Subcontractors and consultants can be important contributors to a Phase I DOE SBIR/STTR project. They can bring expertise to the project not found among the employees of the applicant small business, and subcontractors also can provide sophisticated facilities and equipment that the applicant could not otherwise access or afford. But what is the difference between a consultant and a subcontractor?

Before defining the difference, let’s clarify what relationship either may have with the SBIR/STTR applicant small business. Both consultants and subcontractors will be under a subcontract, which is defined in the DOE FOA Appendix A as “any agreement, other than one involving an employer-employee relationship, entered into by the primary recipient of a Federal government grant, calling for supplies or services required solely for the performance of the original grant award.” In other words, if a third party, either an individual or entity, is contributing to another small business’s SBIR/STTR proposal, then the agreement to do so is referred to as a subcontract. That means that either a subcontractor or a consultant will have a subcontract with the applicant small business.

To differentiate a consultant from a subcontractor, let’s first look at DOE’s definitions of a consultant. DOE’s Funding Opportunities Announcement (FOA), Appendix A says “A consultant is generally an individual who is not using any institutional or organizational facilities and is acting as a direct agent. The individual usually bills by the hour, submitting invoices. Invoices occasionally include additional direct expenses incurred. Consultants are normally subject matter experts and are not directly supervised by the awardee.” And in its Instructions for Completing a DOE SBIR/STTR Phase I Grant Application, DOE defines a consultant as “An individual who provides professional advice or services for a fee, but normally not as an employee of the engaging party…Consultants may also include firms that provide paid professional advice or services.” This suggests several common characteristics of consultants: they usually are individuals, they typically are not part of a larger company, and they provide advice and services.

In contrast, subcontractors tend to be organizations, ranging from universities and Federal Laboratories to Fortune 100 companies to other small businesses. And their scope tends to be broader, “…providing technical expertise, facilities, or equipment.”
Therefore, in general, consultants are individuals and subcontractors are organizations or entities, and consultants tend to be limited to providers of services and advice, while subcontractors can provide a broader array of resources for an SBIR/STTR project.

However, this is not a hard and fast distinction. Note the use of “generally,” “normally,” “occasionally” and “usually” in the DOE definitions of a consultant, and the statement that “Consultants may also include firms…”

There appears to be some flexibility in whether the third party on an SBIR/STTR subcontract could be treated as a consultant or a subcontractor. Are there reasons to prefer one over the other, if there is a choice?

Yes, there are, for several reasons:

• If it’s an STTR project, then the applicant small business must team with a non-profit subcontractor. This subcontractor is known as the Research Institution (RI), and typically is a university or Federal Laboratory. A consultant could not serve as the RI on an STTR. Put another way, the university could be the RI on your STTR project, but one of its professors acting as an independent consultant in her free time could not.
• Bringing a university faculty member onto your project as a consultant may reduce the time, cost and administrative burden associated with making him or her part of your team.
• Bringing a university or Federal Laboratory staff member onto your team as a consultant also may avoid some of the intellectual property issues that can arise if the university or Lab is made a subcontractor on the project. However, this is not always the case—some such institutions require, through their employment agreements, that any IP created by their staff members belongs to the institution, even if the staffer created it in their “personal time.”
• Having a well known institution or company as a subcontractor can elevate the credibility and prestige of the small company applicant in ways that may not be possible if just an individual joins the team as a consultant.
• The exception to this is when that individual is well known and respected in his/her own right.
• Having a large subcontractor, such as a university or large corporation, may discourage potential IP infringers that do not want to create a legal issue with a large player that has substantial resources for litigation