The National Science Foundation (NSF) was the Federal Agency that gave birth to the Small Business Innovation Research (SBIR) program. They currently are the fifth largest agency for awarding money to the SBIR/STTR programs annually. The requirements in dealing with the NSF are slightly different from the requirements in dealing with the Department of Defense (DoD) which has the largest SBIR/STTR budget. Many times small business owners will begin dealing with one agency and not realize the differences. This can cause problems.
The first, and most obvious, difference in an SBIR from the NSF and an SBIR from most other agencies is that the NSF SBIR is considered a grant where DoD, NASA and several other agencies mainly issue contracts (Other agencies such as HHS and DoE also use grants). We have discussed the differences between grants and contracts in previous blogs so I won't go into much detail on that here. The Phase II SBIR from the NSF is considered a "pre-determined fixed amount of NSF support" or, in other words, a Fixed Price Grant. For those awardees that are familiar with government contracting in general, this sounds a lot like a Fixed Price Contract. In a Fixed Price Contract, the government is normally not concerned with the contractor's financial system as long as the contractor delivers the expected result described in the contract for the agreed upon price. Thus, if the contractor is able to be very efficient in performing the work, the amount of profit (or fee) might go up within the contractors system on a Fixed Price Contract. When you look at the forms required to be submitted with the request for payments there is a legally binding statement on the form. This statement indicates that the awardee must certify that the request for reimbursement is made for funds expended in accordance with the budget established for the award. The false certification to this statement is punishable with civil, criminal or administrative penalties. To me this means that the requestor for payment must certify that they know the funds were expended exactly as proposed in the budget (the proposal). There are obviously many ways to "skin a cat" but the best way to know this for sure is to have an accounting system that meets the guidelines of the Federal Acquisition Regulations and SF-1408. Thus, while awardees are not required to have a government approved accounting system, this seems to imply that the awardee must have something similar to this in order to be in compliance.
Further, when you look into the NSF requirements for awardees (both for SBIR/STRR and for Grants), there is a definate requirement for the awardee to use the cost principles of FAR part 31 (Reference OMB 3145-0058). There are two significant references in this document:
- Chapter III, Para A: NSF awardees are to have financial management systems that meet the requirements of Section .21 of OMB Circular A-110.
- Chapter V, Para A.1.a: The governing Federal cost principles applicable to specific types of grantees are as follows:
........Commercial Firms Federal Acquisition Regulation (FAR), Part 31
Now, the NSF does not automatically come and audit financial systems of awardees, they reserve the right to do that. The guidelines from the NSF (OMB 3145-0058) also outline penalties in failure to submit their status of funds (called a Federal Financial Report or FFR) as:
- Suspension of all future payments;
- Closeout of expired awards based on previously reported disbursements;
- Suspension of unexpired awards; or
- Suspension of review and processing of new proposals
Again, there are serious consequences for not submitting the FFR on a timely basis. The FFR contains the statement about expenditure of funds as set forth in the award documents. So the bottom line is this. While the NSF is stating that the award is a Fixed Price Grant, there are some requirements that may suggest that the awardee might want to use a government approved accounting system to make sure they are in compliance. The threat of suspended payments or even criminal proceedings are too high to risk.