1. Is there a limit (%) on how many test articles can be funded with a program's RDTE?
2. We are not initially procuring FEDS, so would the cost to modify the system with a new dyno be " borne by the Procurement and O&M appropriations"?
Generally speaking, what you are planning to use the items for, not the quantity, will determine the appropriated type (color) of money to use to purchase it. RDT&E funds should be used for all items being purchased with the intended purpose of developmental and/or operational testing. Items purchased with RDT&E funds should not be made part of the operational inventory. If the intent is to use the items for developmental/operational testing and then place them in the operational inventory, procurement dollars should then be used.
As for what color of money to use when funding system upgrades/modifications., there are a few things to consider. If the purpose of the modification is to increase performance or extend the product's useful military life, then the program office should fund the development and test efforts with RDT&E funds. If the item is not to increase performance or useful life, the program office will need to determine if developmental/operational testing needed? If yes, then RDT&E funds are used for development and test efforts. If no testing is required, then the program office must determine if the item is still in production? If so, then the program should fund development and test efforts with Procurement funds. It not in production, program should fund development and test efforts with O&M funds.
Procurement funds are then used for the acquisition and installation of the modification kits.
(Source: DoD FMR, Vol. 2A, Ch. 1.)