Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

Copyright © 2002 by Greenwood Consulting Group, Inc.

You may determine that you need to acquire or otherwise access some unique equipment as part of your SBIR or STTR project. If that is the case, you should carefully decide how you will access that equipment and cover its cost.

The first consideration in a Phase 1 project is to determine whether the agency will permit the purchase of equipment as part of the project budget. Some agencies will, others will not. The logic in not allowing such purchases is clear: why should the agency pay for you to buy an expensive piece of equipment for a six month feasibility study—especially if the project proves to be infeasible?

If purchase is not allowed, then consider including a direct charge to the project for the cost of leasing the equipment or accessing the equipment through a time share arrangement. Not only does this help cover the cost of the equipment usage, but also may cause the agency to change its mind about allowing you to buy rather than lease it: we know of several situations in which the cost to lease or time share the equipment is so high relative to the cost of purchase that the agency allowed the SBIR/STTR company to purchase it instead.

If you are allowed to purchase equipment for your project, and if you pay for it out of the direct cost related project costs, then you will need to consider who owns the equipment after it is bought. Most SBIR/STTR companies assume that (since they requested the equipment as part of their project budget, bought the equipment, and are the only user of the equipment) that they own it. This is not always the case. As a rule of thumb, if the agency made the SBIR/STTR award as a grant, then your company owns the equipment, whereas awards made as contracts usually means that the equipment ownership remains with the Federal government. In the latter case, you may be able to ultimately negotiate with the agency to take ownership of the equipment, but this is not automatic or guaranteed, and you certainly can’t put the equipment on your balance sheet as a company asset when you don’t own it.

Would you prefer to circumvent all of the questions about ownership and allowablility of equipment purchase? Then one answer is to buy the equipment out of other, non SBIR/STTR funds. You can then recoup some of the cost of the equipment purchase by including an appropriate depreciation expense as part of your indirect rate. Note this means that you can only get "reimbursed" for the equipment cost over time (minus salvage value), and that the reimbursement is spread across all of your projects (SBIR/STTR, private sector, or otherwise), so it is not a perfect alternative.

Three final points about equipment and the SBIR/STTR program.

First, do not expect the agency to allow you to acquire, as direct project expenses, basic equipment that they believe a company like yours and in your industry should already own—put another way, do not write in the cost of setting up your basic business equipment and furniture as a direct project cost in your SBIR/STTR cost proposal.

Second, note that there can be a difference in how you treat the cost of the equipment itself versus its operational costs. For example, you may utilize in an SBIR/STTR project a piece of fully depreciated equipment that your firm already owns, which suggests that the cost of that equipment may not be not directly chargeable to the project, but the costs of using the equipment on the SBIR/STTR project are—provided that such costs (like disposables or consumables) are for the exclusive use of the project.

Finally, consider accessing sophisticated equipment through universities or federal laboratories. The latter are restricted to making available to you equipment that is unique and therefore non-competitive with what is available commercially, and be sure to understand the full cost of their use which may include labor costs related to a mandatory federal lab operator.