Appendix 2: Definitions In this report, R&D refers to research and development activities in the sciences and engineering, including major capital equipment for R&D as well as R&D facilities. The definitions below are used by the National Science Foundation, the Office of Management and Budget, and federal agencies in reporting R&D funding data. Research is systematic study directed toward more complete scientific knowledge or understanding of the subject studied. The federal government classifies research as either basic or applied according to the objective of the sponsoring agency. In basic research the objective is to gain knowledge or understanding of phenomena without specific applications in mind. In applied research the objective is to gain knowledge or understanding necessary for meeting a specific need. Development is the systematic use of the knowledge or understanding gained from research directed toward the production of materials; devices; systems; or methods, including design, development, and improvement of prototypes and new processes. It excludes quality control, routine product testing, and production. R&D funding normally includes those personnel, program supervision, and administrative support costs directly associated with R&D activities. Laboratory equipment is also included. Defense R&D also includes testing, evaluation, prototype development, and other activities that precede actual production. Basic research, applied research, and development together constitute conduct of R&D. Funding for R&D facilities includes construction, repair, or alteration of physical plant (e.g., reactors, wind tunnels, particle accelerators, or laboratories) used in the conduct of R&D. This category also includes funding for major capital equipment used in the conduct of R&D. As used in this report, R&D and total R&D refer to conduct of R&D plus R&D facilities (including capital equipment for R&D). The federal R&D funding data in this report are presented in terms of budget authority. Budget authority is the initial budget parameter for congressional action on the President's proposed budget. Other R&D data sources may express R&D funding in terms of obligations or outlays. There are also R&D data sources which obtain funding data from funding recipients (companies, universities) rather than from funding sources (agencies). Budget authority is the legal authorization to expend funds. Obligations represent orders placed, contracts awarded, services received, and similar transactions during a given period, regardless of when the funds were appropriated and when the future payment of money is required. Outlays represent checks issued and cash payments made during a given period, regardless of when the funds were appropriated or obligated. (Outlays are equivalent to expenditures.) As an example, Congress may appropriate $100 million to NASA in FY 1999 for an R&D laboratory. NASA may then issue contracts to build the lab and sign $50 million of the contracts in FY 1999 and $50 million in FY 2000. Upon completion of the lab in FY 2001, NASA may then write checks to the contractors for a total of $100 million. Budget authority would be $100 million in FY 1999; obligations would be split $50 million each in FY 1999 and FY 2000; outlays would be $100 million in FY 2001. In the federal budget process, there is normally a lag between budget authority and outlays for large capital projects and research contracts; budget authority and outlays usually occur in the same year for recurring expenses such as staff salaries. (Definitions adapted from National Science Foundation, Federal R&D Funding by Budget Function: Fiscal Years 1999-2001, Arlington, VA, 2001.)