DoD SBIR Grant Process: What do you give up?
We started this series off with:
With this post, we want to discuss what do you give up by receiving a DoD SBIR contract. You have probably heard the maxim, that if it looks too good to be true, then it probably isn’t. $100 to $150k non-dilutive money with an opportunity for up to $1.5M in phase II and direct inroads into the DoD as a customer. Where is the catch? From my point of view, the surprising answer is, very little. What follows is a list of the perceived downside of admittance into the SBIR program:
- Standard Work Policies and Procedures: The DoD will require your business have and comply with certain policies and procedures. These may include: workers comp insurance and basic work policies of Equal Employment Opportunity, Freedom from Harassment, Whistleblower etc. The policies can all be found with a quick internet search. The DoD will have the right to perform inspections and have access to all records in the event of an audit. Your organization will also need to properly safeguard any classified or controlled information. All requirements will be specified within your contract prior to award. Therefore, you can focus on getting the required policies in place once alerted that the DoD is interested.
- Accounting System: You will need an accounting system (more on this in the next post).
- Intellectual Property: I am not an attorney and this is not legal advice, but what follows is my understanding after conversing with a few in regards to SBIR IP rights, please consult your IP council. In general, you keep your IP rights; however, the DoD gets a royalty free license for its use and has the right to force you to license it to others if you cannot keep up with demand or under special circumstances. These have been referred to as “March in Rights.” From one of my SBIR contracts, I had the following march in rights imposed upon my company:
“March in Rights. Supplier agrees that, with respect to any Subject Invention in which it has retained title, the Government has the right to require Supplier, an assignee, or exclusive licensee of a Subject Invention to grant a nonexclusive license to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if Supplier, assignee or exclusive licensee refuses such a request, the Government has the right to grant such a license itself if the Government determines that:
- Such action is necessary because Supplier or assignee has not taken effective steps, or is not expected to take within a reasonable time, effective steps to achieve practical application of the Subject Invention, a reasonable time being no less than ten (10) years from the end of the term of the Agreement;
- Such action is necessary to alleviate health or safety needs, which are not reasonably satisfied by Supplier, assignee, or their licensees;
- Such action is necessary to meet requirements for public use; and such requirements are not reasonably satisfied by Supplier, assignee, or licensees; or
- Such action is necessary because the Agreement required by paragraph (1) of this Article has not been obtained or waived or because a licensee of the exclusive right to use or sell any Subject Invention in the United States is in breach of such Agreement.
- Opportunity to Cure. Certain provisions of this Article provide that the Government may gain title or license to a Subject Invention by reason of Supplier’s action or failure to act within the times required by this Article. Prior to claiming such rights (including any rights under Article X., “March-In Rights”), the Government will give written notice to Supplier of the Government’s intent and afford Supplier a reasonable period of time to cure such action or failure to act. The length of the cure period will depend on the circumstances, but in no event will be less than sixty (60) days. Supplier may also use the cure period to show good cause why the claiming of such title or right would be inconsistent with the intent of this Agreement, in light of the appropriate timing for introduction of the technology in question, the relative funding and participation of the parties in the development and other factors.”
Your background and foreground IP rights will be clearly defined in your contract if your proposal is selected. The Government will not make public any information disclosing a Government-supported invention for a period of five years to allow the awardee time to pursue a patent. Given the importance of understanding IP rights, I have included the general clause for your reference FAR 52.227-11, found here: https://www.acquisition.gov/far/current/html/52_227.html
- Technical Data Rights: Rights in technical data, including software, developed under the terms of any contract generally remain with the contractor, except that the Government obtains a royalty-free license to use such technical data only for Government purposes during the period commencing with contract award and ending five years after completion of the project under which the data were generated. During the license period, the Government may not release or disclose SBIR data to any person other than its support services contractors except: (1) For evaluation purposes; (2) As expressly permitted by the contractor; or (3) A use, release, or disclosure that is necessary for emergency repair or overhaul of items operated by the Government. Source and further details: DFARS clause 252.227-7018, “Rights in Noncommercial Technical Data and Computer Software – Small Business Innovation Research (SBIR) Program.” https://www.acq.osd.mil/dpap/dars/dfars/html/current/252227.htm#252.227-7018
- All work must be done in the United States, no outsourcing to lower cost areas.
- You may be subject to International Traffic in Arms Regulations (ITAR) export control. This can severely limit who you sell your technology to. ITAR is a United States regulatory regime that restricts and controls the export of some defense and military related technologies. SBIR solicitations requiring ITAR are specifically called out within solicitations, usually at the beginning of the topic. An example of ITAR language, from a 2018.1 topic solicitation, is:
“ITAR: The technology within this topic is restricted under the International Traffic in Arms Regulation (ITAR), 22 CFR Parts 120-130, which controls the export and import of defense-related material and services, including export of sensitive technical data, or the Export Administration Regulation (EAR), 15 CFR Parts 730-774, which controls dual use items. Offerors must disclose any proposed use of foreign nationals (FNs), their country(ies) of origin, the type of visa or work permit possessed, and the statement of work (SOW) tasks intended for accomplishment by the FN(s) in accordance with section 5.4.c.(8) of the Announcement and within the AF Component-specific instructions. Offerors are advised foreign nationals proposed to perform on this topic may be restricted due to the technical data under US Export Control Laws. Please direct ITAR specific questions to the AF SBIR/STTR Contracting Officer.”
If your solicitation states ITAR control, you should attempt to get registered for the Joint Certification Program via DD2345 form prior to submitting your proposal. This simply verifies your company and is free to do. The simple online form and instructions can be found here: http://www.dla.mil/HQ/InformationOperations/Offers/Products/LogisticsApplications/JCP/DD2345Instructions.aspx
Learn more about DoD SBIR Grant Writer Mr. Bard