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ED/IES SBIR Program Fundamentals

The U.S. Department of Education deploys its SBIR program through the Institute of Education Services.

The U.S. Department of Education’s (ED) Small Business Innovation Research (SBIR) program is administered by the Institute of Education Services (IES). The ED/IES SBIR program funds the research and development of Education Technology (EdTech) meant to enhance the learning experience for students from early education through secondary education and beyond.

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The U.S. Department of Education (ED) stands apart from most other federal agencies in shaping the country’s future. This is because the department has a direct line to how we shape the minds of our next generation—and every generation that follows. 

The Small Business Innovation Research (SBIR) program fosters advancements in education, inspiring and funding talented product developers in their mission to develop products that take instruction to the next level. 

Administered by the Institute of Education Services (IES), ED/IES SBIR is a small business cause unlike any other.

This article will tell you everything you need to know about the ED/IES SBIR program. 

What Does ED/IES SBIR Stand For?

ED/IES SBIR is shorthand for the Small Business Innovation Research (SBIR) program at the U.S. Department of Education (ED), which is administered out of its research office, the Institute of Education Sciences (IES).


What are the ED/IES SBIR Program Priorities?

Education is not a one-size-fits-all phenomenon. Instead, education must change and shift with the times while also being flexible to serve the needs of specific age groups and populations.

The ED/IES SBIR program accepts proposals for research and development (R&D) in three key areas.

  • Priority 1: Education technology products used by students or teachers (or other instructional personnel) in authentic education settings.
  • Priority 2: Education technology products for infants, toddlers, or students with disabilities. Also, teachers (or other instructional personnel, related service providers, or family members) in early intervention or unique education settings.
  • Priority 3: Education technology products used by school administrators. Or technologies designed for use in early intervention or special education settings

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What are the ED/IES SBIR Eligibility Requirements?

The eligibility requirements for entry into the ED/IES SBIR program follow the same path as the other federal agencies that offer SBIR programs.

To be eligible for ED/IES funding, the small business applicant must be a for-profit organization with no more than 500 employees and must be independently owned and operated in the U.S. by at least 51 percent US citizens or lawfully admitted residents.

Each small business that applies for SBIR funding through the ED/IES must also have a Principal Investigator (PI), who must be employed by the small business at least 51 percent of the time.

Throughout the project up until the award itself (and during the life-cycle of the award), the small business will be asked to verify its eligibility requirements.

Meanwhile, applicants are encouraged to collaborate with partners on their SBIR projects, including nonprofit firms and institutions.

These partners can receive up to one-third of the funds in Phase I of the SBIR program and one-half of the funds in Phase II. But remember: the small business must lead the project.

And one more wrinkle in ED/IES SBIR eligibility. 

The Education Department’s SBIR program also accepts proposals from small businesses owned in majority by multiple venture capital operating companies and hedge funds or private equity firms. And you can allocate up to 15 percent of your ED/IES SBIR annual budget to such companies. 

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ED/IES SBIR Program Structure

Like other SBIR programs across other federal agencies, the ED/IES SBIR program is broken into multiple phases. Each phase boasts its own requirements, benchmarks, purposes, and awards.

The ED/IES SBIR program includes three phases, the first two of which are supported by government funds and provide up to $1.25 million combined. The third phase is reserved for the private sector commercialization of education technology products.

Let’s go through the details of each phase!


ED/IES SBIR Phase I

The first phase is where the rubber meets the road.

This is where the primary R&D efforts commence, with government funds fueling your team’s efforts. Officially, Phase is meant to determine the scientific or technical merit of the ideas submitted under the ED/IES SBIR program.

  • How much is ED/IES SBIR Phase I Award?
    • ED/IES SBIR Phase I awards amount to $250,000.

  • How Long is ED/IES SBIR Phase 1?
    • The award period for Phase I is up to 8 months for rapid prototype development and evaluation of new education technology prototypes.

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A successful ED/IES SBIR Phase I project develops a functioning prototype of a new education technology project or service and determines the usability, initial feasibility, and promise of that prototype. 


ED/IES SBIR Phase II

The second phase bolsters the efforts that commenced in Phase I, continuing the R&D efforts and furthering your project’s viability in eventual commercialization.

  • How much is the ED/IES SBIR Phase II Award?
    • ED/IES Phase II awards amount to $1 million.

  • How Long is ED/IES SBIR Phase II?
    • The award period for Phase II is up to 2 years for the full-scale development and evaluation of new education technology products.

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A successful ED/IES SBIR Phase II project successfully develops a commercially viable product in the education technology sphere. It also demonstrates clear usability and feasibility of implementation in an educational setting, where it delivers on the promise to improve education in a classroom setting.

A successful Phase II project develops a commercialization plan for the project or service and develops strategies to evaluate its efficacy. 

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ED/IES SBIR Phase III

As with other federal agencies’ SBIR programs, Phase III is somewhat of a particular case. This final phase of the ED/IES SBIR program is set for private sector commercialization of the products developed in phases I and II with SBIR funds.

ED/IES does not provide funding for Phase III. Instead, it’s up to the small business to commercialize the products through other sources of financing, such as the private sector. 

What is the Executive Order 13329 on Encouraging Innovation in Manufacturing?

Executive Order 13329 was signed into law by President George W. Bush in 2004. It officially defined the duties of all agencies and departments that participate in SBIR programs while also assigning the Small Business Administration (SBA) with its own set of responsibilities. It is meant to ensure that federal agencies continually assist the private sector in its manufacturing innovation efforts.

Dubbed “Encouraging Innovation in Manufacturing,” Executive Order 1339 underscored the importance of technological innovation in strengthening the manufacturing sector of the country’s economy. Under the executive order, the SBIR and STTR programs were lauded for stimulating the economy while recognizing that such programs have improved innovations in education, health and welfare, national defense, environmental efforts, and more. 

The ED/IES promotes and supports Executive Order 13329 by maintaining a notice on the ED SBIR site that describes the order and defines manufacturing-related projects in education. ED/IES also tracks projects and reports success stories to demonstrate the impact of the SBIR program. 

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How do I apply for an ED/IES SBIR Award?

To apply for an ED/IES SBIR award, you must first find out whether or not you’re eligible (see the “What are the ED/IES SBIR Eligibility Requirements?” section of this blog above). Once confirming your eligibility, it’s time to apply.

The next step in the application process is registering your small business on the SBIR/STTR Company Registry. This portal will open access to the SBIR.gov system, providing you with a unique control ID, which you will use for all your submissions. For more tips on the registration process, check out this guide published by America’s Seed Fund. 

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Who are the ED/IES SBIR Program Contacts?

There are two primary contacts for the ED/IES SBIR program. These contacts are:

Edward Metz, Ph.D.
ED/IES SBIR Program Manager
(202) 245-7550
Edward.Metz@ed.gov

Michael Leonard, Ph.D.
ED/IES SBIR Program Analyst
(202) 245-8133
Michael.Leonard@ed.gov

Technical Assistance Disclaimer

The ED/IES SBIR program personnel can address questions about the ED/IES SBIR program or provide technical assistance related to project ideas before releasing the annual solicitation. 

Following the FAR regulations, please note that when the annual solicitation is open, program personnel and other government officials are not permitted to provide technical assistance or respond to questions from individuals preparing proposals in response to the ED/IES SBIR program solicitation.

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What is ED/IES SBIR Program Solicitation?

ED/IES Program Solicitations refers to the open projects available through the SBIR program. To participate in the ED/IES SBIR program, you must respond to a funding solicitation from your target agency, as programs do not accept “unsolicited” proposals—or a proposal that does not address a current topic. 

Solicitations are also known as Request for Proposals (RFP), Funding Opportunity Announcement (FOA), or Broad Agency Announcement (BAA). Regardless of the name, the solicitation is the document that provides guidance and rules and regulations about how to prepare a proposal. Along with topic areas of interest, solicitation documents also include Proposal Preparation Instructions, Application and Submission guidance, and Evaluation criteria.

To browse open topics by agency, use this search tool developed by America’s Seed Fund.

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What is the ED Games Expo?

The ED Games Expo is an annual showcase of paradigm-shifting innovations in education technology (EdTech), all developed with the support of more than 30 programs at the education department and other federal agencies. 

The learning games and technologies featured at the expo are appropriate for children and students from early childhood to post-secondary education and special education. EdTech games and technologies touch on STEM, reading, civics, social studies, etc. The resources displayed are research-based, with studies demonstrating the usability, feasibility, and promise leading to intended outcomes.

Participants in the annual ED Games Expo include:

  • Educators and school decision-makers learn about education interventions and assessments.
  • Students demo learning games and EdTech and then ask experts pointed questions about the technology.
  • Developers, researchers, and stakeholders learn about the government programs that invest in new education technologies.
  • Government program representatives highlight the technologies developed through federal programs.

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Who has won ED/IES SBIR Phase II Awards?

Across all participating federal agencies, success stories abound in the world of SBIR programs. However, ED/IES SBIR Phase II award success stories take on a fundamentally special feeling, as the project’s success ultimately means success across an array of educational settings.

And while each project is unique, they all started as innovative ideas that eventually grew into commercially viable products that enhance education and address specific needs in various educational settings. The following ED/IES SBIR success stories are all currently in use by students and teachers.

Agile Mind, Inc.

Phase II Award: $750,000

A technology company that seeks to broaden student access, achievement, and persistence in mathematics and science courses, Agile Mind Inc., developed a comprehensive online instructional platform. The SBIR-funded project consists of 30 web-based, animated visualizations that support learning and help students understand various educational topics. The research consisted of a mixed-methods study completed with 19 teachers and more than 300 students in the 9th and 10th grades from eight schools in two states.

Zoo U

Phase II Award: $849,989

A web-based, social skills learning game for students in grades two through four, Zoo U simulates a school environment and helps students gain social and emotional skills through everyday scenarios, such as recess games and in-classroom group work. The game first establishes a baseline of six skills: impulse control, emotion regulation, empathy, communication, cooperation, and social initiation. Students then play in up to 30 scenarios to improve and reinforce those skills. After creating the prototype, the Zoo U team conducted usability tests with school personnel and students. Since its launch, Zoo U has been the subject of peer reviews and was even a finalist for the 2017 CASEL Design Award Challenge.

Schell Games' Happy Atoms

Phase II Award: $899,542

Developed by Schell Games, Happy Atoms is a physical molecular “ball and stick” modeling set that pairs with an interactive digital app. The game provides a modern alternative to the old-fashioned teaching methods about bonding. Students build atom models, then use the app to snap a photo and identify the molecule with proprietary vision-recognition algorithms. In the development of Happy Atoms, Schell Games partnered with the nonprofit research agency WestEd to assess the game’s usability, feasibility, and implementation. The game project has gone on to gain numerous awards and national recognition, with stories featured in Huffington Post, TIME, and more. 

Is it time to start your ED/IES SBIR program journey? We’re here to help. Reach out to Team 80 today.

Get A Free Consultation for Your ED/IES SBIR Accounting Services
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Team 80 CEO Sarah Sinicki

Sarah Sinicki

Team 80 CEO

Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.


Glasses sitting on paper work for United States Patent for SBIR Data Rights

Does the Government Have a Stake in Your Product Once It Awards an SBIR Grant?

Startups must understand Data Rights. They must also understand who owns a product developed with SBIR funds.

The Small Business Innovation Research (SBIR) program includes contracts and clauses that explain who owns the rights to technology developed with SBIR funds. While protections exist for the federal government, Data Rights protect small businesses from having their research sold to a third party.

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Entrepreneurs who develop products with Small Business Innovation Research (SBIR) program funding might have one crucial question in mind: 

Who owns the rights to my research, data, and product?

It’s a straightforward question with a not-so-clear answer. 

Like most government funding aspects, a bevy of finer details must be explored before you begin your SBIR journey. 

To understand the nature of the government’s stake in your SBIR-funding product, you need to learn about Data Rights, Intellectual Property Rights, Computer Software Rights, Phase III specifics, and more.

Let’s jump into it and get this all sorted out!

What are SBIR Data Rights?

Certain rights to your data. However, your small business will be the preferred, singular source for delivering this technology for a substantial period.

SBIR Data Rights are essentially a nondisclosure agreement (NDA) with the federal government.

When one of the government’s participating agencies awards you with SBIR program funding, the agency makes a binding promise that it will not share or sell your eligible SBIR data to a competitor. SBIR Data Rights protect against unfair backroom deals between the government and a competing manufacturer.

Keep in mind that the federal government, in all likelihood, will not break this promise. However, Data Rights ensures the federal agency will incur monetary damages if they do. 

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What are the Three Basic Attributes of SBIR/STTR Data?

For your SBIR work to be protected as Data Rights, it must adhere to three essential attributes.

Every bit of research and development you perform under the auspices of an SBIR program must possess these attributes:

  1. Recorded Information
  2. Of a technical nature
  3. Generated under an SBIR or STTR funding agreement and appropriately marked with the SBIR/STTR Data Rights legend.

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“Recorded information”

Your SBIR data must be written into a document. 

This is mandatory for SBIR data existing as sketches, drawings, source code, equations, formulas, reports, SBIR final reports, descriptions of SBIR technologies, or any writing that meets related criteria. 

However, SBIR Data protections do not apply to ideas or concepts—that is, unless the ideas and concepts are reduced to writing. What does that mean? 

Essentially, protections governing SBIR data only cover ideas contained in a written document and not the idea itself. Therefore, to protect the idea or concept behind the written description, you need to consider patent protection.

“Of a technical nature”

Any data considered “non-technical” does not qualify for protection as SBIR Data. 

One example of non-technical data is cost and pricing information, which is instead protected by the Freedom of Information Act, paragraph (b)(4)—a mandatory disclosure of such information by the government. 

Other non-technical information not protected by SBIR Data Rights is the data background of your company. 

Always keep that in mind when sharing any information about your company. Data “of a technical nature” must relate to the SBIR technology your team develops in phases I, II, and III. 

“Generated under an SBIR or STTR funding agreement … ”

Protected data must be explicitly generated under an SBIR/STTR funding agreement. 

This means that any SBIR data needing protection must be marked as such—proprietary data developed via private funds is not protected under Data Rights, nor is proposed information. 

But here’s an important note: if your project includes non-SBIR Data inextricably linked to SBIR Data, then all the data becomes subject to Data Rights protections. This typically occurs with source code and computer software. 

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What is the Duration of SBIR Data Rights Protections?

No less than two decades. 

SBIR and STTR Data Rights protect your project-related data from disclosure by participating government agencies for no less than 20 years. The protection begins during phase I, II, or III awards.

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What Changed with the SBIR Policy Directive on May 2, 2019?

The Small Business Administration (SBA) holds the authority to establish new, government-wide policies across the SBIR and STTR programs. 

On May 2, 2019, the SBA established an all-new policy directive to underscore the importance of adequately notating your SBIR Data to qualify for SBIR Data Rights protection.

The May 2, 2019, Policy Directive makes it clear that to qualify for Data Rights protection; the SBIR/STTR data must be appropriately marked

If data is unmarked, the government takes unlimited rights to that data. It can do whatever it wants with the information and even hand over that data to third parties for commercialization.

Additionally, before the new Policy Directive, small businesses had an indefinite grace period to correct inaccurately marked SBIR Data. However, as of the May 2, 2019, Policy Directive, you only have six months to make corrections.

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What is SBIR Data Marking?

SBIR Data Marking refers to attaching your SBIR Data legend to all information generated under an SBIR funding agreement. 

And a data legend is exactly what it sounds like—a representation of data on the plotted area of a graph or chart linked to a data table.

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Appendix I of the SBIR Policy Directive sets forth the legend that SBIR firms must affix to documents containing SBIR Data. 

Affixing the legend notifies the participating government agency that the document contains SBIR Data. This sets off the government’s obligation not to disclose the SBIR Data outside of the government for 20 years, starting on the award date.

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What are SBIR Intellectual Property Rights?

Intellectual property (IP) rights are legal parameters that control whether or not others can use a technology and how it could be applied if they are permitted to use said technology. 

Keep in mind that creators do not automatically obtain IP rights simply through developing the technology. Instead, you must take deliberate steps, such as filing a patent application. 

In terms of SBIR-specific Intellectual Property Rights, it works the same as with other IP rights processes. 

If you are a technology startup, you likely already have an IP rights strategy. The main difference is that as an SBIR program awardee, you are using government money to fund your R&D, which you then deliver to the federal agency.

That R&D is protected by SBIR Data Rights (if adequately marked). So, for all intents and purposes, your IP rights are effectively similar to other startups.

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Can I Have a Patent and SBIR Data Rights?

Yes! However, this requires some explanation, as SBIR Data Rights and patenting are essential, but each involves different types of protections. 

While patents protect concepts, ideas, designs, or methods considered “inventive,” SBIR Data Rights protect the public disclosure of properly recorded technical information. 

Further, patented data is public knowledge, while the government’s ability to disclose SBIR data remains limited. 

If you publish SBIR data in a patent, it relaxes the terms of the government’s nondisclosure obligation — a significant problem if you decide to pursue both government and commercial markets. 

SBIR Data Rights are not applicable in the commercial market. And if there’s a chance your innovative technology can be reversed engineered by the public, you should apply to protect it with a patent. This is your competitive advantage in the free market.

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What are Government Purpose Rights?

Government Purpose Rights bestow the federal government with unlimited rights over your research. These rights also allow the government to disclose your technical data outside the government, authorizing third parties to use, modify, reproduce, release, perform, display, or disclose the technical data for government purposes.

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What are SBIR Computer Software Rights?

Under the auspices of federal SBIR programs, Computer Software Rights are another form of Data protection.

These rights protect computer programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, formulae, and related material that would enable the software to be reproduced, recreated, or recompiled by a third party.

Any technology deemed eligible for protection under Computer Software Rights must be developed or generated in the performance of an SBIR award.

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How do SBIR Contracts Work?

SBIR contracts are built to protect small businesses from governmental overreach. 

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Each contract boasts significant benefits to a startup, allowing them to maintain proprietary rights in the technical data (SBIR Data) developed during SBIR research. 

SBIR contracts ensure the federal agencies cannot take hold of SBIR data for commercial purposes, nor can they (the government) produce technology in the future that diminishes the rights of the small business that first developed the SBIR data. 

However, SBIR contracts also provide the government with a degree of access to evaluate the R&D work and effectively deploy the results. 

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What Does DFARS 252.227-7018 Mean for the Department of Defense (DoD)?

Always remember: Rights granted via SBIR Data rights are not automatic! 

Under the Department of Defense (DoD) clause for SBIR technical data and computer software (DFARS 252.227-7018), for your intellectual property to be protected under Data Rights, you must make these restrictions abundantly clear before development and apply Data Marking before you deliver it to the government agency. 

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How is SBIR Phase III Connected to SBIR Data Rights?

Phase III opens the door to your startup receiving SBIR Data Rights. This is why you must recognize a Phase III requirement and insist that SBIR Data Rights be accorded a Phase III.

“Recognizing” and “according” a Phase III is crucial. This is where the rubber meets the road. SBIR Data Rights are at stake here, as well as other Phase III rights and benefits. Section 4(c)(2) of the May 2, 2019, SBA SBIR Policy Directive states that “Phase III is by nature an SBIR, and must be accorded SBIR status, including SBIR Data Rights.”

In addition to SBIR Data Rights, Phase III status brings with it:

 

  • Exclusive rights to sole-source contracts
  • Exemption from SBA size standards
  • Rights to Phase III mandate
  • Right to be awarded a future Phase III award
  • Right to receive subcontracts for Phase III work
  • Ability to pursue R&D, services, products, and production

Phase III rights are valuable not only to the SBIR firm but also to the government.

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Team 80 CEO Sarah Sinicki

Sarah Sinicki

Team 80 CEO

Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.


DFARS Business Systems Explained

A rock-solid accounting system is crucial to navigating the rules and regulations associated with DFARS.

The Defense Federal Acquisition Regulation Supplement (DFARS) incorporates accounting prerequisites for any business trying to work with the Department of Defense (DoD). This includes those utilizing the Small Business Innovation Research (SBIR) program and other channels.

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Throughout your journey into the Small Business Innovation Research (SBIR) program, you’ll come across many rules and regulations. After all, this is the federal government; they love their rules and regulations!

Cutting through red tape—not to mention the seemingly impenetrable jungle of legalese—can seem daunting, but fret not! You aren’t the first startup to delve into the world of mandatory government guidelines, and you certainly won’t be the last. As such, there’s plenty of helpful information out there to shine a light on the many mysteries of government contracting. 

This blog can shed some of that light!

One of the most intimidating corners of the government contracting process is the Defense Federal Acquisition Regulation Supplement (DFARS). In this article, we’ll explore DFARS and thoroughly examine each component, explaining all the pertinent information along the way.

First things first.

What Is DFARS?

In order for an organization to conduct business with the Department of Defense (DoD)—or any other federal agency—they must comply with a strict set of prerequisites. These rules and regulations limit who can access certain data, ensure participants have sufficient security education and training to protect the government’s investment with identity and access management, and enlist physical security safeguards in the workplace.

It all comes together in DFARS (Defense Federal Acquisition Regulation Supplement). DFARS represents a set of rules the government uses to oversee the purchase of goods, services, and technology. The requirements and regulations in DFARS guarantee the integrity of sensitive information—also known as Controlled Unclassified Information (CUI)—that belongs to the government.

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What Are DFARS Business Systems?

Beyond coming up with an innovation that fits into the DoD’s various missions, you must also prove to the department that you have proper business systems in place. Without proper business systems, you won’t receive a government contract to take your project from abstract idea to commercialized reality.

There are six mandatory business system requirements documented in the DFARS § 242.70.

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  1. Accounting and Billing
  2. Estimating
  3. Material Management
  4. Purchasing
  5. Government Property
  6. Earned Value

Contractors need to declare that their business systems can adequately respond to requests for proposal for cost-reimbursement, incentive type, and time-and-material and labor-hour contracts.

One of the most important business systems to have in place is a reliable, all-encompassing accounting system that clearly outlines all allowable expenses associated with your SBIR project.
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What Is the Difference Between FAR and DFARS?

Federal Acquisition Regulation (FAR) is another set of government compliance standards, but it focuses on the way contractors can charge the government. FAR is all about “allowability.”

Essentially, it states what you can charge the government for in a contract and what you cannot.

FAR safeguards government contracts with a set of uniform policies and procedures within the acquisition process. It’s a set of accounting standards that defines when costs can be recovered under a federal contract.

DFARS is simply the official DoD regulatory supplement to FAR.

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What Does It Mean To Be DFARS Compliant?

 

A DFARS compliant business system meets all of the expectations put forth by the DoD. All applicants seeking contract work with the DoD and other federal agencies must be DFARS compliant. This goes for small businesses and large defense contractors. 

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There are 14 critical areas of DFARS compliance:

 

  • Audit and Accountability
  • Awareness and Training
  • Access Controls
  • Incident Response
  • Identification and Authentication
  • Configuration Management
  • Media Protection
  • Maintenance
  • Personnel Security
  • Physical Protection
  • Security Assessment
  • Risk Assessment
  • System and Information Integrity
  • System and Communications Protection

DFARS compliance begins with a comprehensive security assessment. If you have contract work with the DoD, you should create a compliance team to monitor CUI and identify sensitive information, security shortfalls, and improvements that can be implemented.

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How Many DFARS Clauses Are There?

There are many different sections and subsections to DFARS, and each one covers different topics such as Acquisition Planning, Competition Requirements, Contractor Qualifications, Types of Contracts, and so much more. For a full list of sections, visit the DFARS page of Acquisition.gov.

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What Is DFARS 252.242-7006(a)(1)?

DFARS 252.242-7006(a)(1) is related specifically to Accounting System AdministrationThe DoD implemented this clause as a regulation to dictate that all accounting systems must meet certain standards. This clause marked the first time the federal government relayed official, universal requirements for accounting systems and outlined penalties should businesses fall short of such requirements. 

This clause applies to cost reimbursement, incentive type, and time and materials, along with labor hour contracts or contracts with progress payments based on costs or progress payments based on stage of completion.

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What is Required for a DCAA Acceptable Accounting System?

Federal agencies rely on the Defense Contract Auditing Agency (DCAA) to perform the in-depth auditing process for any small business conducting research through the SBIR.

accountant reviewing financial stability

DCAA auditing components typically include:

  • Review of your company’s financial stability
  • Review of your company’s overall accounting system
  • Evaluation of your company’s proposed indirect rates 
  • Confirmation of your company’s payroll tax deposits

The DCAA offers a guide—Information for Contractors—to assist with the DCAA auditing process. Though not specific to SBIR, this guide is a helpful resource for any contractor with a pending government audit. 

In order to satisfy the DCAA’s auditing process, you must meet the standards set in the following 18 criteria. Your company must have:

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  1. A sound internal control environment, accounting framework, and organizational structure. 
  2. Proper segregation of direct costs from indirect costs. 
  3. Identification and accumulation of direct costs by contract. 
  4. A logical and consistent method for the accumulation and allocation of indirect costs to intermediate and final cost objectives. 
  5. Accumulation of costs under general ledger control. 
  6. Reconciliation of subsidiary cost ledgers and cost objectives to general ledger. 
  7. Approval and documentation of adjusting entries. 
  8. Management reviews or internal audits of the system to ensure compliance with the Contractor’s established policies, procedures, and accounting practices. 
  9. A timekeeping system that identifies employees’ labor by intermediate or final cost objectives. 
  10. A labor distribution system that charges direct and indirect labor to the appropriate cost objectives. 
  11. Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account. 

  1. Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR part 31, Contract Cost Principles and Procedures, and other contract provisions. 
  2.  Identification of costs by contract line item and by units (as if each unit or line item were a separate contract), if required by the contract. 
  3. Segregation of preproduction costs from production costs, as applicable. 
  4. Cost accounting information, as required.
    a. By contract clauses concerning limitation of cost (FAR 52.232-20), limitation of funds (FAR 52.232-22), or allowable cost and payment (FAR 52.216-7);
    b. To readily calculate indirect cost rates from the books of accounts.
  5. Billings that can be reconciled to the cost accounts for both current and cumulative amounts claimed and comply with contract terms. 
  6. Adequate, reliable data for use in pricing follow-on acquisitions. 
  7. Accounting practices in accordance with standards promulgated by the Cost Accounting Standards Board, if applicable, otherwise, Generally Accepted Accounting Principles.

 

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What Are the Significant Deficiencies of DFARS?

Significant deficiencies are any shortfalls deemed “significant enough” to cause the government to withhold payment of contracts. A “significant deficiency” is defined as a single weakness or a combination of weaknesses in the internal controls associated with financial reporting. It could be less severe than a material control weakness but sufficient enough to merit government scrutiny of your accounting system.

It doesn’t necessarily mean you made an egregious misstatement on your finances, but it indicates the potential for it to happen in the future. Government auditors will make your team aware of any significant deficiencies it finds.

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What Happens if an Inadequacy Is Identified by DCAA Audit?

If an accounting inadequacy is found through a DCAA audit, auditors will take three main steps:

3 Steps

  1. The Contracting Officer will provide an initial determination in writing on any significant deficiencies. The initial determination will describe the deficiency in sufficient detail.
  2. The Contractor shall respond within 30 days to a written initial determination from the Contracting Officer that identifies significant deficiencies in the Contractor’s accounting system. If the Contractor disagrees with the initial determination, the Contractor shall state, in writing, its rationale for their disagreement.
  3. The Contracting Officer will evaluate the Contractor’s response and notify the Contractor, in writing, of the Contracting Officer’s final determination concerning:
    a. Remaining significant deficiencies
    b. The adequacy of any proposed or completed corrective action; and
    c. System disapproval, if the Contracting Officer determines that one or more significant deficiencies remain.

*If the Contractor receives the Contracting Officer’s final determination of significant deficiencies, the Contractor shall, within 45 days of receipt of the final determination, either correct the significant deficiencies or submit an acceptable corrective action plan showing milestones and actions to eliminate the significant deficiencies.

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What Is the Penalty for a Non-Compliant Accounting System?

Should the DoD find that your company presented a non-compliant accounting system related to any DFARS requirements, you will likely receive a stop-work order. This means any right you had to conduct work on behalf of the DoD will be revoked, and your contract will be suspended until corrective measures are implemented and full compliance is reached. 

In worst-case scenarios, the DoD could seek damages for any false claims or breach of contract. This could lead to the ultimate disaster: the department terminates your contract and administers a lifetime ban on you ever working with the DoD again. While this only occurs in extreme cases, it’s reason enough to make sure your accounting system meets all requirements!

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What Are the Record Retention Requirements for Government Contractors?

Government contractors are required to adhere to a set of standards regarding maintenance of any record related to procurements and assistance awards. The requirements are different whether you are an agency, a contractor, or the recipient of a grant or cooperative agreement. For federal contractors, the best course of action is to adhere to the regulations set forth in FAR Subpart 4.7.

This general rule states that “contractors shall make available records, which includes books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form, and other supporting evidence to satisfy contract negotiation, administration, and audit requirements of the contracting agencies and the Comptroller General for three years after final payment on the contract.”

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What Are the DCAA’s Two Audit Programs?

DCAA has a number of audits, all of which have implications concerning the adequacy of a contractor’s accounting system. Among others, these audits include the pre-award (accounting system design) and the post-award accounting system audit. 

Digging a bit deeper, there are two specific audit programs we should mention: 

Major (Audit Code 11070) Purpose and Scope:

This audit ensures you are in line with 252.242.7006 and is conducted to examine contractor compliance with all system criteria. As part of the audit, officials will:

  • Obtain an understanding of the contractor’s compliance with DFARS 252.242-7006.
  • Determine if the contractor is compliant with the accounting system criteria prescribed DFARS 252.242-7006.
  • Report both significant deficiencies and less severe significant deficiencies in compliance with the DFARS criteria.

Non-Major (Audit Code 17741) Purpose and Scope:

This is a post-award accounting system audit conducted to examine a non-major contractor’s compliance with all system criteria outlined in DFARS 252.242-7006. As part of the examination, auditors will:

  • Obtain an understanding of the contractor’s compliance with DFARS 252.242-7006.
  • Determine if the contractor is compliant with the accounting system criteria prescribed in DFARS 252.242-7006.
  • Report both significant deficiencies and less severe significant deficiencies in compliance with the DFARS criteria.

Both audits are based on the previously mentioned 18 accounting system criteria. 

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What Is the SF1408?

SF1408 stands for “Standard Form 1408” and is a pre-award accounting system survey— considered a “pre-award audit”—necessary for an award in a government contract. While the results of this survey could deem your accounting system as “acceptable,” it is not considered a “true audit” in the eyes of DCAA auditors because it doesn’t examine any actual costs. Instead, it measures the capability of your system to handle an audit. It functions more as a review of your business accounting system than an audit.

Questions on the SF1408 survey include:

  • Is the accounting system in accordance with Generally Accepted Accounting Principles (GAAP)?
  • Does the accounting system provide for:
    • Proper segregation of direct and indirect costs
    • Identification and accumulation of direct costs by contract
    • Method for allocation of indirect costs
    • A Proper Timekeeping System
    • Labor distribution
    • Segregation of unallowable costs
    • Accumulation of costs under General Ledger Control
  • Is the accounting system designed to have reliable and accurate data?
  • Is the accounting system fully operable?

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How Team 80 Helps with DFARS

No one likes a government audit, but Team 80 has extensive experience working with small businesses trying to score a federal contract.

We deliver the full spectrum of DCAA audit services, along with an extensive knowledge of DFARS, FARS, and every other scary federal acronym you can imagine.

Our services include:

  • Accounting
  • Financial Statement Reporting
  • Regulatory Compliance
  • Indirect Costs, Direct Costs, Rates, Pricing
    Business Systems
  • Pre- and Post-Transaction Integration
  • Services
  • And more!

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Get A Free Consultation for Your DFARS Accounting Services
Team 80 CEO Sarah Sinicki

Sarah Sinicki

Team 80 CEO

Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.


The Department of Homeland Security

The Department of Homeland Security’s SBIR Program: What You Need to Know

Small businesses can positively impact the nation’s security through the Department of Homeland Security’s SBIR program.

The Department of Homeland Security (DHS) Small Business Innovation Research (SBIR) program encourages the research and development (R&D) of advanced technologies through government funds. In addition, the federally funded program helps startups achieve commercialization with their product or service. 

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It’s easy to hear “homeland security” and only think of counter-terrorism defense systems.

But while the Department of Homeland Security (DHS) was created in 2002 as a direct result of September 11, its responsibilities blanket a broad range of disciplines to protect national interests.

According to the DHS homepage, the department is responsible for counterterrorism but also “cybersecurity, aviation security, border security, port security, maritime security, administration and enforcement of our immigration laws, protection of our national leaders, protection of critical infrastructure, detection of and protection against chemical, biological and nuclear threats to the homeland, and response to disasters.”

It’s a lot, which is why the department’s participation in the Small Business Innovation Research (SBIR) program is crucial to deploying new technologies across a spectrum of concerns.

What does DHS SBIR Stand for?

DHS SBIR stands for Department of Homeland Security Small Business Innovation Research.

It’s a federal program that funds small businesses, entrepreneurs, and startups to perform research and development (R&D) on an array of innovative technologies, with the ultimate goal of commercializing these technologies.

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How is the DHS Science and Technology Directorate involved with SBIR?

The budget for the DHS SBIR program is associated with two smaller organizations: The Science and Technology (S&T) Directorate and the Countering Weapons of Mass Destruction (CSMD) office. 

DHS SBIR solicitations contain topics relevant to both of these organizations.

The mission of the Science and Technology Directorate is “to deliver effective and innovative insight, methods and solutions for the critical needs of the Homeland Security Enterprise.”

Illustration of security check mark in front of computer laptop

The Directorate States Five Visionary Goals:

  1. Screen at speed so that security matches the pace of life
  2. Provide a trusted “Cyber Future,” protecting privacy, commerce, and community
  3. Help decision-makers receive actionable information at the speed of thought
  4. Assure the “Responder of the Future” is protected, connected, and fully aware
  5. Disaster-proof society and create resilient communities

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How is DHS Countering Weapons of Mass Destruction involved with SBIR?

The DHS Countering Weapons of Mass Destruction (CWMD) is the result of consolidating various offices within the DHS. 

For example, the Domestic Nuclear Detection Office (DNDO), a jointly staffed national office established in 2005 to improve the nation’s capability to detect and report unauthorized attempts to import, possess, store, develop or transport nuclear or radiological material for use against the country and to further enhance this capability over time.

Today, the CWMD (established in December 2017) coordinates with domestic and international partners to safeguard the country against chemical, biological, radiological, nuclear (CBRN), and health security threats. 

Mainly, the CWMD works to:

  • Anticipate, identify, and assess current and emerging WMD threats
  • Strengthen detection and disruption of CBRN threats to the homeland
  • Synchronize homeland counter-WMD and health security planning and execution

Illustration of a bomb

The CWMD at the DHS has an SBIR program office that focuses on their specific needs and collaborates with S&T to conduct outreach, explore new initiatives, and coordinate schedules so that all DHS SBIR topics are published in one annual solicitation.

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What are DHS SBIR Program Priorities? 

DHS SBIR Program Priorities constitute topics found in the department’s annual solicitations, covering DHS mission areas. 

DHS SBIR topics are solicited by the S&T and CWMD offices and address the needs in areas that include the

  • Federal Emergency Management Agency
  • Cybersecurity and Infrastructure Security Agency
  • Transportation Security Administration
  • U.S. Citizenship and Immigration Services
  • U.S. Coast Guard, U.S. Customs and Border Protection
  • U.S. Immigration and Customs Enforcement
  • U.S. Secret Service

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What are the DHS SBIR Topics?

The solicitations found in DHS SBIR typically consist of topics relevant to the following organization focus areas:


What are the DHS SBIR Eligibility Requirements?

The eligibility requirements for DHS SBIR follow the same track as other government agencies. 

The requirements necessary to apply for—and receive—SBIR funding include:

  • Must be a for-profit business
  • Must be based in the U.S.
  • Must have 500 or fewer employees
  • The Principal Investigator must be primarily employed (more than 50 percent) with the small business applicant

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Your SBIR proposal must offer quality research and develop new processes, products, and technologies to support the missions of the DHS and the U.S. government.

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DHS SBIR Program Phases

The DHS SBIR program consists of a three-phase, highly competitive award system that funds qualified small businesses to propose and develop innovative ideas and technologies. 

The overall effort must meet specific homeland security research and development technology needs.

Now, let’s examine each phase more closely.

DHS SBIR Phase I

DHS SBIR Phase I kicks off the program and is referred to as the “Scientific and Technical Feasibility Study.” In this Proof of Concept phase, specific funds are available to cover a set period.

How Much is the DHS SBIR Phase 1 Award?

Phase I typically funds up to $150,000.

How Long is DHS SBIR Phase 1?

Phase I covers five months to determine the proposed effort’s scientific and technical merit and feasibility. Phase I awards are typically made within 45 days after selection.

DHS SBIR Phase II

DHS Phase II continues your efforts and is referred to as “Full Research/R&D.” Known as the Prototype Demonstration phase, Phase II also has a set amount and timeframe. 

How Much is the DHS SBIR Phase II Award?

Phase II typically funds up to $1 million.

How Long is DHS SBIR Phase II?

Phase II covers 24 months to continue the R&D effort from the completed Phase I project and work towards a prototype demonstration.

Only SBIR Phase I awardees are eligible to participate in subsequent phases. However, options for S&T SBIR Phase II projects with firm commitments for follow-on funding may be exercised.

DHS SBIR Phase III

DHS Phase III is the outlier of the three SBIR phases. 

This Commercialization phase is funded with private or non-SBIR dollars with the goal of commercialization or continuing the development and testing that initially kicked off with SBIR funding. 

Since it’s non-SBIR funded, there’s no cap to Phase III dollar amounts and no set timeline for completion.

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How do I Apply for a DHS SBIR Award?

To apply for DHS SBIR, first develop a ground-breaking, innovative research idea that can be commercialized. 

You need to learn about eligibility, your proposal requirements, and more.

For a step-by-step guide through this SBIR application process, follow the federal government’s roadmap for applicants here.

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Who are the DHS SBIR Program Contacts?

The main point of contact for the DHS SBIR program is Dusty Lang, the SBIR Program Director for the DHS. 

To contact the director, email stsbir.program@hq.dhs.gov or call 202-254-7000. For information specifically regarding CWMD’s SBIR program, email cwmd.sbir@hq.dhs.gov.

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Who has Won DHS SBIR Phase II Awards?

Through its many years in operation, the DHS SBIR program has recognized numerous small businesses for stellar achievements, awarding them funds to develop innovative ideas and paradigm-shifting technology.

DHS SBIR success stories highlight small businesses that have made crucial contributions to protecting the country from various threats. 

These examples showcase several small businesses from around the nation that have worked with S&T to develop and support the technology needs of our nation and homeland security end-users.

N5 Sensors Inc.

Total DHS SBIR Investment: $850,000

Maryland-based N5 Sensors Inc. received an SBIR award from the DHS S&T to develop an ultra-small, low-cost hazardous gas and particulate matter detector using novel chip-scale chemical sensor technology that firefighters can use.

“In essence, we are harnessing the power of nanoscale materials and combining that with advanced semiconductor manufacturing techniques,” explains Dr. Abhishek Motayed, Founder & President of N5 Sensors. “The result is a wearable, ultra-low power microscale robust gas sensor that can save lives is easy to manufacture, and can dramatically drive down costs.”

Phase II funding was awarded through the DHS Commercialization Readiness Pilot Program (CRPP), which allowed the company to continue the development of the technology. 

N5 Sensors also received a $1.2 million contract from the Combating Terrorism and Technical Support Office (CTTSO) to advance beyond detecting toxic industrial chemicals.

“The DHS S&T SBIR program was tremendously valuable, and the Program Managers were the reason we could connect and ultimately work with other agencies,” says Motayed. “Not only did it provide valuable next-round funding for the product development, but it gave us a platform to showcase the applicability of this technology.”

Polestar Technologies, Inc.

Total DHS SBIR Investment: $1.1 million

Massachusetts-based Polestar Technologies developed the capability of chemical identification of explosives hidden by a person at a distance. 

Originally designed to assist U.S. troops in conflict zones, the Self-Tracking and Reconnaissance of Explosives (STARE) System detects small amounts of explosive materials concealed beneath clothing, hidden in backpacks, or hand-carried baggage. 

“This is a very novel technology that doesn’t require an operator sitting by the instrument but could, in the future, be scaled up to meet other needs,” says Dr. Ranganathan Shashidhar, Senior Vice President of Research and Technology at Polestar Technologies.  “We’ve had talks with some major companies, including those in the sports and entertainment industry, and several venture capitalists are helping us take this to the commercial sector.”

Polestar partnered with DHS through another SBIR project called Portable Imager for Stand-Off Detection of Homemade Explosives; the project aimed to produce images positively identifying the presence of explosives while being able to detect and identify different types of military explosives and homemade explosives.

“The DHS SBIR program was a critical influx for us to take our product to the next level,” explains Dr. Shashidhar. “It opened up many applications since we automated the product under the DHS SBIR. We are now in talks with United States Special Operations Command, as well as the Army and the Navy.”

Applied Visions

Total DHS SBIR Investment: $2.2 million

In 2014, the DHS S&T released an SBIR topic seeking a hybrid analysis solution that combined  static and dynamic tools to locate vulnerabilities and security weaknesses in software and application code. 

Through its Secure Decisions Division, New York-based Applied Visions won a DHS SBIR Phase I award and subsequent Phase II award to develop Code Ray. This tool combines static and dynamic analyzers to locate more source code weaknesses.

Code Ray was the first tool that helped prioritize vulnerabilities by mapping them to industry standards and regulations. Applied Visions leveraged its developments from the SBIR project and provided customers with a first-of-its-kind technology to prioritize and manage application security risk.

“The SBIR allowed us to integrate the Code Ray technology into our existing Code Dx product line,” explains Ken Prole, CTO of Code Dx, a spinoff of Applied Visions developed under DHS SBIR. “This was a huge advancement in technology. There is more information from the dynamic findings, and now developers know where to focus their efforts to fix the problems.”

You Could Be The Next DHS SBIR Success Story

From the standpoint of protecting national interests—and American citizens—from various threats, the DHS is one of the most crucial federal departments. 

As such, the country’s decision-makers will continue to look to the innovative minds behind small businesses for new technologies geared toward the DHS’s ultimate goal.

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Get A Free Consultation for Your DHS SBIR Accounting Services
Team 80 CEO Sarah Sinicki

Sarah Sinicki

Team 80 CEO

Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.


Two happy male accountants sitting at a desk

Federal Grants, Contracts, or Funding: Preparing for a World of Government Compliance

The federal government has strict compliance requirements for any small business seeking contracts, grants, or funding. 

Government Compliance for Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs consists of a challenging array of benchmarks. Aligning with these laws and regulations can help you secure government contracts, while failing to comply can lead to loss of funds and even stiff penalties.

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Securing a government contract isn’t easy.

It takes a dynamic combination of dedicated team members, work ethic, and perseverance to face the challenge head-on and come out on top. But skills and talent in your chosen field only get you so far—you must also possess the ability to thrive in the world of government compliance.

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs offer the opportunity for entrepreneurs to engage in federal research and development (R&D), with the potential for commercialization.

These highly competitive programs often result in multi-million dollar contracts or grants. Any participating small business will face a gauntlet of certifications, audits, and regulations.

It can be complicated and stressful—but Team 80 has the insight you need to confidently step into the government limelight. This blog runs down many of the government’s requirements in a handful of different contracting scenarios.

SBIR Certifications

First things first; let’s take the 30,000-foot view of certifications you’ll need for SBIR Phase I and Phase II.

Known as “Award and Life Cycle Submissions Certificants,” these benchmarks must be met to move forward in the SBIR process, no matter which government agency your project is intended for.

Phase I And II Award and Life Cycle Submissions Certifications include:

  • Principal Investigator’s (PI) primary employment: The PI must spend more than half of their time (based on a 40-hour workweek) as an employee of the awardee.
  • Essentially Equivalent Work: Cannot be funded by another federal agency. (Essentially, Equivalent Work is a significant point of compliance all on its own. More on it later in this article).
  • Phase II Mid-Effort Certification: Upon completion of the effort, the small business will have performed the required portion of the work.
  • Phase I and II Final Certification: Work is completed, and the small business has performed the required portion of the work.
  • Location of the Small Business: Any awarded R&D must be performed in the U.S.
  • Further Location-based certification: Performance is taking/has taken place at the small business’ facilities with the company’s employees.

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Preparing for Government Audits

There’s no two ways about it; the phrase “government audit” sounds terrifying. Conjuring images of federal agents rifling through your company’s most personal financial records, those words alone could cause entrepreneurs to balk at even entering into the SBIR process.

The old saying goes, “By failing to prepare, you are preparing to fail.” However, with a few steps toward preparation, you can make the entire government auditing process smooth. Here are some tips to prepare for a successful SBIR government audit.

Outline any changes in these areas:

  • Management
  • Operations
  • Technology
  • Personnel
  • Industry developments
  • Accounting systems
  • Risk reports

Illustration of a man at a desk watching a screen of a presentiation

However, the government will likely deploy an array of compliance audits depending on the type of work you’ve conducted, which agency is awarded the funds, and other variables. So next, let’s look at some specific compliance audits and regulations.

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What is a Government Compliance Audit?

In short, a government compliance audit ensures your business is compliant with financial, technological, environmental, and safety regulations.Whether your SBIR project provides products or services, there are government-mandated rules that must be satisfied. These audits confirm a particular standard is being met—and it takes many files, documents, and internal processes to verify your compliance.

Federal compliance investigators will evaluate IT security issues, taxation, accounting standards, health and safety regulations, and environmental protection. These actions measure how your organization follows specific rules related to government regulatory requirements.

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Essentially Equivalent Work

When competing for an SBIR award, participants often submit duplicate or similar proposals to more than one federal agency when solicitation involves identical topics.

However, it’s unlawful for applicants to submit “Essentially Equivalent Work” and receive funding for that work from SBIR or other federal programs.

Essentially Equivalent Work is wholly prohibited.

  • It is unlawful to enter into multiple contracts or grants requiring essentially equivalent work. Therefore, SBIR/STTR awardees must certify at the time of proposal submission and during the lifecycle of the award that they do not have any essentially equivalent work funded by the federal government.

illustration of man speaking in a bull horn next to a plant

But what is considered unlawful Essentially Equivalent Work? There are mainly two definitions that government compliance investigators follow:

  • Work that is substantially the same research, which is proposed for funding in more than one contract proposal or grant application submitted to the same federal agency or submitted to two or more different federal agencies for review and funding consideration.
  • Work where a specific research objective and the research design for accomplishing the goal are the same or closely related to another proposal or award, regardless of the funding source.

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The bottom line is, absent any specific authorization in writing from a government agency, it’s considered a type of fraud to accept payment from multiple agencies for the same, or essentially equivalent, work. 

Suppose you think you might have submitted similar work to another agency. In that case, it’s crucial that you immediately disclose any similar proposals or awards to your target federal agency. Applicants submitting multiple proposals describing duplicate or essentially equivalent work must include a statement in each submission indicating:

  • Name and address of each agency to which proposals were submitted or from which awards were received.
  • Date of proposal submission or date of the award.
  • Title, number, and date of solicitations under which each proposal was submitted or awards received.
  • Specific relevant research topics for each proposal submitted or award received.
  • Titles of research projects.
  • Name and title of the principal investigator or project manager for each proposal submitted or award received.

Illustration of man and women carrying large arrow

And this is no empty threat. 

There have been numerous incidents involving Essentially Equivalent Work, with the government proceeding with legal actions against small businesses that knowingly received multiple monetary awards for duplicate work. 

One such incident involved a small business owner applying for funding from NASA for a proposal after receiving funding from the Air Force for the same proposal. 

The small business owner subcontracted out significant portions of the grants and contracts, violating the written terms. 

The owner pleaded guilty to mail fraud and tax evasion after an investigation and was sentenced to 12 months of home confinement and five years probation. He also had to pay $1.4 million in restitution to the government and received a five-year ban on receiving federal grants or contracts. 


What is CAS (Cost Accounting Standards)?

While accounting standards exist throughout multiple contracting sectors, government contracting exists in a world all its own. It’s so singular in form and function that government contracting has its own set of accounting standards.

Known as CAS (Cost Accounting Standards), this government-focused accounting compliance requirement consists of a set of 19 standards that are designed to achieve complete uniformity and consistency in cost accounting practices. Configured by the Cost Accounting Standards Board (CASB), these standards establish costs on negotiated acquisitions.

The 19 accounting standards of CAS are as follows:

  1. Consistency in Estimating, Accumulating and Reporting Cost
  2. Consistency in Allocating Costs Incurred for the Same Purpose
  3. Allocation of Home Office Expenses to Segments
  4. Capitalization of Tangible Assets
  5. Accounting for Unallowable Costs
  6. Cost Accounting Period
  7. Use of Standard Costs for Direct Material and Direct Labor
  8. Accounting for Costs of Compensated Personal Absence
  9. Depreciation of Tangible Capital Assets
  10. Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives
  11. Accounting for Acquisition Costs of Material
  12. Composition and Measurement of Pension Costs
  13. Adjustment and Allocation of Pension Cost
  14. Cost of Money as an Element of the Cost of Facilities Capital
  15. Accounting for the Cost of Deferred Compensation
  16. Accounting for Insurance Cost
  17. Cost of Money as an Element of the Cost of Capital Assets Under Construction
  18. Allocation of Direct and Indirect Costs
  19. Accounting for Independent Research and Development Costs and Bid and Proposal Costs (IR&D and B&P)

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The main advantage of CAS is that it brings a level of consistency to accounting, with more accurate cost allocations and a higher degree of reliance on accounting systems. This reduces the risks of incorrect charging or the misallocation of funds. 

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What is FAR (Federal Acquisition Regulation)?

Federal Acquisition Regulation (FAR) is another set of government compliance standards focusing on how contractors can charge the government for specific contracts.

FAR is all about “allowability.” 

It states what you can charge to the government through a contract and what you cannot. FAR safeguards government contracts with consistent, uniform policies and procedures within the acquisition process. It’s a set of accounting standards that defines when costs can be recovered under a federal contract. 

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For the full scope of FAR, check out this page on Acquisition.gov.

Though FAR and CAS sound similar, remember this primary difference between the two:

  • FAR deals with the allocability and allowability of cost.
  • CAS deals with the allocability of costs.

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What is DCAA (Defense Contract Audit Agency)?

For the most part, federal agencies rely on the Defense Contract Auditing Agency (DCAA) to perform the in-depth auditing process of any small business conducting research for SBIR.

DCAA auditing components typically include a review of your company’s financial stability and your company’s overall accounting system. What’s more, DCAA also evaluates your proposed indirect rates and confirms your payroll tax deposits.

And although there are multiple pre-award and post-selection audits to contend with, here are three of the most crucial audits you’ll experience with DCAA.

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Accounting System Adequacy (SF 1408)
The government will need to evaluate the configuration of your accounting system to ensure you’re following the necessary guidelines. This audit is intended for contracts that include:

  • Cost-sharing
  • Cost reimbursement
  • Cost-plus incentive fee
  • Cost-plus award fee
  • Cost-plus fixed fee
  • Fixed-price

Real-Time Labor Evaluations (Floor Check)

In this audit, DCAA will gauge the integrity of your timekeeping system, measuring if it accurately states labor costs and adequately identifies the time allocated to that labor. In addition, since labor costs are billed directly to the government, federal auditors will check and re-check your timekeeping system to ensure it holds up to rigid standards. 

The “floor check” refers to the element of surprise inherent in real-time labor evaluations. This audit happens with no advanced warning and will consist of employee interviews and timesheet examinations. The unannounced nature of this type of audit means you should have your timesheets in order and properly vetted!

Incurred Cost Submission

Establishing the final annual indirect costs rate and determining over/under billing over a given period, Incurred Cost Submission includes direct and indirect costs incurred by the contractor during the fiscal year. 

The Allowable Cost and Payment clause FAR 52.216-7 states that “a contractor must submit an adequate final indirect cost rate proposal to the contracting officer and auditor within six months of the conclusion of each fiscal year.”

This type of audit is conducted so that the government can either accept the proposed contractor’s final indirect rates or make adjustments as needed before issuing the final payment.

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What is DFARS (Defense Federal Acquisition Regulation Supplement)?

For any organization to conduct business with the Department of Defense (DoD)—and other federal agencies—they must comply with stringent prerequisites. 

These rules and regulations limit who can access specific data, ensures participants have sufficient security education and training and protect the government’s investment with identity and access management (IAM) while also enlisting physical security safeguards in the workplace.

It all comes together in DFARS (Defense Federal Acquisition Regulation Supplement).

DFARS is a set of rules followed by the government to oversee the purchase of goods, services, and technology. 

The requirements and regulations that constitute DFARS guarantee the integrity of sensitive information—also known as Controlled Unclassified Information (CUI)—that belongs to the government. 

All applicants seeking contract work with the DoD and other federal agencies must be DFARS compliant. This goes for small businesses, as well as large defense contractors. There are 14 critical areas of DFARS compliance, and these are as follows:

  1. Audit and Accountability
  2. Awareness and Training
  3. Access Controls
  4. Incident Response
  5. Identification and Authentication
  6. Configuration Management
  7. Media Protection
  8. Maintenance
  9. Personnel Security
  10. Physical Protection
  11. Security Assessment
  12. Risk Assessment
  13. System and Information Integrity
  14. System and Communications Protection

Illustration of computer laptop with security in place

Becoming compliant with DFARS begins with a comprehensive security assessment. If you are contracting work with the DoD, you should create a compliance team to monitor CUI and identify sensitive information, security shortfalls, and improvements that can be implemented.

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How to Prepare for Government Compliance

Government compliance and federal audits are a necessary, if stressful, part of the government contracting process. 

 

Whether you’re an SBIR or STTR applicant, you must prepare your organization and team for the rigorous rules and regulations. So start by making government compliance a fundamental part of your daily operations. 

 

Team 80 can step in and handle ALL of your accounting processes, doing the work necessary to ensure you comply with all of the federal government’s many accounting requirements. So enlist us to keep your records in order while you and your team aim for that all-important federal funding.


Is it time to start your SBIR/STTR government compliance journey? We’re here to help. Reach out to Team 80 today.

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Team 80 CEO Sarah Sinicki

Sarah Sinicki

Team 80 CEO

Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.