Independent research and development (IR&D) is research and development initiated and conducted by contractors. It is not specified under any contract or grant and is funded and managed at the contractor's discretion from contractor-controlled resources, with a portion of the costs later recovered in the overhead portion of Department of Defense (DoD) contracts. In terms of its most direct and basic contributions to national interest, the goals of IR&D are to (1) encourage contributions to future defense systems; (2) hedge against the uncertainties, inflexibilities, and short time horizons of defense planning and systems development; and (3) promote the movement of new ideas and technologies into enhanced defense capabilities. The report is based on previous studies, hearings, statements, and articles on IR&D, as well as on interviews and reviews of company processes covering 12 contractors and data analyses of 300 operating divisions of 100 contractors over a 17-year period. The authors describe IR&D and the process by which the DOD supports these industry efforts; develop a set of goals that would justify DOD support; consider aspects of management, administration, and cost in light of IR&D goals; and make policy recommendations.