implementing
regulations. For example, cooperative agreements entered into with
institutions of higher education, hospitals, and other nonprofit
institutions are subject to the provisions of OMB Circular A-110.
BACKGROUND
------------------------------------------------------------ Letter :1
Contracts, grants, cooperative agreements, and other transactions are
among the tools DOD has to support or acquire research. The
instruments are not interchangeable, but rather are to be used
according to the nature of the research and the type of
government-recipient relationship desired. Contracts are procurement
instruments and, as such, are governed by the Federal Acquisition
Regulation (FAR) and DOD procurement regulations. Contracts are to
be used when the principal purpose of the project is the acquisition
of goods and services for the direct benefit of the federal
government. In contrast, grants, cooperative agreements, and other
transactions\4 are assistance instruments used by DOD when the
principal purpose is to stimulate or support research and development
efforts for more public purposes. Assistance instruments are
generally not subject to the FAR or DOD procurement regulations,
thereby providing DOD a considerable degree of flexibility in
negotiating terms and conditions with the recipients.
Between fiscal years 1990 and 1994, DOD cited the authority provided
under 10 U.S.C. 2371 to enter into 72 agreements, of which 56 were
categorized as other transactions and 16 as cooperative agreements.
At time of award, the planned contributions by DOD and recipients
totaled about $1.5 billion. DARPA has been the primary user of the
authority, entering into all 56 agreements that were identified as
other transactions. The Air Force and Navy entered into a total of
16 cooperative agreements, while through fiscal year 1994 the Army
had not entered into any agreements using this authority.
For various policy and implementation reasons, DOD generally did not
enter into assistance relationships with commercial organizations
prior to the enactment of 10 U.S.C. 2371 in 1989. However, 59·or
about 82 percent·of the agreements entered into under the authority
of
10 U.S.C. 2371 were with consortia comprised primarily of for-profit
firms. This high number of consortia-led projects was due in part to
the fact that most of the programs under which the agreements were
entered into·such as the Technology Reinvestment Project
(TRP)·required or expected that some type of partnership arrangement
be formed. Nearly all of the remaining agreements were entered into
with single commercial firms. Appendix I provides additional
information on various recipient characteristics.
--------------------
\4 The other transactions we discuss in this report are those in
which DOD entered into an assistance-type relationship with
commercial firms and consortia for government-sponsored research
projects. DOD officials noted that other transactions can encompass
a variety of other relationships and purposes. For example, under
section 845 of the National Defense Authorization Act for Fiscal Year
1994, Congress provided DARPA an experimental authority to use other
transactions in a procurement relationship. Additional types of
other transactions in an assistance-type relationship include the
lending of equipment to firms to conduct research or reimbursable
arrangements that allow a firm to conduct experiments aboard a
government experimental launch vehicle.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
Cooperative agreements and other transactions appear to have provided
DOD a tool to leverage the private sector's technological know-how
and financial investment. The instruments have attracted firms that
traditionally did not perform research for DOD by enabling more
flexible terms and conditions than the standard financial management
and intellectual property provisions typically found in DOD contracts
and grants. Thus, the instruments have contributed to reducing some
of the barriers between the defense and civilian industrial bases.
These instruments also appear to be contributing to fostering new
relationships and practices within the defense industry, especially
under projects being undertaken by consortia. DOD and consortia
representatives told us that the use of consortia improved
information flow and expedited technology development. Similarly,
DOD and consortia representatives indicated that the instruments
promote a different government-recipient relationship, although
further cultural changes are still needed within both DOD and
industry to adjust to this new partnership philosophy. The
instruments also provide traditional defense firms the opportunity to
develop or use practices other than those employed under FAR-based
contracts, but it is unlikely such firms will do so given the need to
maintain their current systems to comply with regulations or
standards applicable to procurement contracts.
By sharing the costs of projects, DOD has partially offset its own
costs while generally enabling recipients to expand the scope of the
projects undertaken. In the 72 projects we reviewed, recipients
planned to contribute about $1.39 in cash or in-kind contributions
for each dollar provided by DOD. However, as allowed under the FAR,
some of the recipients' contributions may be allocated to their
overhead costs as independent research and development (IR&D)
expenses and therefore be eligible for reimbursement by DOD.
Further, about 10 percent of the recipients' total planned
contributions was attributable to the value of past research efforts,
with such contributions accounting for more than 20 percent in 8 of
the 72 agreements we reviewed. These practices increase DOD's actual
monetary share of the projects' costs. In particular, accepting the
value of prior research in lieu of concurrent financial or in-kind
contributions may not provide an accurate depiction of the relative
financial contributions of the parties under the agreement.
The selection of instruments by the military services and DARPA has
not been consistent, which led to some confusion among firms that
were negotiating agreements with both DARPA and the services. While
the instruments share many similar characteristics, there are
differences in how the services and DARPA incorporated auditing,
access to records, and intellectual property provisions. With regard
to intellectual property provisions, some disagreement exists within
DOD as to whether
10 U.S.C. 2371 provides DOD the authority to negotiate more flexible
property rights than typically allowed. DOD is in the process of
revising its February 1994 interim regulations to provide clearer
guidance on the instruments' selection, use, and structure.
REDUCING THE BARRIERS BETWEEN
THE DEFENSE AND CIVILIAN
INDUSTRIAL BASES
------------------------------------------------------------ Letter :3
The use of cooperative agreements and other transactions appears to
provide some opportunities to remove barriers between the defense and
civilian industrial bases, in particular by attracting firms that
traditionally did not perform research for DOD. In a previous
report,\5 we pointed out that government acquisition requirements
have caused some companies to separate their defense and commercial
research and development organizations or to decline accepting
government research and development funds. The flexibility inherent
in these instruments has enabled DOD to attract firms that have
historically declined to participate in research projects sponsored
under a contract·such as Cray Research, Hewlett-Packard, and the
commercial division of IBM·to participate in one or more projects
either as a consortium member or as a single party. Overall, based
on information provided by DOD and recipient officials, we estimate
that about 42 percent of the 275 commercial firms that participated
in 1 or more agreements were firms that traditionally had not
performed research for DOD.
DOD officials stressed that a contracting officer cannot elect to use
a cooperative agreement or other transaction to attract a
nontraditional firm when the principal purpose of the research is for
the direct benefit of the government. However, they indicated that
for projects in which the use of such instruments was appropriate,
the ability to attract such firms was a significant benefit,
especially in those areas in which these firms' technological
capabilities exceed those possessed by traditional defense firms.
For example, in 1 Air Force agreement, 14 firms, including 5 that
traditionally had not performed research for DOD, entered into a $60
million cooperative agreement to develop computer interface
standards. The consortium manager told us that the commercial firms
involved would not have participated had DOD imposed standard FAR
clauses for certified cost and pricing data or intellectual property
provisions. The Air Force program manager noted that the consortium
has both large, multinational firms like IBM, as well as small,
specialized companies working together. Representatives from the
consortia and the Air Force believed that the mix of participants
facilitated information exchange and consensus building on the
interface standards.
Discussions with DOD officials and recipients indicated that the
specific terms and conditions that led to the decision to participate
varied from company to company. For some, such as IBM, it was the
ability to use their commercial accounting systems rather than
establish systems or practices that complied with government-unique
requirements; for others, such as Hewlett Packard, it was the ability
to limit the government's access to and audits of the firm's
financial records or the increased flexibility in the allocation of
intellectual property rights that were key factors in their decision
to do business with DOD.
A 1994 other transaction with a Hewlett-Packard-led consortium
provides insights into how the authority was used to negotiate terms
and conditions affecting both financial management and intellectual
property matters that are atypical of contracts, grants, or standard
cooperative agreements. We had previously reported\6
that Hewlett-Packard declined to accept government research and
development funds to protect its technical data rights. In this
case, however, Hewlett-Packard responded to a DARPA announcement
soliciting proposals to advance the state of the art in the
manufacture of more affordable optoelectronics systems and
components. According to DARPA, this technology will enable data
transmissions at high rates from high performance parallel processors
at far lower costs than current technology allows.
Under the agreement, the financial management provisions require
consortium members to maintain adequate records to account for
federal funds received under the agreement, and account for the
members' contributions toward the project. The members are required
to have an accounting system that complies with generally accepted
accounting principles, but commercial firms do not have to follow the
accounting requirements specified by the FAR. The agreement does not
require an annual audit and does not specifically provide DARPA or
our office direct access to these records. Rather, for up to 3 years
after the agreement is completed, these records may be subject to an
audit by an independent auditor, who will provide a report to DARPA.
In comparison, under a cost-reimbursement research contract, a
traditional defense contractor would be typically required to (1)
follow the FAR accounting requirements, (2) undergo audits, and (3)
provide the federal contracting agency and our office with access to
the contractors' pertinent records.\7
Similarly, the intellectual property provisions were structured to
provide Hewlett-Packard more flexible provisions than typically
allowed under contracts, grants, or standard cooperative agreements,
all of which are governed by the provisions of Public Law 96-517, as
amended.\8 The provisions of this act, commonly referred to as the
Bayh-Dole Act, provide the government's general policy regarding
patent rights in inventions developed with federal assistance and are
intended, in part, to facilitate the commercialization and public
availability of inventions.\9 In general, the government's policy is
to allow the contractor to elect to retain title to the subject
invention while providing the government a nonexclusive,
nontransferable, irrevocable, paid-up license to practice or have
practiced for or on behalf of the United States any subject invention
throughout the world. Recipients must comply with certain
administrative requirements. For example, under a research contract,
a contractor is required to notify the government of an invention
within 2 months after it has been disclosed to contractor personnel
responsible for such matters. Large contractors are required to
notify the government in writing whether they intend to retain rights
to that invention within 8 months after disclosing the invention to
the government, while small businesses are provided up to
24 months. Failure to comply with these administrative requirements
provides the government the right to obtain title to an invention.
Under the Hewlett-Packard agreement, the intellectual property
provisions were structured so that
the consortium has up to 4 months after the inventor discloses a
subject invention to his company to notify the government;
the consortium has up to 24 months to inform DARPA whether it
intends to take title to inventions arising from the agreement
after its disclosure to the government;
DARPA agreed to delay exercising its government purpose license
rights to inventions in which the consortium retains title until
5 years after the agreement is completed; and
the consortium has the authority to maintain inventions and data as
trade secrets for an unspecified period of time under certain
conditions.
Further, under the agreement, DARPA does not receive any rights to
any technical data produced under the agreement unless DARPA invokes
its "march-in" rights. These rights can be invoked only if the
consortium fails to reduce an invention to practical application or
for other specified reasons, such as in the case in which the
consortium grants another firm an exclusive right to use or sell the
invention in a product that is substantially manufactured outside of
the United States or Canada. In combination, these terms provide the
consortium additional time to commercialize the technology, while
somewhat limiting the government's rights to that technology.
These clauses illustrate the trade-offs that DOD may face as it
attempts to attract firms that have not traditionally performed
research for the government or move toward more commercial-like
practices.\10 Many of the oft-cited barriers to integrating the
defense and civilian industrial bases, such as government cost
accounting and auditing requirements, rights in technical data, and
other government unique requirements, were instituted to safeguard or
protect the government's and taxpayer's interests, assist suppliers,
or help achieve a variety of national goals. In the Hewlett-Packard
example, two of the government's traditional methods of
oversight·audits and access to records·were not included, while the
government's standard rights to information developed under federally
sponsored research are somewhat constrained.
DARPA and service program management and contracting officials
acknowledged that there may be some added risks to the government due
to the less stringent oversight requirements. However, most
indicated that factors such as the recipient's interest in having the
project succeed (given its commercial applications), the recipient's
willingness to cost share, and the tendency of consortium members to
self-police its agreements (since each member wants to assure that
its partners are contributing as agreed), acted to reduce that risk.
Similarly, DARPA officials commented that the added flexibility
within the intellectual property provisions would assist the firms'
efforts to develop and commercialize the technology.
--------------------
\5 Acquisition Requirements: Impact on Company Structures and
Operations (GAO/NSIAD-94-20, Apr. 19, 1994).
\6 Acquisition Requirements: Impact on Company Structures and
Operations (GAO/NSIAD-94-20, Apr. 19, 1994).
\7 By way of comparison, OMB Circular A-110 imposes similar
requirements for institutions of higher education, hospitals, and
other nonprofit organizations awarded standard cooperative
agreements.
\8 35 U.S.C. µ200 et seq.
\9 The provisions of the Bayh-Dole Act were applicable only to small
businesses and nonprofit entities. In 1987, President Reagan issued
Executive Order 12591, which included a provision to provide all
contractors, regardless of size, title to patents made in whole or in
part with federal funds, to the extent permitted by law.
\10 It should be noted that under some agreements we reviewed
traditional defense contractors have also been recipients of more
flexible intellectual property provisions. For example, a consortium
led by McDonnell Douglas is not required to deliver any data that is
developed under the agreement, nor any rights to such data, unless
the government invokes its "march-in" rights. Such rights cannot be
invoked until 5 years after the completion of the agreement.
Similarly, the government's rights to inventions in which the
consortium retains title will not begin until 10 years after the
completion or termination of the agreement, whichever occurs first.
According to the agency analysis supporting this decision, the
allocation of rights in this manner are consistent with the
government's objectives to develop technologies that further the
aerospace technology base and develop technologies that will
transition to military applications at some point in the future.
PROMOTING NEW RELATIONSHIPS AND
PRACTICES
------------------------------------------------------------ Letter :4
The instruments appear to be fostering new relationships and
practices within the defense industry, especially for those projects
being undertaken by consortia. Under a consortium, members mutually
develop and sign articles of collaboration, which cover such issues
as the consortium's management structure, each member's technical and
financial responsibilities, and the exchange or protection of each
member's proprietary information. Several officials we interviewed
noted that developing the articles of collaboration tended to be
contentious and time-consuming. Once the consortium is established,
however, DOD officials and recipients indicated that a synergistic
effect tended to occur because of the exchange of information under
consortia, thereby expediting technology development. For example,
recognizing their common interest in developing more affordable
composite engine components, General Electric and Pratt & Whitney
agreed to collaborate with material suppliers on a $32 million
project. These two firms·normally competitors·developed mutually
agreeable terms that balanced proprietary interests with research
objectives. According to Air Force officials responsible for the
effort, there was better information flow and greater technical
progress using this joint approach than if each firm had undertaken
the project separately.
Depending on the project, DOD program management and contracting
officials viewed themselves as being more actively involved in
coordinating and facilitating activities than performing a
traditional government oversight function. However, DOD officials
and recipients we spoke with noted that negotiating cooperative
agreements was significantly different than negotiating contracts, in
which most provisions are governed by a standard FAR clause and in
which negotiations tend to focus on the cost proposal. These
officials noted that since the FAR is not applicable to assistance
instruments, more provisions were subject to negotiation. DOD
officials and consortia representatives noted that moving away from
the traditional reliance on FAR-based contracting approaches and
clauses to which they are accustomed and increasing the use of
assistance instruments would require significant cultural or mindset
changes by both parties.
The potential exists for traditional defense contractors to use
cooperative agreements and other transactions to develop or use new
practices that may be viewed as more efficient or less cumbersome
than those employed in acquisition programs under FAR-based
contracts. Officials from such firms, however, generally indicated
that given their investment in systems that complied with FAR or DOD
requirements and the need to use these systems for procurement
contracts, developing or using alternative practices was not
considered cost-effective.
LEVERAGING THE PRIVATE SECTOR'S
FINANCIAL INVESTMENT
------------------------------------------------------------ Letter :5
Leveraging the private sector's financial investment is considered an
important element of projects sponsored by a cooperative agreement or
other transaction for several reasons. First, by having commercial
firms contribute to the cost of developing technologies with both
military and commercial applications, DOD hopes to stretch its
research funding. Secondly, cost-sharing is seen as appropriate
since commercial firms are intended to benefit financially from sales
of the technology. Finally, DOD officials indicated that the
participants' contributions demonstrated commitment to the project
and enabled less rigid government oversight requirements, since the
firms were expending their own resources.
Participants' contributions may be in cash\11 or in-kind
contributions, such as the use of equipment, facilities, and other
assets. As shown in table 1, the 72 agreements DOD entered into
between fiscal years 1990 and 1994 have a current value of about $1.7
billion, toward which participants have agreed to contribute about
$1.0 billion, or about 58 percent. Measured another way,
participants planned to contribute about $1.39 for each dollar
provided by DOD.
Table 1
Planned Cost-Sharing Commitments
(Dollars in millions)
Percen
Source and type of contribution Amount t
------------------------------------------------------ ------ ------
======================================================================
DOD\a $ 41.8
710.0
======================================================================
Participant 990.3 58.2
Cash 780.0 45.9
In-kind 205.5 12.1
Undetermined 4.8 0.3
======================================================================
Total\b $ 100.0
1,700.
2
----------------------------------------------------------------------
\a Does not include DOD in-kind contributions, which include work
performed under separate memoranda of understanding, cooperative
research and development agreements, or other agreements.
\b Totals may not add due to rounding.
It should be noted that the government's actual share of the
projects' costs may be higher than indicated by table 1. Under FAR
31.205-18(e), research costs incurred by contractors under projects
entered into under
10 U.S.C. 2371 should be considered allowable IR&D expenses if such
costs would have been allowed in the absence of the agreement.
Consequently, to the extent that participants use IR&D as their
cost-share contributions and include such costs as overhead under
other government contracts, a portion of these costs subsequently
will be reimbursed by DOD.
Participants also were allowed to propose the value of prior research
as part of their cost-sharing contributions. These contributions do
not represent the cost of prior research, but rather the estimated
value of that research for the current project. On several
agreements, DOD's acceptance of prior research enabled firms to
offset their current contributions significantly. For example, in
one DARPA agreement, 89 percent of the consortia's planned
contribution of approximately $4.7 million was attributable to the
value of prior research. Similarly, in three other agreements, more
than 50 percent of the consortia's planned contributions consisted of
the value of prior research. Overall, we estimate that participants'
planned contributions included about $98 million·or about 10
percent·in the form of the value of prior research, with such
contributions representing more than 20 percent in 8 of the 72
agreements.
DOD officials expressed various views as to whether the value of
prior research should be accepted and to what extent. For example,
an Army official told us that while they believed prior research
should be taken into consideration in evaluating the project's risk,
he expressed some reservation about accepting prior research as a
cost-share contribution. Similarly, a February 1995 Air Force
memorandum noted that while it was permissible to accept the value of
prior research as a cost-share contribution, Air Force negotiators
should proceed with caution. The memorandum noted that evaluating
such contributions is complicated and that grant officers have a
responsibility to ensure that the prior research is relevant to and
brings value to the proposed effort. DARPA officials noted that
while cash or concurrent in-kind contributions are the more preferred
forms of contributions, they believed that the value of prior
research is acceptable in certain circumstances, such as when the
participant possesses significant technical knowledge but is unable
or unwilling to provide cash or in-kind contributions. Accordingly,
DARPA officials told us they did not place a limit on the percentage
of prior research that could be accepted. Conversely, the Navy
generally included a provision in its agreements that limited the
contributions of intellectual property, patents, trade secrets, and
other nonfederal sources to not more than 10 percent of the
participants' planned cost-sharing contributions.
While 10 U.S.C. 2371 does not prohibit DOD from accepting the value
of prior research as part of the participants' cost share, the
legislation requires that to the extent that the Secretary deems
practicable, the funds provided by the government under the
cooperative agreement or other transaction should not exceed the
total amount provided by other parties to the agreement. Accepting
prior research in lieu of concurrent financial or in-kind
contributions may obscure each party's relative contributions in the
current project.
--------------------
\11 Cash contributions generally include expenditures for labor
(including benefits and direct overhead) and for acquiring material,
buying equipment, and other cash outlays required to perform the
statement of work.
EMERGING ISSUES REGARDING
INSTRUMENT SELECTION AND
STRUCTURE
------------------------------------------------------------ Letter :6
Our review identified two emerging issues pertaining to instrument
selection and structure of cooperative agreements and other
transactions. First, we found that DARPA always designated its
agreements as "other transactions," while the services always
employed "cooperative agreements." While the instruments share many
similar characteristics, DARPA officials indicated that a DARPA other
transaction did not require participants to be subject to annual
audit and generally did not require recipients to provide our office
with access to their pertinent financial records. In contrast, Air
Force officials indicated that their cooperative agreements generally
required an annual audit, though not necessarily access to records by
our office, while Navy officials indicated that their agreements
generally required both. The selection of different instruments,
coupled with different treatment of specific issues among the
services, has led to some confusion among firms that were negotiating
agreements with both DARPA and the services.
Second, there remains some disagreement within DOD regarding
intellectual property provisions. While DOD officials agree that
cooperative agreements are subject to the provisions of the Bayh-Dole
Act, there is less consensus regarding other transactions. DARPA
officials maintain that other transactions entered into under the
authority of 10 U.S.C. 2371 are not subject to the Bayh-Dole Act
because, in their opinion, the act only applies to contracts, grants
and standard cooperative agreements. In support, they noted that
Congress has twice commented favorably on DARPA's use of other
transactions to provide more flexible intellectual property
provisions. However, a representative from the Office of Naval
Research's Office of Corporate Counsel argued that the provisions of
the Bayh-Dole Act are applicable to such agreements. The
representative stated that it was his office's position that the act
was to be interpreted broadly as to which types of instruments were
covered.
Reaching resolution on the issue may be important as DOD attempts to
expand its research base. For example, while Air Force and Navy
officials noted that they have been able to negotiate intellectual
property provisions with participants that are consistent with
Bayh-Dole, DARPA officials contended that the ability to provide more
flexible intellectual property provisions than would be possible
under Bayh-Dole was instrumental in reaching their agreements. DOD
is updating its February 1994 draft guidance on the use of these
instruments, in part to provide more consistency in the selection and
structure of the agreements. However, DOD was unable to provide an
estimate on when the revised guidance would be issued.
RECOMMENDATION
------------------------------------------------------------ Letter :7
Because inconsistent selection of a particular instrument and
treatment of specific clauses may unnecessarily increase confusion
for government and industry users and may hinder their effective use,
we recommend that the Secretary of Defense ensure that DOD's revised
guidance on the use of cooperative agreements and other transactions
promotes increased consistency among DOD components on the selection
and structure of these instruments. In particular, the guidance
should specifically address the extent that the value of prior
research should be accepted as part of a participant's cost-sharing
contribution and the extent to which these instruments are subject to
the provisions of the Bayh-Dole Act and under what conditions.
AGENCY COMMENTS
------------------------------------------------------------ Letter :8
In commenting on a draft of this report, DOD generally concurred with
the thrust of our findings and recommendation. DOD noted that it
shared our assessment that the instruments, if used appropriately,
could be valuable tools that help DOD take advantage of technology
development in the commercial sector. DOD's comments are presented
in their entirety in appendix III. DOD officials also provided
technical and editorial comments on a draft of this report. We have
incorporated their comments where appropriate.
---------------------------------------------------------- Letter :8.1
We are sending copies of this report to other congressional
committees; the Secretaries of Defense and Commerce; the
Administrator, National Aeronautical and Space Administration; and
the Director, Office of Management and Budget. Copies will be
provided to other interested parties upon request.
Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report. Major contributors to this report
are listed in appendix IV.
David E. Cooper
Associate Director
Defense Acquisitions Issues
PARTICIPANT CHARACTERISTICS
=========================================================== Appendix I
The Department of Defense (DOD) entered into 72 agreements using the
authority of 10 U.S.C. 2371 between fiscal years 1990 and 1994. Of
these agreements, 59, or about 82 percent, were with consortia, which
were comprised of some 400 participants. Based on information
provided by DOD officials and participants, we estimate that about
two-thirds of consortia participants were for-profit commercial
firms. Of the 13 agreements with single participants, 12 agreements
were awarded to for-profit firms. Overall, we estimate that about 42
percent of the 275 commercial firms that participated in one or more
agreements were firms that traditionally had not performed research
for DOD. Table I.1 shows selected characteristics of participants of
cooperative agreements and other transactions between fiscal years
1990 and 1994.
Table I.1
Selected Participant Characteristics
Traditio
nal Nontraditi Other
Number Number of defense onal DOD or
Recipi of participa contract defense Univer Nonprof federal Othe
ent awards nts or contractor sity it agency r\a
------ ------- --------- -------- ---------- ------ ------- ------- ----
Single 13 13 5 7 1 0 0 0
party
Consor 59 400 155 108 56 30 15 37
tia
================================================================================
Total 72 413 160 115 57 30 15 37
--------------------------------------------------------------------------------
\a Other includes state and local governments, public utilities, and
participants that DOD could not characterize.
SCOPE AND METHODOLOGY
========================================================== Appendix II
To determine the number of cooperative agreements and other
transactions DOD entered into using the authority of 10 U.S.C. 2371,
we reviewed the annual reports and notifications DOD submitted to
Congress from fiscal years 1990 to 1993. As the fiscal year 1994
report was not available during our review, we requested information
from DARPA and the services regarding their fiscal year 1994 usage.
We included in our review only those other transactions that were
used principally in an assistance-type relationship with commercial
firms or consortia for government-sponsored research projects.
Consequently, we excluded one agreement that was entered into under
the authority provided by section 845 of the National Defense
Authorization Act for Fiscal Year 1994
(P.L. 103-160, Nov. 30, 1993). This authority is distinct from
agreements entered into under 10 U.S.C. 2371 as it enables DARPA to
conduct prototype projects that are directly relevant to weapons or
weapon systems proposed to be acquired or developed by DOD. Further,
we did not attempt to identify to what extent DOD had used the
authority of 10 U.S.C. 2371 to enter into other assistance-type
relationships, such as in cases where DOD loaned equipment to firms
to conduct research or in reimbursable arrangements that allow a firm
to conduct experiments aboard a government experimental launch
vehicle.
To characterize the agreements and analyze each participant's
financial or technical contributions to the agreement, we reviewed
the agreement file, which generally included the agreement, articles
of collaboration, the contracting officer's agreement analyses, legal
review, funding documentation, and other pertinent information. We
summarized key elements of the agreement, including the recipient's
planned cost-sharing information, and requested that DOD verify our
interpretation or provide additional information. We did not attempt
to independently verify the financial information we obtained.
Further, we did not attempt to determine the extent to which
participants were using DOD funds to conduct projects that would have
been undertaken in the absence of DOD funding.
To obtain the views on the benefits and risks of using such
instruments, we interviewed program management and contracting
officials from DARPA, the Navy, and the Air Force, as well as
representatives from various participants.
We also interviewed senior management individuals from each of the
services and DARPA, and from the following organizations:
Office of the Director, Defense Research and Engineering;
Office of the Director, Defense Procurement;
Office of the Assistant Secretary of Defense (Economic Security);
and
Office of the Deputy Under Secretary of Defense (Acquisition
Reform).
Some DOD officials cautioned against making broad comparisons between
the terms and conditions found in contracts with those found in
cooperative agreements and other transactions since the principal
purpose of the instruments·acquisition and stimulation,
respectively·differs significantly. However, as acknowledged by DOD
officials, DOD's relationship with commercial firms has generally
been through procurement contracts. Consequently, comparing the
instruments can be illustrative of the types of changes and issues
that may arise as business practices evolve.
We conducted our work from May 1994 to December 1995 in accordance
with generally accepted government auditing standards.
(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix II
MAJOR CONTRIBUTORS TO THE REPORT
========================================================== Appendix IV
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
Katherine V. Schinasi
Timothy J. DiNapoli
Edward D. Cole
CHICAGO REGIONAL OFFICE
Rae Ann Sapp
James R. Wilson
Shari A. Kolnicki
*** End of document. ***
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