FAR 35.001—Definitions.
Plain-English Summary
FAR 35.001 provides the core definitions used in the research and development (R&D) portion of the FAR, specifically defining applied research, development, and recoupment. These definitions matter because they determine how agencies and contractors classify technical work, which in turn affects cost allowability, contract structuring, funding decisions, and whether certain Government-funded costs may later be recovered. The section distinguishes applied research from development by focusing on the purpose of the effort: applied research seeks to exploit scientific discoveries and advance the state of the art, while development is the systematic use of scientific and technical knowledge to create or improve a product or service to meet specific performance requirements. It also clarifies that development includes design engineering, prototyping, and engineering testing, but excludes subcontracted technical effort used solely to create an additional source for an existing product. Finally, the section defines recoupment as the Government’s recovery of Government-funded nonrecurring costs when contractors later sell, lease, or license the resulting products or technology to non-Federal buyers. In practice, these definitions are important because they affect how contracting officers describe the work, how contractors charge and justify costs, and whether the Government may seek to recover certain investment costs later on.
Key Rules
Applied research scope
Applied research is work that normally follows basic research and seeks to determine and exploit the potential of scientific discoveries, improvements, or techniques. It is aimed at advancing the state of the art, not at designing a specific product for sale.
Applied research vs. development
For cost principle purposes, efforts whose principal aim is the design, development, or testing of specific items or services for sale are not treated as applied research. Those efforts fall under the definition of development instead.
Development definition
Development means the systematic use of scientific and technical knowledge to design, develop, test, or evaluate a potential new product or service, or an improvement to an existing one, to meet specific performance requirements or objectives.
Development activities included
The definition of development expressly includes design engineering, prototyping, and engineering testing. These activities are treated as part of the development effort when they are part of creating or improving a product or service.
Additional source exclusion
Development excludes subcontracted technical effort performed solely to develop an additional source for an existing product. That type of effort is carved out and is not treated as development under this part.
Recoupment definition
Recoupment means the Government’s recovery of Government-funded nonrecurring costs from contractors that sell, lease, or license the resulting products or technology to non-Federal buyers. The focus is on recovering Government investment when the contractor later commercializes the result.
Responsibilities
Contracting Officer
Classify the work correctly as applied research, development, or another category when structuring the acquisition and evaluating cost issues. The contracting officer should also consider whether recoupment rights may apply when Government-funded nonrecurring costs are involved.
Contractor
Charge and justify costs consistent with the correct R&D category and understand that work aimed at specific items or services for sale is development, not applied research, for cost principle purposes. The contractor must also recognize potential recoupment exposure if Government-funded nonrecurring costs are later recovered through commercial sales, leases, or licenses.
Agency
Use these definitions to support consistent policy, funding, and contract administration decisions for R&D efforts. The agency should also identify when Government-funded nonrecurring costs may warrant recoupment provisions or follow-on recovery actions.
Practical Implications
Misclassifying applied research as development, or vice versa, can affect cost allowability, pricing, and how the effort is described in the contract or proposal.
Contractors should be careful when a project shifts from exploratory work to product-specific design or testing, because the applicable FAR category may change as the work becomes more targeted.
The exclusion for subcontracted technical effort to develop an additional source for an existing product is easy to overlook and can lead to incorrect treatment of supplier qualification work.
Recoupment issues matter when Government funding helps create a product or technology that later enters the commercial market; contractors should track nonrecurring costs and commercialization plans early.
Contracting officers should document the intended purpose of the effort clearly so later disputes over whether work was research, development, or recoupable investment are easier to resolve.
Official Regulatory Text
Applied research means the effort that (a) normally follows basic research, but may not be severable from the related basic research; (b) attempts to determine and exploit the potential of scientific discoveries or improvements in technology, materials, processes, methods, devices, or techniques; and (c) attempts to advance the state of the art. When being used by contractors in cost principle applications, this term does not include efforts whose principal aim is the design, development, or testing of specific items or services to be considered for sale; these efforts are within the definition of "development," given below. Development , as used in this part, means the systematic use of scientific and technical knowledge in the design, development, testing, or evaluation of a potential new product or service (or of an improvement in an existing product or service) to meet specific performance requirements or objectives. It includes the functions of design engineering, prototyping, and engineering testing; it excludes subcontracted technical effort that is for the sole purpose of developing an additional source for an existing product. Recoupment , as used in this part, means the recovery by the Government of Government-funded nonrecurring costs from contractors that sell, lease, or license the resulting products or technology to buyers other than the Federal Government.