Federally Funded R&D Centers

Use of Contract Fee by The Aerospace Corporation Gao ID: NSIAD-95-174 September 28, 1995

Such centers a private sector organization funded primarily by federal agencies to meet special long-term research and development needs that cannot be met as efficiently in-house or through existing contractors. The Aerospace Corporation is a private, nonprofit mutual benefit corporation created in 1960. Its main objective is to provide scientific and engineering support for the U.S. military space program. This report reviews how The Aerospace Corporation used a $15.5 million contract fee provided by the Air Force in fiscal year 1993 to operate a federally funded research and development center. GAO also reviews the regulatory requirements governing the determination and use of this fee. Enhanced Fiber Optic Guided Missile: Need to Define Requirements and Establish Criteria to Assess Performance.

GAO found that: (1) Aerospace spent $11.5 million, or 74 percent, of its $15.5-million fee for research; (2) Aerospace spent the remaining $4 million for capital equipment purchases, real and leasehold property improvements, and unreimbursed expenses; (3) even though the Air Force and Aerospace discuss Aerospace's specific fee needs and intended use as a basis for fee award, the contract contains the total fee amount; (4) once the Air Force awards the fee, Aerospace exercises some discretion over how to spend it and other sources of corporate funds, such as interest income and fee from other contracts; (5) the manner in which Aerospace spends its corporate funds in a given year can affect how much Air Force fee is needed in the following year; (6) in May 1995, the Department of Defense (DOD) issued a report to the Congress on fee management at defense FFRDCs; (7) the report focused on ways to limit the use of fee and recommended, among other things, that: (a) defense FFRDC fee amounts be based on the contracting officer's determination of fee need and not on the application of weighted guidelines; (b) all allowable and allocable costs be moved from fee to the cost reimbursement portion of the contract; and (c) guidance be developed regarding what costs are to be considered ordinary and necessary to the operation of an FFRDC; and (8) DOD has indicated that it is working to improve the fee management process based on these recommendations, as well as the most recent GAO and DOD Inspector General work on this issue.

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