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Although SBIR awards are frequently referred to as “SBIR grants,” they can actually be provided in the form of contracts as well. The difference between these forms of funding impacts the startups that are awarded. Grants are much more flexible than contracts, since grants are used to accomplish specific aims, whereas contracts are the government agency’s method of procuring goods or services.
Grants and contracts were defined by the Federal Grant and Cooperative Agreement Act of 1977. The differences between the two are substantial. Grants are used to pursue a national objective, address a public problem, achieve a public purpose, or instigate activity that is desired by the Agency providing the award. These awards are highly flexible, going to Principal Investigators (PI) who initiate their own research projects that happen to align with Agency objectives. There is no legal obligation for the PI to achieve results, and payment is often made using a “drawdown” system. Four Agencies that participate in the SBIR program only award grants: the Department of Energy, the National Oceanic and Atmospheric Administration, the National Science Foundation, and the U.S. Department of Agriculture.
Contracts, on the other hand, are rigid. These awards are payment for a good or service the Agency wishes to obtain. They are binding and require the delivery of the goods or services in order to receive payment. The Agency defines the scope of work, which cannot then be altered by the PI. During the course of producing the desired good or service, there may be reporting requirements. Despite these difficulties, contracts can be quite beneficial as the awardee is producing goods/services for a built-in customer. The Department of Defense is well-known for awarding contracts, and four other Agencies also do so: the National Aeronautics and Space Administration, the Department of Homeland Security, the Department of Transportation, and the Environmental Protection Agency.
The Department of Health and Human Services (which contains the NIH) and the Department of Education award both grants and contracts. All of the Agencies have their own methods of administering grants and contracts, so pay attention to each Agency’s rules.