Infotech and the Law: New R&D rules boost joint funding of defense technologies

In addition to procurement contracts and research grants available to all agencies, Congress in 1989 allowed the Defense Department to use "other transactions" to develop information systems and other technologies for military and intelligence services.Anti-terrorism and homeland security initiatives have focused more attention on these other transactions, because they are not regulated by the Federal Acquisition Regulation or Office of Management and Budget circulars covering research grants. It has been suggested that the flexibility of other transactions should be a model for broader procurement discretion by agencies.The rather freewheeling authority of Defense Department contracting officers in using other transactions will be narrowed under a new set of regulations proposed April 30. The regulations, upon which the Defense Department is accepting comments through July 1, establish Technology Investment Agreements, or TIA.The TIA regulations will impose requirements on cost sharing, establish requirements for competition, define accounting standards and direct contracting officers in negotiating intellectual property rights to be obtained by the government in exchange for its "investment" in developing technology with commercial and military uses.A TIA recipient will be required to provide at least half the costs of the research. The Defense Department contends that cost sharing is appropriate because TIAs are used to support dual-use research that benefits the department and the recipient. The Defense Department wants to ensure that a grant recipient has a vested interest in the project's success.Previous contributions to the development of technology will not be counted in the cost-sharing calculation. But contributions of the recipient's existing intellectual property are to be counted. The rules recognize that putting a value on pre-existing intellectual property is a difficult task, and recipients can expect this to be the subject of negotiation.A significant element of the regulation is that a TIA recipient cannot receive fee or profit for the development work. Profit, while appropriate for a procurement contract used in a buyer-seller relationship, is not appropriate where the project is of mutual interest to the recipient for commercial exploitation and to the government for military purposes.The rules recognize that one of the largest disincentives for companies to engage in government-funding technology development is the requirement that expenditure-based contracts and grants involve unfamiliar government cost accounting methods.Under the new rules, contracting officers may authorize independent public accountants for audits performed in accordance with generally accepted government auditing standards issued by the General Accounting Office, which parallel generally accepted auditing standards used in the commercial sector.The greatest flexibility will be in intellectual property rights. Contracting officers will have substantial discretion to negotiate patent and technical data rights without the constraints imposed by the FAR or the Bayh-Dole Act. Contracting officers are instructed to strike a good balance between Defense Department interests in gaining access to the best technologies and promoting commercialization of technologies resulting from the research. The rules state that either of these interests may be impeded if excessive rights are demanded by the government.The rules also recognize the government may require access to data or inventions to develop defense-unique products or processes that the commercial marketplace will not require. In those cases, narrow government use licenses may fully serve the interests of both parties..