Understanding Major Systems and Research & Development Contracting FAR Parts 34 and 35

Major systems contracting and research and development (R&D) contracting play a crucial role in both national defense and innovation, whether for visible high-tech systems or for the essential improvements and upkeep of existing capabilities. These forms of contracting are governed by FAR Parts 34 and 35, which set out the policies and procedures for acquiring major systems and conducting R&D activities.

A "major system" is defined as a combination of elements that work together to fulfill a mission need, and often involves significant resource allocation and complex oversight requirements. According to the Office of Management and Budget’s Circular A-109, major system acquisition procedures are applied to programs that are critical to an agency’s mission, require substantial resources, and are complex enough to necessitate special management attention. These systems are not limited to flashy, high-profile projects but include more mundane, yet equally essential, efforts to improve existing systems and maintain those already in place.

FAR Part 34 outlines three different ways a system can be designated as major, with specific dollar thresholds that must be met. These thresholds determine when specialized acquisition procedures are necessary, ensuring that the government handles these large and complex procurements in the most economical, timely, and effective manner possible. However, the regulations do not prescribe specific procedures for major system acquisition. Instead, they outline desired outcomes and leave it to the heads of agencies to design the details of how these acquisitions are managed. This flexibility allows for tailoring to the specific needs and risks associated with each major system procurement.

A key role in the management of major system acquisitions is the program manager (PM), who develops acquisition strategies and works closely with contracting officers (COs) to implement those strategies. One of the most important tasks for PMs is to promote competition in major system acquisitions, ensuring that the government is not tied to a single provider and can choose from a range of technical solutions offered by potential contractors. Solicitations for major system acquisitions are typically designed to describe the government’s needs in broad technical and programmatic terms, encouraging contractors to offer innovative solutions rather than specifying exact systems.

Major system acquisitions usually proceed through four distinct phases: concept exploration, demonstration/validation, full-scale development, and full production. These phases can be handled through separate contracts, which promotes competition and allows for more flexible management of the procurement process. To ensure that these large projects are completed efficiently and within budget, the government requires the use of Earned Value Management Systems (EVMS) during the development phase. EVMS integrates project scope, cost, schedule, and performance to provide both the government and contractors with a clear understanding of the project's progress and any potential risks.

In cases where contractors do not already have an EVMS in place or have a system that does not meet the government’s standards, they are still eligible to submit proposals for major system acquisitions. However, they must submit a plan for complying with EVMS requirements by the time of the contract award. This ensures that all contractors adhere to the rigorous standards needed to manage these complex projects effectively. To verify that the proposed EVMS is adequate, the government conducts an Integrated Baseline Review (IBR) jointly with the contractor. The IBR assesses the realism of project schedules, budgets, and risks, and ensures that both the government and contractor are aligned on performance goals.

Research and development (R&D) contracting, governed by FAR Part 35, presents a different set of challenges compared to standard supply or service contracts. The primary goal of R&D contracting is to advance scientific and technical knowledge, which is inherently uncertain and difficult to define in advance. Unlike traditional contracts, where specific outcomes are described and agreed upon, R&D contracts often involve ongoing exploration and experimentation. For this reason, the government rarely uses fixed-price contracts for R&D work, as it is nearly impossible to predict how long it will take or how much it will cost to achieve the desired results.

The government must also take extra care when publicizing R&D requirements. While it is essential to promote competition in R&D contracting, the specialized nature of the work often means that only a small number of contractors are technically qualified to perform the required tasks. Therefore, the government frequently targets solicitations to contractors with proven expertise in the relevant scientific or technical fields. Proposals for R&D contracts are evaluated primarily on the basis of the contractor’s technical approach, innovation, and experience, rather than on specific production or service deliverables.

A key component of successful R&D contracting is the statement of work (SOW), which must strike a balance between providing clear direction to the contractor and allowing flexibility for innovation. Basic research contracts emphasize knowledge acquisition, while applied research contracts focus on exploiting scientific discoveries to advance technology. The government may also use Broad Agency Announcements (BAAs) for more general scientific study and experimentation not tied to specific system development. BAAs allow for a broader range of proposals and often foster new scientific ideas and approaches.

In some cases, the government contracts with specific types of organizations for R&D, such as universities, nonprofit organizations, and Federally Funded Research and Development Centers (FFRDCs). FFRDCs are established when long-term research or development needs cannot be met through traditional contracting. These centers, often affiliated with universities or other nonprofit institutions, provide independent verification and validation of major systems, helping to ensure that the government receives objective advice without conflicts of interest.

While R&D contracts differ significantly from standard government contracts, their administration is largely similar once they are awarded. Contractors are required to submit scientific and technical reports detailing the progress and results of their work, and subcontracting of scientific or technical tasks requires the prior approval of the contracting officer. These requirements help to ensure that the government maintains control over the technical and scientific aspects of the contract while fostering collaboration with highly qualified contractors.

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