Each of the 11 agencies that participate in the Small Business Innovation Research (SBIR) program have their own individual policy and guidelines regarding all allowable costs, including pre-award costs. The Department of Education’s (DoED) Institute of Education Sciences (IES) is no different.
Pre-award costs are any costs the company incurred prior to winning an award. This includes services rendered for business consultation or proposal preparation. By examining the clauses of the policy document, it can be determined what kind of professional service costs are allowable.
While consultant fees are allowable throughout the project (e.g. cost of evaluation services, SME experts), there are guidelines to adhere to regarding how these fees must be handled. It is always preferred that employees, not consultants perform work whenever possible.
In these scenarios, a proper scope of work and documentation of ongoing services rendered must be available to support any costs involved in a retainer fee for consultants. This means a one-time service like proposal preparation is not an allowable consultant cost. Proposal preparation costs are a pre-award cost, and as such, any federal funds awarded can not be used to cover this cost as per DoED guidelines.
The excerpt below illustrates the general pre-award guidelines that the DoED adheres to:
EDGAR § 75.707(h), 2 CFR § 200.458, and by 48 CFR: Sometimes grantees that anticipate receiving a new award incur expenses for allowable purchases and activities before the funding period begins. These expenditures, known as pre-award costs, are authorized by EDGAR § 75.707(h), 2 CFR § 200.458, and by 48 CFR for for-profit organizations.https://www2.ed.gov/policy/gen/leg/foia/foia-hb-01.pdf
Examples of legitimate pre-award costs in a grant project can include: 1) Engaging a consultant to do work directly related to the project’s success, which must be done before its start; 2) Buying equipment before the beginning date in order to receive a concessionary price from a vendor, and 3) Traveling for ED-sponsored conferences that occur before the start of the project period.
Pre-award Costs for Time Periods Up to 90 Calendar Days Before the Beginning of an Award Period: If ED learns that an applicant or grantee (grantee) intends to incur allowable project costs within 90 days before a new grant or continuation award, ED does not need to take any action for the costs to be allowable. The grantee already has the authority to do so under §75.263 of EDGAR and 2 CFR § 200.308. However, if a grantee informs ED that it plans to incur pre-award costs within the 90-day period, program staff should inform the grantee that it incurs these costs at its own risk and, if for some reason the grantee does not get a grant or continuation award, ED will not reimburse the applicant for the pre-award costs.https://www2.ed.gov/policy/gen/leg/foia/foia-hb-01.pdf
Pre-award Costs for Time Periods More than 90 Calendar Days Before the Beginning of a Project or Budget Periodhttps://www2.ed.gov/policy/gen/leg/foia/foia-hb-01.pdf
If an applicant or grantee (grantee) wants to incur pre-award costs for allowable expenses more than 90 days before the beginning of a new project or budget period, 2 CFR § 200.308(d)(1), requires the applicant to first obtain approval from ED before incurring the cost. If prior approval for pre-award costs is required, the grantee must submit a written request to ED that describes the reason for pre-award costs and the period during which the funds will be used.
This means that unless the individual solicitation states otherwise, applicants need written approval to use a federal award to pay for pre-award costs. This means that all proposal preparation services must be paid for before proposal submission, not upon award. When a proposal preparation specialist accepts payment for their services from federal awards, this is called a contingency-based payment.
This practice is both unethical, and against federal guidelines. To engage in this behavior falls under the scope of misappropriation of funds, and applicants and grant writers alike who choose to do this could find themselves in trouble.
The Grant Professionals Association (GPA), a premier organization to which countless grant writers belong, adds within their code of conduct the proper way to collect payment for services:
Members shall work for a salary or fee.
Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accordance with prevailing practices within the members’ own organizations and are not based on a percentage of grant monies.
Members shall not accept or pay a finder’s fee , commission , or percentage compensation based on grants and shall take care to discourage their organizations from making such payments.
Compensation should not be written into grants unless allowed by the funder.https://grantprofessionals.org/general/custom.asp?page=ethics
Contingency payments may seem like an easier way to pay for your proposal preparation services, but it is simply not worth it. In addition to the legal and ethical implications, contingency-based fees are in and of themselves a ludicrous idea for several reasons:
- The grant writer is already working as hard as they can to create a winning application. A larger fee will not increase their efforts.
- The reviewers, not the proposal preparation consultant has the final say on which proposals receive awards, and which do not. To pay a larger fee than necessary for winning an award makes it seem as though grant writers have control over the reviewers, which could not be farther from the truth.
- Hiring a consultant that is willing to break federal and company ethics codes may not be a wise choice. If they do not take the law and GPA ethics seriously it severely undermines their credibility as a professional.
- Plus this goes against Generally accepted accounting principles (GAAP) (see our post about it here).
Reading and understanding all policy guidelines when applying for DoED or any other federal funding is a critical step to maintaining compliance with award policies. A proposal preparation specialist should be well versed in the legal and ethical guidelines attached to federal funding.
E.B. Howard Consulting has a strong commitment to both ethics and knowledge. Our staff undergoes ongoing professional development to stay knowledgeable regarding federal guidelines and policies and adheres to a strict code of ethics.
We help high-growth startups find and apply for non-dilutive funding. Schedule a consult call with us HERE.