Vern,
Your posts seem to reflect an idealistic approach that every CO in every agency perfectly understands every piece of guidance that is given and implementation is always by the letter of the law. That has never been the case. While Infoseeker is a little abrasive, I think he captures exactly how this will be read, which is a mandate to use FY10 rates.
I can't necessarily blame the CO's on this one. There is certainly an R&D contract exception buried by reference in the law, but the law uses the 10 USC 235 definition of service contracts (which excludes R&D) and not the FAR Part 37 definition, which does not exclude R&D. So the CO's are getting guidance that simply says start with FY10 rates for service contracts over $10M, but no guidance that clarifies the specific defintion of service contract for them. CO's aren't going to dig that far into the implementing documentation to figure out what they need to do (nor should they).
I have a practical example. We are entering into negotiations on a contract that should easily meet the R&D exception. First Gov't offer includes FY10 rates (which I have no problem with as a starting point). After I explain the Gov'ts misinterpretation and hold our FY12/13 rates I was told there was no R&D exception and that the rates were non-negotiable. Pushback on my end resulted in the Colonel calling the General Manager of my company.