Need for Improved Guidelines in Contracting for Research With Government-Sponsored Nonprofit Contractors

On April 30, 1962, the President transmitted to the Congress a report entitled "Government Contracting for Research and Development." Subsequently extensive hearings were held by the House Government Operations Committee. The subject was and continues to be highly important.

Research and development expenditures in 1962 totaled $10.3 billion; 80 percent was administered through non-Federal Government organizations. For 1969 the total is estimated to be $17.3 billion; the ratio expended by non-Federal and Federal organizations is about the same.

GAO has reviewed one of the more difficult and controversial elements in the 1962 report: the purpose, amount, and use of the "fee" or management allowance provided for sponsored, nonprofit organizations. Total expenditures for fees--to the extent of about $9 million annually--is less important than the question: have the purpose of the fee and the 1962 guidelines been carried out?

GAO concluded that the purpose established for the fee in 1962 has not been accomplished satisfactorily and the fee has not been administered in accordance with the 1962 guidelines.

GAO found that the allowances paid to nonprofit organizations and the bases used for determining those allowances varied significantly among Government agencies. In some, they were being accumulated to permit diversification into new fields. Allowances were not being used to an appreciable degree to conduct independent research.

The issue of the purpose, amount, and use of the fee, in GAO's opinion, is a major one--although only one of several--in defining the appropriate role of the Government-sponsored nonprofit organizations.

GAO noted, for example, that no action has been taken with respect to one important recommendation in the 1962 Presidential report: that consideration be given to the establishment of Government "Institutes." The proposal envisioned that these institutes, although subject to the supervision of a Cabinet officer or agency head, would be "a separate corporate entity directly managed by its own board of regents" and would "enjoy a considerable degree of independence in the conduct of its internal affairs." The objective would be to provide for in-house research and development programs and needed flexibility while retaining "effective public accountability and control."