What qualifies as “Developed at Private Expense?”

Say a contractor develops noncommercial computer software, claims to have done so “exclusively at private expense” by charging those costs into it’s indirect cost pool.  That indirect cost pool is then arguably covered by the government under approved billing rates allocated over various contracts.

Given this then contractor then claims Restricted Rights to that software.  Is it allowable to then charge the government a recurring license fee for use of that software on future contracts?

I believe the answer is, “Yes.”  Contractors are allowed to have R&D/IRAD (research and development) as an allowable cost  as part of the G&A pool.  Developing a product or software utilitizing IRAD dollars and later charging the government for the product or license is acceptable.

Where most companies get in trouble with IRAD and government contracts is starting a development on IRAD and finishing it on a government contract – that will get you into trouble.  If something is a requirement of the government contract, it needs to be complete and finished on the IRAD before being sold to the government.  There is gray area in the middle where those two meet – when you get a government contract before the IRAD development is complete – that requires a completely separate dissertation.

All of these is directly related to intellectual property, so make sure you keep good documentation on your IRAD efforts.  I recommend an IRAD project approval form that includes a description, dates, and signatures.  When it’s all complete, prepare a summary that includes account numbers, dollars, dates, pictures, trademarks, patents, etc.  In other words, put together a nice little package of information that would support your claim for when it was developed and who paid.

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