When I met Steve I knew he had a huge problem. He was running around trying to raise Angel funding for his new company. He had requested a 0% fringe rate and a 40% F&A rate from the Department of Energy on his phase 2 award. He needed to raise money to cover his overhead costs, and was diluting himself with every dollar raised.
I knew it was going to take a while for Steve to fully understand the dynamics of the problem he created. The first thing I tried to explain to Steve was that he was going to need to make a trade-off between rescuing his million dollar phase 2 or rescuing his company.
This was hard for Steve to understand initially. His Grant proposal had a hard cap of $1MM and in his mind he wanted to provide his customer the best science he could for the money to make his proposal more attractive to the Government.
First, I explained to Steve that unless he addressed his indirect rate issue, he was going to need to continue to raise Angel funding in perpetuity in order to fund his overhead costs.
This became obvious to Steve. He quickly realized that he was going to need to project indirect rates and use those rates in his future proposals, including several of which he had planned for next year, but couldn’t quite understand how that was going to impact his existing grant.
Second, I explained to Steve that if he only had one government grant he could claim all of his expenses as direct – that if it weren’t for that grant he wouldn’t have had incurred the expense, which is the basic test for charging a cost as direct, indirect or unallowable. However, because his company had just recently been awarded a second grant that logic was not available. Steve needed a way to allocate his indirect expenses between his two existing grants.
Next, like Chris, I sat down with Steve and asked him to project the rate that he would’ve asked for had he met me before he wrote the $1MM proposal. An hour later, we had a 34% fringe and 64% F&A rate projected.
Now the tough part – I then asked Steve to assume that because the DoE has a hard cap that he should expect the Grant Specialist to not allow us additional funding. We would have to re-budget the grant understanding that he needed to leave room for fringe and F&A costs. Most importantly, this grant was competitively bid so the Grant specialist would need to be convinced that the same amount of technical work was going to be done for the million dollars after the re-budgeting.
Steve was effectively going to have to do the same amount of work with half the amount of money, and had no idea how this could be done without materially changing the science of the project.
Then, Steve understood my comment that he was going to need to make a trade-off between rescuing his million dollar phase 2 and his company.
In order to try to save both, Steve was forced to sit down and pare back his ideal indirect rate projection to something that he could live with. He settled at a fringe rate of 20% and an F & A rate of 41%, which will obviously make it more difficult to grow his business. But, he would be able to re-budget the million dollar grant, and could tolerate these rates in his future proposals.
Time is always tight when you’re writing proposals, but understand the need to take the time to understand the impact the cost portion of your proposal could have on your company for years to come.
To go back to Chris’ Story, click here
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