SBIR Proposal Writing Basics: Pick Your Partner Carefully

Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

Copyright © 2006 by Greenwood Consulting Group, Inc.

In the past month, we have heard of two horror stories about small companies who are STTR recipients who have had disputes with their university research partners (the "research institute" required on an STTR project). It would seem that the Gods want us to write something this time about picking your partner carefully on an STTR project. Therefore, let us offer the following words of advice.

First, recognize that you are entering into an important business relationship and agreement when you decide to team with a university on your STTR project (or an SBIR project, for that matter). Everyone at the university and in your company may be smiling and friendly when the proposal is being submitted, but things may get a lot more serious before you are done with this long term commitment. Remember: you are agreeing to team on not only the one year Phase I STTR project, but also the subsequent two year Phase II, not to mention the possible long term relationship if any intellectual property is discovered in either Phase or commercialization occurs in Phase III. Therefore, when everyone is still smiling and friends, you need to propose, negotiate, and secure a comprehensive agreement between your firm and the university. This starts with the "model agreement" the STTR agencies provide, but it typically only covers the IP part of the relationship—you need to be clear about deliverables, responsibilities, deadlines, how disputes will be resolved, shares in any IP discovered (and any brought to the project), rights and responsibilities of each party if Phase III commercialization occurs--and be sure to include flow down clauses so the university is bound by the same Federal rules and regs that will bind you in the STTR agreement. Yes, this is a pain, but you need to go through it now to avoid much larger possible pain later on.

Second, pick a university partner based on more than their technical qualifications. Yes, their quals are critically important to selecting your STTR partner, but look for more: does this university have a track record working with small companies, particularly on SBIRs and STTRs? Ask the university if they have and, if so, with what companies. Also check the listings of past award winners, such as the one at Small Business Administration (most easily accessed by going to www.sbirworld.com and clicking on the "Past Awards" button on the top menu) to see if they have been involved in prior SBIR/STTR projects. Be ready to spend some time on these searches: it is not so easy to search or even see the research institution on a previous STTR project. Ask the agency to which you are applying to see if they have made prior SBIR/STTR awards involving this university and, if so, to what companies. If you find another company that has teamed with this university, contact them to see how the relationship has gone and to ask advice on dealing with that institution.

Ask the university what their motivation is in teaming with a small firm like yours on an SBIR/STTR project. Ask the technology division of the state economic development office where the university is located for any feedback they’ve received from firms working with the same university. In short, plan to do some due diligence on the university before you decide to team with them.

Third, do not pay the university until they have performed work on the project. If you owe them money, you have a lot more leverage to get substandard work corrected than if you’ve paid them up front. Some institutions will require that you prepay before they do any work (not trusting that your small firm will necessarily pay them after the work is done), in which case we recommend you negotiate several smaller pre-payments that you pay as the university satisfactorily completes a subset of its tasks.

Finally, include in your cost proposal on the STTR/SBIR project some fee/profit on the amount of the university’s subcontract. For example, if you will give a $30,000 subcontract to University X, ask for the same 7% fee/profit on that amount ($2,100) as you request on the rest of the project budget (i.e., you usually request a fee/profit as a percentage of the total of all direct and indirect costs). Be prepared for the agency’s contracting officer/grants administrator to balk at giving you this fee/profit: some government negotiators don’t think you deserve fee/profit on the subcontract. Your argument is that you are obligated to the Federal government to deliver on this project, and therefore you are at risk if the university fails to perform its role—the fee/profit is your reward for assuming that risk and therefore should be a reasonable expense to the Federal government.

The purpose of this article has not been to bash universities. The advise we’ve offered is the same as we would give for working with any subcontractor, whether it is another business (large and small), a Federal Laboratory, and another entity (and we’d suggest that universities and other subcontractors do due diligence on the small company asking them to collaborate on an SBIR or STTR project). The point is that you must go into an STTR or SBIR with a business mindset in terms of your relationship vis-à-vis the awarding agency and any subcontractors. As "The Donald" would say, "it’s nothing personal. It’s just business."