1. POSITION PAPER #3
Tony Mackey
Pursuing Federal Government
R&D
Engagements
Rev. A: January 2015
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Copyright 2015
All rights reserved

2. POSITION PAPER #3
Tony Mackey
Brief Background Summary
As of a few years ago, the Federal Government employed over twenty (20) different types of contractual instruments
to purchase goods and services from businesses, as well as to provide financial assistance to states and local
governments, territories and possessions, Indian Tribal Governments, hospitals, schools, non-profit research
institutes, and private individuals. The Government’s creation of the Grant in 1860, and its subsequent use prior to the
1970’s, was not for the purpose of assisting private industry, as it is used today. Current federal legal practice treats
for-profit corporations as individuals or persons.
Table 1.0: Types of Contracts and Agreements Used by U.S. Government
PROCUREMENT INSTRUMENTS
“CONTRACTS”
NON-PROCUREMENT INSTRUMENTS
“ASSISTANCE AGREEMENTS”
Basic Ordering Agreements GRANTS
Commercial Products Contracts *
Cost Plus Award Fee Contracts
Cost Plus Fixed Fee Contracts*** COOPERATIVE AGREEMENTS
Cost Plus Incentive Fee and Re-
determinable Contracts
Cost Sharing Contracts
Firm Fixed Price Contracts OTHER TRANSACTION AGREEMENTS
Fixed Price with Economic Price
Adjustment Contracts
Fixed Price Incentive Contracts OTAs for Research w/Paper Reports as
Deliverables
Fixed Price Re-determinable Contracts
Firm Fixed Price, Level-of-Effort Term
Contracts
OTAs for Research w/Paper Reports and
Prototypes as Deliverables
Indefinite Delivery Type Contracts
Time and Materials Contracts
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3. POSITION PAPER #3
Tony Mackey
BRIEF DESCRIPTIONS OF MAJOR TYPES OF CONTRACTS AND AGREEMENTS USED
1.0 FIXED-PRICE CONTRACTS:
Firm-Fixed Price contracts are used when a fair and reasonable price can be established at the outset. The Government
pays the negotiated amount regardless of the contractor’s real cost. This contract type is preferred to all others because it
encourages the contractor to contain costs.
Fixed-Price/Level-of-Effort contracts are used to purchase a specified level of effort over a stated period of time. This
type of contract is not considered a predominant contract type.
U.S. Government “Commercial” Contracts are Firm-Fixed Price contracts that are used as a result of the Federal
Acquisition Streamlining Act of 1994. Commercial contracts rely on the contractors’ existing quality assurance system
as a substitute for Government in-process inspection and testing when the Government is purchasing commercial
products or services. This is a type of contract that Corporate Federal Business Units use to sell many billions
of dollars of products and services annually to the federal government
2.0 COST REIMBURSEMENT CONTRACTS:
Cost-Plus-Fixed-Fee contracts are used when there are enough uncertainties involved in contract performance to
preclude using a fixed price contract. This type of contract requires an accounting and financial systems audit by DCAA, in
addition to continuous surveillance of these systems by DCAA.
Cost Sharing contracts are used when the Government pays only a portion of the allowable costs and no fee. This kind
of contract is used for R&D work from which the contractor will derive a substantial commercial benefit; such as, the
development of Teflon. The contract version of the cost sharing feature includes all of the negative attributes of the Cost-
Plus-Fixed Fee contract.
3.0 NON-PROCUREMENT “INSTRUMENTS” OR ASSISTANCE AGREEMENTS
Non-Procurement instruments or Assistant Agreements fall into three basic types: grants, cooperative agreements, and
other transactions.
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4. POSITION PAPER #3
Tony Mackey
Grants and Cooperative Agreements are used when the principal purpose of the relationship is to transfer a thing of
value to the recipient in order to carry out a public purpose of support or stimulation, as authorized by US law, as contrast
with contracts which usually involve the acquisition of property or services for the direct benefit or use of the
Government.
Grants are to be used when no substantial involvement between the Government Agency and the recipient is expected
when carrying out the activity contemplated in the agreement.
Cooperative Agreements are used when substantial involvement is expected between the Government Agency and
the recipient when carrying out the contemplated activity.
Grants and Cooperative Agreements are legal instruments but they are not contracts and they are not subject to the
Federal Acquisition Regulations. Grants and Cooperative Agreements do have audit requirements applied to their
recipients. However, the Actual Payroll Salary Method for budgeting researcher labor costs for Grant and
Cooperative Agreement proposals, and the time-keeping practices established for Other Transaction
Agreements restrict the scope of any audit to a review of redacted Earnings Statements and signed time sheets for
individual employees who are performing the research.
Other Transaction Agreements (OTAs) were authorized Public Law 10 U.S.C. 2371 provides the DOD, DOE, DHS,
DOT, FAA, (TSA), and NASA authority to enter into transactions (other than contracts, cooperative agreements and grants)
for certain projects. Consequently, other transactions are defined by what they are not, rather than what they are. Any
instrument that is not a contract, cooperative agreement, or grant is considered an "other transaction". The two types of
other transactions are OTAs for research and OTAs for prototype development.
Other Transactions for Research are authorized by the basic 10 U.S.C. 2371 authority for basic, applied, and advanced
research projects. This type of other transaction is generally used to provide support or stimulation (i.e., "assistance") and
is commonly referred to as an other transaction for research, or a 10 U.S.C. 2371 other transaction. The creation of Other
Transaction Authority and organizational changes in DARPA was originally recommended by the Packard Blue Ribbon
Commission in 1987. Congress originally granted the Authority to DARPA in 1989.
Other Transactions for Prototypes are also authorized by 10 U.S.C. 2371, and are referred to as Section 845 OTs,
because of the section in the law that contained the authorization. Section 845 OTs are for prototype projects directly
relevant to weapons or weapon systems proposed to be acquired or developed by the DOD. (DOD determines their
relevancy).
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5. POSITION PAPER #3
Tony Mackey
Technology Investment Agreements (TIAs) are a class of assistance instruments that may be used to carry out
basic, applied, and advance research projects when the research is to be performed by a for-profit firm, or by consortia
that include a for-profit firm. A TIA is a type of other transaction (awarded under the authority of 10 U.S.C. 2371) when its
patent rights provision is less restrictive than is possible under Bayh-Dole.
4.0 The Custom Solution for Commercial Product Labs
The Federal Government has a strong bias towards using Cost-Reimbursement type contracts to fund R&D. This bias is
in their DNA and is the primary reason that companies like IBM, Boeing, Lockheed, and others typically obtain hundreds
of millions of dollars to conduct Government-sponsored R&D. These companies have had accounting systems designed
to comply with Cost-Reimbursement Contracting rules and regulations since the 1950’s.
The solution for obtaining federal funding for R&D at Commercial Product Labs is a complex brew. It
combines certain elements borrowed from:
a) Firm Fixed-Price Contracts, (compliant with Commercial Contract rules to avoid DCCA audit requirements);
b) Cost Sharing Contracts, (to qualify for OTAs & obtain preferable IP rights);
c) Commercial Contracts, (published labor rates on an external website to establish commerciality & qualify for exemption
from DCAA audit requirements);
d) Cost Plus Fixed Fee Contract, (Actual Payroll Salary Method to qualify for grants/cooperative agreement); and
e) Payable Milestone Schedules, (in order to mimic payable deliverables and invoicing rules of Firm Fixed-Price Contracts
and get paid for the R&D work by delivering paper reports).
All of these elements combine to make the Government-sponsored R&D model work for Commercial Product
Labs. It begins with structuring cost proposals in such a way as to be compliant with the rules and regulations within
the context of the exemptions they provide. Oftentimes, the exemptions associated with this approach must be brought
to the Contracting Officers’ attention, since they often ignore the exemptions because of their preoccupation with the
Cost-Reimbursement Contract bias for R&D funding.
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6. POSITION PAPER #3
Tony Mackey
Table 2.0: “At-a-Glance” Matrix of Relationships
Distinctions Among
Business Arrangements
Government
Contract
Grant/
Cooperative
Agreement
Cooperative
R&D
Agreement
(CRADA)
Other
Transactions
for Prototype
Projects
Technology Investment
Agreement
Principal purpose Acquisition Assistance R&D Acquisition Assistance
Funding Full or partial
funding
Full or partial
funding
Shared between
partners
Full or partial
funding
Full or partial funding
Involvement level of
government Oversight only
Substantial
for
cooperative
agreements
Partnership
with CRADA
partner
Substantial
oversight and
partnering with
industry
Substantial oversight and
partnering with industry
Typical product Deliverable end
product
Research
reports
Varies Deliverable end
product
Research reports
Typical
recipient
Traditional for-
profit
government
contractor
Educational
or
nonprofit
institution
Industry, other
government
agencies,
universities
Traditional
government
contractor with
significant
involvement by
nontraditional
for-profit
commercial
company
Traditional
government contractor with
significant involvement by
nontraditional for-profit
commercial company
Solicitation
methods
Request for
proposal, broad
agency
announcement,
unsolicited
proposal
Broad agency
announcement,
research
announcement,
unsolicited
proposal
Selection by
agency
Broad agency
announcement,
research
announcement,
program
solicitation,
unsolicited
proposal
Broad agency
announcement, research
announcement, unsolicited
proposal
References:
1. FAR 16.207, Firm-Fixed-Price, Level-of-Effort Term Contracts.
2. FAR 32.700, Contract Funding.
3. FAR Part 2, Commercial Item Definition
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7. POSITION PAPER #3
Tony Mackey
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4. FAR Part 12, DFARS Part 212, Acquisition of Commercial Items
5. DoD 3210.6-R, Department of Defense Grants Regulations
6. DCMA Guidebook for Commercial Contracting.
7. Section 845 Other Transaction Authority
8. Guidance on Technology Investment Agreements, General Discussion
9. Defense Grant and Agreement Circular 94-7
10. Department of Defense Grant and Agreement Regulations (DoDGARS)
11. 10 U.S.C. 2371: Other Transaction Authority
12. DoD Other Transactions Guide for Prototype Projects