Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

Copyright © 2000 by Greenwood Consulting Group, Inc.

You know that there will be plenty of paperwork between you and the government when you negotiate and sign the contract or grant to start your SBIR project. But what about the paperwork that should exist between you and those who will be working for you on this project? While we are not attorneys and don’t want to delve into all the nitty-gritty details of such agreements, we do want to make suggestions as to what you include in them.

With your employees, and in particular with the person who will be serving as your principal investigator on the SBIR project, you need to have an employment agreement that stipulates several things. First, it should indicate what, if any, rights the employee has to intellectual property that they create during the course of their work on the SBIR project. It also should include non-disclosure expectations, so the employee doesn’t give away your farm to some competitor, and a non-compete clause so that they don’t try to set up their own farm based on the SBIR work they did for you. This latter clause may include a stipulation that the employee agrees that ownership of the SBIR project lies with your firm, and not with employee, should he or she decide to leave part way through the project and try to take it with them. This employment agreement may also indicate that the employee understands that they are to maintain accurate and complete time sheets, which will be required for any SBIR project.

Your agreements with your subcontractors or consultants should be more encompassing. First, they should clearly state the role of the sub or consultant on the SBIR project (which should be consistent with what you said they’d do in the proposal). It should clarify the dollar amount to be paid, and the terms under which it will be paid (e.g., based on consultant’s submission of a suitable and accurate invoice and then paid within 30 days of receipt thereof). Clarify that the sub or consultant is an "independent contractor," which helps prevent the IRS from coming back later and claiming that they were really employees of your firm and that you should have withheld payroll taxes from their compensation. As with the employment agreement, have stipulations about non-disclosure, non-compete, and ownership of intellectual property. Be sure to also include a "flow through" clause that requires the sub or consultant to abide by all the rules and regs that you (as the prime contractor) are subjected to under your SBIR contract or grant—if you don’t have this clause, you may not be able to force them to comply with certain government requirements even though the Feds are telling you that you must get their compliance.

Try to get the employment agreement in place when you hire the person, or at least before the SBIR project begins (you may want to check with your attorney about any state labor laws that influence when you can ask the employee to sign such an agreement). Likewise, get the agreement with the subcontractor/consultant when they agree to participate in the project, or at least before you sign the SBIR contract or grant. If you wait until a conflict or problem arises, it can be a lot tougher to negotiate the agreement that you need to protect your interests.