There have been a lot of reports in the news recently about changes in Federal grant policies. Even those who are only casual tourists to this world will have heard about pauses in grant reviews at the various funding agencies, potentially drastic cuts in funding levels, and other general rumblings that the sky is about to fall.
The policies of the new administration vis-à-vis R&D funding are still being finalized, instituted—and, in some cases, litigated. But enough information has now emerged that we can start to draw some reasonable inferences about what all this means for the more than $4.5B in SBIR/STTR grants that is disbursed every year and that is such an important source of non-dilutive funding for high tech startups. And the answer is…not much.
That’s right. Carry on, nothing to see here, folks.
At AwardIT, we have been getting regularly contacted over the past month or so, with varying levels of panic, about potential changes in SBIR/STTR policies. We thought it might help to gather up a few of the questions and try to answer them as clearly and concisely as possible.
Question 1: I’ve heard that the NIH is going to limit Indirect Costs to 15%? Isn’t that a big deal?
Answer: for Institutes of Higher Education (IHE), it sure is. They have become accustomed to getting >50% (in some cases, up to ~90%) on top of the dollars that directly support the research program being funded at their Institution. That is going to be a wrench to do without—which is why they are challenging the ruling in the courts.
We are grant consultants, not lawyers, but FWIW our view is that this is a legal battle the IHEs are unlikely to win. The executive branch really does have Constitutional authority in these matters. But no matter how that ruling shakes out, it seems clear that this change in IC rates is intended ONLY for IHE grants. We’ve read the NIH Guidance on the recent change in IC policy NOT-OD-25-068: Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates (we do stuff like this so you don’t have to). The CFRs cited in that Guidance, such as CF 75.414, make it clear that IHEs and nonprofits are regulated under a different budgetary policy than SBs and for profit entities.
Takeaway: Indirect Cost rates for SBIR grants, as far as we can tell right now, can be expected to remain in the 20%-40% range, where they have always been.
Question 2: is overall funding support for SBIR/STTR going down?
Answer: Any agency’s funding levels is, of course, always subject to change. But as far as we can tell right now the answer is no—at least, at the four largest agencies with SBIR/STTR programs: DoD, HHS, NSF, and DoE (Energy). Assuming overall R&D funding levels at these agencies stay more or less where they are, then their SBIR funding does too. Remember that an agency’s minimum set aside for SBIR grants is correlated by law (see below) to its overall R&D funding spend.
We may see, going forward, some changes to agency structure. At the NIH consolidation of one or more Institutes is to be anticipated. The way grants are reviewed may see some changes as well—for example, the NIH has announced that its’ Institutes will now review grants sent to them individually, and not collectively send them to Center for Scientific Review (CSR is, in fact, being disbanded). For the newbies: this is actually a return to how NIH grants used to be reviewed, and we like it. The individual Institutes are generally better positioned to understand the value of a technology development in their area better than a neutral bureaucracy.
Of course, shifting politics means money moving around from old areas to new ones. There are always winners and losers when priorities change. But this is not likely to change overall funding levels at the Big 4 agencies, at least by much. It may even be that recent changes will move more money, not less, into the SBIR slice of an agency’s budget pie. The minimum level of SBIR spend at an agency is 2.5% of its R&D budget, but some agencies already exceed this amount. This trend may continue as they seek to emphasize their role in SB support and job creation.
No promises, though.
Question 3: review/funding of my grant has been delayed. How long will I have to wait?
Answer: As far as SBIR goes there was a brief pause in grant processing in late January. But reports are that study sections are being convened, reviews are being issued, happy grants are getting funded. NSF has been a little slower to get back to form, but reports are that they have turned the corner as well. So, a small delay in SBIR grant review seems to be the net net.
In contrast, academic grants are still being paused due to a restriction on public communications. But this has no impact on review of SBIR grants. Many people writing in the popular press or online don’t understand the differences between academic and SBIR/STTR grants
Question 4: You are telling me that things are OK for now. But can’t SBIR grants be abolished by Executive Order? Could they just vanish overnight?
Answer: In a word–no. The SBIR program was established by an Act of Congress over 40 years ago. It has been renewed, with bipartisan support, every 3 years since that time. Our representatives may not be able to agree on much, but they seem to consistently agree on maintaining the SBIR/STTR program, and Federal law cannot be changed just with the famous “stroke of a pen”.
In summary: there is no doubt that US R&D funding priorities have changed with the advent of a new administration. What else is new? The answer is to stay flexible and shift grant strategy in response to the new realities. We at AwardIT have been grant consultants for a long time and have seen this happen more than once. Despite alarmist reports, it does not appear that any of the recent news will have much impact on Federal agencies overall SBIR/STTR spending or review processes. Onward!
Want to learn more? Reach out to AwardIT at https://awardit.net/ or email me at neal@awardit.net. It’s a world of smart ideas, we look forward to learning more about yours.