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Oregon sbir/sttr resource toolkit A Guide to sbir/sttr Federal Funding oregon economic & community development department 775 Summer St., NE, Suite 200 Salem, OR 97301–1280 1–503–986–0123 http://www.econ.state.or.us/ [email protected] oregon business. come for a week. stay forever.

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Oregon sbir/sttr resource toolkit

A Guide to sbir/sttr Federal Funding

o r e g o neconomic & community development department

775 Summer St., NE, Suite 200Salem, OR 97301–1280

1–503–986–0123http://www.econ.state.or.us/

[email protected]

oregon business. come for a week. stay forever.

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SBIR/STTR in Oregon Small businesses in Oregon have received, since 1983, 738 SBIR/STTR awards. These awards total approximately $218 million and have been received by 191 firms.

According to research conducted by InKnowvation.com, the typical Oregon SBIR/STTR award recipient is employed by a small business with between 1–4 employees. Oregon companies have leveraged SBIR/STTR funds: 8 Oregon firms have gone public and 12 have received venture capital funding.

Looking at Oregon’s small business R&D experience shows a higher success rate from 1983–2004 with

NIH ($106 million), DOD ($46 million), NASA ($28 million), DOE ($21 million) and NSF ($12 million). Among the smaller agencies, Oregon small businesses have found success with the USDA and the EPA.

The Oregon OpportunityOregon averages 63 SBIR awards and 3 STTR awards per year. Oregon is more successful at attracting Phase I awards. The proportion of Phase I award companies that receive a Phase II is relatively small. The state has not had as much success in the STTR program.

The Oregon SBIR/STTR ProgramOregon Economic and Community Development Department (OECDD) will direct the state’s efforts to capitalize on the SBIR/STTR programs. Working with small business service providers around the state, OECDD will help qualified small businesses compete

for federal R&D dollars.

Services include assistance in determining if SBIR/STTR programs are right for your business, tips for getting started, an online SBIR/STTR Resource Toolkit, training opportunities, conferences and events and helping your business network.

Program OverviewThe Small Business Innovation Research (SBIR) program strives to stimulate technological innovation, increase and strengthen the role

of small business in meeting the R&D needs of the federal government and increase commercial application of government sponsored R&D efforts.

The Small Business Technology Transfer Research (STTR) program seeks to also stimulate and foster technological innovation through cooperative research and development activities between small businesses and research institutions.

Every federal agency with R&D exceeding $100 million or with budgets for outside/extramural research, must, by law, establish a SBIR/STTR program. Approximately 2.5 percent of each agencies extramural R&D budget must be set aside for the SBIR/STTR program.

Topics range across a broad spectrum of areas, institutes and needs. It is best to understand the mission and needs of the agency, if there is interest in competing for an award.

Federal agencies participating in the SBIR & STTR (denoted by an *) programs are either granting or contracting agencies. Figures in parentheses illustrate FY04 funding levels ~$2B:

Department of Agriculture ($18M) http://www.reeusda.gov/sbir

Department of Commerce ($7M) (NOAA) http://www.nmfs.noaa.gov/trade/newgrant.htm

(NIST) http://www.nist.gov/sbir

Department of Defense* ($1.1B) http://www.acq.osd.mil/sadbu/sbir/

Air Force http://www.afrl.af.mil/sbir/index.htm

Army http://www.aro.army.mil/arowash/rt

BMDO http://www.winbmdo.com/

DARPA http://www.darpa.mil/sbir

Navy http://www.onr.navy.mil/sbir

SOAC http://soal.socom.mil/index.cfm?page=sadbu&sb=sbir

Department of Education ($9M) http://www.ed.gov/offices/OERI/SBIR/

Department of Energy* ($114M) http://sbir.er.doe.gov/sbir

Department of Health and Human Services* ($641M) http://www.nih.gov/grants/funding/sbir.htm

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Department of Homeland Security ($33M) http://www.hsarpasbir.com/

Department of Transportation ($4M) http://www.volpe.dot.gov/sbir/

Environmental Protective Agency ($8M) http://es.epa.gov/ncer/sbir/

National Aeronautics & Space Administration* ($121 M) http://sbir.nasa.gov/SBIR/front1.html

National Science Foundation* ($105M) http://www.eng.nsf.gov/sbir/

Contracting agencies:• Agency establishes plans, protocols, requirements• Highly focused/narrow topics• Procurement mechanism for DOD & NASA• More fiscal requirements• Typically Internal Review• Agencies: DOD, NASA, EPA, DOC, DOT, ED, HHS/NIH

Granting Agencies:• Investigator initiates research approach• Topics are not as specific• Assistance mechanism• Flexible• Typically External Review• Agencies: HHS/NIH, ED, DOE, USDA, NSF

SBIR Awards are given in three phases. Phase I awards, essentially support 6 months of work to determine the feasibility (technically, scientifically, commercially) of ideas. Awards tend to range between $60,000 and $100,000. Successful completion of a Phase I awards, provides an opportunity for the company to compete for a Phase II award. In some cases, Phase II is an invitation only process and must be based on the funded Phase I project. Awards in Phase II support work over a 24–month period and provide $500,000 to $750,000, with the intent of developing a prototype. In Phase III, outside funds are obtained from non-SBIR sources for further development of the prototype, with the intent of creating a commercially viable product to sell to the military or the private sector market.

SBIR Eligibility• Organized for profit US business• At least 51 percent owned by individuals; independently operated • Located in the US

• 500 or fewer employees (including affiliates)• Principal investigator (PI) primarily employed with

small business during project• Allows research institution partners (outsource 33%

in Phase I, 50% in Phase II)

STTR Awards are given in two phases.Phase I award amounts can be up to $100,000 for approximately 1 year. The duration for Phase II awards is 2 years and can be up to $500,000.

STTR Eligibility • Must meet the same criteria as SBIR Program (listed

above)• Small business applicant• Cooperative R&D agreement required

• Minimum of 40 percent by small business• Minimum of 30 percent by US research

institutions (college, university, federal R&D center, non-profit research organization)

• Intellectual property agreement—patent rights go to small firm; government has limited rights

For questions on eligibility, ownership & control contact an SBA size specialist:

http://www.sba.gov/size/indexcontacts.html

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Oregon sbir/sttr Resource Toolkit• Oregon Entrepreneurs Forum (OEF) http://www.oef.org/• Portland Development Commission http://www.pdc.us/• Portland Business Alliance http://www.portlandalliance.com/• Northwest Environmental Business Council (NEBC)

http://www.nebc.org/• Northwest Food Processors Association

http://www.nwfpa.org/nwfpa• Oregon Small Business Development Centers (SBDC)

http://www.bizcenter.org/• Software Association of Oregon (SAO)

http://www.sao.org/• Oregon Bio Association

http://www.oregon-bioscience.com/• Oregon State University (OSU)

http://www.oregonstate.edu/• University of Oregon (UO)

http://www.uoregon.edu/• Oregon Health & Science University (OHSU)

http://www.ohsu.edu/

Additional resources regarding federal R&D opportunities, trends, past solicitations and information can be found at the following sites:• NASA STI Bulletin http://www.sti.nasa.gov/• DOD SBIR/STTR Interactive Topic Information System (SITIS)

http://www.dodsbir.net/sitis• DOD Defense Technical Information Center

http://www.dtic.mil/dtic.sbir• Air Force Research Lab Tech Connect

http://www.afrl.af.mil/techconn/index.html• Air Force Research Lab

http://www.afrl.af.mil/index2.html• US Naval Research Lab http://www.nrl.navy.mil/• Wright Research Site http://www.wrs.afrl.af.mil/• DOE Energy Efficiency & Renewable Energy Inventions &

Innovation Program http://www.eere.energy.gov/inventions• Federal Lab Consortium http://www.federallabs.org/

Agency solicitations contain:• A description of the program• Deadline• Information on funding levels, instructions for applying, method

of selection & review criteria• Research topics and scope of work

There are a variety of organizations that provide information, resources and reference material via the Internet. These pages include information on conferences and training opportunities; links to federal agencies; resources; news relating to SBIR/STTR programs; search services of previous solicitation topics, award winners, federal lab R&D resources; venture capital organizations; proposal preparation and evaluation; budgeting and commercialization.

Oregon SBIR/STTR program does not endorse or favor one program over another. It is up to the individual researcher, entrepreneur or business owner to conduct due diligence and determine the right fit for

their needs.

While many websites provide information free of charge, some provide fee-based services.• Zyn Systems http://www.zyn.com/• SBA Proposal Information & Tips http://www.sba.gov/library/pubs/bookall.html• SBIR/STTR Gateway http://www.zyn.com/sbir/• SBIR Help Desk http://www.sbirhelpdesk.com/• SBIR Conference Information

http://www.sbirworld.com/index.asp• Pacific Northwest National Lab SBIR Alert Service

http://www.pnl.gov/edo/sbir/• TechLink http://www.techlinkcenter.org/• PBC, Inc. http://www.pbcinc.com/pbc/index.asp• Greenwood Consulting

http://g-jgreenwood.home.att.net/• The SBIR Resource Center

http://www.win-sbir.com/• SBIR Coach http://www.sbircoach.com/

Organizations in Oregon with a staff member trained in SBIR/STTR:• Government Contract Assistance Program (GCAP)

http://www.gcap.org/ • Small Business Administration (SBA)

http://www.sba.gov/or/index.html• Oregon Economic & Community Development

Dept (OECDD) http://www.econ.state.or.us/• Oregon Department of Agriculture (ODA)

http://www.egov.oregon.gov/ODA

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Agency reviews can be internal (inside agency) or external (uni-versity personnel, experts in field). Proposal reviews look at:• Merit—technical and/or scientific• Importance of the problem—response to agency need, relevance

to agency mission• Innovation—technical and/or scientific• Potential opportunities & commercialization plan• Credibility of research team• Budget—appropriateness & justification• Completeness of proposal

In preparing a proposal make sure you do the homework!

You should:1. Conduct a literature review—understand the state of the art,

identify applications and markets, recognize alternative methods to solve the issue, see what has been previously funded, become

familiar with agency missions.2. Network—talk to program managers and experts in field.3. Ask for feedback—from others before submission and from

reviewers after submission.

An SBIR proposal must not exceed 25 pages. Recommended sections and suggested page lengths include:• Cover sheet (1 page) • Abstract or project summary (1 page) • Significance of the problem (3 page) • Research Objective (1 page) • Research/Work Plan (6 pages) • Background and related research (2 page) • Key personnel (5 pages) • Future R&D (1 page) • Commercial Applications (2 page) • References (1 page) • Budget (1 page)

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The following information was developed by Ohio’s SBIR Program and included here with their permission.

Basic Proposal Writing Information

In any SBIR solicitation there are a number of key points you should look for immediately. The topics are not necessarily found in the same order as presented below, however, the next five points are provided in order of importance to you, a prospective writer.

1. Deadline: All SBIR solicitations have specified due dates. The length of your lead time will probably be important in your decision on whether to respond.

2. Funding Level: All SBIR solicitations contain explicit funding levels expressed in total dollars available and number of awards to be made. The maximum amount per award may be provided as an average dollar amount and/or in anticipated level of effort (1 man-year of effort, etc.). Use this funding information to determine if responding to this specific solicitation is worth the effort.

3. Application Instructions: Prospective proposal writers need to understand and be able to comply with particular requirements spelled out in the solicitation to which they are responding. Agencies’ general content and format requirements can be very different and distinct.

4. Scope of Work: This is sometimes provided in an explicit statement of work and in great detail. However, more often, the actual scope of work will be determined by the proposer.

5. Additional Information: Most announcements will contain an address and/or telephone number where you can obtain additional materials and application packages, if required.

Initial Considerations After reviewing the SBIR solicitation, the following considerations must be addressed. 1. Is the selected topic truly a match with your

company’s expertise? 2. Does your organization’s work in this field enhance

the opportunity for success of the proposed proposal?

3. What is the Principal Investigator’s (PI’s) personal track record in this field? Is he/she a true match to the proposed topic work?

4. Would the use of a consultant enhance your company’s capabilities or the PI’s capabilities?

5. What capabilities or resources are you missing that would make you more competitive in this arena?

Decision to Write The only resources you need to write a winning proposal are time, talent, and money. Talent in this case is both technical (expertise) and writing talent. If you have a balance between these critical factors and sufficient satisfactory answers to the five questions above, then the benefits probably outweigh the investment. Consequently, it is time to prepare to write.

The development of a proposal needs to be systematic and orderly. Have a plan to attack the process, don’t wait for the process to attack you. Proposal writing need not be an ordeal. The key to success is to adhere to the following: 1. Conduct an honest assessment of your company’s and individuals’

potential specific to the selected topic; and 2. Prepare adequately before starting to write; and 3. Be open and seek creative and constructive review and guidance as

you write.

Addressing Primary Issues Three questions are basic to the majority of research proposals: 1. What do you want to accomplish? 2. Why is it important? 3. What approach will you take?

By this time in the process you should have a good idea about what you want to accomplish and what approach you will take. You should have a basic understanding of what you are missing and where to obtain what you need. In other words, you may be ready to start writing a proposal based on a well-conceived research plan. The preceding effort will save you time and money throughout the proposal process. It is essential that you allow sufficient time to prepare any proposal. Plan to write several drafts; allow time for the 4 r’s (review, rethink, revise, redo).

Writing the Proposal As you initiate the writing process, remember that no amount of skill in writing can disguise research that is poorly designed. No matter how well organized, a proposal that reflects poor methods is most often rejected.

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As you write, review, and edit pay close attention to the following: 1. Orderly presentation of ideas: Thought units, whether single

words, a sentence or a paragraph, or longer sequences, must be orderly.

2. Smoothness of expression: Scientific prose serves a different pur-pose than creative writing. The aim of your SBIR proposal should be one of clear and logical scientific communication.

3. Economy of expression: Since you have a 25-page limit on SBIR proposals, avoid redundancy, wordiness, jargon, and evasiveness.

4. Precision and clarity in word choice: Make certain that every word means exactly what you intend it to mean.

Preparing an SBIR Cost Proposal

The Basics It’s not uncommon for SBIR proposal writers to feel more comfortable with the technical part of the proposal than with cost estimation. However, the cost proposal or budget is an integral part of the total proposal. First, it is important to understand the terms and process of preparing a cost proposal in order to comply with government requirements. Just as significant, an inadequate budget may hamper a firm’s ability to perform the work proposed. Some companies omit indirect costs or fee from a proposal due to a lack of understanding of how these items are calculated. However, rent, utilities, fringe benefits and supplies are real costs and must be covered somehow.

The following is an introduction to the basic elements, definitions and rules related to SBIR cost proposals. Although not comprehensive, the information should be helpful to companies in areas where more clarification may be necessary when preparing the budget section of a proposal.

Basic Elements of a Cost Proposal Although each agency has specific guidelines and format for cost proposals or budgets, the basic elements are as follows:

Direct Materials Costs which are identified specifically with a particular project or contract are called “direct costs.” Thus, direct materials are those goods or services which are purchased for and used directly on a specific project. Subcontract costs may be included in this section.

Direct Labor This is the most important element and frequently the largest dollar amount in a Phase I proposal. Careful estimates must be made of the number of hours the principal investigator, key personnel and other employees will work on the contract or grant if awarded. These

hours are multiplied by the relevant hourly rate and the results are totaled.

Overhead Rate The overhead rate is the means by which overhead costs are spread among all projects. It is a percentage which is typically calculated by dividing the total of overhead costs (the “pool”) by the dollar amount of direct labor (the “base”). Note that the pool and base are period expenses, which means they are calculated for a period of time (usually a year) and not for a specific project. Thus, the base consists of all direct labor expected to be used on all projects during the year.

Indirect Costs Any costs which are not identifiable with a specific project are called “indirect.” Examples are rent, utilities, office supplies, salaries/wages of personnel not working on direct activities, fringe benefits. Some expenses such as tools and travel may be direct or indirect depending on the purpose. In larger companies, indirect costs are broken down between overhead and G&A (general and administrative) costs. In smaller companies, all indirect costs are added together to form the overhead pool.

Other Direct Costs All direct costs not included in direct materials or direct labor are included in this category. Direct travel, consultants and special equipment or testing are typically classified as other direct costs.

General and Administrative Rate The G&A rate, as it is commonly known, is the means by which general management and administrative costs are spread among the projects. For companies with less than about 50 employees, it is usually not necessary to calculate a G&A rate. One indirect rate (the overhead rate) is sufficient.

The G&A rate is calculated by dividing the total

amount of G&A expenses (including management/planning labor costs, accounting and legal expenses and marketing expenses) by the sum of direct labor costs and overhead costs.

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Profit or Fee A fee or profit, usually calculated as a percentage of total costs, is available to small businesses under the SBIR program. The general requirement is the fee must be reasonable, although some agencies give more specific guidance. For example, the amount of fee approved for awards under the current Public Health Service omnibus solicitation may not exceed 7 percent of total costs. For all agencies, the sum of the proposed fee plus costs may not exceed the maximum award amount specified in the solicitation.

General Rules and Guidelines

Allowable and Unallowable Costs In general, costs are allowed if they are reasonable, can be allocated to one or more projects or contracts (either directly or indirectly) and if they are not classified as unallowable in the Federal Acquisition Regulations (FARs). If costs do not meet these criteria, they cannot be included in cost proposals (either as direct costs or in the calculation of indirect rates) and they will not be paid by the government. Some of the most common types of unallowable costs are: • interest and other financial costs • bad debts • most contributions/donations • certain entertainment costs • fines and penalties • organizational expenses • unreasonable compensation • federal income taxes • sales promotion • trade shows, conventions • most advertising • lobbying costs • certain legal costs • cost of prosecuting a patent (unless required by

contract and government will retain patent).

Travel The general rule for travel is that allowable costs are limited to the amounts set by the government for travel by government employees. Travel costs for lodging, meals and incidentals may generally not exceed the per diem rates published by the government in the Federal Acquisition Regulations. The per diem rates are set by locality, so it is necessary to consult these rates when

preparing a cost proposal which includes travel. Actual costs which exceed these limits may be allowed on a case by case basis with sufficient written justification.

Developing an Adequate Accounting System From the government’s point of view, the main criterion for “adequacy” is: can the business properly segregate and accumulate costs? In other words, does the firm’s accounting system distinguish between direct and indirect costs and between allowable and unallowable costs, and is there a system for tracking and accumulating costs by contract (or grant)? The minimum components are a chart of accounts, a timecard system with specific codes for projects and indirect labor, a chart of accounts and the appropriate journals and project cost summaries. A well-constructed, detailed annual budget is an excellent starting point.

Types of Contracts Some agencies, such as the Public Health Service of HHS and the National Science Foundation, make awards in the form of grants. The Department of Defense and other agencies award contracts. There are two main forms of contracts used in the SBIR Program: Firm Fixed Price (FFP) and Cost Plus Fixed Fee (CPFF). The great majority of Phase I contracts are FFP; Phase II contracts are either FFP or cost-reimbursement contracts such as CPFF.

The main characteristics of a Firm Fixed Price contract are: • The Government and contractor agree to a fixed price which

cannot be adjusted due to cost experience. The contractor bears

all the cost risk. • The contractor is required to deliver the end product(s) described

in the contract (called the "deliverables"), even if it costs more than the amount of the contract to do so. Therefore, the deliverables must be specified carefully.

• There is usually more oversight by audit agencies (such as the Defense Contract Audit Agency or DCAA) prior to award with

FFP contracts. • Contract financing is generally obtained by submitting Progress

Payment requests. • FFP contracts are relatively simple to administer. The main characteristics of a Cost Plus Fixed Fee contract are: • The Government reimburses the contractor for allowable incurred

costs plus a fee. Thus, the Government bears the cost risk. • The contractor is required to make satisfactory progress and

usually must deliver the end product described in the contract to earn the fee. Legally, the contractor can "put his pencil down" when all costs agreed to in the contract have been incurred and reimbursed.

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• Although a pre-award survey may be performed, there is generally more oversight at the end of a CPFF contract. An "incurred cost" audit is required before the remaining costs and fee are paid.

• The contractor is paid when an approved invoice (Public Voucher) is submitted.

• CPFF contracts are more complex to administer and require compliance with more cost regulations.

Additional Information

BooksInformation for Contractors, by DoD Defense Contract Audit Agency, DCAAP 7641.90, July 1998. 703–767–3274.

Federal Acquisition Regulations, Superintendent of Documents, U.S. Government Printing Office, Washington DC, 20402.

Accounting Guide for Government Contracts, Commerce Clearing House, 800–835–5224. Federal Acquisition Regulations (FARs) and other reference manuals also are available from CCH.

A SBIR Program Development Blueprint, by James R. Atchison, Kettering, OH, 513–294–7394