United States General Accounting Office

GAO Report to Congressional Committees

March 1996 DOD RESEARCH

Acquiring Research by

Nontraditional Means

G O A

years

1921 - 1996

GAO/NSIAD-96-11

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

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.

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In 1989, your committees were instrumental in enacting legislation1—

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.

Background 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

1

Public Law 101-189, § 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.

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transactions4 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.

Results in Brief 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

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.

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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

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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

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.

5

Acquisition Requirements: Impact on Company Structures and Operations (GAO/NSIAD-94-20,

Apr. 19, 1994).

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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 reported6

 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

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.

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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.

8

35 U.S.C. §200 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.

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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.

10It 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.

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Promoting New

Relationships and

Practices

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

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systems for procurement contracts, developing or using alternative

practices was not considered cost-effective.

Leveraging the Private

Sector’s Financial

Investment

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 cash11 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

Source and type of contribution Amount Percent

DODa $ 710.0 41.8

Participant 990.3 58.2

Cash 780.0 45.9

In-kind 205.5 12.1

Undetermined 4.8 0.3

Totalb $ 1,700.2 100.0

aDoes not include DOD in-kind contributions, which include work performed under separate

memoranda of understanding, cooperative research and development agreements, or other

agreements.

bTotals 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

11Cash 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.

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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.

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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.

Emerging Issues

Regarding Instrument

Selection and

Structure

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.

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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 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 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.

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.

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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

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Page 15 GAO/NSIAD-96-11 DOD Research
Contents

Letter 1

Appendix I 

Participant

Characteristics

18

Appendix II 

Scope and

Methodology

19

Appendix III 

Comments From the

Department of

Defense

21

Appendix IV 

Major Contributors to

the Report

22

Tables Table 1: Planned Cost-Sharing Commitments 10

Table I.1: Selected Participant Characteristics 18

Abbreviations

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

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Page 17 GAO/NSIAD-96-11 DOD Research
Appendix I 

Participant Characteristics

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

For profit firm

Type of participant

Recipient

Number of

awards

Number of

participants

Traditional

defense

contractor

Nontraditional

defense

contractor University Nonprofit

Other DOD

or federal

agency Othera

Single party 13 13 5 7 1 0 0 0

Consortia 59 400 155 108 56 30 15 37

Total 72 413 160 115 57 30 15 37

aOther includes state and local governments, public utilities, and participants that DOD could not

characterize.

Page 18 GAO/NSIAD-96-11 DOD Research
Appendix II 

Scope and Methodology

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:

Page 19 GAO/NSIAD-96-11 DOD Research
Appendix II 

Scope and Methodology

• 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.

Page 20 GAO/NSIAD-96-11 DOD Research
Appendix III 

Comments From the Department of Defense

Page 21 GAO/NSIAD-96-11 DOD Research
Appendix IV 

Major Contributors to the Report

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

(705045) Page 22 GAO/NSIAD-96-11 DOD Research
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