Nonprofit research centers hit with strict funding limits

The Defense Department has outlined new policies to strengthen its management of not-for-profit research and development organizations while reaffirming the "critical" role these groups play in DOD's mission.

DOD is putting stricter limits on ongoing and future activities of federally funded research and development centers (FFRDCs), and university-affiliated research centers (UARCs), said Paul Kaminski, undersecretary of Defense for acquisition and technology, in response to growing pressure from Congress and industry.

However, while recognizing the need to improve its management of these research centers, DOD does not intend to scale back their use any more than it already has, Kaminski said.

"Further reduction beyond the core level would be harmful to our national interests," he said.

DOD now spends about $1.16 billion on a dozen FFRDCs such as Rand Corp., the Center for Naval Analysis and Mitre Corp., and another $505 million on a half-dozen UARCs such as the applied physics laboratories at Johns Hopkins University and the University of Washington.

Overall, the spending is down about 34 percent from peak levels in 1991.

These centers "are critically important" to DOD's mission, Kaminski said. They provide DOD with essential research, development and engineering work in the course of long-term relationships, and they operate "in the public interest," free from conflicts of interest.

To better contain costs, however, the department is forcing research centers to operate under much more stringent regulations. They are all being asked to restrict their activity to "core workloads," and any activity that fails to meet that standard must be divested by the research center.

"[It's] what I would call a 'stick to your knitting' approach," Kaminski said.

DOD agencies, working with their research centers, have identified about $69 million in such "noncore activities," Kaminski said. In the wake of this effort, one FFRDC, Mitre, chose to spin off its noncore activities into a separate company (see story, page 32).

Additionally, DOD policy now requires FFRDCs' parent corporations to follow "stringent criteria" in accepting work that falls outside of the centers' core workload.

DOD has established an independent advisory committe of individuals from outside the department to review DOD's management, use and oversight of FFRDCs and UARCs. Also, it has developed new guidelines on justifying management fees.

The department believes these policies make more sense than trying to establish lower spending caps, as advocated by some camps in Congress and industry. Congressional oversight groups have warned DOD about relying on federally funded groups rather than using existing industry resources.

"What we are trying to do here is move away from arbitrary constraints," Kaminski said.

The concept of the "core workload" would appear to address some of the most sensitive concerns among FFRDC critics.

"There is no question that one of the issues that has come up is that over the years, FFRDCs have expanded beyond the purpose for which they were originally [established]," said Charles Thompson, assistant director in National Security and International Affairs Division at the General Accounting Office.

However, DOD's policy does have some inherent problems for the centers themselves, said Barry Horowitz, president and chief executive officer at Mitretek Systems Inc., the company spun off by Mitre.

The narrower mission makes it difficult for centers to attract and sustain high-caliber talent, Horowitz said, and DOD, in effect, has made the companies dependent on the government by restricting their ability to diversify.

"Given that they narrow the focus of these companies, they have to, in turn, support their health," he said. "It is going to take a very strong federal policy to ensure these companies can sustain their value."

The drop in funding since 1991 has already hit FFRDCs hard, including research centers that have no apparent noncore activities, such as the Software Engineering Institute.

"For the last four or five years, we have been hammered pretty hard...just because we are an FFRDC," said Larry Druffle, director of SEI at Carnegie Mellon University.

SEI initially had a ceiling of $250 million, but that since has dropped to $155 million, Druffle said.