SBIR ACCOUNTING SERVICES

When a government contractor or grantee has an SBIR or STTR award, the accounting requirements they are going to face, and thus, how they structure and maintain their system, will be vastly different between the Phase I and Phase II. In a Phase I SBIR/STTR, the only real deliverable the government expects is research and a report; there are no prototypes, and the award amount is relatively small (i.e. not worth scrutinizing). As a result, a small business can make do with a very simple accounting system, and can use a local, commercial bookkeeper (with no government or SBIR accounting experience). However, once an SBIR/STTR Phase II cost type contract (or grant) is awarded, it now becomes necessary to hire an experienced SBIR accounting firm to ensure compliance (note that if your Ph II contract is Firm Fixed Price, you will not need a DCAA compliant accounting system).

 

DCAA Compliant Timekeeping System

PHASE I SBIR/STTR ACCOUNTING - WHAT IS REQUIRED OF AWARDEES?

SBIR/STTR Ph I contracts and grants are Firm Fixed Price awards (FFP) that do not require a government approved accounting system (very little is required in the way of accounting compliance, and the threat of audit of your Ph I is nearly non-existent).  However, many agencies (like the National Science Foundation) may suggest Ph I winners set up a DCAA compliant timekeeping system (either manual or automated), and NIH Ph I grantees may also need guidance on how to track labor and costs, and properly invoice the government (contact ReliAscent to learn more).

If your small business was just awarded your first Ph I contract or grant, or you only have Ph I awards at this time, ReliAscent® recommends the following steps to prepare your business for a smooth transition into Ph II, and to ensure you avoid potential issues with future audits or with an NSF CAP review (for NSF grantees):

  • Implement a DCAA compliant timekeeping system - there are multiple automated systems that are affordable and easy to use. ReliAscent® also provides our own manual (Excel-based) system, a DCAA Compliant Timekeeping Procedure and example Timecard at no charge. We highly recommend that all employees track their time regardless of whether or not they work on a particular SBIR/STTR or any other contract. This will help your business to establish and justify your indirect rates for the Ph II proposal or any other contracting opportunity you may have, and will also get your team used to tracking their time daily (as all employees will need to track their time in a DCAA compliant system).
  • Track ALL of your Direct Contract/Grant Costs
  • Hire a Professional (Commercial) Bookkeeper or Accountant for Ph I - though many companies try to do the accounting on their own, we always recommend that Ph I winners have a professional bookkeeper or accountant handle their books. Most local firms or bookkeepers are more affordable than a Government Contract Accounting Firm, and having a professional can help businesses when it comes to preparing taxes or creating financial statements.
  • IF YOU STILL NEED CONSULTING SUPPORT - reach out to ReliAscent®. We are happy to answer some questions you may have via email (we get dozens of questions each month, mostly regarding timekeeping and salary/compensation, which can be answered in a sentence or two at no cost). However, if more extensive support is needed, we will start with a Management Services Agreement (MSA) and a one-time retainer payment of $1,500 which we bill against hourly, for tasks like drawdown or invoicing support and training, compliance questions, etc.
  • Get Professional Help with your Ph II Pricing Proposal - ReliAscent's experts can review your indirect rates and the budget to ensure you are not leaving money on the table or making mistakes that could cost you (potentially) tens of thousands of dollars during Ph II. 

Once the Phase II contract or grant is awarded (or in the case of an NSF award, the grantee must pass a CAP Review after being selected for Phase II), our experts begin working with your business to ensure compliance.

 

PHASE II SBIR ACCOUNTING REQUIREMENTS

Things change dramatically once the business is awarded a Phase II contract or grant. The government has much higher expectations of the contractor/grantee, not only regarding the deliverables, but more importantly, how they track their costs, time, and how the accounting system is setup. Why do they do this? Simply put, there's a lot more money on the line. Additionally, most Phase II SBIR/STTR awards are cost type (CPFF), instead of a firm fixed price (FFP). Thus, a Phase II award presents a greater risk to the government (and grants are typically treated like Cost Type Contracts, which are similar to or even borrows from the DCAA and DCAM). 

An FFP contract (and a grant, to a lesser degree) is simpler for the government, and pushes the awardee to control costs, as they are on a limited budget. On the other hand, in a cost type contract, the government will pay the small business for the work performed on the contract, in addition to a “fair share” of the overhead costs/operating expenses of running your business (based on your indirect rates). This makes cost type contracts very valuable and more appealing to a government contractor, but with that added benefit, comes the requirement that your accounting system is complex enough to prove you are billing the government their fair share of the overhead costs.

As a result, the government will require you maintain a DCAA compliant accounting system, as it needs to be assured that your system can calculate indirect rates, separate direct from indirect costs, and isolate unallowable costs from allowables, and one that allows the business to be able to report, at any given time, how much they have billed on a particular contract, and how much they have left to bill. 

 

PH II AWARD SELECTION AND THE SF1408 PREAWARD SURVEY

SBIR Accounting Guide - SF1408When your Phase II proposal is being considered for award, the awarding agency often will require that you self-certify the state of your accounting system and your financial viability with their Standard Form (SF) 1408. The SF1408 is a 2-page document, consisting of 3 portions and 15 questions regarding the abilities of your accounting and timekeeping systems. Most government agencies that issue SBIR/STTR awards, with the exception of the NSF and NIH, will ask companies to submit the SF1408, and may use the Defense Contract Auditing Agency (DCAA) to perform the audit (survey), rather than simply having the business complete SF1408 and waiting for an accounting systems audit several months, or even a year or more, into the period of performance during the phase II.

The preaward survey always includes at least two components, though there can be more. The purpose of the survey is to assess your business’ financial stability (i.e., is the business financially healthy enough that it will stay in business long enough to complete the phase II), and to evaluate your accounting system (as mentioned above). However, the government/DCAA may also want to dig deeper into your proposed indirect rates and evaluate your payroll taxes.

Because of this process, and the backlog of work at DCAA, there can be significant delays between the end of a company’s Phase I, and the actual start work date of the Phase II (which can be difficult for many smaller companies and startups). This is why it is important that you collect all the documentation they require, and either install a DCAA compliant accounting system during this time or have a plan to setup the system before work begins on the Phase II (learn more about DCAA compliant Accounting Systems offered by ReliAscent®, and our outsourced monthly SBIR accounting services).

 

PH II MONTHLY ACCOUNTING COST

If your business has been awarded a Ph II (cost type) contract from the DoD or DHS, or a grant from agencies like the Department of Energy, NIH, NSF, or others (and a compliant accounting system is required), ReliAscent® can set you up with a compliant QuickBooks® accounting system and provide monthly accounting sources.  While not all SBIR/STTR grant winners technically require a fully DCAA compliant system (as grants have different requirements), DCAA compliance is the gold standard, and the system can be tailored to meet the various requirements of any agency or award at the project level, as needed (and it does not make sense to create accounting systems that are specific to only one agency, when most awardees will eventually win awards with others). 

Initial setup or migration to our platform typically costs between $2,000 - $5,000 depending on the state of your books and time of year (starting earlier in the year is more affordable), and involves setting up the chart of accounts (COA), a timekeeping system of your choice, payroll of your choice, and an AR/AP system like Bill.com. You will also be provided with an accounting manual and policies and procedures required for DCAA compliance. 

Outsourced accounting with your team--ReliAscent provides a Bookkeeper, Sr. Accountant, and Account Executive (who also functions as your fractional CFO and Contracts/Grants Manager)--starts at $2,000 for most Ph II contract winners, though companies with Ph II grants may only pay $1,600 - $1,800/month.  Monthly accounting includes all bookkeeping, accounting (and all necessary financial reporting for compliance), running payroll, and invoicing the government (drawdowns, if you have a grant). There are some small additional fees (cloud hosting fee, payroll, timekeeping system subscription, etc.), which can vary depending on the size of your business and other factors. Contact us to discuss, or request your monthly accounting quote here. 

 

OTHER SBIR ACCOUNTING COMPLIANCE RESOURCES

ReliAscent® provides a number of helpful white papers and blogs on SBIR Accounting and compliance topics. These include FAQ surrounding compensation, timekeeping, rules, taxes, when to setup a compliant system (and what to watch out for in the government contracting industry), and many more:

ReliAscent® also partners with Dawnbreaker as part of the "Department of Energy's Phase 0 program," providing rates development and budgeting guidance for small businesses that want to pursue SBIR Ph I and II grants with DoE. We also participate in their "National Science Foundation’s Phase I Commercialization Planning Program [CP2]," offered twice a year (February and August), in which we provide webinars and guidance on the NSF's CAP Review. We urge small businesses to take advantage of these helpful programs offered by Dawnbreaker. Contact them today to learn how to participate. 

You can learn more about Dawnbreaker and other SBIR proposal support consultants on our Partners Page.