Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

Copyright © 2003 by Greenwood Consulting Group, Inc.

We were at an SBIR event recently at which a successful SBIR winner told the group that some proposers believe that the project should be completed and then the proposal should be written for SBIR/STTR funding to pay for it.

This seems odd to many of us, but apparently it is not unusual in academic circles like universities. We don’t think it is good practice in SBIR/STTR, for several reasons.

First, the people who manage SBIR/STTR programs for the various agencies have said that it isn’t the right way to do things. JoAnne Goodnight, who runs the second largest SBIR program (and the largest program among agencies that make their awards as grants) for the National Institutes of Health (NIH), has stated that SBIR is not a "reimbursement program," meaning it is not intended to pay you for what you’ve already done.

Second, there is no guarantee that you are going to get the SBIR/STTR award, so if you go ahead and incur all the expenses of doing the work, you run the risk of being stuck with the cost. At a minimum, you should not do this unless it is very clear that you can afford to foot the bill for the R&D.

Third, don’t confuse doing some preliminary research with doing the SBIR/STTR project. Some agencies’ reviewers, including some at NIH, like proposals in which the company has already done some work that suggests that they are on the right track with the proposed research. Before undertaking any preliminary work, we recommend that you clarify for yourself and your team how it will differ from the Phase 1 project, and that you can afford the cost of the preliminary work you have defined.

Fourth, everyone in your company and your subcontractors are supposed to keep timesheets that document how they spent their time and to help justify indirect rates charged. There are going to be obvious problems with the timesheets during the Phase 1 project period if the research was actually done many months before. You might even have to write your Phase 2 proposal from a local Federal penitentiary.

Finally, if you only write SBIR/STTR proposals for work that you have done, you probably will only undertake projects that you think have a very high probability of success. The SBIR/STTR programs are intended to fund projects that have substantial technical risk—projects that may very well fail. Only pursuing sure bets is inconsistent with the intent of the SBIR/STTR programs, and reduces the opportunity to have significant innovations as outcomes. This is not in the best interest of either the SBIR/STTR programs, or your business.

One exception to all of this: several agencies have provisions by which you can begin working on the project before the SBIR/STTR award is finalized. The general concept is for companies who have been notified that the agency wants to make an award to them may begin working on the project while the award is negotiated. Note, however, that this is not a "do the work, then write the proposal" situation, but instead is "write the proposal, get notification of award, start the work, finalize the award." It also is important to note that, in some of these agencies, the SBIR firm is at risk: if the firm and the agency can’t agree on award terms, the agency has no obligation to pay for the work that the company has already done during the negotiation period. Not all agencies allow this "work before you sign" early start on an SBIR/STTR project, so if you are interested in doing this, find out if yours does and its rules/regs for doing so.