How to Prepare a NIST SBIR Phase I Budget

Introduction

Creating a strong SBIR Phase I budget is more than just filling out forms—it’s a key step in showing reviewers that your company is ready to manage federal funds responsibly. For applicants to the National Institute of Standards and Technology (NIST), it also means adhering to specific rules around allowable costs, indirect rate caps, subcontracting limits, and budget caps. Mistakes in this part of your proposal can lead to rejection—even if your technical work is outstanding.

In this guide, we walk you through the full structure of a compliant, fundable NIST SBIR Phase I budget. You’ll learn how to calculate labor and fringe, distinguish equipment from supplies, manage indirect rates, and use the optional TABA allocation. We’ll also show you how to complete and justify each budget line—and highlight common errors that can cost you the award.

Understand NIST Phase I Budget Rules

Before diving into specific cost categories, it’s essential to understand the structural rules NIST imposes on SBIR Phase I budgets. These constraints are non-negotiable and serve as the foundation for all other decisions in your proposal.

NIST Phase I awards are capped at $100,000 in total federal funding. This includes all direct costs, indirect costs, and any requested profit or fee. However, applicants can optionally request up to $6,500 in additional funding for Technical and Business Assistance (TABA). If you plan to request TABA, those funds must be specifically justified and tied to eligible commercialization services like market analysis or regulatory consulting.

A reasonable profit or fee of up to 7% of total allowable direct and indirect costs is permitted, but must be explicitly requested. It’s not added automatically.

Subcontracting is allowed, but tightly controlled. NIST requires that at least two-thirds (67%) of the total project budget be spent by your company directly. Subcontractors or consultants combined may account for no more than one-third (33%). This ratio is calculated on a cost basis, and exceeding it will disqualify your proposal.

Also, all costs must be allowable under federal regulations (2 CFR Part 200). That means no lobbying, entertainment, or unrelated marketing. In general, if a cost isn’t necessary for the proposed research or can’t be documented, don’t include it.

Direct Costs Breakdown

Direct costs are the core of your Phase I budget—they represent specific expenses that are clearly tied to the execution of your proposed research. NIST allows several categories of direct costs, each of which must be clearly itemized in your budget forms and justified in your budget narrative.

Indirect Costs: What You Can Include

Indirect costs—also called Facilities & Administrative (F&A) costs—represent expenses that support your research but cannot be tied to a specific project activity. These may include rent, utilities, accounting, IT support, office supplies, and general management.

NIST does not negotiate new indirect cost rates for Phase I SBIR awards. However, you may use:

• An existing federally negotiated rate (if you have one), or
• A proposed indirect rate of up to 40% of total direct costs without needing to provide detailed justification.

You should explicitly state in the budget justification which approach you’re using. Most small businesses choose to apply a simplified, blended indirect rate.

Example:
“The company applies a 30% indirect rate on total direct costs. This rate covers general administrative costs including office space, utilities, and compliance.”

If you have both overhead and G&A, you can break them out separately. Just be consistent and avoid applying rates to unallowable bases (e.g., profit, certain subawards).

Note:
If you don’t have a negotiated indirect rate, you may use up to 40% of total direct costs without justification.

If you treat fringe benefits as an indirect cost, do not also include them as a direct line item—choose one approach and document it clearly.

Make sure your math is traceable in the narrative:
Example: “Indirect costs: 30% × $80,000 (total direct costs) = $24,000”

Profit/Fee: What’s Allowed

NIST, like all SBIR agencies, allows small businesses to earn a reasonable profit on Phase I projects. This profit—also referred to as the “fee”—is capped at 7% of your total allowable direct and indirect costs. It is not added automatically and must be explicitly requested in your budget.

You may choose to take less than 7%, but you cannot exceed this amount. And importantly, this fee should not be allocated to subcontractors; it is intended only for the prime small business.

How to calculate your fee:
If your total direct and indirect costs are $94,000, a 7% fee would be $6,580, for a total request of $100,580. Since the NIST Phase I limit is $100,000 (excluding TABA), you’d need to reduce either your base costs or your fee to stay compliant.

Where to list it:

• On the SF-424A form, list your fee under the “Other” category.
• In your budget narrative, clearly label it as a profit or fee, and state the percentage applied.

Example:
“We request a fixed fee of $6,500, representing approximately 7% of our total direct and indirect costs ($92,850).”

Warning:
Never exceed 7% for profit/fee — NIST will reject budgets that go over this limit.

Including a profit is optional but common. Most businesses request the maximum or close to it, as this is intended compensation for your company beyond cost reimbursement.

Optional: TABA Funding

In addition to the $100,000 cap on Phase I research budgets, NIST allows you to request up to $6,500 in separate funding for Technical and Business Assistance (TABA). This is intended to help your business strengthen its commercialization strategy during the project.

What TABA covers:

TABA funds may be used for:

• Market research and customer discovery
• Intellectual property strategy
• Regulatory or compliance consulting
• Manufacturing and scale-up planning
• Business development services

You may not use TABA for proposal writing, lobbying, or any ineligible activity.

How to include TABA in your budget:

1. List the TABA cost under “Other Direct Costs.”
2. Identify the vendor who will provide the service.
3. Include a brief justification and a letter of commitment or quote from the vendor.

Example:
“We request $6,500 in TABA funds to engage InnovateIQ, Inc., which will provide customer discovery and commercialization strategy services. A letter of commitment and vendor quote are attached.”

The total TABA request can be in addition to the $100,000 Phase I cap, meaning your total federal request could be $106,500 if you use the full allowance.

It’s a one-time opportunity—TABA must be requested in your original application. You cannot request it later if you forget to include it.

Cost Sharing

NIST permits cost sharing in SBIR Phase I proposals—but it is entirely optional and will not affect how your proposal is scored or evaluated. Including cost share won’t give you a competitive advantage, and most applicants choose not to include it.

What is cost sharing?

Cost sharing means you agree to cover a portion of the project costs using non-federal funds. These could be internal company funds, third-party contributions, or in-kind resources like donated materials or waived facility fees.

When might cost sharing make sense?

You might consider it if:

• You need to include expenses that aren’t allowed under SBIR rules
• You want to show commitment to a commercial outcome
• You’re leveraging external resources (e.g., lab access, donated time)

How to document cost share:

• Report it in Section 18b (“Applicant”) of the SF-424 cover form.
• Include a matching amount in Section C of the SF-424A.
• Briefly describe the source and purpose in your budget justification.

Example:
“ABC Tech will contribute $5,000 in internal R&D funds to cover extended prototyping beyond the federal scope. These funds are provided by retained earnings.”

But again, offering cost share is not expected—and including it when unnecessary can complicate your accounting or create future audit risks.

Allowable vs. Unallowable Costs

Your Phase I budget must comply with federal cost principles under 2 CFR Part 200, which defines what types of expenses are considered “allowable” under a federal award. Every cost must be necessary, reasonable, and clearly tied to your proposed research.

Common Allowable Costs

• Salaries and wages for research personnel
• Fringe benefits
• Lab supplies and materials
• Project-specific travel
• Consultant and subcontractor costs (within the 33% limit)
• TABA commercialization support (if properly justified)

Unallowable Costs

• Lobbying, fundraising, or political activities
• Entertainment or meals not tied to travel per diem
• Patent prosecution or IP filings (except via TABA if permitted)
• General marketing or promotion
• Alcohol, gifts, or personal expenses
• Foreign travel (unless specifically approved in advance)

If you’re unsure about an expense, use the rule of thumb: If it doesn’t directly support the R&D effort and can’t be easily justified, leave it out.

Warning:
Including unallowable costs like lobbying or entertainment can disqualify your proposal.

Even if you’re awarded funding, NIST will only reimburse actual costs that are both incurred and allowable. To avoid clawbacks or audit issues, it’s critical to get this right the first time.

Completing the SF-424 and Budget Forms

To finalize your budget, you’ll need to enter your information into two key federal forms: the SF-424 (Application for Federal Assistance) and the SF-424A (Budget Information). NIST requires these forms for every SBIR Phase I submission.

SF-424 Cover Page

• Section 18a (“Federal”): Enter your requested federal funds (up to $100,000).
• Section 18b (“Applicant”): If you’re providing cost sharing, list the amount here. Otherwise, leave it blank or enter $0.
• Section 18g (“Total”): Should equal the sum of 18a and 18b.

SF-424A Budget Form

This is where you break down the budget by category. Common sections include:

• Section A: Total federal and non-federal funds
• Section B: Detailed breakdown of each cost category:
  • Salaries & Wages (A)
  • Fringe Benefits (B)
  • Equipment (C)
  • Travel (D)
  • Supplies (E)
  • Contractual (F)
  • Other (H) – include profit/fee and TABA here
• Indirect Charges: Enter your indirect rate and base (e.g., 30% of direct costs)

Best Practices

• Round dollar amounts to whole numbers
• Use consistent labels across all documents (e.g., if you say “Prototype Engineer” in the narrative, use the same title on the form)
• Double-check formulas: reviewers often reject proposals with simple math errors

When uploading to Grants.gov or NIST’s portal, ensure that all forms are signed and saved in the correct format (usually PDF). Attach supporting files like subaward budgets and TABA letters where required.

Budget Justification Tips

The budget justification is your opportunity to explain the “why” behind each number in your Phase I budget. It should be clear, concise, and aligned with both the SF-424A form and your technical proposal.

Think of this section as a narrative version of your spreadsheet: reviewers want to understand how you arrived at each figure—and why each expense is necessary to complete the work.

What to include:

Personnel

For each team member: name, title, role, time commitment, and cost.

Example:
“Principal Investigator (Dr. Jane Smith) will lead all technical aspects and manage the team. She is budgeted for 3.5 person-months at $12,000/month, totaling $42,000.”

Fringe Benefits

State the fringe rate and what it covers.

Example:
“Fringe benefits are budgeted at 25% of salaries to cover payroll taxes, health insurance, and vacation.”

Equipment

Include only if purchasing items >$10,000 and explain necessity.

Example:
“A Raman spectrometer ($12,500) is required for materials validation and will be used exclusively for this project.”

Materials & Supplies

Group into categories and estimate quantities and costs.

Example:
“Electronics supplies – $3,000 (e.g., 50 sensors at $60 each).”

Travel

Detail destination, purpose, travelers, and cost assumptions.

Example:
“Two-person trip to NIST facility in Gaithersburg, MD for project coordination and calibration. $1,800 includes airfare, lodging, and per diem.”

Consultants & Subawards

Name, scope, rate, and time commitment. Include subaward budget if applicable.

Example:
“Dr. Alan Lee (consultant) will assist with optical modeling at $150/hour for 80 hours ($12,000).”

Other Direct Costs

Include software, user fees, TABA (if applicable).

Example:
“Prototype fabrication service: $2,000. TABA: $6,500 to XYZ Consulting for IP and market validation.”

Indirect Costs

State your rate, base, and what it includes.

Example:
“30% of direct costs ($78,000), totaling $23,400. This includes administrative overhead and office expenses.”

Profit/Fee

Specify the percentage and total.

Example:
“7% of total direct and indirect costs ($93,400), totaling $6,538.”

Tips for success:

• Match terminology exactly with the SF-424A form
• Avoid vague descriptions (“general support” or “misc. supplies”)
• Keep it under 3–5 pages and easy to scan

A clean, accurate budget justification shows reviewers that your team is organized, credible, and ready to manage federal funds.

Common Pitfalls to Avoid

Even technically strong proposals can be rejected due to avoidable budget errors. Below are the most frequent issues seen in NIST SBIR Phase I submissions—and how to prevent them:

• Exceeding the $100,000 Cap: Including too much in direct or indirect costs—or incorrectly calculating the 7% fee—can push your total over the limit. Always check your final number, including fee, stays within the $100,000 cap (excluding TABA).
• Violating the 67/33 Subcontract Rule: Spending more than 33% of your total budget on consultants or subcontractors makes your proposal ineligible. Double-check this ratio before final submission.
• Misplacing the Fee on Budget Forms: The SBIR profit/fee should be listed under “Other” in Section B of the SF-424A, not under salaries or program income. Improper placement can delay review or trigger corrections.
• Double-Counting Fringe or Indirect Costs: Make sure fringe is only charged once—either as a direct cost or within the indirect rate pool, not both.
• Vague or Unsupported Budget Justifications: “Miscellaneous expenses” or unexplained line items raise red flags. Every cost must be supported by clear language in your narrative.
• Forgetting TABA Documentation: If you request TABA, you must include:
  • Vendor name
  • Description of services
  • Letter of commitment or quote
• Inconsistent Titles and Math: Using different labels for the same person or mismatched numbers across forms undermines credibility. Review all forms side by side for consistency.
• Including Unallowable Costs: Don’t include items like marketing, entertainment, or non-U.S. travel unless explicitly allowed. Even one disallowed line item can put your entire proposal at risk.

Avoiding these mistakes not only protects your eligibility—it demonstrates to reviewers that your business is financially responsible and detail-oriented.

Final Checklist Before Submission

Before you submit your NIST SBIR Phase I proposal, use this checklist to ensure your budget is compliant, complete, and clear. A few last-minute checks can make the difference between review and rejection.

• ✅ Total request does not exceed $100,000 (excluding optional TABA)
• ✅ Profit/fee is ≤ 7% of total direct and indirect costs
• ✅ Subcontract/consultant costs ≤ 33% of total budget
• ✅ Fringe benefits are charged only once (direct or indirect—not both)
• ✅ All costs are allowable under 2 CFR Part 200 and NIST’s guidelines
• ✅ Indirect rate is ≤ 40% of direct costs, or a NICRA is attached
• ✅ All personnel and costs are consistently named and described across the SF-424, SF-424A, and budget justification
• ✅ Each budget line is fully justified in the narrative with purpose and calculations
• ✅ TABA (if requested):
  • Cost is under $6,500
  • Service provider is named
  • Letter of commitment or quote is attached
• ✅ Forms are complete and uploaded in correct format
  • SF-424
  • SF-424A
  • Budget justification
  • Subaward budget forms (if applicable)

Taking the time to cross-check your materials ensures your proposal meets all federal requirements and demonstrates your business’s capacity to manage federal R&D funding responsibly.