Your SBIR Award Budget Goes Further Than You Think

Published: March 26, 2026 | Category: News, Technology, Biologics Discovery

---

With SBIR and STTR now reauthorized under S.3971, early-stage biotech founders have a real opportunity to accelerate their programs. But making the most of that funding requires understanding a budget rule that most awardees misapply, one that directly affects how much you can spend on external partners like contract research organizations (CROs).

---

The 33% rule and why it’s more nuanced than it looks

Most SBIR awardees know that at least 67% of research effort must be performed by the small business, leaving no more than 33% for outside contractors in Phase I. What fewer founders realize is that this rule isn’t applied uniformly, and how your CRO engagement is structured and classified can significantly affect your flexibility.

The critical distinction is between a subaward and a fee-for-service contract. Subawards, typically partnerships with universities or nonprofit research institutions, are clearly subject to the 33% cap. Fee-for-service CRO work, where a commercial provider performs routine specialized tasks to your specifications, may be classified differently depending on the agency and the scope of work.

On top of that, every agency calculates the 33% differently. NIH and NSF apply it to the total award amount. DOD removes profit and fee before calculating. DOE has its own methodology. This means the practical budget flexibility available to you depends heavily on which agency funded your award, and it’s worth understanding the specific rules that apply to yours.

The bottom line: before assuming a hard ceiling on your CRO spend, have a direct conversation with your program officer. Deviations from standard limits can be approved in writing, and many founders never ask.

---

How to structure a CRO partnership that works for SBIR

Budget classification aside, the more important question is how to build a CRO partnership that actually advances your program. A few principles we’ve seen work at Mosaic:

• Pick partners on scientific fit, not convenience. The best CRO relationships in early-stage biologics discovery aren’t transactional. You want a partner who understands your biology, can push back on your assumptions, and will tell you when a result doesn’t make sense, not just deliver data. Interview them like you’d interview a key hire.
• Scope for decisions, not deliverables. The goal of SBIR-funded discovery work is to reach a go/no-go decision on your program. Structure your CRO engagement around answering specific scientific questions. If you can’t articulate what a positive result looks like before work starts, the scope isn’t ready.
• Keep the PI in the science, not just the paperwork. Program officers want to see that the awardee is intellectually driving the work. The best SBIR-CRO partnerships are ones where the PI is genuinely engaged, reviewing data, shaping interpretation, making calls. That scientific ownership is what makes the partnership fundable.
• Plan for Phase II before you finish Phase I. CRO partnerships designed with Phase II in mind from the start tend to generate cleaner, more compelling data packages. If your Phase I CRO work is going to anchor your Phase II application, build that narrative into the experimental design now.

The reauthorization of SBIR and STTR is a meaningful moment for early-stage biotech. There’s real funding coming back into the ecosystem. The founders who understand how to deploy it strategically, and build the right external partnerships, will have a genuine head start.

---

About Mosaic Biosciences

Mosaic Biosciences is a biologics discovery company specializing in antibody and protein engineering, with expertise spanning transgenic mouse platforms, display technologies, and multispecific antibody formats. Mosaic partners with biotech and pharmaceutical companies to generate high-quality, developable biologics optimized for real-world therapeutic success.

To learn more about our discovery capabilities or explore a partnership, contact us.

---