When does FAR 31.205-18 apply?

Is the contractor incurring technical or proposal-preparation effort that is not specifically required by an awarded contract? If yes, IR&D and/or B&P treatment is in scope. Map the effort to a documented IR&D project or B&P opportunity at the time the work is performed, not after the fact. Does the contractor exceed the DFARS 231.205-18 major-contractor threshold? If yes, DTIC reporting and technical-interchange obligations apply and IR&D allowability is conditioned on meeting them. Confirm the current threshold in DFARS; it has been adjusted over time. Is the IR&D or B&P effort accumulated in a separate, documented project structure? Allowability requires the costs to be identifiable. Lump-sum IR&D or B&P with no project breakout fails the documentation test even if the underlying work would qualify.

What are the most common contractor pitfalls under FAR 31.205-18?

Charging contract-required technical effort as IR&D: If the work is required to perform a contract, it is not IR&D, full stop. Reclassifying contract effort to IR&D to dodge a cost overrun is a clean unallowability and an FCA risk if it appears on a billing invoice. Treating routine sales activity as B&P: Customer relationship management, generic capability briefings, and sales travel that is not tied to a specific bid or proposal opportunity are selling costs under 31.205-38, often partly unallowable. B&P requires a specific identified opportunity. Missing DTIC reporting deadlines as a major contractor: For DFARS-threshold contractors, missed or late DTIC reporting renders the IR&D unallowable for the fiscal year. The compliance cost of reporting is small; the cost of forfeited IR&D allowability is large. IR&D project descriptions that are too vague to defend: Project descriptions like "advanced communications research" without scope, objectives, milestones, and labor hours are insufficient. DCAA expects a documented IR&D plan and contemporaneous progress evidence.

What audit-flag patterns are associated with FAR 31.205-18?

Auditors and contracting officers commonly flag: IR&D project labor hours overlapping with billed contract labor for the same employee on the same day; B&P costs continuing past the proposal submission date or after award; IR&D total swings year over year without corresponding business activity changes; Project descriptions that copy verbatim from prior years without progress documentation; Major contractor with no DTIC report in the fiscal year; B&P effort booked against opportunities that never produced a submitted proposal.

FAR

FAR 31.205-18 — Independent research and development and bid and proposal costs

Allows IR&D and B&P costs as indirect costs subject to specific definitions, documentation requirements, and (for major DoD contractors) reporting and technical-interchange obligations under DFARS 231.205-18.

Citation: 48 C.F.R. § 31.205-18 · Live text on acquisition.gov · eCFR

What this clause does

FAR 31.205-18 defines and authorizes recovery of two important indirect cost categories. Independent research and development (IR&D) is contractor-initiated technical effort that is not sponsored by, required by, or in performance of a contract or grant. Bid and proposal (B&P) costs are the costs of preparing, submitting, and supporting bids and proposals for prospective government and commercial contracts. Both categories are allowable as indirect costs when they meet the definitional tests and are properly accumulated.

The definitional tests are strict. IR&D excludes effort required for performance of a contract, technical effort sold as a deliverable to a customer, and effort that produces a clearly identifiable product or service for sale. B&P excludes contract-specific effort under an awarded contract and routine sales activity. Costs that fail the definition are not just reclassified; they may be unallowable entirely if they fall under 31.205-1 (selling) or another exclusion.

For major DoD contractors (those above the DFARS 231.205-18 threshold), additional reporting obligations apply. They must report planned and completed IR&D projects to DTIC and engage in periodic technical interchange with DoD technical personnel. Failure to meet the reporting obligations renders the IR&D unallowable for that fiscal year. Smaller contractors are not subject to the DTIC reporting but are subject to the same definitional and documentation requirements for allowability.

Does this clause apply to my contract?

Three tests resolve applicability. Read each in order; the first "no" usually means the clause does not flow.

1.Is the contractor incurring technical or proposal-preparation effort that is not specifically required by an awarded contract?
If yes, IR&D and/or B&P treatment is in scope. Map the effort to a documented IR&D project or B&P opportunity at the time the work is performed, not after the fact.
2.Does the contractor exceed the DFARS 231.205-18 major-contractor threshold?
If yes, DTIC reporting and technical-interchange obligations apply and IR&D allowability is conditioned on meeting them. Confirm the current threshold in DFARS; it has been adjusted over time.
3.Is the IR&D or B&P effort accumulated in a separate, documented project structure?
Allowability requires the costs to be identifiable. Lump-sum IR&D or B&P with no project breakout fails the documentation test even if the underlying work would qualify.

Common contractor pitfalls

Patterns that produce questioned costs, back-wage liability, or False Claims Act exposure under this clause.

Charging contract-required technical effort as IR&D
If the work is required to perform a contract, it is not IR&D, full stop. Reclassifying contract effort to IR&D to dodge a cost overrun is a clean unallowability and an FCA risk if it appears on a billing invoice.
Treating routine sales activity as B&P
Customer relationship management, generic capability briefings, and sales travel that is not tied to a specific bid or proposal opportunity are selling costs under 31.205-38, often partly unallowable. B&P requires a specific identified opportunity.
Missing DTIC reporting deadlines as a major contractor
For DFARS-threshold contractors, missed or late DTIC reporting renders the IR&D unallowable for the fiscal year. The compliance cost of reporting is small; the cost of forfeited IR&D allowability is large.
IR&D project descriptions that are too vague to defend
Project descriptions like "advanced communications research" without scope, objectives, milestones, and labor hours are insufficient. DCAA expects a documented IR&D plan and contemporaneous progress evidence.

Audit-flag patterns

Specific signals that contracting officers, DCAA, and agency IGs use to surface noncompliance.

IR&D project labor hours overlapping with billed contract labor for the same employee on the same day
B&P costs continuing past the proposal submission date or after award
IR&D total swings year over year without corresponding business activity changes
Project descriptions that copy verbatim from prior years without progress documentation
Major contractor with no DTIC report in the fiscal year
B&P effort booked against opportunities that never produced a submitted proposal

How FieldLedger helps

FieldLedger's signed timekeeping captures IR&D and B&P time at the project level with documented project descriptions. The Indirect Rate Engine separates the IR&D and B&P pools from contract-direct labor and produces the labor breakouts needed for DTIC reporting and the Incurred Cost Submission.

DCAA compliance →Indirect Rate Engine →DCAA readiness check →

Related clauses

Clauses that flow alongside or interact with FAR 31.205-18.

Frequently asked

What does FAR 31.205-18 require?: Allows IR&D and B&P costs as indirect costs subject to specific definitions, documentation requirements, and (for major DoD contractors) reporting and technical-interchange obligations under DFARS 231.205-18.
When does FAR 31.205-18 apply?: Is the contractor incurring technical or proposal-preparation effort that is not specifically required by an awarded contract? If yes, IR&D and/or B&P treatment is in scope. Map the effort to a documented IR&D project or B&P opportunity at the time the work is performed, not after the fact. Does the contractor exceed the DFARS 231.205-18 major-contractor threshold? If yes, DTIC reporting and technical-interchange obligations apply and IR&D allowability is conditioned on meeting them. Confirm the current threshold in DFARS; it has been adjusted over time. Is the IR&D or B&P effort accumulated in a separate, documented project structure? Allowability requires the costs to be identifiable. Lump-sum IR&D or B&P with no project breakout fails the documentation test even if the underlying work would qualify.
What are the most common contractor pitfalls under FAR 31.205-18?: Charging contract-required technical effort as IR&D: If the work is required to perform a contract, it is not IR&D, full stop. Reclassifying contract effort to IR&D to dodge a cost overrun is a clean unallowability and an FCA risk if it appears on a billing invoice. Treating routine sales activity as B&P: Customer relationship management, generic capability briefings, and sales travel that is not tied to a specific bid or proposal opportunity are selling costs under 31.205-38, often partly unallowable. B&P requires a specific identified opportunity. Missing DTIC reporting deadlines as a major contractor: For DFARS-threshold contractors, missed or late DTIC reporting renders the IR&D unallowable for the fiscal year. The compliance cost of reporting is small; the cost of forfeited IR&D allowability is large. IR&D project descriptions that are too vague to defend: Project descriptions like "advanced communications research" without scope, objectives, milestones, and labor hours are insufficient. DCAA expects a documented IR&D plan and contemporaneous progress evidence.
What audit-flag patterns are associated with FAR 31.205-18?: Auditors and contracting officers commonly flag: IR&D project labor hours overlapping with billed contract labor for the same employee on the same day; B&P costs continuing past the proposal submission date or after award; IR&D total swings year over year without corresponding business activity changes; Project descriptions that copy verbatim from prior years without progress documentation; Major contractor with no DTIC report in the fiscal year; B&P effort booked against opportunities that never produced a submitted proposal.
How does FieldLedger help with FAR 31.205-18?: FieldLedger's signed timekeeping captures IR&D and B&P time at the project level with documented project descriptions. The Indirect Rate Engine separates the IR&D and B&P pools from contract-direct labor and produces the labor breakouts needed for DTIC reporting and the Incurred Cost Submission.

Sources

FAR clause text — acquisition.gov/far/31.205-18
Live regulatory text — eCFR (Title 48)
DCAA Contract Audit Manual — dcaa.mil/Guidance/CAM
Plain-English methodology — FieldLedger methodology

Snapshot date: 2026-05-08. Clause text is binding only as of the version incorporated into your specific contract — check acquisition.gov for the live regulatory text.