The Small Business Innovation Research (“SBIR”) Program is codified at 15 U.S.C. §638. The statutory purpose of the SBIR Program is to strengthen the role of innovative small business concerns (“SBCs”) in Federally-funded research or research and development (“R/R&D”). Each Federal agency with an extramural budget for R/R&D in excess of $100,000,000 must participate in the SBIR Program and reserve minimum percentages of their extramural R/R&D budgets for awards, i.e., contracts, grants, and cooperative agreements, to small business concerns. Federal agencies participating in the SBIR Program are obligated to follow the guidance provided by the SBA’s SBIR Policy Directive.
Each agency is required to review its rules, policies, and guidance on the SBIR Program to ensure consistency with the Policy Directive and to make any necessary changes in accordance with each agency’s normal procedures. In December 2019, the U.S. National Institutes of Health (“NIH”) issued its updated Grants Policy Statement, which provides details about participation in the SBIR program.
The SBIR program is intended to encourage small business private-sector commercialization of technology. Only United States SBCs are eligible to submit SBIR applications and if it appears that an applicant does not meet the size eligibility requirements, NIH will not make an SBIR award until SBA provides a size determination. In order to receive funding under the SBIR program, the SBC must meet all of the following criteria:
- Must be a for-profit organization and located within the United States or makes a significant contribution to the US economy (through payment of taxes or use of U.S. materials).
- Must be an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative. Foreign business entities must make up less than 50 percent of a joint venture.
- The entity must meet one of the following requirements:
- Must be more than 50 percent directly owned and controlled by one or more individuals (who are U.S. citizens or U.S. permanent resident aliens), other business concerns (each of which is more than 50 percent directly owned and controlled by individuals who are U.S. citizens or U.S. permanent resident aliens), an Indian tribe, Alaska Native Corporation (“ANC”) or Native Hawaiian Organization (“NHO”), or any combination of these.
- Must be more than 50 percent owned by multiple venture capital operating companies, hedge funds, private equity firms, or any combination of these. No single venture capital operating company, hedge fund, or private equity firm may own more than 50 percent of the concern. Note that there are limitations on the percentage of awards an agency makes that can go to these entities.
- Must be a joint venture in which each entity to the joint venture must meet the requirements detailed in a. or b. detailed above.
- The entity must not have more than 500 employees, including its affiliates. Companies are considered affiliates of one another when one concern controls or has the power to control the other; or a third party controls or has the power to control both entities.
- The entity must meet the other regulatory requirements found in 13 CFR 121 (Small Business Size Regulations).
Once you have determined that your entity is eligible to participate in the NIH’s SBIR program, the next step is to gain an understanding of the SBIR program. The SBIR program consists of three phases:
Phase 1
The objective of this phase is to establish the technical merit and feasibility of proposed research or R&D efforts and to determine the quality of performance of the applicant prior to providing additional Federal support.
The total amount and fees for Phase 1 may not exceed $252,131. NIH has received waivers from SBA to issue an award greater than the Hard Cap ($252,131) for Phase 1 if this cap interferes with NIH’s ability to meet its mission.
A minimum of 67 percent of the research or analytical effort must be completed by the SBC. Total payments made to consultants, consortium participants and contractors for portions of the scientific/technical effort may not exceed 33 percent of the total requested amount.
Phase 2
The objective of this phase is to continue the research or R&D efforts initiated in Phase I. Funding will be based on the results of Phase I and the scientific and technical merit and commercial potential of the Phase II application. Only Phase I recipients are eligible to receive Phase II funding. Phase 2 applications may be submitted after the Phase 1 award is made (NIH expects that Phase 2 applications will usually be submitted 2 years after the completion date of the Phase 1 award).
The total amount and fees for Phase 2 may not exceed $1,680,879. NIH has received waivers from SBA to issue an award greater than the Hard Cap ($1,680,879) for Phase 2 if this cap interferes with NIH’s ability to meet its mission.
A minimum of 50 percent of the research or analytical effort must be completed by the SBC. Total payments made to consultants, consortium participants and contractors for portions of the scientific/technical effort may not exceed 50 percent of the total requested amount.
Phase 3
The objective of this phase is for the SBC to pursue, with non-SBIR funds, commercialization of the results of the research or R&D funded in Phases 1 and 2.
NIH also has a “Fast-Track” application process. This is used to expedite the award decision and funding of SBIR Phase 2 applications. This application process allows Phase 1 and 2 applications to be submitted and reviewed simultaneously. The Fast-Track process is meant to expedite awards for scientifically meritorious projects that have a high potential of being commercialized. Organizations thinking about submitting an application through the Fast-Track process should consult with their cognizant NIH program staff to determine if it is appropriate for your organization.
When reviewing these details, you may notice that the SBIR program is very similar to the Small Business Technology Transfer (“STTR”) program. However, there are two major differences between these programs. Under the SBIR award, the Project Director/Principal Investigator (“PD/PI”) must have his/her primary employment with the SBC at the time of award and throughout the period of performance. Additionally, the SBIR program allows subcontracting but does not require it. Therefore, the SBC may conduct the entire SBIR project without any outside collaboration.
Lastly, a for-profit organization is required to have a non-Federal audit if, during its fiscal year, it expended a total of $750,000 or more under one or more Department of Health and Human Services (“HHS”) award(s), such as the SBIR program. The HHS award(s) can be as a direct recipient or as a consortium participant. The organization may get one of two types of audits: (1) a financial-related audit (as defined in, and in accordance with, the Government Auditing Standards (commonly known as the “Yellow Book”), or (2) an audit that meets the requirements of 45 CFR 75, Subpart F—Audit Requirements. Audits must be completed and submitted to the National External Audit Review Center within 30 days after receipt of the auditor’s report(s), or 9 months after the end of the audit period, i.e., the end of the organization’s fiscal year, whichever is earlier.
For-profit organizations expending less than $750,000 a year are not required to have an annual audit for that year but must make their grant-related records available to NIH or other designated officials for review or audit.
If you have questions concerning the SBIR program or other contracting matters, do not hesitate to contact Cherry Bekaert for advice and assistance. Additionally, you can find more details in NIH’s December 2019 Grants Policy Statement.
