Department of Homeland Security: Issues Concerning the Establishment of Federally Funded Research and Development Centers (FFRDCs)
Released: 2003-11-13T00:00:00

RS21542 -- Department of Homeland Security: Issues Concerning the Establishment of Federally Funded ResearchandDevelopment Centers (FFRDCs)

Updated November 13, 2003

Background

FFRDCs are not-for-profit organizations which are financed on a sole-source basis, exclusively or substantially by an agency of thefederal government, which are not subject to Office of Personnel Management regulations. They operate as privatenon-profitcorporations, although they are subject to certain personnel and budgetary controls imposed by Congress and/or theirsponsoringagency. Each Center is administered, through a contract with the sponsoring federal agency, by either an industrialfirm, a university,or a nonprofit institution. Center personnel are not considered federal employees, but rather employees of theorganization thatmanages and operates the center. FFRDCs were established by the federal government during and immediatelyfollowing World WarII. For various reasons, the federal government was not able to attract the top scientific and technological talent dueto lower pay thanin the private sector and slow hiring procedures necessary to meet its broad R&D requirements. BecauseFFRDCs are not allowed tocompete for federal or private sector contracts, government officials have often asserted they are free from conflictof interest, and in abetter position to protect classified and/or proprietary information.

There are four categories of FFRDCs: research laboratories, R&D laboratories, study and analysis centers, and systemsengineering/systems integration centers (see table). A research laboratory is usually limited tobasic and applied research thatincludes efforts directed towards the solution of specific problems, but short of engaging in major developmentrelated activities. An R&D laboratory engages in a variety of research activities, ranging from basic and appliedresearch through the actual developmentof hardware for experimental or demonstration purposes. Study and analysis centers are involvedin analytical activities in whichvery little hardware-related laboratory research or development is carried out. These study Centers were initiallyestablished toprovide the Office of the Secretary of Defense, the three Services, and the Defense Advanced Research ProjectsAgency with help insolving organizational or operational problems. Systems engineering/systems integration (SE/SI) centers primarily provide systemsengineering, R&D systems integration, and management support for definition and development of largetechnical systems. DOD established these Centers because it lacked certain in-house capabilities in large systems development, integration,and verification.

Summary of Current FFRDCs

1. Parts of the FAA's FFRDC also are identified as a study and analysis center and a systems engineering center.

Eight federal agencies currently operate a total of 36 FFRDCs. As indicated in the table, the Department ofEnergy (DOE) and theDepartment of Defense (DOD) together sponsor 26 FFRDCs, with DOE operating 16 Centers and DOD operating10. The other 10FFRDCs are operated by the National Science Foundation (NSF), the Federal Aviation Administration (FAA), theNationalAeronautics and Space Administration (NASA), the National Institutes of Health (NIH), the Nuclear RegulatoryCommission (NRC),and the Internal Revenue Service (IRS). Of the 16 DOE FFRDCs, nine are administered by a single university ora consortium ofuniversities, three are managed by a private sector company, and four through a not-for-profit organization. DOD's10 Centers includethree R&D laboratories, five Study and Analysis Centers, and two Systems Engineering, Systems IntegrationCenters. Those 10Centers are administered by two universities and eight not-for-profit organizations.

According to the National Science Foundation, in FY2000 the federal government spent $77.4 billion on R&D, of which $6.385billion or 8.3% was obligated for FFRDCs (1) . Of the$6.385 billion spent on R&D at FFRDCs, DOE accounted for $3.897 billion or61% of total federal FFRDC expenditures. This represents 57% of DOE's total federal R&D budget of $6.063billion, in FY2000. Asa result, DOE is more reliant on FFRDCs to meet its research, development and acquisition requirements than anyother federalagency. As a matter of comparison, NASA's only FFRDC, the Jet Propulsion Laboratory, received $1.202 billionin FY2000,comprising 12.3% of the agency's $9.755 billion R&D budget. DOD's 10 FFRDCs received $783 million inFY2000, representingonly 2.4% of its RDT&E budget.

Establishing FFRDCs

The Office of Federal Procurement Policy (OFPP) Letter 84-1, and the Federal Acquisition Regulations (FAR) which implement thepolicy letter, are the two primary regulatory documents that govern the establishment of an FFRDC. (2) The purpose of the letter was toestablish government-wide policies for the establishment, utilization, and evaluation of FFRDCs. In 1990, the Officeof FederalProcurement issued regulations to implement the policy letter. (3) In general, the implementation regulations state that FFRDCs shouldnot be established unless the agency cannot accomplish the activity in-house, through other government agencies,or throughtraditional procurement procedures. The regulation also states there should be sufficient work to be performed bythe FFRDC; thatcost controls should be established to protect the government; and that the parameters of the mission of the FFRDCare spelled outclearly enough to enable the differentiation between FFRDC responsibilities and the agency's non-FFRDC work. (4)

To establish an FFRDC, an agency must follow the guidelines of the OFPP. According to the National Science Foundation, once theagency implements the OFPP guidelines, the new FFRDC should have the following characteristics: (1) its primaryactivities shouldinclude: basic research, applied research, development, or management of research and development; (2) it is aseparate operationalunit within the parent organization or is organized as a separately incorporated organization; (3) it performs actualR&D or R&Dmanagement either upon direct request of the federal government or under a broad charter from the federalgovernment, but in eithercase under direct monitoring by the federal government; (4) it receives its major financial support (70% or more)from the federalgovernment, usually from one agency; (5) it has, or is expected to have, a long-term relationship with its sponsoringagency (usually 5years, with a review of the center's progress conducted by the sponsoring agency during the third year of theagreement); (6) most orall of its facilities are owned by, or are funded under contract with, the federal government, (7) it has an averageannual budget(operating and capital equipment) of at least $500,000; and (8) when renewing the sole-source contract, thesponsoring agency isrequired to determine if it still needs to sponsor an FFRDC or if the work could be done in a federal facility, orthrough a traditionalprivate sector contract. (5)

To minimize conflicts of interest, Centers are established as not-for-profit entities that cannot compete with for-profit companies foradditional government contracts and are not allowed to produce and market commercial products. As a result,government officialsargue that FFRDCs are allowed access to key government officials and highly sensitive data from industry andgovernment sources.Such privileged access enables the Centers to address complex long-term problems with a high degree of objectivitybased on theirrestrictions concerning selling products to the government, or joining forces with those who do, while remainingoutside of thegovernment itself. While Centers are not-for-profit entities, they are allowed to charge the government fees aboveand beyond thecost of carrying out their responsibilities. Some Centers charge fees to cover ordinary and necessary costs of doingbusiness that arenot otherwise reimbursable, but that the government recognizes must be incurred. These fees can also be used byan FFRDC toconduct independent research. The FAR acknowledges the legitimacy of such fees. (6)

DHS FFRDCs

Within Title III, Science and Technology in Support of Homeland Security, of the Homeland Security Act ( P.L.107-296 ) there are twoprovisions that call for the establishment of FFRDCs. Section 305 of the Act states that "the Secretary, actingthrough theUndersecretary for Science and Technology, may establish or contract with one or more FFRDCs to carry out otherresponsibilities ofthe Act, including the coordination and integration of the agency's extramural and intermural research programs." (7) Section 312directs the Secretary of DHS to establish an FFRDC known as the Homeland Security Institute. According to thelegislation, theInstitute, among other things, "should conduct systems analysis, risk analysis, and simulation and modeling todeterminevulnerability of the Nation's critical infrastructure." (8) However, the legislation also states that "the Institute shall terminate threeyears after the effective date of this Act." Some have raised concerns that this provision could make it difficult forDHS to recruit thebest people for this Center.

This legislative language provides the Secretary of Homeland Security with the authority the agency needs to establish multipleFFRDCs, as long as the Department complies with OFPP Letter 84-1, and the implementing FAR 35.017-2. Oncethese requirementshave been met, the DHS can develop a request for proposals to establish one or more FFRDCs. It should be notedthat theCompetition in Contracting Act (CICA) permits the government to use sole-source procedures to establish or sustainan FFRDC.Proponents of this practice contend this allows the government to select the highest quality bid, rather than thelowest cost bid thatapplies to traditional federal procurement actions. However, to help control costs, Congress can set ceilings on thetotal annualspending and/or established personnel levels for the Center. In addition to universities and private sector firms,existing FFRDCs canalso compete to operate and manage a DHS sponsored FFRDC, if the mission of the proposed FFRDCis similar to the existingFFRDC. FFRDCs operate under a five year contract, with a review of the Center's performance by the sponsoringagency after thethird year of operation. This review is to determine if the FFRDC should be renewed for another 5 years,re-competed as an FFRDC,abolished, or decertified as an FFRDC while continuing to operate as an independent nonprofit organization.

Once the DHS selects the organization that will administer and operate an FFRDC, the Board of Trustees for the FFRDC willestablish operating procedures, and select the Director of the FFRDC. (9) While the sponsoring agency has some input in the selectionof the Center's Director, the Board of Trustees is ultimately responsible for selecting the Director of the FFRDC.The Director is thenresponsible for hiring the remainder of the Center's personnel who, like the Director, are employees of theorganization that operatesthe FFRDC, not the sponsoring federal agency. The primary objective of this unique arrangement between thesponsoring agency andthe Center is to help ensure the independence of the Center while concomitantly establishing a long-term, closepartnershiprelationship, as opposed to the "arms length" required with for-profit federal contracts. Further, the personnelpolicies allow theFFRDC to rapidly employ, if necessary, new scientific and technical expertise that are difficult to recruit, sustain,and manage throughthe federal civil service system. (10)

Potential Congressional Issues

For many years FFRDCs have attracted the attention of Congress. In their early years of operation, Congress' primary concernsregarding FFRDCs centered around the growing number of Centers, cost to the government, insulation from thecompetitiveenvironment, and the quality of products. More recently, congressional concerns have focused on the continuingneed for FFRDCs,diversification into areas beyond the Centers' original mission, and each sponsoring agency's oversight of itsFFRDC's activities.

Public sector advocacy groups, such as the Professional Services Council (PSC), have pointed out that the nation's scientific,engineering, and technological capabilities have increased dramatically since FFRDCs were first introduced in thelate 1940s.Specifically, PSC contends that, given that the private sector has developed significant capabilities to perform studies and analysisand systems-engineering and integration work, it seems logical that this work could be performed in the privatesector. However,proponents of FFRDCs argue that the responsibility of the proposed DHS FFRDC includes "the coordination andintegration of theagency's extramural and intermural research programs" which they contend is ideal, since FFRDCs are not allowedto compete forfederal contracts and are not allowed to develop commercial products. Finally it is unlikely that any of the DHSFFRDCs will beperforming systems integration activities.

With the end of the Cold War and declining DOD R&D budgets, observers in the private and public sectors are concerned thatFFRDCs might have diversified into areas beyond their originally defined missions. Some individuals inside andoutside of Congressassert that this has already happened. Representatives from the PSC have also argued that these Centers havereceived a number ofcontracts from various federal agencies for which private service companies had originally competed. However,representatives fromDOD and DOE have indicated that their respective FFRDCs have been asked to develop definitions of their corework for eachCenter. As a result of this exercise each agency has identified work that could be competed through a traditionalprocurement process. (11)

Some Members of Congress have expressed concerns about the adequacy of the oversight of many FFRDCs. In a General AccountingOffice (GAO) report, prepared for the House Appropriations Subcommittee on Energy and Water, GAO stated that"Despite DOE'smany reforms, our review of more than 200 audit and consulting reports issued since 1995 reveals that thedepartment has persistentmanagement weaknesses that have led directly to a wide range of performance problems, including major costoverruns and scheduledelays in a variety of noteworthy projects." (12) Tocontrol cost and maintain mission focus at DOD's FFRDCs, Congress continues tomandate employee ceiling levels for each DOD Center. While these are legitimate congressional concerns, it isimportant to note thatDOD and DOE FFRDCs employ thousands of people and have budgets in the hundreds of millions of dollars. Incontrast, DHSFFRDCs are likely to be smaller Centers with initial employment levels ranging from 50-100 people, along with budgets rangingfrom $15 million to $30 million.