By: Jacques Gansler, William Lucyshyn
For nearly 80 years, defense policy makers have worked to develop and refine policy that incentivizes firms to undertake independent research and development (IR&D), defined by the Department of Defense (DoD) as research and development that is not sponsored, or required, in the performance of a contract or grant, but that is ultimately recovered through the firm’s overhead rate. As enacted, IR&D policy permits investment in four areas: basic research, applied research, development, and systems and other concept formulation studies. To qualify as IR&D, the firms’ effort must be of potential interest to the DoD. Beginning in 1996, firms could seek reimbursement for up to 100% of their IR&D investment. Today, the DoD reimburses defense and commercial firms nearly $4 billion annually for their IR&D efforts (Erwin, 2015a).