BLUF: is it appropriate to use O&M funding (no matter which branch of service provided it) for basic or applied research? Also, what regulation should i be researching for this information.
Unless specifically identified by Congress, you cannot use O&M funding for Basic and/or Applied Research Activities, per the DoD Financial Management Regulation. The specific areas to look for the support for this is cited below:
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DoD FMR, Volume 2A, Chapter 1, para 010201, Criteria for Determining Expense and Investmest Costs lays out all the items that are expenses or investments and provides specifics on what O&M funds should be used to acquire. In that same chapter, para 010213, RDT&E Definitions and Criteria, the regulation explains what RDT&E funds should be used to acquire/support.
In DoD FMR, Volume 2B, Chapter 5, para 050201 RDT&E Budget Activities, it specifies that RDT&E funds should be used to pay for Budget Activity 1 - Basic Research and Budget Activity 2 - Applied Research.