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ARCHIVED - NIH Grants Policy Statement (10/98)

Part III: Terms and Conditions for Specific Types of Grants, Grantees, and Activities-Part 6 of 6

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Some of the terms and conditions for grants to for-profit (commercial) organizations vary from the standard terms and conditions included in Part II of this policy statement. In addition, the terms and conditions of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs vary from those otherwise applicable to for-profit organizations. This section addresses separately the policies applicable to for-profit organizations, generally, and to SBIR and STTR awards. If an exception is not stated below or in the NGA, the terms and conditions specified in Part II of this policy statement apply, including requirements for the protection of human subjects and animal welfare.

For-profit organizations are eligible to receive awards under all NIH programs and support mechanisms unless specifically excluded by statute.

There are no cost principles specifically applicable to grants to for-profit organizations. Therefore, the cost principles for commercial organizations set forth in the Federal Acquisition Regulation, 48 CFR Part 31.2, will generally be used. For proprietary hospitals, the cost principles in 45 CFR Part 74, Appendix E, will be used.

Except for grants awarded under the SBIR/STTR programs, under an NIH grant, no profit or fee will be provided to a for-profit organization, whether as a grantee or as a consortium participant. A profit or fee may be paid to a contractor providing routine purchased goods or services. A profit or fee is considered to be an amount in excess of actual allowable, allocable, and reasonable direct and indirect (F&A) costs.

As provided in 45 CFR 74.27(a), NIH does not allow for-profit organizations to be reimbursed for independent (self-sponsored) research and development (IR&D) costs.

(Indirect Costs)

F&A costs are allowable under awards to for-profit organizations.

For-profit organizations are generally subject to the same administrative requirements as non-profit organizations, including those relating to property title and management. Exceptions to those requirements for for-profit organizations are described below.

As described in "Administrative Requirements     Availability of Research Results: Publications and Intellectual Property, Including Unique Research Resources," the requirements set forth in 37 CFR Part 401 govern the development, reporting, and disposition of rights to inventions and patents resulting from all NIH grants to for-profit organizations, whether small businesses or large businesses (see Part II for the full text of the clause). Additional information about the requirements of 37 CFR 401 should be obtained from the Inventions and Extramural Reporting Branch, OPERA, NIH (see Part IV for addresses and telephone number).

To the extent authorized by 35 U.S.C. 205, the Government will not make public any information disclosing a Government-supported invention for a reasonable period to allow the grantee time to file a patent application, nor will the Government release any information that is part of that patent application. See the SBIR/STTR subsection for requirements specific to those programs.

Disposition of royalties or licensing fees earned on patents and inventions arising out of activities developed under NIH grants shall be governed by determinations made or agreements entered into under 37 CFR Part 401. Invention reporting requirements for for-profit organizations are those specified in "Administrative Requirements     Monitoring     Reporting     Invention Reporting".

For-profit grantees other than those under the SBIR/STTR programs are subject to the deductive alternative for the use of program income described in "Administrative Requirements     Management Systems and Procedures     Program Income" and in 45 CFR 74.24(b).

The operating authorities (expanded authorities or standard NIH authorities) for awards issued to for-profit organizations are usually determined by the support mechanism (see "Administrative Requirements     Changes in Project and Budget").

HHS has specified the requirements for non-Federal audits of for-profit organizations in 45 CFR 74.26(d). A for-profit organization is required to have a non-Federal audit if, during its fiscal year, it expended a total of $300,000 or more under one or more HHS awards and at least one of those awards is an HHS grant (as a direct grantee and/or under a consortium agreement). 45 CFR 74.26(d) essentially incorporates the thresholds and deadlines of OMB Circular A-133 but provides for-profit organizations two options regarding the type of audit that will satisfy the audit requirements. The grantee may either have (1) a financial-related audit (as defined in, and in accordance with, the Government Auditing Standards (commonly known as the "Yellow Book"), GPO stock # 020-000-00-265-4, of all the HHS awards; or (2) an audit that meets the requirements of OMB Circular A-133.

OMB Circular A-133 is available electronically at http://www.whitehouse.gov/WH/EOP/OMB/html/circulars/a133/a133.html.

The Government Auditing Standards are available electronically at http://www.gao.gov/govaud/ybk01.htm.

Audits shall be completed and submitted to the following office within a period of time that is the earlier of (1) 30 days after receipt of the auditor's report(s), or (2) 9 months after the end of the audit period, i.e., the organization's fiscal year. The address is:

National External Audit Resources
HHS Office of Audit Services
323 West 8th Street
Lucas Place
Room 514
Kansas City, MO 64105

For-profit organizations spending less than $300,000 a year (calculated as above) are not required to have an annual audit for that year but must make their grant-related records available to NIH or other designated officials for review or audit.

NIH is currently required by statute to reserve a portion of its annual extramural budget for projects under the SBIR and STTR programs. These programs are primarily intended to emphasize increased private sector commercialization of technology and to increase small business participation in federally funded research and development (R&D).

Both the SBIR and STTR programs consist of the following three phases:

  • Phase I: The objective of this phase is to establish the technical merit and feasibility of proposed research or R&D efforts and to determine the quality of performance of the grantee (small business concern) prior to providing further Federal support in Phase II.
  • Phase II: The objective of this phase is to continue the research or R&D efforts initiated in Phase I. Funding will be based on the results of Phase I and the scientific and technical merit and commercial potential of the Phase II application. (Only Phase I grantees are eligible to receive Phase II funding. Phase II applications may be submitted after the Phase I award is made, and NIH expects they will be submitted within the first six receipt dates following expiration of the Phase I budget period; i.e., normally 2 years beyond the expiration date of the Phase I award).
  • Phase III: The objective of this phase, where appropriate, is for the small business concern to pursue, with non-Federal funds, the commercialization of the results of the research or R&D funded in Phases I and II.

There are two major differences between the SBIR and STTR programs:

  • The STTR program requires a small business concern (applicant organization) to "team" with a research institution to collaboratively conduct a project that has potential for commercialization. The SBIR program does not have this requirement, i.e., the small business concern may conduct the entire project without outside collaboration or with outside collaboration within the limits described under "Eligibility" in this section.
  • The SBIR program requires that the primary employment of the PI (greater than 50 percent of the individual's time) be with the small business concern at the time of award and during the conduct of the project. The STTR program does not have this requirement, i.e., the PI may have his or her primary employment with an organization other than the small business concern, including the collaborating research institution. However, there must be an official relationship between the PI and the small business concern. NIH also requires, as an eligibility criterion, that the PI devote at least 10 percent of his or her time to the STTR project.

Each organization receiving a grant under the SBIR/STTR programs must qualify as a small business concern. Under SBIR/STTR requirements, in determining whether the organization is a small business concern, NIH will assess several factors, including:

  • Whether the small business is independently owned and operated; and
  • Whether it is an affiliate of a larger organization whose employees, when added to those of the applicant organization, do not exceed 500.

In conducting this assessment, all appropriate factors will be considered, including common ownership, common management, and contractual relationships.

In accordance with 13 CFR Part 121.103, affiliation exists when, either directly or indirectly, (1) one concern controls or has the power to control the other, or (2) a third party or parties controls or has the power to control both. One of the circumstances that would lead to a finding that an organization is controlling or has the power to control another organization involves sharing common office space and/or employees and/or other facilities (e.g., laboratory space). The research and analytical work performed by the grantee organization is to be conducted in research space occupied by, available to, and under the control of, the SBIR/STTR grantee. However, when required by the project activity, access to special facilities or equipment in another organization is permitted, as in cases where the SBIR grantee has entered into a consortium agreement or contractual arrangement with another organization for a specific, limited portion of the research project.

Joint ventures and limited partnerships are eligible provided the entity created qualifies as a small business concern.

For both Phase I and Phase II SBIR/STTR awards, the research or R&D project activity must be performed in its entirety in the U.S. (The U.S. is defined as the 50 States, the territories and possessions of the United States, the Commonwealth of Puerto Rico, the Federated States of Micronesia, the Republic of Palau, the Republic of the Marshall Islands, and the District of Columbia.)

Under SBIR Phase I awards, generally, a minimum of two-thirds or 67 percent of the research or analytical effort must be carried put by the small business concern (grantee). Furthermore, payments, in the aggregate, to consultants, consortium participants and contractors for portions of the scientific/technical effort generally may not exceed 33 percent of the total budget (direct and F&A (indirect) costs).

Under SBIR Phase II awards, generally, a minimum of one-half or 50 percent of the research or analytical effort must be carried out by the small business concern (grantee). Furthermore, payments, in the aggregate, to consultants, consortium participants, and contractors for portions of the scientific/technical effort generally may not exceed 50 percent of the total budget (direct and F&A (indirect) costs).

For STTR awards (both Phase I and Phase II), at least 40 percent of the work is to be performed by the small business concern (grantee) and at least 30 percent of the work is to be performed by the single, "partnering" research institution. The basis for determining the percentage of work to be performed by each of the cooperative parties is the total of direct and F&A (indirect) costs attributable to each party, unless otherwise described and justified in the "Contractual Arrangements" portion of the "Research Plan" section of the grant application.

The requirements concerning disclosure of financial conflicts of interest (see "Public Policy Requirements and Objectives     Ethical and Safe Conduct in Science and Organizational Operations     Conflict of Interest") apply to Phase II SBIR/STTR awards only.

A reasonable fixed fee may be paid to small business concerns receiving awards under Phases I and II of the SBIR and STTR programs. The fee is not considered a "cost" for purposes of determining allowability of use, program income accountability, or audit thresholds. The fee may be used by the small business concern for any purpose, including additional effort under the SBIR/STTR award. The fee is intended to provide a reasonable profit consistent with normal profit margins for for-profit organizations for R&D work; however, the amount of the fee approved will not normally exceed seven (7) percent of total costs (direct and F&A) for each phase of the project. The fixed fee applies solely to the small business concern (grantee) receiving the SBIR/STTR award and not to any other participant; however, the grantee may pay a profit/fee to a contractor providing routine goods or services in accordance with normal commercial practice.

Phase I

If the applicant small business concern has a currently effective indirect cost rate(s) with a Federal agency, such rates should be used when calculating proposed F&A costs. (However, the rates(s) must be adjusted for IR&D expenses, which are not allowable under HHS awards.) If the applicant small business concern does not have a currently effective negotiated indirect cost rate with a Federal agency, the applicant should propose estimated F&A costs at a rate not to exceed 40 percent of the total direct costs. However, small business concerns are reminded that only actual F&A costs are to be charged to projects. (If awarded at a rate of 40 percent or less, the rate used to charge actual F&A costs to projects cannot exceed the awarded rate unless the small business concern negotiates an indirect cost rate(s) with a Federal agency.)

Phase II

If the applicant small business concern has a currently effective negotiated indirect cost rate(s) with a Federal agency, such rate(s) should be used when calculating proposed F&A costs. (However, the rates(s) must be adjusted for IR&D expenses, which are not allowable under HHS awards.) If the applicant small business concern does not have a currently effective negotiated indirect cost rate with a Federal agency, the applicant should propose estimated F&A costs. If the small business concern is being considered for an award, it will be asked to submit detailed documentation if a rate in excess of 25 percent of total direct costs is requested. If the requested F&A cost rate is 25 percent or less, no further justification is required at the time of award, and F&A costs will be awarded at the requested rate. However, small business concerns are reminded that only actual F&A costs may be charged to projects. (If awarded at a rate of 25 percent or less of total direct costs, the rate used to charge actual F&A costs to projects cannot exceed the awarded rate unless the small business concern negotiates an indirect cost rate(s) with a Federal agency.)

NIH will not support market research, including studies of the literature that lead to a new or expanded statement of work, under the grant. For purposes of the SBIR/STTR programs, "market research" is the systematic gathering, editing, recording, computing, and analyzing of data about problems relating to the sale and distribution of the subject of the proposed research. It includes various types of research, such as the size of potential markets and potential sales volume, the identification of consumers most apt to purchase the products, and the advertising media most likely to stimulate their purchases. However, "market research" does not include activities under a research plan or protocol that require a survey of the public as part of the objective of the project to determine the impact of the subject of the research on the behavior of individuals.

Unless the specific terms and conditions of an award provide otherwise, program income generated under SBIR/STTR Phase I and II awards shall be used under the additive alternative (see "Administrative Requirements     Management Systems and Procedures     Program Income" in Part II).

Rights to data, including software developed under the terms of any funding agreement resulting from an NIH award, shall remain with the grantee except that any such copyrighted material shall be subject to a royalty-free, nonexclusive and irrevocable license to the Government to reproduce, publish or otherwise use the material, and to authorize others to do so for Federal purposes. In addition, under the SBIR/STTR programs, in contrast to awards to for-profit organizations under other support mechanisms, such data shall not be released outside the Government without the grantee's permission for a period of 4 (four) years from completion of the project from which the data were generated.

The STTR program requires that the grantee organization (small business concern) and the single, "partnering" research institution execute an agreement allocating between the parties intellectual property rights and rights, if any, to carry out follow-on research, development, or commercialization of the subject research. (For guidance, a model agreement, entitled "Allocation of Rights in Intellectual Property and Rights to Carry Out Follow-On Research, Development, or Commercialization," is included in the STTR Phase I grant solicitation and in the Phase II application package.) By signing the face page of the STTR grant application, the official signing for the applicant organization (small business concern) certifies that the agreement with the research institution will be effective at the time the grant award is made. A copy of the agreement must be furnished upon request of the NIH IC that issued the award.

SBIR/STTR grantees are covered by 37 CFR 401 with respect to inventions and patents, as provided above.

This section provides NIH policy on the determination and reimbursement of research patient care costs under grants and cooperative agreements (hereafter "grants"). This general policy is intended to be applied in conjunction with the requirements of 45 CFR 74, Appendix E, Cost Principles for Determining Costs Applicable to Research and Development under Grants and Contracts to Hospitals. In addition, specific NIH programs may have additional or alternative requirements with which an applicant/grantee must comply. This includes the General Clinical Research Center Guidelines as specified below.

Research Patient Care Costs are the costs of routine and ancillary services provided by hospitals to patients participating in research programs. The costs of these services are normally assigned to individual research projects through the development and application of research patient care rates or amounts (hereafter "rates"). Research patient care costs do not include: (1) the otherwise allowable items of personal expense reimbursement, such as patient travel or subsistence, consulting physician fees, or any other direct payments related to all classes of patients, including inpatients, outpatients, subjects, volunteers, and donors, and (2) costs of ancillary tests performed in facilities outside the hospital on a fee-for-service basis (e.g., in an independent, privately owned laboratory) or in an affiliated medical school/university based on an institutional fee schedule, or (3) the data management or statistical analysis of clinical research results.

Hospital includes all types of medical, psychiatric, and dental facilities, such as clinics, infirmaries, and sanatoria.

Research Patients refers to inpatient and outpatient subjects, volunteers, or donors admitted to a hospital primarily to participate in a research protocol.

Routine Services are the regular room, dietary and nursing services, minor medical and surgical supplies, and the use of equipment and facilities, for which a separate charge is not customarily made.

Ancillary Services are those special services for which charges are customarily made in addition to routine services, e.g., x-ray, operating room, laboratory, pharmacy, blood bank, and pathology.

Outpatient Services are services rendered to subjects/volunteers who are not hospitalized.

Usual Patient Care refers to items and services (routine and ancillary) ordinarily furnished in the treatment of patients by providers of patient care under the supervision of the physician or other responsible health professional. Such items or services may be diagnostic, therapeutic, rehabilitative, medical, psychiatric, or any other related professional heath services. These expenses are for care that would have been incurred even if the research study did not exist. The patient and/or third-party insurance will usually provide for reimbursement of charges for "usual patient care" as opposed to non-reimbursement for those charges generated solely because of participation in a research protocol.

Discrete Centers are groups of beds that have been set aside for occupancy by research patients and are physically separated from other hospital beds in an environment that normally permits an ascertainable allocation of costs associated with the space they occupy and the service needs they generate.

Scatter Beds are beds assigned to research patients based on availability. These beds are not physically separate from non-research beds. Scatter beds are geographically dispersed among all the beds available for use in the hospital and are not usually distinguishable in terms of services or costs from other general service beds within the hospital.

Cost-Finding Process is the technique of apportioning or allocating the costs of the non-revenue-producing cost centers to each other and to the revenue-producing centers on the basis of the statistical data that measure the amount of service rendered by each center to other centers.

NIH provides funds for research patient care costs under grants. Research patients may receive routine services as inpatients or ancillary services as either inpatient or outpatient subjects/volunteers. In order to receive reimbursement for research patient care costs, any hospital that, as a direct recipient of NIH funds, will incur more than $100,000 in research patient care costs in any single budget period under an individual NIH or other HHS award must negotiate a research patient care rate agreement with the cognizant office of the HHS Division of Cost Allocation (DCA). These rates must be shown in all requests and/or claims for reimbursement of research patient care costs. Hospital grantees that will incur $100,000 or less in research patient care costs as calculated above and consortium participants/contractors under grants are subject to the requirements specified in the subsection below on "Special Procedures for Certain Hospitals". Failure to negotiate a research patient care rate with DCA, when required, may result in the disallowance of all research patient care costs charged to a grant.

The determining factors for allowing research patient care costs as charges to NIH grants depend on the patient and the type of services received. If the patient is receiving service or care that neither differs from usual patient care nor results in expenses greater than those that would have been incurred if the study had not existed, then the patient is considered to be hospitalized for usual care purposes and the grant will not support the costs. When the research extends the period of hospitalization beyond that ordinarily required for usual care, or imposes procedures, tests or services beyond usual care, whether in an inpatient or outpatient setting, the grant may pay the additional costs. The grantee must decide whether, in fact, the hospitalization period, the tests, or the services have been extended beyond or added to what would ordinarily have been expected, and to what extent. Patient care costs for individuals who are receiving accepted treatment according to standard regimens would not ordinarily be acceptable charges to an NIH grant. Similarly, in certain kinds of clinical trials where accepted treatments are compared against new therapies, research patient care costs generally may be charged to a grant only insofar as they are measurements or services above and beyond those that constitute usual patient care and are specified by the study protocol.

NIH funds may be used to pay all costs (whether usual care costs or research care costs) for the entire period of hospitalization or research tests or services for patients who would not have been hospitalized or received such tests or services except for their participation in the research study. Any such exceptions should be documented in the grantee's records. These patients may include:

  • Persons to whom no health advantages may be expected to accrue as a result of the hospitalization. Examples would be normal controls for metabolic or other studies; persons with genetic or certain abnormalities of interest to the investigator; and sick persons brought to the hospital solely for studies when they otherwise would not require hospitalization.
  • Sick persons of research importance to the investigator but without funds of their own or without funds available to them through a responsible third party to pay hospitalization expenses. This includes patients for whom some third-party payer, such as city, county, or State government, might pay hospitalization expenses in some other hospital but has no responsibility to pay in the hospital in which the approved clinical research is being conducted.
  • Sick persons with limited personal funds or health insurance but who are not willing to spend their own money or use their hospital plan coverage at that particular time. (Fear of more urgent need in the future for both personal funds and health insurance might be one reason for the patient's reluctance to participate in the study.) The investigator has a special responsibility in making the decision to include patients in this group with full charges to the grant. Ordinarily, NIH expects the patient and/or third party to pay the total costs of the usual care portions of the hospitalization. However, in exceptional circumstances, the investigator may decide to pay the total expenses for hospitalization, research services, or tests from the grant if this is required to secure timely cooperation of a valuable study patient not otherwise available.

Patient care costs, whether expressed as a rate or an amount, shall be computed in an amount consistent with the principles and procedures used by the Medicare program for determining the portion of Medicare reimbursement based on reasonable costs. Under this policy, separate cost centers must be established for each discrete bed unit for purposes of allocating or distributing allowable routine costs to the discrete unit.

When provisional rates are used as the basis for award of research patient care costs, the amount awarded shall constitute the maximum amount that the IC is obligated to reimburse the grantee for such costs. Provisional rates must be adjusted if a lower final rate is negotiated.

F&A costs should not be paid on any cost component representing the cost of research patient care activities. Patient care rates (routine and ancillary) include F&A costs related to "hospital-type" employees (nurses, medical technicians, etc.) supported as a direct cost under a grant. Therefore, to preclude over-recoveries of costs similar to these F&A costs, salaries and wages (S&W) of all "hospital-type" employees working on the grant must be excluded from the S&W base used to claim F&A costs. Related fringe benefits should also be excluded if such costs are part of the S&W base. If a "total direct costs" base is used to compute and claim F&A costs, the above-mentioned "hospital-type" salaries must be excluded from the base also, as well as any other base costs chargeable to the grant through the application of a research patient care rate.

If the grant or a consortium agreement/contract under a grant provides funding exclusively for research patient care activities, no F&A costs will normally be allowed as a separate cost element since all allocable F&A costs will be accounted for in the routine or ancillary activity costs contained in research patient care rates.

If a grantee does not meet the threshold for negotiation of a research patient care rate agreement with DCA in a given budget period, as specified under "Policy" in this section, but has a currently negotiated research patient care rate, that rate will be used in awarding and reimbursing research patient care costs, regardless of the amount. In all other cases, the hospital will be reimbursed at a rate not to exceed the lesser of actual research patient care costs or the rate included in the hospital's Medicare cost report.

If a hospital incurring research patient care costs is not the grantee, the grantee will be responsible for establishing the rate or amount that will be reimbursed for such costs unless the hospital is also a direct recipient of other HHS awards and in that capacity has established a rate with DCA.

If a participating hospital will incur more than $100,000 in research patient care costs (as specified for grantees in the " Policy" subsection), the grantee shall negotiate a rate for that hospital unless the relationship between the grantee and the hospital is considered "less-than-arms length." In this case, the grantee should contact the IC GMO to determine whether DCA will negotiate the rate.

If a participating hospital will incur $100,000 or less in research patient care costs, the grantee will use the lesser of actual costs or the rate in the hospital's Medicare cost report as the basis for determining reimbursement. For purposes of this paragraph, the grantee will apply the thresholds to each hospital individually.

Where the costs of patient care are funded by the grant, and whether such costs are classified as usual patient care or research patient care, the amount recovered from third parties must be credited to the grant However, patient charges must be adjusted for both routine services and ancillaries prior to applying the third-party recoveries. The grantee is obligated to pursue recovery to the fullest extent possible and should be able to document those efforts. An example of such an adjustment follows:

If the standard fee schedule charge for a CT scan is $500, the negotiated research patient care agreement rate is 75 percent, and third-party insurance pays $300, the maximum amount that may be charged to the NIH grant is $75, based on the following calculation.

Standard Fee Schedule X (multiplied by) Negotiated Rate = Cost -- (minus) Insurance = Maximum Charge to NIH Grant

$500 x .75 = $375 - $300 = $75

In those instances when the grantee determines that the balance of the patient's bill may be charged to the grant ("Allowability of Costs" in this section), the total bill must be adjusted to cost prior to applying any third-party recoveries. The remaining balance of allowable costs may then be charged to the grant.

In certain circumstances, funds may be awarded that support tests developed specifically for research purposes that are subsequently billed to third parties. In such cases, funds recovered from third parties must be credited to the grant account.

An individual NIH IC/program may adopt special implementing procedures consistent with this section to meet its own specific needs. As an example, the majority of NIH-supported discrete centers are funded by the General Clinical Research Centers Program (GCRC) of the National Center for Research Resources (NCRR), which has developed detailed guidelines for the operation of these centers (see Part IV for NCRR contact information).


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