This Subtopic provides guidance to government contractors related to identifying research and development activities included in government contracts and the accounting for such activities.
Contractors may enter into contractual arrangements in which the customer agrees to share the estimated costs of certain research and development activities, for example, the development of a prototype for new or advanced weapons systems. In arrangements to perform on a best-efforts basis, the contractor benefits from both lower net research and development costs and the retention of rights to the research and development results. The knowledge gained from such research and development activities may be used by the contractor in future production activities, including follow-on contracts for full-scale production of products based on the prototypes or models developed during the research and development phase. At the same time, the customer benefits from the arrangement by receiving a nonexclusive right to the results of the research and development effort. Consequently, the customer is able to encourage the contractor to focus its research and development efforts on activities important to the customer's long-range, strategic objectives in areas such as national defense.