Department of Homeland Security: Issues Concerning the Establishment of Federally Funded Research and Development Centers (FFRDCs)
CRS Report for Congress
Department of Homeland Security: Issues
Concerning the Establishment of Federally
Funded Research and Development
Centers (FFRDCs)
Michael E. Davey
Specialist in Science and Technology
Resources, Science, and Industry Division
Summary
Federally Funded Research and Development Centers (FFRDCs) were first
established during World War II to provide specific defense research and development
(R&D) capabilities that were not readily available within the federal government or the
private sector. The federal government currently operates 36 FFRDCs. Title III of the
Department Homeland Security (DHS) Act (P.L.107-296) calls for the creation of one
or more FFRDCs , including a Homeland Security Institute. On September 10th, the
DHS released a “Sources Sought” notice requesting that contractors indicate their
interest in competing to operate an FFRDC for DHS. Those responding must include a
400 words, or less, qualification statement by October 30th. DHS plans to release a
formal request for proposal, for the FFRDC, before the end of this year. In the past
several years, some congressional and non-congressional critics have questioned the use
of FFRDCs, including the continuing need for such Centers, diversification into areas
beyond the Centers' original missions, and oversight of each FFRDC's activities by its
sponsoring agency. This report will be updated to reflect most recent events.
Background
FFRDCs are not-for-profit organizations which are financed on a sole-source basis,
exclusively or substantially by an agency of the federal government, which are not subject
to Office of Personnel Management regulations. They operate as private non-profit
corporations, although they are subject to certain personnel and budgetary controls
imposed by Congress and/or their sponsoring agency. Each Center is administered,
through a contract with the sponsoring federal agency, by either an industrial firm, a
university, or a nonprofit institution. Center personnel are not considered federal
employees, but rather employees of the organization that manages and operates the center.
FFRDCs were established by the federal government during and immediately following
World War II. For various reasons, the federal government was not able to attract the top
Congressional Research Service ˜ The Library of Congress
scientific and technological talent due to lower pay than in the private sector and slow
hiring procedures necessary to meet its broad R&D requirements. Because FFRDCs are
not allowed to compete for federal or private sector contracts, government officials have
often asserted they are free from conflict of interest, and in a better position to protect
classified and/or proprietary information.
There are four categories of FFRDCs: research laboratories, R&D laboratories, study
and analysis centers, and systems engineering/systems integration centers (see table). A
research laboratory is usually limited to basic and applied research that includes efforts
directed towards the solution of specific problems, but short of engaging in major
development related activities. An R&D laboratory engages in a variety of research
activities, ranging from basic and applied research through the actual development of
hardware for experimental or demonstration purposes. Study and analysis centers are
involved in analytical activities in which very little hardware-related laboratory research
or development is carried out. These study Centers were initially established to provide
the Office of the Secretary of Defense, the three Services, and the Defense Advanced
Research Projects Agency with help in solving organizational or operational problems.
Systems engineering/systems integration (SE/SI) centers primarily provide systems
engineering, R&D systems integration, and management support for definition and
development of large technical systems. DOD established these Centers because it
lacked certain in-house capabilities in large systems development, integration, and
verification.
Summary of Current FFRDCs
AgencyNo.Category of FFRDCType ofNo.
Administration
DOE16R&D laboratories 12Univ. or Consortium9
Research laboratories 4Industry3
Not-for-profit4
DOD10R&D laboratories 3University2
Study & Analysis Cntr. 5Not-for-profit8
Systems Engin./Intergr. 2
NSF5R&D Laboratories 4Univ. or Consortium4
Study & Analysis Cntr. 1Not-for-profit1
FAA11R&D Laboratory 1Not-for-profit1
NASA1R&D Laboratory 1University1
NIH1R&D Laboratory 1Industry1
NRC 1R&D Laboratory 1Not-for-profit1
IRS1R&D Laboratory 1Not-for-profit1
Totals36 3636
1. Parts of the FAA’s FFRDC also are identified as a study and analysis center and a systems
engineering center.
Eight federal agencies currently operate a total of 36 FFRDCs. As indicated in the
table, the Department of Energy (DOE) and the Department of Defense (DOD) together
sponsor 26 FFRDCs, with DOE operating 16 Centers and DOD operating 10. The other
10 FFRDCs are operated by the National Science Foundation (NSF), the Federal Aviation
Administration (FAA), the National Aeronautics and Space Administration (NASA), the
National Institutes of Health (NIH), the Nuclear Regulatory Commission (NRC), and the
Internal Revenue Service (IRS). Of the 16 DOE FFRDCs, nine are administered by a
single university or a consortium of universities, three are managed by a private sector
company, and four through a not-for-profit organization. DOD’s 10 Centers include three
R&D laboratories, five Study and Analysis Centers, and two Systems Engineering,
Systems Integration Centers. Those 10 Centers are administered by two universities and
eight not-for-profit organizations.
According to the National Science Foundation, in FY2000 the federal government
spent $77.4 billion on R&D, of which $6.385 billion or 8.3% was obligated for FFRDCs1.
Of the $6.385 billion spent on R&D at FFRDCs, DOE accounted for $3.897 billion or
61% of total federal FFRDC expenditures. This represents 57% of DOE’s total federal
R&D budget of $6.063 billion, in FY2000. As a result, DOE is more reliant on FFRDCs
to meet its research, development and acquisition requirements than any other federal
agency. As a matter of comparison, NASA’s only FFRDC, the Jet Propulsion Laboratory,
received $1.202 billion in FY2000, comprising 12.3% of the agency’s $9.755 billion
R&D budget. DOD’s 10 FFRDCs received $783 million in FY2000, representing only
Establishing FFRDCs
The Office of Federal Procurement Policy (OFPP) Letter 84-1, and the Federal
Acquisition Regulations (FAR) which implement the policy letter, are the two primary
regulatory documents that govern the establishment of an FFRDC.2 The purpose of the
letter was to establish government-wide policies for the establishment, utilization, and
evaluation of FFRDCs. In 1990, the Office of Federal Procurement issued regulations to
implement the policy letter. 3 In general, the implementation regulations state that
FFRDCs should not be established unless the agency cannot accomplish the activity in-
house, through other government agencies, or through traditional procurement procedures.
The regulation also states there should be sufficient work to be performed by the FFRDC;
that cost controls should be established to protect the government; and that the parameters
of the mission of the FFRDC are spelled out clearly enough to enable the differentiation
between FFRDC responsibilities and the agency’s non-FFRDC work.4
To establish an FFRDC, an agency must follow the guidelines of the OFPP.
According to the National Science Foundation, once the agency implements the OFPP
guidelines, the new FFRDC should have the following characteristics: (1) its primary
1 National Science Foundation, Federal Funds for Research and Development: Fiscal Year
2 49 Federal Register 14462, April 11, 1984.
3 55 Federal Register 3885, Feb. 1990. These regulations are codified in FAR 35.017.
4 OFPP Policy Letter 84-1, section 6. See, also FAR 35.017-2.
activities should include: basic research, applied research, development, or management
of research and development; (2) it is a separate operational unit within the parent
organization or is organized as a separately incorporated organization; (3) it performs
actual R&D or R&D management either upon direct request of the federal government
or under a broad charter from the federal government, but in either case under direct
monitoring by the federal government; (4) it receives its major financial support (70% or
more) from the federal government, usually from one agency; (5) it has, or is expected to
have, a long-term relationship with its sponsoring agency (usually 5 years, with a review
of the center’s progress conducted by the sponsoring agency during the third year of the
agreement); (6) most or all of its facilities are owned by, or are funded under contract
with, the federal government, (7) it has an average annual budget (operating and capital
equipment) of at least $500,000; and (8) when renewing the sole-source contract, the
sponsoring agency is required to determine if it still needs to sponsor an FFRDC or if the
work could be done in a federal facility, or through a traditional private sector contract.5
To minimize conflicts of interest, Centers are established as not-for-profit entities
that cannot compete with for-profit companies for additional government contracts and
are not allowed to produce and market commercial products. As a result, government
officials argue that FFRDCs are allowed access to key government officials and highly
sensitive data from industry and government sources. Such privileged access enables the
Centers to address complex long-term problems with a high degree of objectivity based
on their restrictions concerning selling products to the government, or joining forces with
those who do, while remaining outside of the government itself. While Centers are not-
for-profit entities, they are allowed to charge the government fees above and beyond the
cost of carrying out their responsibilities. Some Centers charge fees to cover ordinary and
necessary costs of doing business that are not otherwise reimbursable, but that the
government recognizes must be incurred. These fees can also be used by an FFRDC to
conduct independent research. The FAR acknowledges the legitimacy of such fees.6
DHS FFRDCs
Within Title III, Science and Technology in Support of Homeland Security, of the
Homeland Security Act (P.L.107-296) there are two provisions that call for the
establishment of FFRDCs. Section 305 of the Act states that “the Secretary, acting
through the Undersecretary for Science and Technology, may establish or contract with
one or more FFRDCs to carry out other responsibilities of the Act, including the
coordination and integration of the agency’s extramural and intermural research
programs.”7 Section 312 directs the Secretary of DHS to establish an FFRDC known as
the Homeland Security Institute. According to the legislation, the Institute, among other
things, “should conduct systems analysis, risk analysis, and simulation and modeling to
determine vulnerability of the Nation’s critical infrastructure.”8 However, the legislation
5 Federal Funds for Research and Development, p. 8 & 9.
6 Ibid. Office of Technology Assessment, OTA-BP–ISS-157, p.6, FAR 35.017.
7 Homeland Security Act of 2002, P.L. 107-296, SEC. 305. Federally Funded Research and
Development Centers.
8 Homeland Security Act of 2002, P.L. 107-296, SEC. 312. Federally Funded Research and
(continued...)
also states that “ the Institute shall terminate three years after the effective date of this
Act.” Some have raised concerns that this provision could make it difficult for DHS to
recruit the best people for this Center.
This legislative language provides the Secretary of Homeland Security with the
authority the agency needs to establish multiple FFRDCs, as long as the Department
complies with OFPP Letter 84-1, and the implementing FAR 35.017-2. Once these
requirements have been met, the DHS can develop a request for proposals to establish one
or more FFRDCs. It should be noted that the Competition in Contracting Act (CICA)
permits the government to use sole-source procedures to establish or sustain an FFRDC.
Proponents of this practice contend this allows the government to select the highest
quality bid, rather than the lowest cost bid that applies to traditional federal procurement
actions. However, to help control costs, Congress can set ceilings on the total annual
spending and/or established personnel levels for the Center. In addition to universities and
private sector firms, existing FFRDCs can also compete to operate and manage a DHS
sponsored FFRDC, if the mission of the proposed FFRDC is similar to the existing
FFRDC. FFRDCs operate under a five year contract, with a review of the Center’s
performance by the sponsoring agency after the third year of operation. This review is to
determine if the FFRDC should be renewed for another 5 years, re-competed as an
FFRDC, abolished, or decertified as an FFRDC while continuing to operate as an
independent non-profit organization.
Once the DHS selects the organization that will administer and operate an FFRDC,
the Board of Trustees for the FFRDC will establish operating procedures, and select the
Director of the FFRDC.9 While the sponsoring agency has some input in the selection of
the Center’s Director, the Board of Trustees is ultimately responsible for selecting the
Director of the FFRDC. The Director is then responsible for hiring the remainder of the
Center’s personnel who, like the Director, are employees of the organization that operates
the FFRDC, not the sponsoring federal agency. The primary objective of this unique
arrangement between the sponsoring agency and the Center is to help ensure the
independence of the Center while concomitantly establishing a long-term, close
partnership relationship, as opposed to the “arms length” required with for-profit federal
contracts. Further, the personnel policies allow the FFRDC to rapidly employ, if
necessary, new scientific and technical expertise that are difficult to recruit, sustain, and
manage through the federal civil service system.10
Potential Congressional Issues
For many years FFRDCs have attracted the attention of Congress. In their early years
of operation, Congress’ primary concerns regarding FFRDCs centered around the growing
8 (...continued)
Development Centers.
9 If the DHS establishes a new FFRDC, rather than utilizing an existing Center, the new FFRDC
can officially establish itself as an independent not-for-profit entity, chartered in the state where
it was originally established, with its own Board of Trustees.
10 Department of Defense, Federally Funded Research and Development Centers, U.S.
Congress, Office of Technology Assessment, OTA-BP–ISS-157, June 1995, p. 8.
number of Centers, cost to the government, insulation from the competitive environment,
and the quality of products. More recently, congressional concerns have focused on the
continuing need for FFRDCs, diversification into areas beyond the Centers’ original
mission, and each sponsoring agency’s oversight of its FFRDC’s activities.
Public sector advocacy groups, such as the Professional Services Council (PSC),
have pointed out that the nation’s scientific, engineering, and technological capabilities
have increased dramatically since FFRDCs were first introduced in the late 1940s.
Specifically, PSC contends that, given that the private sector has developed significant
capabilities to perform studies and analysis and systems-engineering and integration
work, it seems logical that this work could be performed in the private sector. However,
proponents of FFRDCs argue that the responsibility of the proposed DHS FFRDC
includes “the coordination and integration of the agency’s extramural and intermural
research programs” which they contend is ideal, since FFRDCs are not allowed to
compete for federal contracts and are not allowed to develop commercial products. Finally
it is unlikely that any of the DHS FFRDCs will be performing systems integration
activities.
With the end of the Cold War and declining DOD R&D budgets, observers in the
private and public sectors are concerned that FFRDCs might have diversified into areas
beyond their originally defined missions. Some individuals inside and outside of Congress
assert that this has already happened. Representatives from the PSC have also argued that
these Centers have received a number of contracts from various federal agencies for
which private service companies had originally competed. However, representatives from
DOD and DOE have indicated that their respective FFRDCs have been asked to develop
definitions of their core work for each Center. As a result of this exercise each agency has
identified work that could be competed through a traditional procurement process. 11
Some Members of Congress have expressed concerns about the adequacy of the
oversight of many FFRDCs. In a General Accounting Office (GAO) report, prepared for
the House Appropriations Subcommittee on Energy and Water, GAO stated that “Despite
DOE’s many reforms, our review of more than 200 audit and consulting reports issued
since 1995 reveals that the department has persistent management weaknesses that have
led directly to a wide range of performance problems, including major cost overruns and
schedule delays in a variety of noteworthy projects.”12 To control cost and maintain
mission focus at DOD’s FFRDCs, Congress continues to mandate employee ceiling levels
for each DOD Center. While these are legitimate congressional concerns, it is important
to note that DOD and DOE FFRDCs employ thousands of people and have budgets in
the hundreds of millions of dollars. In contrast, DHS FFRDCs are likely to be smaller
Centers with initial employment levels ranging from 50-100 people, along with budgets
ranging from $15 million to $30 million.
11 U.S. Department of Defense. Office of the Inspector General Contracting Practices for the Use
and Operations of DOD-Sponsored Federally Funded Research and Development Centers, Rept.
No. 95-048, Dec. 2, 1994, p. 11.
12 DOE, Fundamental Reassessment Needed to Address Major Mission, Structure, and
Accountability Problems, General Accounting Office, Rpt-Number 02-51, December 2001, p18.