Pricing Matters – SBIR Costs

By Ronald Marta, University of Houston PTAC, retired

SBIR Projects Remain a Viable Option for Many Small Businesses

Despite decreases in their budgets over the last few years, the Small Business Innovation Research (SBIR) programs continue to occupy a significant place in the research and development funding for federal agencies. Each year, federal agencies whose R & D budgets exceed $100 million are required to allocate 2.5 percent of their R & D budgets to SBIR programs. In 2012, the SBIR budget for the Department of Defense (DoD) was over $1 billion, with 1,720 Phase I awards and 879 Phase II awards.

Taking as its example the DoD SBIR Cost Proposal Breakdown, this article will present the cost model for SBIR projects, and then offer comments regarding the form and content of the model.

Here are the components of the DoD SBIR Cost Proposal Breakdown.

  1. Total Dollar Amount of the Proposal
  2. Direct Material Costs
    a. Purchased parts (dollars)
    b. Subcontracted items (dollars)
    c. Other
    (1) Raw material (dollars)
    (2) Your standard commercial items (dollars)
    (3) Interdivisional transfers (at other than cost dollars)
    d. Total direct material (dollars)
  3. Material Overhead (rate_____%) x total direct material = dollars
  4. Direct Labor (specify)
    a. Type of labor, estimated hours, rate per hour and dollar cost for each type (e.g., “computer
    programmer, 40 hours, $26 per hour, $1040 cost”) Include the name as well as hours, etc. of all key
    b. Total estimated direct labor (dollars)
  5. Labor Overhead
    a. Identify overhead rate, the hour base and dollar cost
    b. Total estimated labor overhead (dollars)
  6. Special Testing (include field work at government installations)
    a. Provide dollar cost for each item of special testing
    b. Estimated total special testing (dollars)
  7. Special Equipment a. If direct charge, specify each item and cost of each b. Estimated total special equipment (dollars)
  8. Travel (if direct charge)
    a. Transportation (detailed breakdown and dollars)
    b. Per diem or subsistence (details and dollars)
    c. Estimated total travel (dollars)
  9. Subcontracts (e.g., consultants)
    a. Identify each, with purpose, and dollar rates
    b. Total estimated subcontracts costs (dollars)
  10. Other Direct Costs (specify)
    a. Total estimated direct cost and overhead (dollars)
  11. General and Administrative Expense
    a. Percentage rate applied
    b. Total estimated cost of G&A expense (dollars)
  12. Royalties (specify)
    a. Estimated cost (dollars)
  13. Fee or Profit (dollars)
  14. Total Estimate Cost and Fee or Profit (dollars)

The Cost Breakdown has two basic categories of costs: direct costs and indirect costs. The direct costs are composed of direct material, direct labor, special testing, special equipment, travel, subcontracts, other direct costs, and royalties. The indirect costs consist of material overhead, labor overhead, and general and administrative expense. The direct costs will depend in large part on the costs relevant to the research project. Material overhead includes those costs associated with the purchasing, receiving, handling, storing, and delivery of materials used in assembly or production processes. Regarding labor overhead and general and administrative expenses, see the previous “Pricing Matters” article “Indirect Rates for Government Contracts”. For fee or profit, see “Percentage of Profit”.

SBIR projects remain a viable option for many small businesses. As government contracting opportunities, they still merit serious consideration.

Pricing Matters is a regular feature by Ronald Marta.  Watch for future posts on a wide range of pricing issues.

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Ron Marta Headshot
Ronald S. Marta was a Senior Procurement Counselor with the University of Houston PTAC from 2008 until his retirement in 2015.  Prior to that, he served as an auditor for 15 years with the Defense Contract Audit Agency (DCAA) and 7 years with the NASA Office of Inspector General at Johnson Space Center. His special areas of interest include accounting systems, proposal preparation, cost analysis, and audit preparation.  Ron is a Certified Public Accountant and holds Master’s degrees in Business Administration and in Professional Accounting.

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