GRANTS TO FOR-PROFIT
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
Allowability of Costs
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.
PROFIT OR FEE
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.
INDEPENDENT RESEARCH AND DEVELOPMENT 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.
FACILITIES AND ADMINISTRATIVE 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.
INTELLECTUAL PROPERTY: INVENTIONS AND PATENTS
As described in "Administrative Requirements
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
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
Systems and Procedures
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
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
The Government Auditing Standards are available electronically
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
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.
Small Business Innovation Research
and Small Business Technology Transfer Programs
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
- 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: 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
- 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;
- 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
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
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
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
PUBLIC POLICY REQUIREMENTS AND OBJECTIVES
The requirements concerning disclosure of financial conflicts
of interest (see "Public Policy Requirements and Objectives
and Safe Conduct in Science and Organizational Operations
of Interest") apply to Phase II SBIR/STTR awards only.
ALLOWABILITY OF COSTS AND FEE
Profit or Fee
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.
Facilities and Administrative Costs (Indirect Costs)
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.)
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
Management Systems and Procedures
Income" in Part II).
Intellectual Property: Rights in Data, and
Inventions and Patents
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.
RESEARCH PATIENT CARE
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
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
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,
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
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.
Allowability of Costs
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
- 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
- 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
COMPUTATION OF RESEARCH PATIENT CARE COSTS
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
FACILITIES AND ADMINISTRATIVE COSTS
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
SPECIAL PROCEDURES FOR CERTAIN HOSPITALS
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
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 "
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
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
$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
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).