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SBIR National Conference
Louisville, Kentucky
May 17, 2006
We Know
This Game
The SBIR Phase II
Cost Proposal
“It’s Not Just Numbers!”
Fred Patterson
The SBIR Coach®
A Division of The Commercialization Funding Coach, Inc.
© The SBIR Coach, 2006
www.SBIRcoach.com
Learn the Plays That WIN
2
Today’s Game Plan
We Know
This Game
• Phase II vs Phase I
• Who’s paying attention to you?
• An Audit? Should I panic?
• The Phase II Cost Proposal
(With DOD and NIH Examples)
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We Know
This Game
3
Phase II
A New Ballgame
• Lots more money
• You’re creating IP
• You’re making something tangible
• You’ve got others dependent on
your management skills
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4
We Know
This Game
What’s the Big Deal?
• You’re being trusted with a
“significant” amount of money
• There are regulations to follow
• Your expenditure patterns set
precedents for future cost recovery
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5
We Know
This Game
Who’s Watching You?
• The Agency
– Granting Agencies (Grants Management Officer)
– Contracting Agencies (Contracting Officer)
• Their Auditors
– The Agency’s Procurement Audit office
– The Defense Contract Audit Agency (DCAA)
• The Internal Revenue Service
• State Workforce Commissions
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6
We Know
This Game
AUDIT? Should I Panic?
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7
The Phase II Audit
Considerations
We Know
This Game
• The Company
– Can you handle a project of this
magnitude and scope?
• The Project
– Are the costs appropriate?
– Do they meet all Audit Criteria?
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8
We Know
This Game
Audit Criteria for Costs
• Allowability
– Are they includable for reimbursement?
• Allocability
– Are they assigned to the proper cost category?
• Reasonableness
– Are the costs in line with accepted norms?
• Consistency
– Are you using the same schema across time?
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9
We Know
This Game
The Company Audits
• Financial Viability
– Can you stay in business long
enough to finish the project?
• The Accounting Process
– Can you manage the money
according to the rules?
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10
Financial Viability
We Know
This Game
• Financial Statements
• Bank Statements
• Tax Returns
• An Interview
– looking for red flags
• Lawsuits
• Bankruptcies
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11
Accounting Process
We Know
This Game
• Written Policies & Procedures
– Personnel
– Accounting
– Purchasing
• Evidence of systems in place
• Up-to-date records
• Knowledge of the Federal Acquisition
Regulations (The FAR)
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12
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This Game
The Accounting System
• Ability to separate types of costs
• Auditable transaction trail
• Reporting capability
• Defined procedures
• Defined authorities
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13
We Know
This Game
Types of Project Costs
• Allowable vs Unallowable
– Per the FAR
• Direct vs Indirect
– Direct
• Necessary for the project
• Separable by project and category
– Indirect
• Necessary for the business
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14
We Know
This Game
The Phase II Budget
• Basic Considerations
• Direct Cost Categories
• Indirect Cost Rates
• Fee (profit)
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We Know
This Game
15
The Phase II Budget
Basic Considerations
• Format instructions
• Submission mechanism
– Electronic – which website(s)
– Paper – what template
• Style
– Firm Fixed Price (FFP)
– Cost Plus Fixed Fee (CPFF)
• Base and Option separation
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16
Agency Instructions
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This Game
• Continuously changing
• Vary from Agency to Agency
• Different communication styles
• Interpretation often needed
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Agency Instructions
17
(Links as of 17 May 2006)
We Know
This Game
DOD
http://www.dodsbir.net/submission + special by component
NIH
http://grants.nih.gov/grants/funding/424/SF424_RR_Guide_SBIR_STTR.doc
NASA
http://sbir.gsfc.nasa.gov/SBIR/sbirsttr2005/solicitation/index.html
NSF
http://www.nsf.gov/eng/sbir/phase_ii.jsp
DOE
https://e-center.doe.gov/iips/faopor.nsf/UNID/
EE3114864F2B2299852570FA00741872/$file/SBIR-STTRPhase2InitialNotice.pdf
DHS
http://www.hsarpasbir.com/PhaseIIPropPrep.asp
DOC
Provided directly by NIST and NOAA
EPA
Provided directly by the EPA
USDA
http://www.csrees.usda.gov/fo/sbir.html
DOEd
http://fs2.fbo.gov/EPSData/ED/Synopses/3286/errd080008/
PhaseIIFastTrackSolicitation.doc
DOT
© The SBIR Coach, 2006
Provided directly by the DOT
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18
We Know
This Game
Phase II Budget
Time Periods
• Budget span
– Calendar Year
– Budget Period
• Manpower loading
– Calendar Year
– Academic Year
• Detail Frequency
– Annual
– Quarterly
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19
Phase II Budget
Direct Cost Categories
We Know
This Game
• Labor
• Materials
• Consultants/Subcontracts
• Travel
• Other
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20
Direct Costs
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This Game
Labor
• Contribute materially to project
– Research & Development
– Project Management
• Are identified in the proposal
• Must have an hourly rate
• Should be paid at current
competitive market rates
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21
Direct Costs
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This Game
Materials
• Make a detailed list
– Purchased or Leased Equipment
• How you do it determines who holds title!
– Consumed Materials & Supplies
• Have quotes for all > $100
• Competitive bids for all > $5000
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22
We Know
This Game
Direct Costs
Consultants/Subcontracts
• Consultants – advisory services
• Subcontracts – deliver to specs
• Letters of commitment
• Market justification of rates
• Full budgets from subcontractors
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23
Direct Costs
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This Game
Travel
• Trips identified
– Places & duration
– Participants
• Justification (have printouts)
– Airfares, rental cars (discounted)
– Allowable per-diems for hotel & meals
• http://www.gsa.gov/perdiem
– Personal car allowance
(44.5¢ per mile)
THE NEGOTIATOR WILL CHALLENGE
YOUR TRAVEL BUDGET!
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24
Phase II Budget
Indirect Costs
We Know
This Game
• Costs associated with the project
but not easily separated from
other non-project uses.
• Costs allocated to the project by
use of pre-negotiated rates
applied to certain direct costs.
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We Know
This Game
25
Phase II Budget
Indirect Rate Categories
• Fringe Benefit (FB)
• Overhead (OH)
• General & Administrative (G&A)
• Each rate has two parts:
– Pool: The applicable costs
– Base: The direct costs affected
• The Rate is the ratio of Pool/Base
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26
Indirect Rates
We Know
This Game
Rate
Pool
Base
Expected
FB
Payroll taxes,
group insurance,
401(k) match, etc.
Direct Labor
20-30%
OH
Other expenses
necessary to
support the
labor force
Direct Labor
25-45%
G&A
Other expenses
necessary to
support the
business
All Direct
Costs
+FB +OH
10-25%
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27
What Rates to Use?
We Know
This Game
• Preferred:
– Rates are calculated using budget
projections based on historical data
• Acceptable:
– Rates are estimated using best
guess projections
• In either case, the rates are
negotiated with, and must be
approved by, the funding agency.
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28
We Know
This Game
Agency Formulas Vary
• Contracting Agencies
– DoD, NASA, DHS, EPA, DOC, DOT, DOE*
Two Pools: OH=(FB+OH) and G&A
• Granting Agencies
– NIH, DOEd, USDA
Two Pools: FB and F&A=(OH+G&A)
– NSF
One Pool: FB+OH+G&A
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29
We Know
This Game
Calculating the Rates
• Include all indirect expenses
in either a Pool or as an unallowable
• Allocate expenses to multiple Pools
using a consistent schema
• Reconcile to your General Ledger
• Compute the ratios of Pool to Base
to get the Indirect Rates
• Determine whether the Agency will accept a
lower “capped” rate instead of an actual rate
to preclude an audit
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30
Profit (Fee)
We Know
This Game
• The Agency must allow you to include a Fee
• The FAR caps the Fee at 15% of Total Costs
• The Agency will cap it at much less
(4-7% is typical)
• The Fee amount will be negotiated
• Don’t leave this money on the table!
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We Know
This Game
© The SBIR Coach, 2006
Agency Phase II
SBIR Funding Caps
DOD
$750K
NIH
$750K +
NASA
$600K
NSF
$500K
DOE
$750K
DHS
$750K
DOC
$200K/$300K
EPA
$225K+70K+50K
USDA
$300K
DOEd
$750K
DOT
$250K-750K
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31
Learn the Plays That WIN
32
We Know
This Game
Crunching the Numbers
• Avoid the temptation to work backwards
from the funding cap
• Use a Spreadsheet to build the budget
• Start with Labor and build by Task
• Compile a materials list
• Get real estimates for travel costs
• Get commitment letters from consultants
• Apply Indirect Rates to the proper Base
• Include a Fee
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Cost Worksheet Example
33
We Know
This Game
DIRECT LABOR:
Total $
Hours
Y1
Rate
Y1
$$$
Y1
Hours
Y2
Rate
Y2
$$$
Y2
Principal
Investigator
83,251
620
65.50
40,610
620
68.78
42,641
Systems
Engineer
74,209
950
42.20
40,090
770
44.31
34,119
Electronics
Engineer
93,670
1100
38.00
41,800
1300
39.90
51,870
Technician
47,588
750
22.50
16,875
1300
23.63
30,713
Communications
Specialist
34,008
360
52.00
18,720
280
54.60
15,288
Labor Rate
Escalation
5%
TOTAL LABOR
332,725
LABOR OH:
199,635
Overhead Rate
60.0%
© The SBIR Coach, 2006
3780
158,095
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4270
174,630
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Cost Worksheet
We Know
This Game
MATERIAL COST:
$
72,540
34
(cont.)
From the Materials List
TRAVEL:
Airline Tickets
1,248
2 trips, 2 people, 2 days each to Kirtland AFB, NM
Subsistence
690
Per diems for Albuquerque @$115/day
Other
186
Rental cars
TOTAL TRAVEL
$
CONSULTANTS:
2,124
Total $
Dr. Faraday
7,500
Mr. Zazafritz
5,400
TOTAL:
$
12,900
G&A Base
619,924
G&A Rate
15.0%
G&A COST:
$
TOTAL COSTS:
Rate
Y1
$$$
Y1
Hours
Y2
Rate
Y2
$$$
Y2
30
125.00
3,750
30
125.00
3,750
36
150.00
5,400
30
66
92,989
712,912
FEE or PROFIT:
$
37,088
TOTAL COST & FEE:
$
750,000
© The SBIR Coach, 2006
Hours
Y1
5.2%
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DOD Example
35
We Know
This Game
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DOD Example
(cont.)
36
We Know
This Game
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37
NIH
Example
We Know
This Game
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38
We Know
This Game
NIH
Example
(cont.)
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39
We Know
This Game
NIH
Example
(cont.)
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40
We Know
This Game
NIH
Example
(cont.)
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41
The Phase II Cost Proposal
We Know
This Game
•
•
•
•
•
•
•
Conclusions
There’s more than numbers to consider
Know what the Agency expects
Have supporting documentation
Expect that you will be audited
Prepare using a worksheet
Check calculations carefully
Seek advice rather than guessing
© The SBIR Coach, 2006
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Learn the Plays That WIN
42
The Phase II Cost Proposal
“It’s Not Just Numbers!”
We Know
This Game
Would you like a copy
of this presentation?
Provide a business card with the word
“slides” on it, or send an email request to
[email protected]
The SBIR Coach
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Learn the Plays That WIN