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    The question is then raised: Under the same qualifying circumstances that permit OT&E test assets to be paid for with procurement funding, can the conduct of OT&E (services, support, test ranges, etc) also be paid for with procurement funds?


    Answer

    No, procurement funding should not be used to fund the conduct of operational test and evaluation (OT&E) – even if procurement funding was rightfully and legally used to procure the low rate initial production (LRIP) test assets that will be used to conduct the OT&E.  To fully understand this, you need to first understand how the procurement of LRIP assets should be funded, and then how the conduct of the actual OT&E test event should be funded.
    How the procurement of LRIP assets should be funded:

    Within DoD’s Financial Management Regulations (FMR) DoD 7000.14-R, the subject of LRIP assets is discussed in the Section dealing with “RDT&E Definitions and Criteria” and the paragraph on “Test Articles and Test Support” (Volume 2A, Chapter 1, 010213.C.5). The general rule is that all research and development-related tests and activities preceding and leading to acceptance of the system for operational use (i.e., actions prior to the Full Rate Decision Review Point) should be funded with a RDT&E appropriation. As such, RDT&E is the default appropriation for development and pre-production prototypes that will be used for Developmental Test and Evaluation (DT&E); for development and pre-production prototypes that will be used for Operational Test and Evaluation (OT&E); or for LRIP assets that will be used for operational test purposes.  Once again, this is supported by the FMR:

    Volume 2A, Chapter 1, 010213.B: Research, Development, Test and Evaluation (RDT&E) - Definitions and Criteria, General Criteria:  When, after consideration of the following criteria, there is doubt as to the proper assignment of costs between appropriations, the issue should be resolved in favor of using RDT&E funding.
    However, OSD and Congress recognize the need for some flexibility at this critical point as the program transitions from development to production (and, therefore, transitions from using RDT&E to using procurement funds for its contracts).  Therefore, while LRIP assets intended for operational testing purposes are normally funded with a RDT&E appropriation, there are circumstances when the use of  procurement funding is more appropriate.  As you partially reference in your question, LRIP assets have 3 primary purposes and funding types as outlined in the FMR (Volume 2A, Chapter 1, 010213.C.5.a.3 and 010213.C.5.d):
    1)  Provide production configured or representative articles for operational test*
    a.  procurement of LRIP assets should be RDT&E funded
    2)  Establish an initial production base for the system
    a.  procurement of LRIP assets should be procurement or O&M funded**
    3)  Permit an orderly increase in production rate for the system
    a.  procurement of LRIP assets should be procurement or O&M funded**
    (*Furthermore, if the acquisition strategy states the LRIP assets  will be used for operational test purposes and then placed into the operational inventory, or that LRIP test articles (including end items, weapons, equipment, major test vehicles, and components) of the type routinely procured to meet established general requirements such as operational training, operational use, or inventory assigned for use in support of approved research and development programs that are not consumed in testing, then these items are all most properly financed by one of the procurement or O&M appropriations.**)
    (**The decision to use procurement or O&M should be made using the expense and investment criteria).
    On the other hand, if the acquisition strategy states the LRIP assets will be used for operational test purposes but does not address their disposition after testing, RDT&E funding should be requested (recall that as per the FMR stated above, “When, after consideration of the following criteria, there is doubt as to the proper assignment of costs between appropriations, the issue should be resolved in favor of using RDT&E funding”).  In this second example, if a later decision is made to place those test articles into the operational inventory, the cost to modify or refurbish the articles for operational configuration would be borne by either procurement or O&M, consistent with the expense and investment criteria as stated above. Whichever appropriation is considered appropriate under given circumstances, the program office must provide specific justification in the budget request documentation (R-Forms or P-Forms) prepared for the POM/BES submission to OSD and the follow-on President’s Budget submission to Congress.
    How the  OT&E test event should be funded:

    So while appropriation law and DoD policy allow for the procurement of LRIP assets procured for use in OT&E with procurement funds under certain circumstances (as discussed above), there is no such allowance to use procurement funds for the conduct of the OT&E test event itself.  This is stated quite clearly in the FMR:

    Volume 2A, Chapter 1, 010213.B: Research, Development, Test and Evaluation (RDT&E) - Definitions and Criteria, General Criteria:  “When, after consideration of the following criteria, there is doubt as to the proper assignment of costs between appropriations, the issue should be resolved in favor of using RDT&E funding. In general, the types of costs to be financed by RDT&E and related appropriations are:
    1. RDT&E Appropriations
    a. RDT&E will finance research, development, test and evaluation efforts performed by contractors and government installations, including procurement of end items, weapons, equipment, components, materials and services required for development of equipment, material, or computer application software; its Development Test and Evaluation (DT&E); and its Operational Test and Evaluation (OT&E).”

    Furthermore, even if the OT&E is in support of a product improvement to an existing system (i.e., a modification that increases performance of the system), the OT&E should still be funded with RDT&E funds, as outlined in the following Product Improvement Funding decision tree (i.e., if your product improvement requires an OT&E, then you should fund the development and test of the mod kits with RDT&E funds):



    As always, there are exceptions.  When it comes to the funding of testing, the FMR formally addresses 4 exceptions (Volume 2A, Chapter 1,010213.C.5.b):
    “Conduct of testing that is not associated with RDT&E, or testing conducted after fielding or acceptance for operational use, such as the examples noted below, will be financed in the Procurement or O&M appropriations, as appropriate.
    (1) Acceptance, quality control and surveillance testing of articles obtained for other than RDT&E purposes.
    (2) Routine testing in connection with logistic support.
    (3) Testing related to the operation and maintenance of equipment and material acquired for use under appropriations other than RDT&E.
    (4) Testing required to prove the capability of facilities to produce items which have been approved for production will be funded by procurement as part of the initial acquisition cost.

    Note that none of the above 4 exceptions are formal OT&E events.

    In addition, the Product Improvement Funding decision tree provided above allows for the use of procurement to fund the development and test of mod kits ONLY if it is a product improvement that does not increase performance, does not require a formal developmental test (DT) or OT&E, and is still in production. 

    Lastly, there is always the possibility that there exist some very unusually-unique aspects to your program that for some reason required procurement funds be used to pay for the OT&E test event itself.  In that case, prior-approval of such would need to be specifically provided by the program’s Milestone Decision Authority (MDA), included in the program office’s signed/approved Acquisition documentation (e.g., Acquisition Strategy (AS), Acquisition Program Baseline (APB), etc.) and specifically justified in the budget request documentation (P-Forms), prepared for President’s Budget submission to Congress – all addressing why procurement funds, vice RDT&E, were required to be used for OT&E.

    In summary, all OT&E activities, to include services, support, test ranges, etc., should be funded with RDT&E funds – even if the LRIP test assets being used to conduct the OT&E were rightfully and legally funded with procurement.  As always, if you have additional concerns, you should consult with your local Comptroller and/or Legal for further guidance.



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