The eleven Agencies that participate in the SBIR and STTR programs make their awards either as grants or contracts. In
2016 the combined SBIR and STTR budget across all of the participating Agencies was $2.8 billion dollars. Of that, a little
over half was provided to small businesses in the form of contracts; while the other half was provided as grants. What’s
the significance of this? Why should you care if some Agencies provide contracts, while others provide grants? What impact might
this have on you?
The Federal Grant and Cooperative
Agreement Act of 1977 established the
distinctions between procurement contracts,
often simply called contracts, and
grants, and cooperative agreements. We
won’t touch on cooperative agreements
here, but will focus our discussion exclusively
on contracts and grants.
The Federal government uses grants to
accomplish a public purpose, advance
a national objective, address a public
problem, or stimulate a particular activity
desired by the awarding Agency. Grants
are very flexible, allowing considerable
latitude to the Principal Investigator, or
PI. Investigator-initiated research projects
that align with an Agency’s mission
are awarded as grants. There are three
Agencies that participate in the SBIR and STTR programs that uniquely award grants. These are the Department
of Energy, the National Science Foundation, and the
U.S. Department of Agriculture. However, starting in FY19, the
National Oceanic and Atmospheric Administration, or NOAA
(within the U.S. Department of Commerce), will make awards
as grants rather than contracts. With grants, PIs do their best to
complete the research and achieve the desired aim.
By contrast, contracts are more demanding. A contracting
Agency is looking to procure a good or service that will be of
direct benefit to the government. There are five contracting
Agencies that participate in the SBIR or STTR program, with
the largest being the Department of Defense and the National
Aeronautics and Space Administration. The other contracting
Agencies are the Department of Homeland Security, the Department
of Transportation, and the Environmental Protection
Agency. There are also two Agencies that use both grants and
contracts. These are the Department of Health and Human Services
and the Department of Education.
It’s not uncommon to find a table which contrasts the differences
between procurement contracts and grants. The most
comprehensive can be found on a Department of Energy site
which is referenced in the Links Tool. Here are a few highlights
With grants, the applicant often defines the scope of work. The
PI is required to make their best effort and has more freedom to
adapt the project and the outcome, as there is no legally binding
requirement to achieve results. The payment method is also
more flexible, often using a “drawdown” system. By contrast,
a contract is a binding agreement between a buyer and seller
to provide goods or services in return for compensation. The
scope of the work is fairly inflexible. There are frequent reporting
requirements and payments are based on deliverables and
milestones. The upside of a contract, however, is that there is
often a built-in customer. By the way, classified work is done as
contracts, not grants.
So, returning to the question asked at the beginning – why is
it important to understand the difference between a contract
and a grant? The instrument used by an Agency to make an
award will have implications for you. The type of award affects
reporting requirements, the complexity of your financial system,
your customer base, and cash flow. As you begin to explore
the various Agencies and the SBIR/STTR programs that they
provide – pay attention to whether they provide grants or contracts.
Keep in mind however, that there is always significant
variability amongst the Agencies that participate in the SBIR
and STTR programs and the fact that some provide grants and
others provide contracts does not imply uniformity in how the
Agencies administer their programs. They are all quite unique.
