DCAA Information For Contractors

SBICs: Strategic Growth Capital for SBIR/STTR & Government Contractors

tlink@reliascent.com (Tyler Link) — Thu, 16 Apr 2026 18:00:09 GMT

For many small businesses operating in the federal funding ecosystem, their journey typically begins with non-dilutive capital—most often through SBIR and STTR awards. These programs provide critical early-stage funding for research and development, but they are not designed to fully support long-term growth, commercialization, or scaling operations.

As these companies mature and real products or technologies are developed that now need to be brought to market, a key question emerges: where does the next stage of capital come from?

While there are of course, options to extend funding that may be available (“bridge funding” in the form of Ph IIB awards, various state-level grants, etc.), if a Ph III is not awarded, many business owners begin looking towards private investment from Venture Capital or Angel Investors. However, one often underutilized—but highly strategic—option is the Small Business Investment Company (SBIC) program, administered by the U.S. Small Business Administration. SBICs can play a pivotal role in helping innovative companies bridge the gap between early-stage federal funding and full commercial scale.

What Is an SBIC?

An SBIC is a privately managed investment fund licensed and regulated by the SBA. These funds invest in small businesses using a combination of private capital and SBA-backed leverage, allowing them to deploy significantly more funding than traditional private investors alone.

Unlike grants, SBIC funding is not “free money.” It is structured as:

Equity investments (ownership stakes)
Debt financing (loans)
Mezzanine financing (hybrid structures)

This flexibility allows SBICs to tailor capital solutions based on a company’s stage, risk profile, and growth objectives.

Why the SBIC Program Exists

The SBIC program was created to address a persistent problem or gap in the capital markets (that most SBIR/STTR awardees are very familiar with): the significant number of small businesses that are too advanced for grants but not yet large enough (i.e. lacking multiple years of consistent revenue, and possessing intellectual property instead of hard assets), to qualify for traditional bank financing or large-scale venture capital.

At its core, the main purpose of the SBIC program is to expand access to long-term growth capital for these businesses, while supporting strategic innovation and the small business community in the United States.

For companies working with agencies like the Department of Defense, DHS, NIH, NASA, and Department of Energy, this mission aligns closely with national priorities around innovation, security, and technological leadership.

How SBICs Support SBIR/STTR Awardees

For SBIR/STTR awardees, SBIC funding often represents the next logical phase of growth capital.

From R&D to Commercialization

As mentioned previously, SBIR/STTR awards are designed to fund innovation—but not necessarily to scale it. As companies move from Phase II (or Phase III) into commercialization, they often need significant capital for things like:

Manufacturing scale-up
Hiring and organizational growth
Regulatory approvals
Market expansion

Bridging the “Valley of Death”

Many SBIR companies face the well-known “valley of death”—the gap between prototype development and commercial viability. And, unfortunately, this is where many eventually fail…without a government procurement contract or enough funding to get them to market, their technology or ideas die.

SBICs can help bridge this gap because they provide companies with the capital needed for these longer development cycles and often structure their investments in the small business around milestone-based growth (something traditional VC often lacks the patience for).

Strategic Value Beyond Capital for SBIR/STTR Awardees

In addition to funding, SBICs often bring:

Deep industry expertise
Connections to federal and commercial markets, and
Operational guidance for scaling businesses

This added value largely comes from the backgrounds of the SBIC fund managers themselves. Many SBICs are operated by investment firms that specialize in sectors like defense and aerospace, life sciences, energy, and advanced manufacturing—industries that closely align with federal funding agencies such as the Department of Defense, DHS, NIH/HHS, and the Department of Energy. As a result, their teams often include former operators, engineers, and executives who have direct experience scaling companies in these highly regulated and technical markets.

Additionally, because SBICs are regulated by the SBA, this creates a structured connection to the federal ecosystem. While SBA does not directly manage investments, this relationship means SBICs are typically well-versed in government priorities, funding pathways, and compliance expectations. Many also maintain networks that include former agency personnel, procurement experts, and industry advisors with experience across many government agencies.

This combination can be especially valuable for technically strong, small businesses that are navigating commercialization for the first time.

How SBICs Support other Government Contractors

While SBIR/STTR companies are a natural fit, SBICs also play a significant role for more established government contractors. For example, many larger government contractors often require capital to do things like expand their contract capacity, invest in larger facilities, or even support mergers and acquisitions. SBICs help with all of these tasks.

Just as important, and unlike traditional lenders, SBICs understand the nuances of government contracting, and understand it comes with issues like delayed payments, and compliance-heavy environments (like DCAA compliant accounting, for example). This allows them to offer more flexible terms than banks or conventional financing sources.

What SBICs Provide—and What They Expect in Return

Understanding the “give and take” of SBIC funding is critical before pursuing it.

What SBICs Provide:

Growth capital (this can be as much as $1M–$20M+ depending on the fund)
Flexible deal structures (debt, equity, or hybrid)
Strategic and operational guidance
Industry and investor connections

What SBICs Receive:

Depending on the structure, SBICs typically receive:

Equity ownership (in exchange for capital investment)
Interest payments (for debt financing)
Warrants or conversion rights (in hybrid deals)
Board participation or governance rights

This does make SBIC funding more akin to private investment than grant funding. So, while they can be immensely helpful to SBIR/STTR companies, as with any important financial decision, they require careful evaluation of long-term implications for your business.

SBIC Firms Focusing on Government Contractors & Sectors

While not all SBICs focus on federal contractors, several well-known firms actively invest in sectors aligned with DoD, NIH, and Department of Energy priorities:

Arsenal Capital Partners – Focuses on specialty industrials and healthcare, often intersecting with government-funded innovation
Hercules Capital – Provides growth-stage debt financing to technology and life sciences companies, including those with federal funding backgrounds
NewSpring Capital – Invests in healthcare and technology companies, including those transitioning from R&D to commercialization
New North Ventures - Focuses on defense technology, dual-use technologies, AI, machine learning, autonomous systems, cybersecurity and more.

How to Find and Connect with SBICs

For SBIR/STTR awardees and government contractors, finding the right SBIC is less about volume and more about proper fit. A great place to start is the SBA’s official SBIC directory via the U.S. Small Business Administration. This is a great directory to identify things like an SBIC firm’s size, average investment size, investment structures offered, and basic investment strategies---but it does not break down each firm’s industry focus or preferences for technologies. This makes it more of a starting point for SBIR/STTR companies.

To identify the best SBIC for your business, use the directory to narrow down your choice by the investment size, the funding style (i.e. venture vs credit vs mezzanine), and those that are still active. Then it’s time for research: look up the firm’s website, review their portfolio companies, and dig into their focus areas and investment thesis.

What You Need to Be Prepared For

SBICs conduct rigorous due diligence, similar to private equity or venture capital firms. So, this is what you should expect from an SBIC that is considering supporting your business:

Financial Readiness

You should have:

Clean, accrual-based financials
A scalable accounting system (ideally a DCAA compliant accounting system if applicable)
Forecasts and unit economics clearly defined

Operational Readiness

Be prepared to demonstrate:

A path to commercialization or growth
Strong management team capabilities
Clear use of funds

Compliance Considerations

For government contractors and SBIR/STTR awardees, this is critical:

Proper cost segregation between federal awards and investor-funded activities
Alignment with FAR and DCAA requirements (as applicable)
Audit-ready financial systems

This is often where companies underestimate the complexity—and where expert support from a firm like ReliAscent, can make a significant difference.

Final Thoughts: Where SBICs Fit in Your Growth Strategy

SBICs occupy a unique position in the funding ecosystem. They are neither grant providers nor traditional venture capitalists—but something in between.

For SBIR/STTR awardees and government contractors, they can serve as a powerful bridge between innovation and scale. However, SBIC funding is not just about securing capital—it’s about entering into a long-term financial partnership. Companies must be prepared for increased scrutiny, structured returns, and strategic alignment with investors.

SBIR/STTR Reauthorization Signed into Law - DoW Topics Pre-Released

tlink@reliascent.com (Tyler Link) — Tue, 14 Apr 2026 15:45:42 GMT

After Congress let the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs lapse for more than 6 months, the programs were finally reauthorized yesterday, April 13th, when the Small Business Innovation and Economic Security Act (S. 3971) was signed into law by President Trump (just one day before it would've gone into effect due to the "10-day Rule").

Beyond reauthorizing the programs through September 30, 2031, a number of important reforms were also included in the Act:

It created "Strategic Breakthrough Awards," a new Phase II funding tier that provides up to $30 million over 48 months for scaling critical technologies.
To better ensure program transparency and more equitable access, it requires federal agencies to establish annual proposal submission limits per small business to discourage high-volume, low-quality applications from "SBIR mills".
It significantly expands security due diligence requirements, mandating in-depth evaluations of foreign ownership, investment ties, and technology licensing agreements to prevent foreign influence from countries of concern.

Following the signing of the Act, the Department of War (DoW)—formerly the DoD—immediately initiated the FY-2026 Release 1 SBIR and STTR solicitations into Pre-Release. The BAA is open for submission starting May 5, and closes on June 3.

As these important programs come back spring back to life, small businesses should be prepared to act quickly. Here at ReliAscent, we've already seen a surge in requests from the government to small businesses (that had their awards delayed) to do things like complete the SF1408 Pre-Award Survey Checklist, push to quickly setup DCAA compliant accounting systems and schedule Pre-Award Audits, or to schedule CAP Reviews (for NSF Ph II awardees).

If your business needs support with any of these tasks, or you are looking to submit proposals in upcoming solicitations and need help reviewing your indirect rates and proposal budgets, contact us today.

And finally: congratulations again to the National Small Business Association (NSBA), the Small Business Technology Council (SBTC), and all of the small businesses that pushed Congress to do the right thing and get these programs back!

SBIR/STTR Reauthorization Agreement Reached

tlink@reliascent.com (Tyler Link) — Wed, 25 Feb 2026 22:35:37 GMT

After a very painful, nearly five-month lapse in the programs, an agreement has finally been reached to reinstate the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The deal, brokered by Sen. Edward Markey (D-Mass.) and Sen. Joni Ernst (R-Iowa), was announced in a press release from the National Small Business Association (NSBA) and the Small Business Technology Council (SBTC), earlier this afternoon, and is expected to move quickly through the House and to the President’s desk, effectively reauthorizing these vital "America’s Seed Fund" programs through September 30, 2031.

The new agreement includes several significant updates designed to modernize the programs and address security concerns. Key changes include strengthened foreign risk due diligence, the creation of a "strategic breakthrough award" for post-Phase II projects that can reach up to $30 million, and a new cap on the number of proposals a single business can submit (in keeping with Senator Ernst's goal to limit so-called "SBIR Mills"). Additionally, the bill aims to streamline the process with standardized model contracts and expanded Technical and Business Assistance (TABA) that now covers cybersecurity training and hiring.

Industry leaders from the National Small Business Association (NSBA) and the Small Business Technology Council (SBTC) have praised the bipartisan effort, noting that the programs support over 4,000 innovative companies annually. By restoring this funding, lawmakers are ensuring that high-tech small businesses can continue driving the American economy and maintaining a competitive technological advantage on the global stage.

We applaud the compromise and all the hard work and advocacy from the NSBA, SBTC, the govcon compliance industry, and all of the small businesses that pushed so hard to save these programs!

Is it Time for a GovCon Upgrade?

tlink@reliascent.com (Tyler Link) — Mon, 02 Feb 2026 17:40:48 GMT

It's the beginning of a new year, and I always like to remind government contractors and grantees that while you are likely (still) digging out of the craziness that comes with January, this is the best time of year to upgrade your GovCon Accounting!

Whether you need a compliant system for the first time or your current system, accountant, or accounting firm just isn't working out the way you had hoped, the experts at ReliAscent® are here to help. And, of course, the beginning of the year is the best time to set up a new system or change firms, as it keeps setup/migration costs to a minimum and makes the process smoother and more affordable.

Why Choose ReliAscent?

It's true that just about any govcon accounting firm should be able to set up a compliant system—and many of those systems (especially if they use QuickBooks® as the accounting software at their core) will look and feel very similar. But, as many contractors soon find out, it's not the setup that really matters after your first week...it's more important questions like:

Who is actually handling the accounting?
How experienced are they?
Are they easy to communicate with?
Do they provide you with expert analysis and guidance?
Do they offer any other services your business needs?

...This is why we do what we do at ReliAscent®.

Our team-based approach to GovCon Accounting is unique in the industry. Rather than sticking our clients with inexperienced bookkeepers following templates (while the real experts at the top are expensive and hard to reach), ReliAscent® provides each client—no matter their size or revenue—with a complete accounting and consulting team. With an experienced Bookkeeper, Senior Accountant, (optional) Controller, and Account Executive (your very own fractional CFO and Contracts Manager), these teams allow our clients to focus on what they do best, while positioning them for success and providing the guidance they need to grow (download our Services Handout and Client FAQ to learn more).

This approach may not always be viewed as "essential" to very small businesses with only a single SBIR contract or grant (for example). But as your business grows and the types of awards and work you perform expand, so does the complexity of the business itself, the accounting, and your contract & grant management needs...and suddenly, you need more than that bookkeeper that's just doing the bare minimum.

It's a new year...time to get your business the support it deserves! Contact us today to learn more or request your zero-obligation quote below:

DoE Rescinds 15% Indirect Rates Cap

tlink@reliascent.com (Tyler Link) — Thu, 29 Jan 2026 20:10:50 GMT

Great news for contractors and grantees working with the Department of Energy: DoE published a Policy Flash on January 27, 2026, officially rescinding the previous policy flash that set a cap of 15% for indirect cost rates for any organization working with DoE!

While the previous policy was technically vacated by a Federal Judge's decision in June of 2025, with the signing of H.R. 6938, the “Commerce, Justice, Science; Energy and Water Development; and Interior and Environment Appropriations Act, 2026," DoE is now forced to go back to accepting indirect cost rates as they had in the previous fiscal year.

This is a huge win for small businesses, the SBIR/STTR program, and the energy research community! Now, let's hope they can get the SBIR/STTR program reauthorized soon, as the next big step to getting back on track...

There's No Better Time to Evaluate Your GovCon Accounting Options

tlink@reliascent.com (Tyler Link) — Fri, 21 Nov 2025 19:12:14 GMT

With 2026 only six weeks away, I like to remind government contractors and grantees that while you certainly have more exciting things going on, this is the best time of year to discuss setting up a Compliant Accounting System or changing GovCon Accounting Firms (I know, I know, try not to get too excited).

Whether you need a compliant system for the first time or your current system, accountant, or accounting firm just isn't working out the way you had hoped, the experts at ReliAscent® are here to help. And, of course, the beginning of the year is the best time to set up a new system or change firms, as it keeps costs to a minimum and makes the process smoother for everyone.

Why Should You Consider ReliAscent?

Our team-based approach to GovCon Accounting is unique in the industry. Rather than sticking our clients with inexperienced bookkeepers following templates (while the real experts at the top are expensive and hard to reach), ReliAscent® provides each client—no matter their size—with a complete accounting and consulting team. With an experienced Bookkeeper, Senior Accountant, (optional) Controller, and Account Executive (your very own fractional CFO and Contracts Manager), these teams allow our clients to focus on what they do best, while positioning them for success and providing the guidance they need to grow their business (download our Services Handout and Client FAQ to learn more).

The New Year is almost here, so let's have a conversation about getting your business the support it deserves!

NEW CLIENT WAITLIST UPDATE:

ReliAscent® is now adding companies to our January 2026 Onboarding Schedule. If you need immediate help, would like to be added to the list, or are just interested in learning more, use the link below to request your zero-obligation quote.

DoD Seeking Feedback on CMMC

tlink@reliascent.com (Tyler Link) — Wed, 29 Oct 2025 18:50:22 GMT

The following message was recently shared by our friends at the Small Business Technology Council (SBTC), and we hope contractors will share their feedback with DoD:

After years of public comment and delays, the DOD has issued a final rule on Cybersecurity Maturity Model Certification (CMMC) requirements for companies doing business with the DOD. These requirements will begin appearing in DOD contracts on November 10, 2025. Follow the link below to review the final rule in the Federal Register:

DFARS Final Rule: Assessing Contractor Implementation of Cybersecurity Requirements (DFARS Case 2019-D041)

With 2 weeks to go before these new requirements are inserted into contracts, the DOD Office of Small Business Programs (OSBP) has put out a survey seeking input from small businesses to better understand how companies are preparing for the implementation of CMMC requirements. This short, anonymous survey is intended to help DOD OSBP tailor its support, resources, and guidance to better meet small business needs during the transition.

If you have concerns or feedback you would like to make regarding the implementation of new CMMC requirements at the DOD, we encourage you to fill out this survey and share your thoughts with DOD OSBP:

Cybersecurity Compliance: Small Business Pulse Survey

Expect More From Your GovCon Accounting Firm

tlink@reliascent.com (Tyler Link) — Tue, 28 Oct 2025 18:48:38 GMT

One of the most consistent themes in the govcon accounting industry I've seen in my 15 years at ReliAscent® is the bait-and-switch; selling you on the experience of the people at the top, but then sticking you with poorly trained bookkeepers that do just the bare minimum. Sure, there may be a lot of errors and headaches, but as long as you pass the audit, everything's fine, right? Not to mention the 50 pages of financials they give you each month that you don't understand and they won't explain...

Another common approach involves offering "quick and easy," do-it-yourself compliance packages or templates (costing thousands of dollars), or expensive training seminars or consulting sessions, leaving you hoping you're compliant (failed audits or rejected invoices incoming in 5, 4, 3...).

Why do we hear of these situations so often, and why do so many small business government contractors and grantees have the same experience? Well, it's a combination of two things:

It's a great way to maximize profits and minimize work for the accounting firm, and
Small businesses are always looking to save money. But as the old adage goes, "you get what you pay for." Sure, some SBIR and "govcon bookkeeping" firms may advertise lower "starting at" prices, and can potentially save you a few hundred dollars a month. But large end-of-year fees and costly mistakes made by inexperienced bookkeepers can end up costing your business a lot more in the long run (many of you reading this now can probably relate).

At ReliAscent®, we are not here to offer the "bare minimum" or a "quick fix." Because the reality is there is no easy fix, no package of templates, nor product you can buy to be instantly and indefinitely DCAA compliant. And it takes more than the "bare minimum bookkeeping" (and simply passing an audit) to succeed and grow your business in the complex and highly competitive govcon world.

This is why we provide each of our clients with a DCAA compliant accounting system and an entire accounting team of experts: from the Bookkeeper to the Senior Accountant, (optional) Controller, and the Account Executive (your very own fractional CFO and Contracts Manager who also manages the accounting team)...no matter the size of your business.

Have a compliance question or confused by the differences in requirements between your Department of Defense contract and your Department of Energy grant? No problem. The Sr. Accountant is your main point of contact on an as-needed/daily basis, and has years of experience with these agencies and the FAR/DFARS/CFR and DCAM.

Want to dig into your utilization and profitability, or need help negotiating or closing out a contract? The Account Executive meets with you monthly to go through your financials, tell you what things mean, how they impact your company, offers guidance, and provides nearly any financial or contract management support you may need.

Yes, it may cost a little more each month, but it is this approach that allows us to do something for your business that other firms cannot: position you for success by identifying and addressing opportunities & challenges you face head-on, with the tools and experience you need to be efficient, proactive, and decisive.

If you're ready for a different kind of experience with your govcon accounting firm, or want to discuss how outsourcing compliant accounting can help your business, contact us today (and download our Services and Client FAQ handouts to learn more).

REMINDER: the best time to switch accounting firms or set up your new accounting system is always the beginning of the year (as it keeps migration or setup costs to a minimum and makes the transition process easier for your business). Give us a call today to get the quote process started.

Pricing SBIR/STTR Grants under the New Department of Energy 15% Indirect Cost Limit

ddonley@ReliAscent.com (Dave Donley) — Tue, 07 Oct 2025 19:31:57 GMT

Understanding, designing, and calculating indirect rates in a government contract and grant environment requires equal measure of art and science (math). Along with that comes experience, wisdom, and the ability to carefully interpret oftentimes conflicting regulatory compliance and requirements. Case in point is the new Department of Energy (DOE) 15% Indirect Cost Limit, that along with other restrictions on indirect rates issued by a slew of agencies, has upended decades of reliable, repeatable pricing techniques.

This article examines the new DOE approach to indirect costs as it relates to the DOE SBIR/STTR grant programs.

Careful Interpretation – The Fee Example

Before tackling any effort at pricing, it’s critical to review all pricing instructions, from agency policy all the way down to budget requirements in a funding announcement. They don’t always align. A great example is the workshare requirements for SBIR/STTR applicants. While the SBIR/STTR legislation mandates businesses perform 2/3rds of the effort for Phase I contracts and grants, and 50% for Phase II’s, each agency has its specific method of calculating and complying with the workshare requirements. The DOE has changed their calculations at least once.

As another example when calculating fee for DOE budgets, SBIR/STTR Funding Opportunity Announcements (FOA) prior to 2018 had this statement:

“Fees are subject to negotiation and shall not exceed 7% of the total award amount.” (Source: FOA DE-FOA-0001770 dated Oct. 16, 2017)

Applicants would rightfully budget 7% fee ($14,000) on a $200,000 project, irrespective of costs.

Once pointed out to DOE this was not a common pricing convention, they changed their pricing language in FOAs to read:

“Grants may include a profit or fee for the applicant. Fees are subject to negotiation and shall not exceed 7% of the total costs (direct and indirect).”

The FOA’s included an example calculation for clarity:

(Source: DE-FOA-0003202 Jan. 18, 2024)

This assumes a final budget figure reaches $200,000. This approach adheres to the common pricing approach for fee, as expressed in FAR 15.401/15.404-4 for contracts, but is not as clear in the grant-focused Code of Regulations (2 CFR 910.358) for DOE SBIR/STTR grants.

Current DOE Indirect Cost Policy

DOE released a Policy Flash dated May 8, 2025, stating, “The Department plans to establish a maximum allowable dollar amount (stated in terms of the percentage of the total project award amount) that it will reimburse for allowable, allocable, and reasonable indirect costs under Awards. Total indirect costs are inclusive of fringe benefit costs. For for-profit organization awards, the maximum percentage is 15%.”

If you are a grant applicant, in this case word problems are your friend. A limitation of 15% on “total project award amount”, although drastic, is mathematically substantially better than the customary application of indirect rates on the basis of project or direct costs. For-profit SBIR/STTR applicants also benefit, since fee is allowed as part of a grant’s “total project award amount”.

Example – DOE 2025 Policy

The SBIR/STTR Phase I grant limit is currently $250,000. The DOE policy suggests if you calculate a budget up to the $250,000 limit (which is strongly suggested), your indirect cost limit is $250,000 x 15% = $37,500.

DOE grant negotiators have been given guidance and formulas for determining maximum indirect costs on a grant. This guidance still contains the DOE Policy Statement:

“…(implement) and (calculate) an indirect cost percentage cap against the total award costs…” with Total Award defined as “The sum of direct costs (project-specific expenses) and indirect costs, determined by the budget the recipient proposes, and the DOE approves.” (Emphasis added)

Most models provided by DOE for calculating the indirect cap amount are consistent with this policy.

However, one example calculation model provided to DOE negotiators falls back on the customary methods of calculating the 15% cap, that is as applied to total costs before fee. This approach has obvious detrimental implications for SBIR/STTR grantees and should be pointed out to DOE negotiators if they use this model.

“DOE CAP Determination” SBIR Phase I Example:

Estimated direct costs = $203,169

Indirect costs = $203,169 x 15% = $30,475

Total direct and indirect costs before fee = $233,645

Fee is 7% of total costs = $16,355

Total including 7% fee = $250,000

This pricing example alone reveals the dramatic effect of interpreting DOE policy – a potential $7,025 budget reduction to an already restrictive indirect rate.

It’s not all good news...

As was stated above, DOE models determining an indirect cost cap will derive the cap by multiplying the total budget request (including fee) by 15%. In the case of an SBIR Phase I, the maximum grant amount (without Technical and Business Assistance – TABA) is $250,000. The capped amount is therefore $37,500.

Applying a DOE pricing model to a common SBIR budget submission from an applicant:

Needless to say, a $34,429 decrement from your proposed budget is a tough place to start negotiations. Even if you consider financing part of the grant out of fee, that’s still a hit to the bottom-line profit of $18,074.

Mitigating Pricing Approach – The Single Grant Conundrum

For a good many SBIR/STTR DOE applicants, this is their pre-revenue company’s very first foray into government funding. These applicants would rightly suggest all small business costs are project related. Which is a valid argument, except to say this is a one-off example. Federal job cost accounting principles and rules assume applicants may have or will soon have more than one job to keep track of, thereby requiring a technique for equitably allocating allowable business expenses. This can be done the easy way by calculating indirect rates as a way of allocating costs to projects, or the hard way – allocating each and every expense by hand and recorded in the accounting system.

An Opportunity Arises

A current statement buried deep in DOE SBIR/STTR pricing instructions relating to project labor appears to open a door as an alternative to allocating project costs:

“If you include any positions that are primarily administrative or managerial, take particular effort to justify the necessity of those positions as they are not customarily recorded as direct labor charges to a specific award.”

Analogous to DOE, The National Institutes of Health (NIH) publishes similar and more specific budget instructions:

“Administrative, Secretarial, and Clerical Support Salaries: In most circumstances, the salaries of administrative, secretarial, or clerical staff at educational institutions and nonprofit organizations are included as part of indirect costs.

Inclusion of such costs may be appropriate only if all of the following conditions are met:

Administrative or clerical services are integral to a project or activity;
Individuals involved can be specifically identified with the project or activity;
Such costs are explicitly included in the budget or have prior written approval of the federal awarding agency; and
The costs are not also recovered as indirect costs.
Requests for direct charging for secretarial/clerical personnel (i.e., administrative and clerical staff) must be appropriately justified... For all individuals classified as administrative/secretarial/clerical, provide a justification (in the Budget Justification) documenting how they meet all four conditions. NIH … may request additional information for these positions in order to assess allowability.”

(Source – NIH SF424 budget instructions, Section G.300)

These statements, as they apply to labor, could also be applied to non-labor expenses. For example, many applicants have their laboratory and office space approved as a direct cost if:

The cost to rent space is on a month-to-month basis,
The grant is the firm’s only revenue-generating project.

Other “project-related” approved costs include project-designated computer equipment (under $5,000), as well as subscriptions to computing services related to the project.

Until these statements from DOE and NIH are rewritten, it does appear that what otherwise may be deemed indirect costs could be included as direct or “project” costs. To strengthen this argument, applicants should apply these cost allocation techniques in their accounting and document simple policies and procedures aligning pricing with accounting.

Backfilling the budget with labor

Before the DOE 15% cap on indirect costs, a budget of $250k really meant something far less for the actual project effort after taking into account allocated indirect costs and fee.

The cap on indirect costs now gives an applicant more budget to add labor or other items critical to the project that may sway reviewers when picking grant winners.

Other potential conversions from indirect to direct costs

The DOE examples include “fringe costs” as indirect costs. However, many fringe costs are either mandated by the Federal government (FICA, Medicare payroll taxes), or each state (mandatory pay for time-off, workers compensation). These costs should flow equitably to project labor costs. This may involve a bit more complexity on the accounting side, but so be it.

Complying with government cybersecurity requirements are also a cost not normally borne by a commercial company. Network charges could be allocated to each project based on some measurable parameter, such as usage or time period.

The role of the Principal Investigator in a small firm already contributes to what might be considered indirect costs in a larger firm:

Negotiating grants
Maintaining grant compliance
Selecting and on-boarding vendors and subrecipients
Accounting and billing activities
Patent disclosures

Taking a more aggressive approach to pricing grants in this manner may not close the gap for covering all indirect costs, but it gets closer to profitability.

Advocacy and Risk Management

Grant organizations using the SBIR/STTR program have historically looked to academia to invest in innovative technologies. As such, academia is a powerful influencer of grant agency policies, as evidenced by the many legal pushbacks to limitations on their own indirect rates.

The Joint Associations Group (JAG) on Indirect Costs, part of the Association of Public and Land-Grant Universities, have already submitted its recommendations to Congress concerning a new model to replace the current one that calculates a “Facilities and Administrative” (F&A) rate.

Named the “FAIR” model, it is designed to “…tailor support that reflects the specific type and cost of each project.” This is an example of how academia may influence the pricing environment of SBIR/STTR grant programs.

Other thoughts on risk reduction and advocacy bearing in mind the fast pace of change:

Engage directly with your Congressional delegation.
Join the advocacy group Small Business Technology Counsel (SBTC at sbtc.org).
Pursue private equity funding.
Pivot technology applications to the DoD SBIR/STTR contract world.
Assuming lawsuits by academia may not get settled promptly (which could also inform the SBIR /STTR program), develop a time-phased profitability risk assessment.
Investigate ways to cut “overhead“ costs.

Conclusion

There have been a slew of recent challenges to small business firms operating in the SBIR/STTR government contract and grant environment. This includes COVID, IRS Section 174 tax implications, tariffs, government shutdowns, and reauthorization of the SBIR/STTR program, to name a few. Add to that the pricing and cost allowability nuances inconsistently applied across government agencies, which may accelerate technology innovation firms searching elsewhere for funding.

Still need support with SBIR/STTR proposal pricing? You can depend on ReliAscent to sift through the regulatory complexity to leverage the best outcomes for your DOE and other grant agency budgets. Contact us today to learn more about our proposal pricing and award/rates negotiation services. Our experts are here to help and most efforts begin with a one-time retainer of just $1,500.

Indirect Rates Development & Negotiations for Government Contractors

tlink@reliascent.com (Tyler Link) — Thu, 24 Jul 2025 17:18:21 GMT

As a government contractor or grantee, your indirect rates are critically important to the survival of your business because they determine how you will recover the overhead and administrative costs that are not part of the direct work of a contract or grant (things like your rent, utilities, accounting, HR, insurance costs, and many more). So when small businesses don’t accurately calculate their indirect rates (and don’t know how to monitor them or understand how they change with time and the business lifecycle), OR when they walk into an award/rates negotiation unprepared to defend their rates (after being selected for an SBIR/STTR contract or grant, for example), they could be leaving money on the table—or worse, setting up their business for failure.

Similarly, many startups or small businesses that are new to government contracting mistakenly believe they cannot calculate indirect rates if they have no previous financial data (or company history) to base them on, or do not maintain a DCAA compliant accounting system. As a result, many take the safe or de minimis rate that the government suggests. While those may be acceptable in some cases, they, too, can leave you struggling to keep your head above water (instead of celebrating your award).

Whether you are developing your indirect rates for the first time, reviewing your current rates, or facing rates and budget negotiations, having the support of experts like ReliAscent® sets your business up for success & provides the guidance you need to thrive.

How it works: In most cases, ReliAscent can review or develop your indirect rates in as little as a few hours (once we have all the necessary information). The consulting effort starts with an NDA and a one-time $1,500 retainer, which we bill against hourly (and any remaining balance can be used towards negotiations support, setting up a DCAA compliant accounting system, or any other accounting, contract management, or fractional CFO services your business may require).

...There is no need to go through the expense and headaches of setting up a DCAA compliant accounting system for this simple exercise, so don't let another firm or consultant tell you otherwise (we can do handle that if/when the proposal is selected for award—assuming a compliant system is required).

With the shifting priorities in Washington, budget cuts, and rate caps introduced by the new Administration (not to mention numerous lawsuits and injunctions resulting from them), the govcon world is more competitive and turbulent than ever. Ensure your business is adequately prepared for this challenging environment and don’t leave money on the table or risk owing the Government because of a lack of experience with, or proper management of, your indirect rates. Contact ReliAscent today to learn more.