Software-heavy SBIR proposals run into the same question: how much of the build can an outside engineer do? The answer is not “none” and it is not “whatever you like”. It is a percentage, and it is set per agency.
This is a general explanation, not guidance on your award. Percentages and definitions vary by agency and change between solicitations, so treat the numbers below as the shape of the rule and confirm the specifics in the solicitation and with your program officer.
The shape of the rule
SBIR exists to fund research and development performed by small businesses. To keep it that way, awards generally require the company itself to do most of the work:
- Phase I: the small business typically performs about two-thirds of the research or analytical work. That leaves roughly one-third for consultants and subcontractors.
- Phase II: the small business typically performs at least half. Up to roughly half may go to outside parties.
- STTR is different. It requires a research-institution partner, and the split is structured around the partner rather than a single outside-work cap.
How the share is measured is where agencies differ. Some measure by requested cost including direct costs, indirect costs, and fee. Others measure by personnel cost. The same plan can pass one and fail another, which is why reading the actual solicitation matters more than any summary, including this one.
What this means for software
The cap is on outside work, not on software. If your technical approach is software, the company itself still has to do the majority of it. A few practical consequences:
- An outside engineer is plannable, not free. Budget a defined slice, justify it in the budget narrative, and keep the company’s own staff doing the core of the work.
- Who directs the work matters. Contractors working under your technical direction on your approach are different from handing a subsystem to a vendor. Agencies read the distinction, so write the work plan to show who owns the technical decisions.
- Put it in the proposal, not after it. Outside work that shows up in the budget justification with a named role is routine. Outside work discovered in a progress report is a conversation you would rather not have.
- Ownership and data rights follow the paperwork. Make sure any contractor agreement assigns the work product and does not conflict with the data-rights terms of the award.
A planning pattern that holds up
- Read the solicitation’s work-share language and note how it measures the share.
- Split the work plan into tasks and mark which are performed by company staff and which by outside help.
- Add up the share the way the agency measures it, with a margin, before you submit.
- Describe the outside role in the budget justification: what they do, under whose direction, and why it needs outside expertise.
- Ask the program officer to confirm the plan in writing if anything is borderline.
This is also where a fractional CTO fits. Most technical risk in a Phase I to Phase II transition is not writing code; it is deciding what to retire first and what a reviewer will believe. I cover that in the Phase I prototype to Phase II architecture post, and the Phase II readiness worksheet is the self-check I use before a technical volume goes out.
If you are working from the program side, the SBIR partners page describes how that relationship works.