Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

Copyright © 2004 by Greenwood Consulting Group, Inc.

When you write an SBIR or STTR proposal, you should have several objectives in mind. One, of course, is to win and get a contract or grant. Another is to propose a project that will lead to a significant Phase III opportunity to commercialize and sell product or services. A third is to charge appropriate indirect rates (aka overhead, G&A, F&A rates) and a fee/profit to ensure that you make money (or at least don’t lose any). A fourth is to establish credibility for your firm and open doors for future government grants or contracts.

So what other objective could you possibly have? We think the other objective should be to get yourself paid as quickly as possible.

Now some of you are thinking that we must be profit mongers to make such a statement. But the reality is that you are a small (maybe even a start-up) business, and small businesses commonly fail because they don’t collect revenue quickly enough to pay their bills and survive. Even profitable small businesses can fail if they don’t collect revenue quickly enough—as a simple example, imagine your company gets a $10 million contract that costs you only $8 million to perform—that means you are going to make $2 million on the project, making it HIGHLY profitable. But now let’s say the project has to be completed this month, but you won’t get paid until this time next year—you have to incur all costs of labor, materials, equipment, etc. to perform the contract NOW but you don’t get paid for it until THEN. At least some of our companies would go belly up between now and then.

So how do you get paid quicker on an SBIR/STTR project? It starts with the cost proposal. Some agencies have a question on their cost proposal form that says something like "As part of this award, will you require Federal Government financing? If so, explain." Most normal people don’t understand what that means, and since you have to explain if you answer "yes," many SBIR/STTR proposers answer "no." The interpretation of a "no" answer is that you will complete the ENTIRE SBIR/STTR project, have your final report accepted, send an invoice and THEN you will be paid sometime later. So the first thing you can do to get paid faster is to answer "yes" to any such question on the cost proposal of your SBIR/STTR proposal. So what do you put after "Explain:"? See the next two paragraphs for that answer.

Another important part of the cost proposal that affects how you will get paid is the type of payment you request. There are three basic types: advance, progress, and partial/milestone. Advance means that the agency pays you "in advance" of doing the work—in other words you get some seed money up front to get you started. Progress means that you bill as you "progress" on doing the work—in other words, you get paid after you do some work. Partial/milestone can best be explained in the context of Progress payments. Progress payments often require a pre-award audit of your accounting system to convince the Federal government that your accounting system is adequate for tracking and billing such progress. If you are like most folks, you probably don’t want to hold up starting the SBIR/STTR project while such an audit is performed and you make any corrections required because of the audit’s findings. Therefore, you can request a Partial or Milestone payment which usually avoids the pre award audit but still allows you to get paid every month or so as you work on the SBIR/STTR project. Under this payment mechanism, you can invoice and get paid as you reach certain milestones, such as when you deliver monthly reports.

Why, you ask, would you want a Partial or Milestone payment if you can get an Advance payment? After all, getting paid BEFORE you do the work sure beats getting paid AFTERWARDS. The answer is that many agencies do not make advance payment awards under their SBIR/STTR programs. As a general rule, agencies that make their awards as contracts (vs. grants) do not use the advance payment mechanism. However, it never hurts to ask on your cost proposal for advance payments—just be prepared to retreat to Partial or Milestone payments if the government balks during negotiations.

The next place where you can speed up the payment process is in understanding the rules and conditions of your grant or contract that affect payment. Do you have to submit an invoice or voucher, and if so, is there a particular form or format that must be used? Do you make a request electronically? Does the agency pay you electronically, in which case you have to sign up with your bank to receive electronic payment? Can you only get paid when you can demonstrate that you have incurred costs on the SBIR/STTR project? Do you have all the ID numbers, codes, purchase order numbers, etc. required to submit a valid request? These are important questions that you should ask during negotiations, and continue to ask until you get the hang of how your agency works. We find this to be a great time to be humble: POLITELY ask the agency for help in understanding the process, terminology, and how to track your request as it goes through their system. Don’t be derogatory, don’t complain about the hoops that you have to jump through, don’t suggest that you need to tell your Congressperson about the stupid system—none of this will help get you paid any time soon. You also might ask for help from another government contractor in your area that has experience with the same agency: sometimes they will give you some tips on getting paid.

A final place where you can speed up the payment process is in meeting all of your obligations in a timely manner. There are two specific places where your tardiness can hurt you. The first is being slow to invoice: if the end of the month rolls around and you are eligible to submit an invoice, but you are "too busy" to prepare it until the 20^th of the next month, then you’ve just caused yourself a 20 day delay in getting paid. The solution here is to simply make preparing and submitting invoices a top priority. The second place is being slow to complete your project. In most cases, you will not get paid the last part of your SBIR/STTR grant or contract until you finish the work, turn in the final report, and turn in any final required paperwork. Therefore, if you futz around doing these things, you are your own worst enemy. Likewise, do not casually use those "no cost extensions" of time that many agencies offer companies to complete an SBIR/STTR project: it’s "no cost" to the government, while it’s "no pay" to your company.