FAR 35.003—Policy.
Plain-English Summary
FAR 35.003 states the basic policy framework for using contracts in research and development (R&D) settings and for handling two related administrative issues: cost sharing and recoupment. It explains when the Government should use a contract versus a grant or cooperative agreement, focusing on the principal purpose of the transaction and whether the work is for the direct benefit or use of the Federal Government or instead to stimulate or support R&D for another public purpose. It also points readers to the rules that govern cost sharing under Government contracts, including the cross-references to FAR 16.303 and 42.707(a) plus agency procedures, and it addresses recoupment when it is not otherwise required by law. In practice, this section is important because it helps contracting officials choose the correct legal instrument at the outset, avoid misusing contracts for assistance-type purposes, and apply agency-specific policies consistently when cost sharing or recoupment issues arise. For contractors, it signals that cost-sharing commitments and any recoupment obligations are not free-form negotiations; they must fit within the FAR framework and the agency’s implementing procedures.
Key Rules
Use contracts for direct benefit
A contract is appropriate only when the principal purpose is acquiring supplies or services for the direct benefit or use of the Federal Government. If the transaction is really about obtaining work for the Government’s own needs, the contract vehicle is the correct choice.
Use assistance for public purpose R&D
When the principal purpose is to stimulate or support research and development for another public purpose, the Government should use a grant or cooperative agreement instead of a contract. The key distinction is whether the Government is buying something for itself or supporting broader R&D objectives.
Follow cost-sharing rules
Any cost-sharing policy under a Government contract that is not required by law must follow FAR 16.303, FAR 42.707(a), and applicable agency procedures. This means cost sharing is controlled by the FAR framework and agency implementation, not by ad hoc agreement alone.
Apply agency recoupment procedures
If recoupment is not otherwise required by law, it must be handled in accordance with agency procedures. Agencies therefore control the details of when and how recoupment is pursued unless a statute already dictates the outcome.
Responsibilities
Contracting Officer
Determine the proper instrument based on the principal purpose of the transaction; ensure contracts are used only for acquisitions for the Government’s direct benefit or use; apply the FAR and agency rules when negotiating or administering cost sharing; and follow agency procedures for any recoupment action not mandated by law.
Agency
Issue and maintain procedures implementing cost sharing and recoupment policies; ensure those procedures are consistent with FAR 16.303 and 42.707(a); and provide guidance so contracting personnel use the correct instrument for R&D-related transactions.
Contractor
Understand that cost-sharing commitments must comply with the applicable FAR provisions and agency procedures; negotiate and perform in accordance with the selected instrument; and comply with any recoupment terms or agency procedures that apply to the contract.
Program/Technical Officials
Help define the actual principal purpose of the requirement so the Government selects the correct vehicle; distinguish between acquisition for direct Government use and support for broader R&D public purposes; and coordinate with contracting personnel when cost sharing or recoupment issues may affect the project.
Practical Implications
The biggest day-to-day issue is choosing the right legal instrument early. If the Government’s real purpose is to support R&D for a public purpose rather than buy something for its own direct use, using a contract can create a legal and policy mismatch.
Cost sharing is not something agencies or contracting officers should invent from scratch. If it is used, it must fit the FAR cross-references and agency procedures, so contractors should always verify the basis for any proposed cost-share requirement.
Recoupment is agency-driven unless a law already requires it. That means contractors should look for the agency’s specific policy and contract language rather than assuming a uniform Government-wide rule.
A common pitfall is confusing the purpose of the transaction with the subject matter of the work. Even if the work is R&D, the deciding factor is whether the Government is acquiring services for its own direct benefit or supporting a broader public purpose.
This section is a reminder that instrument selection has legal consequences. Misclassifying an assistance relationship as a contract can lead to compliance problems, protest risk, and administrative complications later in performance or closeout.
Official Regulatory Text
(a) Use of contracts. Contracts shall be used only when the principal purpose is the acquisition of supplies or services for the direct benefit or use of the Federal Government. Grants or cooperative agreements should be used when the principal purpose of the transaction is to stimulate or support research and development for another public purpose. (b) Cost sharing. Cost sharing policies (which are not otherwise required by law) under Government contracts shall be in accordance with 16.303 , 42.707 (a) and agency procedures. (c) Recoupment. Recoupment not otherwise required by law shall be in accordance with agency procedures.