The development of the cost principle has had a controversial history in determining when IR&D effort is "required in the performance of a contract" or "sponsored by a grant or cooperative agreement."

The Armed Services Procurement Regulation 15-205.35 in 1959, which predated the FAR, provided that IR&D "is that research and development which is not sponsored by a contract, grant or other arrangement." The ASPR Council considered changing "not sponsored by" to "not sponsored by or in support of a contract" but industry opposition prevailed when it asserted the change could be interpreted as including IR&D work completely unrelated to a contractor’s government contracts. The ASPR was changed in 1971 to state that IR&D "is that technical effort which is not sponsored by, or required in the performance of, a contract or grant."

In 1974, the General Accounting Office attempted to broaden the type of development effort not allowable as IR&D to exclude not only that technical effort explicitly required by the terms of the contract but also the effort implicitly required to fulfill the contract’s objectives. Both industry and the DOD opposed GAO’s interpretation where the DOD stated the concept that all work implicitly required by a contract should not be allowed as IR&D leaves "a great deal of impreciseness in the definition."

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