DoE SBIR/STTR Grants – Is fee allowed on “subcontractors”?

A recent applicant to the DOE SBIR/STTR grant program directed our attention to this curious statement found in a recent Funding Opportunity Announcement (FOA):

“The fee applies solely to the small business concern receiving the award and not to any other participant in the project. However, the grantee may pay a profit/fee to a contractor providing routine goods or non-R&D services in accordance with normal commercial practice.” 

This suggests any subcontractors assisting the applicant with purely R&D efforts associated with the goals of grants will not be allowed fee as part of their pricing. 

We dug into the regulations surrounding DOE grants and have concluded this policy of denying fee for certain subcontractors is not supported by these regulations. 

Regulatory details

Grant agencies operate through the Code of Federal Regulations (CFR). In the case of the DOE, the CFR addresses cost principles for for-profit firms using 10 CFR 600.317 Allowable Costs as the regulatory basis for grant budgeting and reimbursement. The CFR allowable cost clause references Federal Acquisition Regulations (FAR) Part 31 Cost Principles, the familiar section of FAR that controls contract cost allowability. 

Furthermore, FAR clauses 31.205-26 for material and 31.205-33 for consultants imply that fee included in material and professional services costs are allowable costs. 

DOE interpretation

The DOE may be stretching the interpretation of 10 CFR 600.318 - Fee and profit, which states:

(b) A recipient or subrecipient may pay a fee or profit to a contractor providing goods or services under a contract (emphasis added). 

Since DOE SBIR/STTR financial assistance is in the form of grants, the DOE may be suggesting subcontractor fees can only be paid under DOE contracts. However, the preamble of CFR 600 clearly states the regulations “…establishes uniform policies and procedures for the award and administration of DOE grants and cooperative agreements.” 

A common reading of the CFR fee and profit clause suggests fee is allowed for any subcontract under the grant. It should also be noted the CFR clause does not distinguish between R&D or non-R&D services performed by a subcontractor.

Conclusion

The language in the DOE FOA appears to be an attempt to cherry-pick what fee is or isn’t allowable based on the nature of the work being performed by the subcontractor under a grant.

Budget applications for government grants specify that so-called subawards, including subcontractors, complete a detailed budget to include the expression of a fee. Presumably fee amounts submitted for subawards will be challenged by the DOE, and perhaps other grant organizations. It’s up to the applicant to devise a strategy to defend this limitation of fee as there appears to be an ample regulatory basis to do so.