This response is based on the information provided. We suggest you discuss with your contracting officer, financial manager, and/or legal department as appropriate.
This is not a FAR question as the FAR does not cover grants. It is a finance question.
The question you asked centers around the payment of a GS civilian through a research institute DoD grant. The Code of Federal Regulations (e-CFR) has an entire section, Title 2, with OMB guidance for Grants and Agreements.
Each grant is written specifically and will include/exclude costs of certain types. GS civilians that work in an RDT&E environment are typically paid with RDT&E appropriations.
I strongly suggest you contact the Agency that granted the funds for this research project for clarification on the ability to fund a GS civilian researcher.