Defense Science and Technology: Actions Needed to Enhance Use of Laboratory Initiated Research Authority

Congress created several authorities that provide DOD research labs with ways to increase efficiency and foster innovation.

Senate report 114-255 contained a provision for GAO to study governance models used by federal labs. This report evaluates DOD labs' use of authorities to foster innovation and efficiency.

GAO selected four authorities that recent work on best practices for science and technology management and expedited defense lab hiring have shown to be the most crucial for supporting innovation; administered a survey to 44 lab directors to gain insight into their use of the authorities; interviewed key lab officials and contractors; and reviewed relevant policies and guidance.

Congress has provided the Department of Defense's (DOD) research labs with several authorities to enhance management and operations. Four authorities that GAO examined provide lab directors with greater ability to make their own decisions regarding the funding of projects, hiring, lab management, and purchasing of equipment or services.

1. Laboratory initiated research authority. This authority, as implemented, provides labs with a means to fund new science and technology projects that they consider a priority. Labs may use a percentage of all funds available to the lab and are permitted to charge customers of the lab a percentage fee of the costs for activities performed by the lab for the customer.

2. Direct hire authority. This authority enables labs to compete with private industry for high-quality talent. For example, it provides for streamlined hiring of applicants with relevant advanced degrees, or students enrolled in science, technology, engineering, and mathematics programs.

3. Laboratory enhancement pilot program authority. This authority generally allows lab directors to propose alternative methods that might lead to more effective lab management, and waive certain policies or procedures that might affect implementation of these methods.

4. Micro-purchase authority. This authority raises the threshold for small purchases for DOD research lab activities from $3,500 to $10,000 to facilitate acquisitions.

While labs have used these authorities, their use has sometimes been limited, particularly with the laboratory initiated research authority. DOD lab directors at Air Force, Navy, and Army cited several obstacles that impede wider use of that authority, specifically:

Air Force: Financial management officials at the Air Force stated that the service's accounting system does not currently have an automated capability to transfer the allowable percentage fee of costs to a central account at the Air Force Research Laboratory. This lack of capability, officials noted, creates a significant administrative burden related to charging these fees.

Navy: In fiscal year 2017, Navy labs invested $7.3 million in lab infrastructure projects, compared to $32.9 million and $53.7 million at the Air Force and Army, respectively. Navy lab officials told us that they were restricted in their use of infrastructure funds available under the laboratory initiated research authority due to a lack of clear guidance as to whether and how to use this authority within the Capital Investment Program of the Navy Working Capital Fund.

Army: The Army requires its labs to use a similar percentage of funds from two sources: (1) what it refers to as directly appropriated funds and (2) funds labs charge for customer activities. Some Army lab directors reported assessing a lower rate on customer funds than allowed so as not to drive customers away. The labs then generally charge a lower than desired rate on their directly appropriated funds, which further constrains the total funding available to them.

GAO is making three recommendations to enhance DOD's use of laboratory initiated research authority, including that the Air Force assess potential accounting system improvements, the Navy clarify how labs can use the authority for infrastructure improvements, and the Army assess its policy to determine whether changes are needed to remove disincentives for labs to use the authority. DOD concurred with the recommendations.

For more than 90 years, the Department of Defense (DOD) has relied on  its science and technology reinvention laboratories (lab) to develop  technologies intended to maintain U.S. superiority on the battlefield. The  defense lab enterprise—consisting of 63 military service labs, warfare  centers, and engineering centers—is critical to strengthening the military  services’ competitive edge and offsetting technological advances of  potential adversaries. These labs develop innovations to counter existing  and emerging threats, and accelerate the delivery of technical capabilities  to the warfighter. Beyond its labs, DOD sponsors federally funded  research and development centers (FFRDC) and university affiliated  research centers (UARC) that provide additional technology development  activities integral to the department’s needs.

We have previously reported that defense labs have struggled to  consistently identify, develop, and deliver innovative technologies  quickly. Moreover, these defense labs have encountered problems with  recruiting and retaining a high-quality workforce and maintaining their  facilities, according to the Defense Science Board. Congress has  provided DOD with several tools and mechanisms, which we refer to in  this report as authorities. The various authorities have provided laboratory  directors with greater ability to make their own decisions regarding  laboratory administration and management, funding allocations and  personnel. One of these authorities also provides for labs to seek waivers  to existing DOD policies that are believed to stifle innovation and  flexibility. Senate report 114-255 accompanying the National Defense  Authorization Act for Fiscal Year 2017 noted the importance of these  authorities as a step toward accelerated innovation and flexibility. It  included a provision for us to study the lab governance used by DOD and  other agencies. In this report, we (1) evaluate how defense labs have  used selected legislative authorities to foster innovation and efficiency  and identify what barriers, if any, impede their use; (2) identify and  describe governance models used by selected DOD-sponsored FFRDCs  and UARCs; and (3) identify and describe governance models used by  selected non-defense labs, specifically at the Department of Energy  (Energy) and National Aeronautics and Space Administration (NASA).

For each of our three objectives, we interviewed key agency and lab  officials as well as contractor representatives. To evaluate how defense  labs have used selected legislative authorities and identify any barriers  that have impeded their use, we took inventory of the over 20 lab-related  authorities that have been enacted since 1994. From that list, we selected  for review four specific authorities that our recent work on best practices  for science and technology management and expedited defense lab  hiring have shown are, or have the potential to be, the most crucial for  supporting DOD labs’ innovation missions. We then reviewed DOD-wide  and military service-specific policies as well as documents and reports  that detailed implementation of the selected authorities. We also  administered a survey to 44 lab directors (or their equivalents) to collect  information on their use of the four authorities, their perceptions about  each authority’s effectiveness, and any perceived barriers to each  authority’s use. A total of 31 lab directors completed and returned surveys  to us, which constituted a response rate of 71 percent. For the two  authorities in our review that have been in place the longest, we analyzed  relevant DOD data on lab personnel hiring and infrastructure investments.  Based on our reviews of supplementary documentation and interviews  with agency officials, we determined that these survey data were  sufficiently reliable for the purposes of our analysis.

To identify and describe governance models used by DOD-sponsored  research centers, we focused our review on the three FFRDCs  designated as research and development labs as well as all 13 UARCS  sponsored by DOD entities. We reviewed relevant sections of the Federal  Acquisition Regulation (FAR) that cover FFRDCs as well as DOD policies  and guidance for working with FFRDCs and UARCs. Further, we  reviewed selected FFRDC and UARC contracts and performance  assessments to gain additional visibility on how these entities operate.

To identify and describe governance models by selected research entities  at Energy and NASA, we identified 17 Energy labs and 4 NASA research  centers conducting basic and applied research similar to defense labs.  We chose to focus on Energy and NASA because in our August 2016  GAO Technology Readiness Assessment Guide, we drew heavily from  DOD, Energy, and NASA for best practices, terminology, and examples.  Further, DOD, Energy, and NASA represented three of the top four  agencies with the highest federal research and development spending on  average from fiscal years 2015 to 2017. We did not include the fourth  agency—the National Institutes of Health—in our review because it is not  as similar to DOD. We reviewed relevant sections of the FAR that cover  these research entities, along with key agency policies and guidance on  how these entities operate. More information about our objectives, scope,  and methodology can be found in appendix I.

We conducted this performance audit from July 2017 to December 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The defense lab enterprise consists of 63 labs, warfare centers, and  engineering centers across the Departments of the Army, Navy, and Air  Force, as shown in Figure 1 below. About 50,000 federally employed  scientists and engineers work at these defense labs to support warfighter  needs and develop transformative capabilities. Defense labs are  managed and operated within the military service chain of command.

DOD budgets for technology and product development activities under its  research, development, test, and evaluation budget, which DOD groups  into seven budget activity categories for its annual budget estimates. Air  Force and Army labs rely on appropriated funding provided from the  service—often referred to as mission funding—or from customers (or  some combination thereof). Customers, such as program offices, provide  funding to defense labs for technology development activities and related  research. The Air Force and Army funding structure is in contrast to Navy  research and development activities, which operate under the Navy  Working Capital Fund—a revolving fund that finances Department of the  Navy activities on a reimbursable basis. Under this funding model, the  Navy employs a Capital Investment Program to obtain capital assets,  including minor military construction projects for labs. The program  provides the framework for planning, coordinating, and controlling Navy  working capital funds and expenditures to obtain capital assets. Figure 2  illustrates the varying funding models used by the military service labs.

Other DOD-Sponsored Science and Technology Entities

In addition to its labs, DOD sponsors other entities to provide for its  technology development needs. Specifically, these include:

FFRDCs are operated by universities, other not-for-profit or nonprofit  organizations, or private firms under long-term contracts and provide  special research and development services that generally cannot be  readily satisfied by government personnel or private contractors. For  example, the Massachusetts Institute of Technology Lincoln  Laboratory develops key radar and electronic warfare technologies for  integrated air and missile defense systems. In addition, the Software  Engineering Institute operated by Carnegie Mellon University provides  cybersecurity solutions for defense entities. While DOD sponsors 10  FFRDCs in total, it designates 3 FFRDCs as research and  development labs, which maintain long-term competencies in key  technology areas. In addition to these, DOD sponsors 2 systems  engineering and integration FFRDCs and 5 studies and analysis  FFRDCs.

UARCs provide specialized research and development services  similar to FFRDCs and also operate under long-term contracts.

However, unlike FFRDCs, DOD requires that UARCs be affiliated with  a university. Generally, UARCs may not compete against industry in  response to a competitive Request for Proposals for development or  production that involves engineering expertise. DOD currently  sponsors 13 UARCs.

Key Offices Responsible for Oversight of Defense Labs

Key DOD offices provide oversight to the defense labs:

The Under Secretary of Defense for Research and Engineering  (USD(R&E))—the principal advisor to the Secretary of Defense for  research, engineering, and technology development activities and  programs—serves as DOD’s chief technology officer. The powers and  duties of this office include establishing policies and providing  oversight for DOD’s research, engineering, and technology  development activities.

The Defense Laboratories Office—within the Office of the  USD(R&E)—supports DOD’s research and engineering mission by  helping to ensure comprehensive department-level insight into the  activities and capabilities of the defense labs. This office carries out a  range of core functions related to the defense labs, including analysis  of capabilities, alignment of activities, and advocacy.

Congress has granted authorities that address hiring, infrastructure, and  technology transition challenges to defense labs since 1995. These  authorities provide defense lab directors with certain flexibilities within the  established legal framework to manage their operations. While Congress  has provided a number of authorities, in this report we focus on four  authorities that our prior work on best practices in science and technology  management and expedited lab hiring has shown are, or have the  potential to be, the most crucial for supporting innovation within DOD  labs.

Laboratory Initiated Research Authority. This authority provides lab  directors with the means to fund some of the research projects that  the lab will pursue. The authority provided in Section 219 of the  Duncan Hunter National Defense Authorization Act for Fiscal Year  2009, as implemented, provides lab directors with a means to fund  projects they consider to be a priority in four allowable categories: (1)  basic and applied research, (2) technology transition, (3) workforce  development, and (4) revitalization, recapitalization, or repair or minor  construction of lab infrastructure. These projects include those not  specifically tied to defined requirements, outside of the normal 2-year  budget planning process. The authority directs the Secretary of  Defense to establish mechanisms under which lab directors may use  an amount of funds equal to not less than 2 percent and not more  than 4 percent of all funds available to the defense lab for projects  under the four allowable categories. Further, lab directors are  permitted to obtain additional funding by charging customers a fixed  percentage fee that may not exceed 4 percent of costs.

Direct Hire Authorities. These authorities provide lab directors with a  streamlined and accelerated hiring process. Congress has enacted  four types of direct hire authorities since 2008, which help labs  compete with private industry and academia for high-quality scientific,  engineering, and technical talent. Specific types of direct hire  authorities include hiring: (1) candidates with advanced degrees; (2)  candidates with bachelor’s degrees; (3) veterans; and (4) students  currently enrolled in graduate or undergraduate science, technology,  engineering, and mathematics (STEM) programs.,

Laboratory Enhancement Pilot Program. This authority provides  methods for effective lab management operations. Section 233 of the  National Defense Authorization Act for Fiscal Year 2017 established a  pilot program for lab directors to propose alternative and innovative  methods that might lead to more effectively managing labs, and  authorized lab directors to waive any regulation, restriction,  requirement, guidance, policy, procedure, or departmental instruction  that would affect implementation of these methods, unless such  implementation would be prohibited by a provision of an existing  statute or common law.

Micro-purchase Authority. This authority facilitates the purchasing  process for labs. The FAR states a preference for government  agencies to purchase and pay for micro-purchases of supplies or  services using the government-wide commercial purchase card up to  and at the micro-purchase threshold, but micro-purchases may be  conducted using any of the simplified acquisition methods. This  facilitates the ability of lab officials to quickly and easily acquire  needed items for their activities and reduce the administrative costs  associated with such small purchases. While the FAR micro-purchase  was generally $3,500 during our review, Congress increased it to  $10,000 for activities of the science and technology reinvention labs in  Section 217 of the National Defense Authorization Act for Fiscal Year  2017.

Major Federal Research Agency Investments

As we found in June 2018, the federal government spends approximately  $137 billion annually government-wide on research and development  (R&D) to help further agencies’ missions, including at federal labs. From  fiscal years 2015 to 2017, DOD, Energy, and NASA represented three of  the top four federal agencies with the highest annual federal R&D  spending, accounting for about 66 percent of total federal R&D spending  on average, as shown in Figure 3.

While the labs primarily support the agencies that directly fund them,  DOD, Energy, and NASA research entities also collaborate extensively to  support activities of shared interest. For example, DOD and NASA  research centers have collaborated to develop hypersonic vehicle  capabilities. Further, Energy’s national labs help provide critical national  security capabilities for DOD and support NASA’s deep space mission  radioisotope requirements. In 2017, Energy reported performing about  $2.6 billion of work per year from fiscal years 2011 through 2015 for other  federal agencies and other customers, including DOD.

Defense Labs Have Used Selected Authorities, but Their Use Has Been Offset by Other Military Service Policies and Interests

Most defense labs have used the selected authorities since 2008, but  their use has sometimes been limited for a variety of reasons. According  to lab directors, this is because of DOD legal and policy restrictions and  stakeholder concerns. For example:

Use of the laboratory initiated research authority was limited by DOD’s  military construction funding and financial management policies.

Use of the direct hire authority was limited, in part, by personnel- related delays, security clearance challenges, and military hiring  restrictions.

Use of the laboratory enhancement pilot program was limited by  stakeholder uncertainty about how to use this authority effectively.

Use of the increased micro-purchase authority was limited by  stakeholder concerns about the authority’s potential effect on small  businesses.

Most Defense Labs Have Used the Laboratory Initiated Research Authority, but Less than the Maximum Allowed

We found that most defense labs have used the laboratory initiated  research authority. Twenty-three of 31 of respondents to our survey— about 74 percent—reported obligating funds under this authority.  However, we found that most labs are not using the full 4 percent of all  funds available to each lab, or charging customers the full fixed  percentage fee of 4 percent of costs, as allowed by law. Specifically, we  found that, as of September 2018:

Navy labs reported charging customers a percentage fee of about 2  percent of costs as of fiscal year 2018. Prior to this, Navy labs only  charged a 1 percent fixed fee on these costs. Because Navy labs are  working capital funded organizations, they can use payments from  customers for goods delivered or services performed.

Army labs reported using between 2 and 3 percent of all funds  available to the lab for projects under the four allowable categories  and charging customers a fixed fee of between zero and 3 percent of  costs to fund such activities.

Only the Air Force Research Laboratory reported using the full 4  percent of all funds available to the lab. According to agency officials,  the lab is using 3 percent of all funds available to the lab and is  allowing individual technology directorates the option to use the  additional 1 percent of funds available. In fiscal year 2018, three of the  lab’s nine technology directorates chose to use this additional 1  percent. However, the lab has not charged customers a fixed  percentage fee on their costs at all.

As figure 4 shows, in fiscal year 2017, the aggregate fixed percentage fee  charged by labs in each of the military departments totaled under the full  4 percent allowed by law for each funding source. Decisions to charge  lower percentages are decisions to forego additional potential funding,  although agencies have various reasons why this can happen, as we will  discuss later.

In total, DOD reported that this authority provided almost $300 million to  labs in fiscal year 2017 and funded more than 1,750 projects across the  four allowable categories, as Figure 5 illustrates.

We previously found, in June 2017, that the laboratory initiated research  authority provides defense lab directors with limited flexibility to initiate  science and technology projects. These projects include those that are  not road mapped or tied to defined requirements outside of the normal 2- year budget planning process, and are focused on both near- and long- term needs.

For this review, defense lab officials we interviewed stated that the  laboratory initiated research authority enables their scientists and  researchers to pursue projects not necessarily tied to requirements and  provides necessary funds for workforce development and lab  infrastructure projects. Further, as shown in Figure 6, lab directors we  surveyed generally view the authority as both fostering innovation and  increasing efficiency across the four allowable categories on which funds  can be used.

In accordance with the one of the statutory purposes for the use of the  funds, lab directors have developed new, innovative technologies using  this authority. For example, DOD reported that:  In fiscal year 2017, the Naval Surface Warfare Center, Crane Division,  developed and fielded a solution to an urgent requirement for  defeating small unmanned aerial vehicles that attack Navy assets or  surveil naval activities. The center delivered this technology to the  warfighter in May 2017 just 7 weeks after the Navy submitted the  requirement.

The Army Research Laboratory used the authority to fund a project  that eventually developed a material that could increase the speed  and lower the power needs of future generations of computer chips,  thereby supporting Army networks.

The Navy invested more than $700 thousand  in laboratory initiated research authority funds  to commission a Ballast Water Research Lab  at Naval Surface Warfare Center, Carderock  Division. Through the use of this new facility,  engineers will be able to study ways to treat  ballast water to prevent introduction of non- native aquatic species into a new environment  that can be disastrous for the marine life that  already inhabit that environment, and ensure  that the Navy is able to meet various port  regulations around the world for its ships.

The Air Force Research Laboratory invested funds in fiscal year 2017  to renovate an existing facility to provide high performance computing  capability to aid the rapid development of “game-changing”  technologies and weapon systems.

Officials at the Army’s Space and Missile Defense Command Technical  Center noted they used the laboratory initiated research authority for the  first time in fiscal year 2018 because the current executive director, who  assumed the position in 2017, prioritized implementing this authority.  Most of the Center’s planned investments are focused on workforce  development and laboratory infrastructure projects; officials cited a high  energy laser technology lab as one of the projects being supported by the  revitalization, recapitalization, or minor military construction portion of this  authority.

Although the majority of defense labs reported using the laboratory  initiated research authority, interviews we conducted throughout our  review, along with other DOD reports, identified certain obstacles that  have, at times, impeded wider usage.

DOD-wide military construction funding restrictions. DOD  restrictions limit the amount of laboratory initiated research authority  funds that labs can spend on lab infrastructure. DOD’s limit is $6  million for the revitalization and recapitalization projects that can be  funded under the laboratory initiated research authority. Lab officials  stated that this amount is often insufficient to construct advanced lab  facilities. Air Force Research Laboratory officials indicated that it is  nearly impossible to construct lab facilities for less than $6 million.  Officials at the Army’s Aviation and Missile Research, Development  and Engineering Center echoed this sentiment and noted that they  have primarily used funds to renovate existing buildings rather than  fund new lab facility construction. In January 2017, the Defense  Science Board identified lab infrastructure challenges, including that  the average age of research and development facilities was nearly 50  years. Further, the Board reported that the labs are usually not  successful in competing against broader service needs for military  construction funds.

Air Force does not charge customers a fixed percentage fee of  costs. The Air Force Research Laboratory reported that it is not  charging customers the allowable fixed percentage fee of costs to  fund science and technology activities because it does not have a  mechanism in place to do so. Air Force Research Laboratory officials  estimated the lab would collect approximately $3 million a year if the  lab charged customer activities the maximum allowable fee (4  percent). Air Force financial management officials stated that the  service’s accounting system does not currently have an automated  capability to transfer the allowable percentage fee of costs to a central  account at the Air Force Research Laboratory. This lack of capability,  officials noted, creates a significant administrative burden for charging  these fees. The officials stated that they have not yet estimated the  cost to add an automated capability.

Although it is possible for the Air Force Research Laboratory to  charge customer work orders manually—outside of the Air Force’s  accounting system—officials with the Office of the Assistant Secretary  of the Air Force for Financial Management and Comptroller perceive  that the resources (time and people) required to manage such a  process would be cost prohibitive. However, according to these  officials, the Air Force has not assessed the costs required to improve  the accounting system to do so, nor has it identified the potential  benefits any improvements would provide. Federal internal control  standards state that changes in condition affecting an entity and its  environment often require changes to the entity’s internal control  system, as existing controls may not be effective for meeting  objectives (or addressing risks) under changed conditions. Further,  these standards state that any internal control deficiencies require  further evaluation and remediation by management. By not  assessing the potential costs and benefits related to the options for  collecting these allowable fees, the Air Force could be missing out on  a potential source of funding to support its needs.

DOD lacks clear guidance on how the Navy should use the  initiated research authority for some infrastructure investments  within the Capital Investment Program. In our review of DOD  documentation, we found that, among the military departments, Navy  labs funded recapitalization and revitalization projects using the  laboratory initiated research authority the least. As recently as early  2017, a DOD-commissioned study found that defense labs face  substantial infrastructure deficiencies that it has not yet identified  funding to address. In fiscal year 2017, Navy labs invested $7.3  million in lab recapitalization projects, compared to $32.9 million and  $53.7 million at the Air Force and Army, respectively. Navy lab  officials told us that their ability to fund lab recapitalization and  revitalization projects using funds available under the laboratory  initiated research authority is limited because they have not been  provided with clear guidance as to whether and how to use the  laboratory initiated research authority within the Capital Investment  Program of the Navy Working Capital Fund.

Some Navy lab officials stated that they have found ways to use the  initiated research authority for certain infrastructure investments.  These officials stated that they used authority outside of the Capital  Investment Program of the Navy Working Capital Fund, for instance,  for projects below applicable thresholds because using the authority  within the Program creates a bureaucratic and financial burden for  them. For example, officials at two separate warfare centers—Naval  Surface Warfare Center, Crane Division, and the Naval Air Warfare  Center, Aircraft Division, noted that they did not expend funds in either  fiscal year 2016 or fiscal year 2017 for recapitalization and  revitalization projects. Both cited the Capital Investment Program as a  significant barrier to their desired use of the laboratory initiated  research authority.

Officials from the Office of Budget, within the Office of the Assistant  Secretary of the Navy for Financial Management and Comptroller  agreed that, to date, clarifying guidance on the use of the laboratory  initiated research authority within the Capital Investment Program has  not been issued, effectively limiting the extent to which the labs can  use it for infrastructure needs. According to these officials, the Office  of the Secretary of Defense (OSD) Comptroller—in coordination with  the Office of Financial Policy and Systems within the Office of the  Assistant Secretary of the Navy for Financial Management and  Comptroller—is responsible for developing the clarifying guidance  their office has sought. This persistent lack of guidance on whether or  how Navy labs should use the laboratory initiated research authority  within the context of the Capital Investment Program presents an  opportunity cost. Namely, the Navy’s labs have missed out on, and  continue to miss, opportunities to invest in needed improvements to  its aging lab infrastructure.

The Army requires its laboratories to apply similar percentages   to what is refers to as “Army direct appropriations” and  “customer funds.” The Army requires that the percentage fee  applied to direct appropriations not vary from the percentage fee  applied to customer funds by more than 1 percent. The Army  implemented this policy to maximize the laboratory initiated research  authority’s effect on its 17 laboratories. However, the Office of the  USD(R&E) reported in March 2018 that the policy was having a  significant limiting effect on the breadth and scope of activities  executed under this authority. Similarly, we found that the policy  may, in practice, create a disincentive for Army lab directors to use  the authority. In their responses to our survey, Army lab directors,  representing key capability areas, acknowledged their concern about  the percentage fee they assessed on customer funds affecting their  ability to increase or maintain their customer bases. Further, some  Army lab directors reported assessing a lower percentage fee on  customer funds than allowed, which could help retain customers that  might otherwise be driven away with higher assessed fees to carry out  activities. As a result, these labs generally are setting a lower  percentage fee on their directly appropriated funds, thereby lowering  the overall laboratory initiated research funding available to them.  Nonetheless, the Army has not assessed its policy to determine  whether changes are needed to eliminate these disincentives.  Continuing to operate without such an assessment could result in  Army labs using the laboratory initiated research authority to fund  fewer self-initiated projects—with the downstream effect that fewer  new technologies for warfighters are available.

The Navy applies a consistent fixed percentage fee of costs  across its labs. Within the Navy, senior leadership has set the fixed  percentage fee of costs the labs charge on customer funds at 2  percent. A senior Navy science and technology official stated that  Navy leadership set a uniform fixed percentage fee to charge to  customer activities across the Navy lab enterprise, in part, to ensure  the labs were not inadvertently competing against one another for  customer funds. For example, without a uniform rate, a Navy warfare  center could offer a lower fee to entice a customer to use it rather than  another center. The use of a fixed percentage fee facilitates program  offices selecting warfare centers on the basis of best available match  in capabilities. On the other hand, the Navy’s fixed 2 percentage fee  of costs does limit—by half, as compared to the maximum 4 percent  allowable—the amount of fees that Navy labs can collect.  Consequently, several Navy lab directors told us that they would like  to have the ability to increase the fixed percentage fee of costs above  the Navy’s 2 percent to provide their labs with additional resources  they said they need for innovation-related investments.

DOD Labs Have Used Direct Hire Authorities to Hire Qualified Candidates for Key Scientific Positions but Experienced Delays

Among the lab directors that responded to our survey, 30 of 31 replied  that their lab had used at least one of the four types of direct hire  authorities previously discussed since fiscal year 2014. Officials view  direct hire authority as allowing the labs to compete with private industry  for qualified applicants. Lab directors reported they generally believe that  each type of direct hire is extremely or very useful for fostering innovation  and increasing efficiency, as shown in Figure 7.

Selected Officials’ Testimony on the Value  of Direct Hire Authority:  The U.S. Army Engineer Research and  Development Center “was able to meet this  important goal [of annually hiring more than  160 new researchers] in large part because of  its direct hiring authorities, which save time,  effort, and costs, and allow the organization to  more effectively hire the best and brightest  minds available.” – Dr. Jeffrey P. Holland,  Past Director, U.S. Army Engineer Research  and Development Center, in testimony before  the Senate Committee on Armed Services  (Emerging Threats and Capabilities  Subcommittee), May 3, 2017.  “The Air Force’s ability to recruit, retain, and  develop the STEM workforce is vital toward  building the future Air Force; Congress has  been greatly supportive of these efforts…the  addition of direct hire for candidates has been  extremely useful in hiring qualified scientists  and engineers in less than half the time of  traditional hiring methods.” – Jeffrey Stanley,  Air Force Deputy Assistant Secretary— Science, Technology and Engineering in  testimony before the House Committee on  Armed Services (Emerging Threats and  Capabilities Subcommittee), March 14, 2018.

Although participation in the laboratory enhancement pilot program is  open to the DOD labs—and 19 of the 31 lab directors, or 61 percent, that  responded to our survey reported they were participating—to date, only  the Navy has formally established a pilot program for its labs. The Army  and Air Force have not yet used this relatively new authority. A senior  Navy science and technology official told us the Navy took important  steps to facilitate the implementation of that service’s pilot program.  According to the Navy official:

The Office of the Deputy Assistant Secretary of the Navy for  Research, Development, Test and Evaluation led the effort across the  Navy labs, compiling—from each lab’s submission—a single list of  proposals to forward to Navy leadership that would apply to all  participating Navy labs.

The Navy pursued a three-phased approach with its pilot program,  with Phase 1 primarily focused on contracting and acquisition policy- related matters. Senior Navy research and development officials  perceived these matters as being the easiest from which to obtain  buy-in from Navy policy officials and attorneys, as well as Navy  leadership. Phase 2 will include proposals related to Information  Technology systems for research and development networks, while  Phase 3 will most likely address personnel issues.

Navy research and development officials deferred proposals— including information technology network enhancements—that might  require extensive discussions with policy officials and attorneys  stakeholders across the Navy. These proposals were pushed back to  allow time for those stakeholders to see how the pilot program was  being implemented and executed by the labs.

None of the Army and Air Force labs has yet established a laboratory  enhancement pilot program. Consistent with Army policy, the Medical  Research and Materiel Command and the Space and Missile Defense  Command Technical Center submitted proposals; however, they have yet  to establish a pilot program. The Army’s Research, Development and  Engineering Command, with input from its subordinate labs and  engineering centers, developed a list of lab enhancement proposals but,  as of September 2018, had yet to formally submit these final proposals to  Army leadership for approval. These include initiatives in business  operations, contracting, finance, information technology, and personnel  management. A senior Army science and technology acknowledged that  organizations across the military department have concerns about  providing the labs with too much autonomy to use this new authority.

Air Force Research Laboratory officials said they previously submitted a  list of approximately 30 proposals to the Defense Laboratories Office in  September 2017, but ultimately pulled back those requests because of  stakeholder concerns within the Air Force. Specifically, officials with the  Office of the Deputy Assistant Secretary of the Air Force for Science,  Technology, and Engineering stated that the Air Force Materiel  Command, to which the lab is a subordinate organization, had not seen  the proposals before they were submitted. In addition, these officials  identified concerns about how various stakeholders throughout the Air  Force—such as those from financial management and personnel—would  react to these proposals. These proposals could potentially sidestep the  stakeholders’ oversight function of related lab activities. A senior Air  Force Research Laboratory official stated that the lab re-submitted its  proposals to the Air Force Materiel Command and that Air Force  leadership was still reviewing them at the time of this report.

Defense Labs Have Widely Implemented Micro-Purchase Authority

Twenty-six of 31 labs directors—84 percent—reported having used the  $10,000 micro-purchase threshold authority granted by Congress in 2016.  However, we found that contracting and small business management  officials’ concerns with this authority have created implementation challenges at some defense labs. For instance, a senior Navy official  indicated that multiple stakeholders from across the Navy—including its  Office of Small Business Programs—raised concerns about the  authority’s potential impact on small businesses as micro-purchasing  allows defense labs to bypass small business set asides. Several labs  reported similar stakeholder concerns that prevented implementation of  the micro-purchase threshold increase.

At the same time, however, lab officials we interviewed expressed the  view that the increased threshold will be beneficial, consistent with their  opinions about the laboratory enhancement pilot program. For example,  officials at the Naval Research Laboratory stated that increasing the  threshold to $10,000 allows their scientists and engineers to directly  purchase necessary equipment and materials through simplified  procedures. They identified examples of projects that had been delayed  by as much as several months because scientists and engineers used  other than simplified acquisition procedures to purchase a relatively  inexpensive piece of equipment, such as a specialized microscope,  because the cost was above the previous threshold of $3,500.

Similarly, the Army’s Armament Research, Development and Engineering  Center reported that the micro-purchase threshold increase enables the  lab to use simplified acquisition procedures for more items. As a result,  they noted that the new authority increases efficiency by reducing  contracting time and cost for those additional items. The Navy’s Space  and Naval Warfare Systems Center Atlantic similarly reported that  requirements, which were previously procured using other than simplified  acquisition procedures, took up to 60 to 90 days to procure, while it took  as little as 3 to 4 days under this new authority, which enabled its  scientists and engineers to purchase materials needed for critical, time  sensitive projects. However, lab officials acknowledged that the $10,000  micro-purchase threshold authority—like the laboratory enhancement  pilot program—is too new to fully understand how it will increase  efficiency and foster innovation over the long term.

DOD Gains Scientific Expertise from Research Centers Governed through Noncompetitive Contracts

DOD sponsors several research centers, which are governed through  noncompetitive agreements, including contracts. These centers provide  the department with access to scientific experts employed by universities  and other non-profit organizations. Scientists employed by these external  to DOD research centers—specifically, three lab FFRDCs and 13  UARCs—execute DOD-funded science and technology development  projects in emerging technical areas. DOD staff oversee these centers  using routine oversight of funded research tasks and comprehensive  reviews, which help DOD determine whether the centers’ funding should  continue. DOD and research center officials told us that their ability to  authorize work at the FFRDCs that DOD sponsors is limited by legislative  restrictions on the staffing levels at these centers, as well as by  infrastructure modernization challenges they face.

External DOD Research Centers Are Funded by the Government Established under Noncompetitive Procedures

DOD sponsors three research and development FFRDC labs that were  established under noncompetitive procedures. Two of the three lab  FFRDCs are operated by universities and one is operated by a nonprofit  company. DOD also has contracts with 13 UARCs that fulfill a similar  scientific role as the lab FFRDCs, while also differing from them in other  respects. These differences are described in more detail in table 1.

DOD’s contractor-operated research centers received about $1.3 billion  annually in DOD funding in fiscal year 2016 and fiscal year 2017,  according to DOD data. The two largest research and development  FFRDCs, the Lincoln Laboratory and the Software Engineering Institute,  received about 67 percent of total research center funding from DOD in  2017. UARCs received an average of $27 million in DOD funding, which  was a 15 percent decrease from 2016. Research centers may also  receive work and funding from other federal departments and private  companies after obtaining DOD sponsor approval. Appendix II provides  an overview of DOD FFRDC and UARC funding in fiscal years 2016 and  2017.

DOD Sponsorship and Contract Awards: We reported in 2014 that  FFRDCs in the federal government are defined through the sponsoring  agreement between the agency and the contractor retained to operate the  FFRDC. A written agreement of sponsorship between the government  and the FFRDC must be prepared when the FFRDC is established, which  may be included in a contract between the government and the FFRDC,  or in another legal instrument under which an FFRDC accomplishes  effort, or it may be in a separate written agreement. Historically, DOD  sponsors retain contractors for many years or decades as FFRDC  operators. We found that research centers undertake DOD-sponsored  projects and, in some limited instances, scientific projects initiated by  centers that are overseen by DOD staff. Individual sponsors enter into  noncompetitive contracts with FFRDCs and UARCs. DOD uses  noncompetitive contracts to establish or maintain an essential  engineering, research, or development capability to be provided by an  educational or other nonprofit institution or a federally funded research  and development center.

Scientific Project Funding: We found that project sponsors provide  funding to existing contracts. For example, the government issues orders  for requirements under Lincoln Laboratory’s indefinite delivery indefinite  quantity base contract as funding sponsors approve new projects.  Individual project sponsors, along with the primary sponsor, oversee how  project funds are spent by the centers. Project sponsors decide whether  they will continue to work with these entities based on perceived  performance success. This effectively provides an incentive for FFRDCs  and UARCS to perform successfully. This work and review cycle is  described in Figure 9 below.

FFRDCs and UARCs also partner with DOD government-operated labs to  plan and execute technology development projects. For example,  according to Navy officials, Naval Surface Warfare Center, Carderock  Division collaborated with Navy-sponsored UARCs, such as Penn State’s  Applied Research Laboratory, to help develop Navy submarine propeller  and propulsion designs.

Self-initiated Projects: Research center officials said that DOD provides  some research centers with limited funds to self-initiate innovative  projects. This funding helps the centers ensure that development projects  are not limited to just satisfying near-term DOD requirements. Instead,  future generations of DOD technologies can be funded. For example,  officials at Johns Hopkins University Applied Physics Laboratory  proactively conducted work on advanced naval defense technologies in  response to similar technology development in adversary countries.  Although Navy sponsors did not fund this initial work, they subsequently  provided funding in this area after Hopkins’ research identified a risk  reduction strategy for the Navy, according to the Johns Hopkins officials.  This allowed the UARC to move relatively quickly on a new science and  technology project idea.

Research Centers Provide DOD with Access to Scientific Expertise

DOD uses 13 UARCs and three lab FFRDCs to obtain direct access to  scientific expertise in emerging technical areas, supplementing research  conducted at DOD’s government-owned and operated labs. These  research centers provide DOD with additional scientific capabilities and  the ability to expand quickly into new technical fields.

Hiring Scientific Personnel: Although FFRDCs are largely federally  funded, they are generally operated, managed, and administered by  either a university or consortium of universities, other not-for-profit or  nonprofit organization, or an industrial firm, as an autonomous  organization or as an identifiable separate operating unit of a parent  organization. The contractor operating the FFRDC exercises primary  control over its FFRDC’s business concerns, such as personnel policies  and compensation. DOD-funded research centers have flexibility in  hiring scientists that leverage a parent institution’s expertise in emerging  scientific fields. For example, leadership officials at the Army Institute for  Soldier Nanotechnologies UARC at MIT and the Software Engineering  Institute FFRDC at Carnegie-Melon University noted that projects they  have conducted for DOD have benefitted from university experts in fields  such as dark matter physics and artificial intelligence.

Personnel Compensation: Research center officials we spoke with  noted that their workforce policies permit them to flexibly hire, fire, and  compensate staff as needed. Although employee salaries are established  separately from the government schedule, they are approved by the  government. Further, officials noted that university centers typically offer  salaries in line with the labor market, but do not attempt to compete on a  salary basis with relatively high, unaffordable private sector company  salaries. Instead, they compete on the basis of other factors, such as  offering scientists the opportunity to work for a prestigious university  conducting science and technology research.

Research Center Infrastructure: As with personnel matters, research  centers have discretion to manage infrastructure in accordance with the  policies and procedures of their parent institutions. While one center,  Lincoln Laboratory, is located on government property, others primarily  reside on property owned or leased by their parent institutions. According  to agency officials, DOD contributes funding for the use and repair of  these facilities through their contracts with research centers. Officials  noted that Lincoln Laboratory uses military construction funding to pay for  new buildings as it is located on government property.

Trusted Advisor Role: FFRDCs and UARCs function as trusted advisors  for the government and operate in the public interest with objectivity and  independence. FFRDCs are independent, private-sector, non-profit  organization units required to be free from personal or organizational  conflicts of interest, as the FFRDCs answer to the government customer.  As a result, DOD’s lab FFRDCs perform tasks that are closely associated  with the performance of inherently governmental functions and have  access to sensitive and proprietary data.

DOD-Sponsored Research Centers Are Limited in the Amount of Work They Can Perform for DOD, According to Research Center Officials

Research center officials noted challenges limiting their work providing  scientific expertise to DOD. FFRDCs are also limited in executing  infrastructure investments.

Limitation on Available Work Hours: DOD FFRDCs are limited by an  annual ceiling set by Congress on the amount of staff years of technical  effort (STE) that may be funded for defense FFRDCs. We previously  found in October 2008 these limits were imposed in response to concerns  that DOD was inefficiently using its FFRDCs. We found that the STE  workload limitation aimed to ensure that FFRDC work was appropriate  and limited resources were being used for DOD’s highest priorities. As a  result, Software Engineering Institute officials said they decline many  DOD programs’ requests for assistance due to the annual work hour  limitation. Further, officials at the Office of the Secretary of Defense’s  Studies and FFRDC Management Office reported that this limit  significantly constrains the use of DOD’s FFRDCs and that DOD  customer demand for their services is significantly greater than the annual  STE limit. OSD officials indicated that FFRDC related work must be  deferred to later years when these limits are reached, since there are no  other legally compliant alternatives capable of fulfilling these  requirements.

Infrastructure: FFRDC officials we interviewed identified infrastructure  challenges—including aging facilities and equipment—as hindering their  research and development efforts. For example, many buildings at the  Massachusetts Institute of Technology (MIT) Lincoln Laboratory are over  60 years old; MIT considers over half of them to be in substandard  condition. According to an MIT official, these facilities, located on  government property, were not structurally designed for modern research  and have relatively poor vibration isolation, resulting in inefficient  workarounds or work that could not be performed. Officials from the  Defense Laboratories Office noted that the MIT Lincoln Laboratory is  unique among DOD’s FFRDCs in that it is operated on government- owned property.

A 2013 study, conducted on behalf of the White House Office of Science  and Technology Policy, found that lab infrastructure project funding  proposals must compete with hospitals, barracks, runways, and roads  and, therefore, tend to be lower on the priority list for military construction  funding. A 2017 Defense Science Board report and DOD officials we  spoke with indicated this continues to be true. While contract research  centers have significant flexibility to execute infrastructure work, they are  still affected by limited availability of military construction funding. Officials  at another center noted that in some instances, DOD sponsors have been  unable or slow to provide required secure facilities and equipment within  needed time frames. Delays of this nature can affect the research  centers’ ability to deliver the technologies or related services needed by  DOD.

Energy and Space Research Centers Follow Different Governance Approaches, but Exhibit Similar Benefits and Challenges

The Department of Energy (Energy) primarily relies on contractor- operated FFRDCs to operate its labs, while the majority of NASA labs  and centers are government-operated. Energy’s national labs form the  core of the agency’s scientific work and mission. This is in contrast to  DOD-funded labs, which constitute a relatively small aspect of DOD’s  overall mission. We have previously found that Energy’s labs can use  funding for minor infrastructure improvements. NASA centers can also  approve and fund certain facility projects, in accordance with NASA  policies, and they have encountered significant challenges with aging  infrastructure. Also, in some cases, energy and space research centers  have significant challenges with hiring replacement staff and competing  with private sector employers for staff. Energy’s labs can hire scientific  personnel with the flexibility of private companies, while NASA centers  were previously provided hiring flexibilities by Congress in 2004 to  facilitate staff hiring.

While Energy and NASA’s research entities follow their specific  governance models, there are broad characteristics common across  these agencies as well as DOD. Table 2 illustrates that while research  centers are largely government-owned, the government is not always the  operator.

Department of Energy Primarily Uses Contractors to Operate National Labs and Manage Scientific Expertise

As we have reported, Department of Energy national labs are primarily  operated by for-profit, non-profit and university FFRDC contractors using  management and operating contracts, which are competed on a limited  basis. Energy’s funding sponsors and headquarters officials are  required to reevaluate FFRDC performance in increments not to exceed 5  years by federal acquisition regulations, which inform future decisions to  renew the agreement. In 1990, we designated Energy’s contract  management—including both contract administration and project  management—a high-risk area because of Energy’s inadequate  management and oversight of contractors, leaving the department  vulnerable to fraud, waste, abuse, and mismanagement. In 2009, we  subsequently narrowed the focus of Energy’s high-risk designation to the  National Nuclear Security Administration and Office of Environmental  Management, which together oversee four national labs. Further, in our  2017 High Risk report, we found that these two agencies had made  progress in addressing our contract management concerns, but we  identified continued problems with the agencies having sufficient capacity  to mitigate contract and project management risks. Also, we found that  they had demonstrated little progress in addressing contract management  challenges, particularly in the area of financial management.

Energy’s Lab Contractors Manage Nearly All the Agency’s Scientific Expertise

The Department of Energy uses performance-based management and  operating contracts, which have been subject to limited competition, with  universities, non-profit companies and for-profit companies to operate the  national labs on government-owned property. These contractor-operated  FFRDCs provide the vast majority of Energy’s science and technology  capacity, rather than supplementing the work of government-operated  labs like DOD’s FFRDCs. Energy has depended on the expertise of  private organizations to execute its science and technology work since  the Manhattan Project produced the first atomic bomb during World War  II.

The Spallation Neutron Source is an  experimental research facility at Oak Ridge  National Laboratory—a government-owned  contractor-operated laboratory. The Spallation  Neutron Source includes the world’s most  powerful pulsed-neutron sources and provides  information about the structure and properties  of materials that cannot be obtained by other  means. The Spallation Neutron Source is a  user facility whereby researchers from  universities, national laboratories, and  industry submit proposals, which are peer- reviewed and must compete for time at the  user facility.

The primary focus of each lab varies based on its expertise and facilities.  Energy largely oversees its lab contractors through its headquarters  program offices, which include the National Nuclear Security  Administration, Office of Science, the Office of Fossil Energy, as well as  co-located government field offices. Office of Science-sponsored labs  primarily support scientific research for energy and physical sciences,  while the National Nuclear Security Administration-sponsored (NNSA)  labs primarily focus on nuclear weapons and related science and  technologies. Energy also oversees its lab contractors’ activities through  on-site Energy oversight offices that work alongside lab management at  each FFRDC. Some labs specialize in earlier-phase science, while other  labs work on later-phase nuclear weapons technologies in addition to  earlier-phase science. As Figure 10 shows, these labs are spread across  the United States.

Energy has only one government-operated and government-owned lab,  the National Energy Technology Laboratory. Key differences between  Energy’s contractor-operated and government-operated governance  models are described in table 3.

Energy’s FFRDCs use their own personnel systems, which Energy  officials stated provide more flexibility for hiring and retaining qualified  staff. Management within these FFRDCs can move staff in or out of  scientific areas more quickly than government labs can, thereby providing  greater agility to meet Energy’s needs in emerging science areas. For  example, Energy’s lab oversight staff at Oak Ridge National Laboratory  told us that use of lab contractors’ human resources management  systems allows for workforce flexibilities to meet Energy’s needs. While  these contractors have leeway in managing their human resources  systems, Energy’s headquarters maintains oversight—through its  contracting officers—over employee compensation.

FFRDC Contractors Manage Most Energy Labs’ Infrastructure

Energy’s FFRDC contractors manage and operate nearly all of the  department’s government-owned national lab facilities—including day-to- day management of government-controlled facilities and real property.  Lab operators used funding to complete minor construction projects,  which cost $10 million or less. This funding comes from a percentage of science and technology projects’ funding, requires local Energy oversight  office approval, and has streamlined project management requirements.  In contrast, major infrastructure upgrades are funded through relatively  long and complex line-item funding processes, and projects over $50  million are subject to more rigorous project management requirements.

Energy’s Lab Contractors Have Limited Discretion to Initiate Scientific Projects

Energy’s labs use a small portion of their funding to initiate discretionary  projects for science and technologies that will benefit sponsors in the  long-term by maintaining the scientific and technical vitality of the  laboratories. To maintain and enhance lab expertise, the National  Defense Authorization Act for Fiscal Year 1991 authorized Energy’s  contractor-operated labs receiving funding for national security programs  to use a percentage of lab funds to perform lab-directed R&D of a  creative and innovative nature. The actual percentages allowed to be  used for lab-directed R&D are subject to Energy’s approval.

Energy’s entities sponsor most national lab projects based on their needs  and lab expertise. Typically, earlier foundational science projects are  funded through a process whereby funding sponsors issue calls for  proposals to Energy’s national labs. Interested scientific teams at labs  provide proposals to conduct these projects for sponsor consideration.  Sponsors then assess proposals for scientific merit and decide which  teams receive funding to execute their projects. NNSA provides funding  for later-phase nuclear technology development projects to its labs after  agreement is made regarding objectives and deliverables for specific  projects, according to Lawrence Livermore National Laboratory officials.

Energy’s Lab Officials Identified Challenges Despite Management Flexibilities

Despite their flexibilities with regard to hiring and infrastructure decisions  compared to government operated labs, Energy’s lab leadership and  government oversight officials noted human resource and facilities related  challenges, such as:

Sufficiently compensating staff located in high-cost of living  areas. For example, the labor market of the San Francisco area,  where several Department of Energy national labs are located, is  highly competitive for employers. Commercial firms offer salaries and  compensation that typically exceed those of government-funded,  contractor-operated labs, although Energy’s contractors have more  pay flexibility than is allowed for Energy’s government employees.

Obtaining government clearances in a timely manner. Energy’s  NNSA oversight officials and lab management staff, in particular, cited  this challenge, which they stated has led to a backlog of people  needing clearances.

Government hiring freeze constraining overall hiring. Officials at  Energy’s government-operated National Energy Technology  Laboratory reported that as a result of a government hiring freeze, the  lab has increasingly hired private contractor staff to the point that  more than half of the total lab staff is now comprised of contractor  employees.

Major infrastructure challenges at Energy labs. Energy reported in  July 2018 that over half of all national lab buildings are in either  substandard or inadequate condition. The Energy Inspector General  also identified infrastructure modernization as one of Energy’s top  management challenges. This finding followed a mandated  commission’s report in 2015 that facilities and infrastructure across  Energy’s national lab network were hampered by high levels of  deferred maintenance and excess facilities.

NASA Research Centers Are Primarily Governed as Government-Operated Entities

The majority of NASA’s science and technology facilities are operated  within the governance framework of government-operated research  centers, similarly to most DOD labs. While government-operated, they  have been granted additional legislative flexibilities for hiring employees  beyond those normally available to government entities.

NASA locates its science and technology staff at four government- operated research centers, one contractor-operated FFRDC, and at  five NASA centers assisting space and space flight development.  These centers and the Jet Propulsion Laboratory—NASA’s sole  sponsored FFRDC—execute NASA’s research missions including  technology development in exploration and aeronautics. The  differences between these two governance approaches are described  in Table 4. NASA also works with Johns Hopkins University Applied  Physics Lab, a UARC, to develop major space flight missions.

The NASA Glenn Research Center—a government- operated laboratory—is currently developing solar  electric propulsion technologies intended to allow  manned and unmanned spacecraft to be propelled  far beyond earth orbit using solar power. This project  is developing large, flexible, radiation-resistant solar  arrays that can be unfurled to capture solar energy  powering fuel-efficient electrostatic thrusters.  Scientists expect a system-level flight test within the  next decade to demonstrate key technologies  supporting NASA’s Lunar Orbital Platform-Gateway  project, a platform to mature necessary short- and  long-duration deep space exploration capabilities.

Headquarters,  including funding  sponsors providing  oversight for their  individual projects.

Title 51, Chapters  201 and 203 of  U.S. Code  and technology efforts  with DOD and other  organizations, including  use of NASA lab and test  facilities.

Operated by university  contractor having sole  source contract.

Not permitted to compete  against industry, except  for operation of an  FFRDC. property (originally part  of DOD). 5-year  contract renewable to  10 years total.

Title 51, Chapters  201 and 203 of  U.S. Code; 10  U.S.C. § 2304 (c)  (3)(B) ; Federal  Acquisition  Regulation §  35.017  based NASA  oversight staff. sponsors seeking FFRDC  assistance with NASA  approval.  “Lab” as used in this context refers to science and technology organizations equivalent to NASA  Research Centers, DOD UARCs and FFRDCs.

Mission leadership officials at NASA Headquarters—including the  Associate Administrators for Aeronautics Research, Human Exploration,  Science and Space Technology—oversee NASA’s research centers as  well as the Jet Propulsion Laboratory. These officials are responsible for  technology programs providing funds to research centers and the Jet  Propulsion Laboratory to support their specific mission areas. NASA’s  science and technology project portfolios are based on the requirements  and priorities established by NASA’s leaders in collaboration with key  stakeholders in academia and industry among others. In planning their  science and technology work, NASA’s Glenn Research Center officials  noted that NASA research center directors consider the capabilities and  resources—including staff and facilities—of other research centers to  minimize redundant work.

NASA Has Flexibilities for Managing Its Scientist Workforce

NASA depends on a highly skilled civil servant and contractor workforce  to plan and execute its missions. Congress provided NASA with  additional human resource authorities beyond those otherwise allowed for  federal government personnel through the NASA Flexibility Act of 2004.  We found in September 2008 that NASA sought this flexibility to ensure  that it could hire and retain the workforce it desired. This law consisted  of multiple provisions to address a range of human capital challenges and  to strengthen all levels of the workforce. The provisions included  incentives—including compensation—to allow NASA to compete  successfully in the labor market with the private sector and reshape its  workforce more effectively to support the Agency’s mission. NASA also  employs a significant contractor workforce across its different centers.

NASA Scientific Projects Are Mostly Funded According to NASA’s Priorities

Glenn Research Center officials we interviewed stated their portfolio of  science and technology projects—and funding—mostly aligns with  NASA’s top requirements and priorities. They, along with NASA sponsors,  create technology roadmaps and investment plans to determine their  future projects. NASA policy requires that NASA’s scientific teams offer  proposals for potential research and science and technology projects.  This is similar in some ways to how many DOD and Energy centers must  find sponsors willing to fund specific technology development projects,  rather than receiving technology development funding for a given year.  These proposals are reviewed by peer review teams, who identify for  selecting officials those proposals they believe have the most scientific  merit. Ames Research Center officials said they believe this process can  foster innovation, encourage employees to keep skills honed, and  mitigate complacency.

Glenn Research Center officials said that while most of the work they  conduct is for sponsored applied research or advanced technology  development, about 2 percent of their science and technology budget is  spent on early-stage scientific innovation. Recommended projects of this  nature proposed by the research center are typically approved by  headquarters officials, according to these Glenn officials. NASA provides  technical grants for basic research and applied science to university  scientists nationwide on a competitive basis, and also funds similar  research done internally at research centers.

NASA Officials Identified Workforce and Infrastructure Challenges

As with DOD and Energy’s research centers, NASA officials have  identified some key operating challenges, including:

Aging infrastructure and facilities. The NASA Inspector General  listed infrastructure area as one of the top five management and  performance challenges facing NASA. Further, the Inspector General  identified deficiencies with facilities planning and reported that about  80 percent of facilities at three of four NASA research centers are  over 50 years old, while about half of the facilities at the Jet  Propulsion Laboratory and the fourth research center are that old.  Infrastructure projects and upgrades of $1 million or less are  undertaken by research center management instead of at the NASA  headquarters level. Construction above this threshold has significantly  more requirements and is approved by NASA headquarters. Glenn  Research Center officials indicated it is difficult to obtain funding for  projects that exceed the minor infrastructure threshold, in part, due  competition with major construction of facilities proposals from across  the agency for limited funds. As a result, they put most of their efforts  into sustaining existing infrastructure.

Workforce shortages in key technical areas. As we found in May  2018, NASA has experienced workforce challenges on several major  projects such as the Mars 2020 and Europa Clipper projects. Also,  over 40 percent of NASA’s workforce is either eligible to retire now or  will be eligible in the next 5 years. NASA headquarters officials noted  that NASA’s workforce is aging because NASA has a low attrition  rate—about 4 percent annually—and high numbers of staff stay  several years beyond retirement. Further, in 2017, the NASA  Inspector General found gaps in NASA’s workforce planning for  specific capability areas and how workforce plans would meet future  needs, and recommended that NASA establish standardized  guidance defining the data and analyses for these planning efforts.  NASA concurred with and identified its plan to implement this  recommendation. However, NASA has not implemented this  recommendation, according to the NASA Inspector General’s latest  semiannual report to Congress.

Congress provided DOD lab directors with key authorities to foster  targeted, timely investments in the most pressing technology areas. Lab  directors have used these authorities—such as laboratory initiated  research and direct hire authorities—to varying degrees, but more needs  to be done to facilitate innovation and efficiency. Specifically, service  specific obstacles in the Air Force, Navy, and Army impede lab directors  from capitalizing on laboratory initiated research authority to a greater  extent. Service leadership can take actions to better understand and  potentially remove barriers to more fully use laboratory initiated research  tools.

We are making the following three recommendations to DOD:  The Secretary of the Air Force should assess the potential costs and  benefits of implementing accounting system improvements that would  allow the Air Force Research Laboratory to charge customers a fixed  percentage fee on provided science and technology activities to the  extent allowed under the laboratory initiated research authority.  (Recommendation 1)

The Secretary of the Navy should clarify whether and how to use the  laboratory initiated research authority within the Capital Investment  Program. (Recommendation 2)

The Secretary of the Army should assess existing Army policy for  laboratory initiated research authority and determine whether to  implement changes to eliminate disincentives for lab usage of the  authority. (Recommendation 3)

We provided a draft of this report to DOD, Energy, and NASA for review  and comment. Energy and NASA did not provide any comments on the  draft report. In DOD’s written comments, reproduced in appendix III, DOD  concurred with our three recommendations. Further, in its response to our  third recommendation, DOD stated that the Army plans to initiate a study  by January 2, 2019, regarding its use of the laboratory initiated research  authority. According to DOD, the Army’s study will identify potential  opportunities for policy improvements.

We are sending copies of this report to the appropriate congressional  committees and offices; the Secretary of Defense; the Secretaries of the  Army, Navy, and Air Force; the Secretary of Energy; and the NASA  Administrator. In addition, the report will be made available at no charge  on the GAO website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841. Contact points for our offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Staff members making key contributions to the report are  listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) how the Department of Defense (DOD) labs  have used selected legislative authorities to foster innovation and  efficiency and identify what barriers impede their use; (2) identifies and  describes governance models used by selected DOD-sponsored federally  funded research centers and university affiliated research centers; and (3)  identifies and describes governance models used non-defense labs,  specifically at the Department of Energy (Energy) and National  Aeronautics and Space Administration (NASA).

To address the first objective, we selected four specific authorities for our  review based on previous work identifying science and technology best  practices and expedited lab hiring:

Laboratory Initiated Research Authority. The authority provided in  Section 219 of the Duncan Hunter National Defense Authorization Act  for Fiscal Year 2009, as implemented, provides lab directors with  flexibility to fund projects in four allowable categories: basic and  applied research; technology transition; workforce development; and  revitalization, recapitalization, or repair or minor military construction  of lab infrastructure.

Laboratory Enhancement Pilot Program. Section 233 of the  National Defense Authorization Act for Fiscal Year 2017 established a  pilot program for lab directors to propose alternative and innovative  methods that might lead to more effectively managing and operating  labs and authorized lab directors to waive any regulation, restriction,  requirement, guidance, policy, procedure, or departmental instruction  that would affect implementation of these methods unless such  implementation would be prohibited by a provision of an existing  statute or common law.

Direct Hire Authority. Four types of direct hire authorities authorized  by Congress since 2008 are intended to provide a streamlined and  accelerated hiring process to allow the labs to successfully compete  with private industry and academia for high-quality scientific,  engineering, and technician talent.

Micro-purchase Authority. The Federal Acquisition Regulation  states a preference for government agencies, to purchase and pay for  micro-purchases of supplies or services using the government-wide  commercial purchase card up to and at the micro-purchase threshold,  but micro-purchases may be conducted using any of the simplified  acquisition methods. While the FAR micro-purchase threshold was  generally  $3,500 at the time of our review, Congress increased this  threshold to $10,000 for activities of DOD science and technology  reinvention laboratories in Section 217 the National Defense  Authorization Act for Fiscal Year 2017.

Although Congress has provided additional legislative authorities to  defense lab directors to address hiring, infrastructure, and technology  transition challenges, the authorities that we covered in our review are the  ones that our prior and current work have shown are currently, or have  the potential to be, the most critical for supporting science and technology  reinvention laboratories’ innovation mission within DOD labs. DOD lab  leaders use these authorities to flexibly fund projects intended to facilitate  research and development; propose alternative and innovative methods  that might lead to more effective lab management; directly hire personnel  at DOD labs including students currently enrolled in science, technology,  engineering, and mathematics (STEM) programs; and expand critical  science and technology purchases using simplified acquisition methods.

To identify the extent to which DOD laboratories have used these  authorities as well as to identify what potential barriers existed to using  these authorities, we administered a survey to 44 STRL directors (or their  equivalent) to collect information on the use of these specific authorities,  their perceptions about the effectiveness of those authorities, and their  perceptions about any barriers to using these authorities. The members  of the population surveyed were the 44 defense laboratories defined as  science and technology reinvention laboratories. For the purposes of our  review, we defined laboratories as inclusive of Air Force technical  directorates (10), Army warfare centers (17), and Navy warfare centers  (17). We emailed questionnaires to the laboratories beginning in late  March 2018, and survey data collection ended in early May 2018, with 31  labs returning completed questionnaires, for an overall response rate of  71 percent at the laboratory level.

We took steps to minimize the potential errors that the practical difficulties  of conducting any survey may introduce. Nonresponse error can result  when a survey fails to capture information from all population members  selected into a survey sample. Of the 13 questionnaires not returned, 4  were Army warfare centers, and 9 were Air Force research directorates.  Throughout the data collection period, we made multiple follow-up  attempts by email and phone to those labs not yet responding. The Air  Force Research Laboratory (AFRL) provided a single survey response for  the entire laboratory enterprise. Not all returned questionnaires may have  answers to every question applicable to a respondent. However, this  question-level nonresponse did not exceed one for any of the questions  applicable to all 31 labs. Because we selected the entire population of  laboratories for our survey, our estimates are not subject to sampling  error. We developed our list of the 44 labs in our population in  consultation with DOD, and are confident that none were left out, so our  or survey has no known sources of coverage error. We conducted  pretests of the draft questionnaire with 3 laboratories in the population  and made revisions to reduce the possibility of measurement error from  differences in how questions were interpreted and the sources of  information available to respondents. After reviewing the answers  received, we also followed up as necessary with respondents to clarify  apparent inconsistencies or other possible misreports, and made changes  to responses where corrections were needed. A second, independent  analyst checked the accuracy of all computer analyses to minimize the  likelihood of errors in data processing.

To obtain additional information on this objective, we reviewed relevant  legislation which established or amended these authorities and reviewed  applicable DOD and service policy documentation. Further, we collected  military service related information on the usage of two authorities, such  as:

Spending data on the use of the laboratory initiated research  authority. We gathered this information from DOD-mandated reports  to Congress on the use of this authority and military service officials.  We determined these data to be reliable based on reviews of agency  documentation collected and interviews with agency officials.

Data on the usage of direct hire authorities by the service laboratories.

We collected direct hire data from each of the military services  including the number of direct hire authority candidates hired as well  as the number of direct hire positions the laboratories were authorized  to hire. We determined these data to be reliable based on reviews of  agency documentation collected and interviews with agency officials.  We also used select findings from our May 2018 report where we  evaluated DOD’s use of hiring authorities, including direct hire  authority. More information about the scope and methodology of our  prior work can be found in that report.

In addition, we also collected information on military service proposals to  utilize the laboratory enhancement pilot program authority.

To obtain further information on department- and service-level  involvement in and perspectives of defense laboratory authorities and  challenges, we interviewed officials responsible for the management,  execution, and oversight of DOD’s science and technology enterprise,  including military service labs. At the Office of the Secretary of Defense  and military department headquarters level, those responsible for the  management and oversight of science and technology activities, we met  with officials from the:

Office of the Assistant Secretary of Defense for Research and

Office of the Deputy Assistant Secretary of the Army for Research and

Office of the Deputy Assistant Secretary of the Air Force for Science,  Technology, and Engineering;

Office of the Assistant Secretary of the Air Force for Financial

Office of the Deputy Assistant Secretary of the Navy for Research,  Development, Test, and Evaluation; and

Office of the Budget, within the Office of the Assistant Secretary of the  Navy for Financial Management and Comptroller  We also met with military department lab officials responsible for the  management and execution of science and technology activities from the:

Army Research, Development and Engineering Command;

Army Aviation and Missile Research, Development, and Engineering

Naval Surface Warfare Center, Headquarters; and

Naval Surface Warfare Center, Carderock Division  To identify and describe governance models used by selected DOD- sponsored federally funded research centers (FFRDCs) and university  affiliated research centers (UARCs), we focused our review on the 3  FFRDCs designated as research and development labs as well as all 13  UARCS sponsored by DOD entities. We reviewed appropriate sections  of the FAR language related to FFRDCs and UARCs, DOD guidance for  working with FFRDCs and UARCs, relevant contracts, and performance  assessments. Further, we met with officials from the office of the Deputy  Director, OSD Studies and Federally Funded Research & Development  Centers Management and Office to discuss overall FFRDC and UARC  management, policies, and challenges facing FFRDCs and UARCs. We  interviewed officials at selected research and development FFRDCs and  UARCS to discuss their experience conducting DOD research and  interactions with their customers, such as defense program executive  offices. We met with officials at the two major research and development  lab FFRDCs—The Lincoln Laboratory at the Massachusetts Institute of  Technology (MIT) and the Software Engineering Institute at Carnegie  Mellon University. We also selected a university affiliated research  center sponsored by the Army and Navy: The Applied Physics Laboratory  at Johns Hopkins University and the Institute for Soldier  Nanotechnologies also at the MIT.

To identify and describe governance models by non-defense labs, we  selected Energy and NASA to focus our efforts. We identified 17 Energy  national labs and 4 NASA research centers conducting basic and applied  research similar to DOD labs. These agencies, along with DOD,  represent 3 of the top 4 agencies in terms of average federal research  and development spending from fiscal years 2015 to 2017. In our August  2016 GAO Technology Readiness Assessment Guide, we drew heavily  from DOD, NASA, and Energy for best practices, terminology, and  examples. This contributed to our decision to focus on Energy and  NASA’s research entities in this laboratory governance review. We did not  include the fourth agency—the National Institutes of Health—in our  review because it is not as similar to DOD. We also reviewed relevant  Energy and NASA guidance as well as relevant FAR sections.

At Energy, we met with officials from the National Nuclear Security  Administration which is semi-autonomous entity within Energy  responsible for managing the nation’s nuclear weapons and nuclear  security. We also met with Officials from the Office of Science, a program  office responsible for supporting energy related fundamental science and  research. To gain further insights on operating structures, funding  arrangements, and their overall experience we met with lab leadership at  selected Energy labs which were chosen based on initial discussions with  agency officials and our review of past GAO work:

Lawrence Livermore National Laboratory, and

National Energy Technology Laboratory (the sole Energy government  owned and operated laboratory)

We also met with leadership from Battelle Memorial Institute, which is the  sole or joint contract manager for five Energy national labs including Oak Ridge National Laboratory. In addition, Battelle is an integrated  subcontractor at Lawrence Livermore National Laboratory.

At NASA, we met with officials with NASA’s Science Mission Directorate  and Mission Support Directorate to discuss overall research center  management and operations. We also leveraged ongoing and recently  completed work at GAO to gain additional insight on NASA’s operations  such as human capital management. Almost all of NASA’s research,  space, and space flight centers conduct research and development  activities. However, we focused our review on four research centers  where NASA primarily conducts its aeronautics research, which has  substantial overlap with DOD activities. To gain additional insight into the  experience of lab leaders at NASA research centers, we met with officials  at NASA’s Glenn Research Center and Ames Research Center. In  addition, we also met with officials at the NASA Jet Propulsion Center,  which is the only NASA-sponsored FFRDC.

We conducted this performance audit from July 2017 to December 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Funding for Selected External DOD Sponsored Research Centers

Office of the Secretary of  Defense (OSD)

Appendix III: Comments from the Department of Defense

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Christopher R. Durbin (Assistant  Director); Charlie Shivers, III (Analyst-in-Charge); Emily Bond; Lorraine  Ettaro; Carl Ramirez; Sylvia Schatz; Sean Seales; Brian Smith; and Robin  Wilson made significant contributions to this report.

The Department of Defense relies on its laboratories to help keep the military on the cutting edge of technology. Congress has given DOD's labs special "authorities"—flexibilities that lab directors can use to foster innovation and improve efficiency.

We looked at how DOD labs use authorities to:

manage labs with greater efficiency and less red tape

make small purchases to support lab activities more quickly

While labs have taken advantage of most of these authorities, we recommended that they find ways to maximize their use.