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. This authority provides lab  directors with the means to fund some of the research projects that  the lab will pursue. These authorities provide lab directors with a  streamlined and accelerated hiring process. This authority provides  methods for effective lab management operations. This authority facilitates the purchasing  process for labs. 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. 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. 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. Similarly, we found that the policy  may, in practice, create a disincentive for Army lab directors to use  the authority. 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. Officials view  direct hire authority as allowing the labs to compete with private industry  for qualified applicants. 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. We have previously found that Energy’s labs can use  funding for minor infrastructure improvements. 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. In DOD’s written comments, reproduced in appendix III, DOD  concurred with our three recommendations. 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. Micro-purchase Authority. 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
DOD Defense Laboratories Office;
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 Research Laboratory;
Army Aviation and Missile Research, Development, and Engineering
Air Force Research Laboratory;
Naval Research Laboratory;
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.
Why GAO Did This Study

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.

What GAO Found

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.

What GAO Recommends

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.