Navigating Foreign Risk Assessment for the SBIR/STTR program at NIH, CDC, and FDA

Part of the re-authorization of the SBIR/STTR program is a new layer of complexity for applicants: the assessment of foreign risk.

This change is highlighted by the recent NIH Notice “Clarification of Implementation of the NIH SBIR and STTR Foreign Disclosure Pre-award and Post-Award Requirements” (NOT-OD-24-029). There is also a form Required Disclosures of Foreign Affiliations or Relationships to Foreign Countries that is where the actual disclosures need to be made during JIT here. It is crucial to ensure you’re squeaky clean on this disclosure or
your SBIR grant or contract will be in jeopardy.

That’s a mouthful. Let’s unpack this to see what’s going on and what you need to do to keep winning grants.

The Challenge: Foreign Risk and SBIR Funding

You’re fortunate if you’ve not been there but recently some companies have experienced a greater scrutiny and review for foreign risk. In almost all cases, notice of awards have been delayed because of the thorough and detailed review assessing foreign risks.

In certain cases, grants have not been funded because of a foreign risk. Fortunately for us at Grant Engine we’ve navigated this successfully and can share the details. New foreign risk assessments underscore the importance of understanding and navigating the new guidelines. The NIH, CDC, and FDA have updated their policies to enhance security measures, specifically targeting potential risks associated with foreign affiliations and relationships. The key concern is that involvement with certain foreign countries could pose a security risk that in turn might prevent funding.

One fact of life is that NIH, CDC, and FDA will generally not provide small business applicants the opportunity to address any identified security risks prior to award. Worse, they will not inform you of the problems that tripped up a denial.

Key Elements of the New Guidelines

1.  Pre-Award Screening: The new guidelines mandate a thorough due diligence process before awarding grants. This includes assessing whether any key individuals or entities associated with the applicant have connections to countries of concern, such as the People’s Republic of China and Russia. The review focuses on:

• • Participation in foreign talent recruitment programs
  • Business relationships with entities located in countries of concern.
  • Affiliations with foreign research institutions.

2.  Denial of Awards: If an applicant’s foreign affiliations are deemed to pose a security risk, the NIH, CDC, and FDA will generally not mitigate these risks but will instead deny the award.

This decision is final and based on criteria such as whether the small business:

• • Has an owner or covered individual that is party to a malign foreign talent recruitment program;
  • Has a business entity, parent company, or subsidiary located in the People’s Republic of China, Russia, or another foreign country of concern; or
  • Has an owner or covered individual that has a foreign affiliation with a research institution located in the People’s Republic of China, Russia, or another foreign country of concern.

And whether the grant or small business falls within any of the following risk criteria:

• • Has an owner or covered individual that is party to a malign foreign talent recruitment program
  • Has a business entity, parent company, or subsidiary located in the People’s Republic of China, Russia or another foreign country of concern; or
  • Has an owner or covered individual that has a foreign affiliation with a research institution located in the People’s Republic of China, Russia or another foreign
    country of concern.

3.  Post-Award Reporting: Once awarded, recipients must continuously monitor and report any changes in their relationships with foreign countries of concern. This includes:

• • Changes in ownership or entity structure.
  • New foreign affiliations or partnerships.
  • Any circumstances that could pose a security risk.

The Details are Important!

See the following questions that come from the NIH SBIR/STTR Required Disclosures of Foreign Affiliations or Relationships to Foreign Countries form:

1. Is any owner or covered individual of the applicant or recipient party to any malign foreign talent recruitment program? □ Yes □ No

• • If yes, disclose the first and last name of each owner or covered individual, identify their role (i.e., owner or covered individual), and the malign foreign talent recruitment program.

2. Is there a parent company, joint venture, or subsidiary, of the applicant or recipient that is based in or receives funding from, any foreign country of concern? □ Yes □ No

• • If yes, disclose the name, full address, applicant or recipient relationships (i.e.,parent company, joint venture, or subsidiary) of each entity based in, or funded by, any foreign country of concern.

3. Does the applicant or recipient have any current or pending contractual or financial obligation or other agreement specific to a business arrangement, or joint venture-like arrangement with an enterprise owned by a foreign state or any foreign entity? □ Yes □ No

• • If yes, disclose the name of each enterprise or foreign entity, type of obligation, agreement, or arrangement (i.e., contractual, financial, or other), description of obligation, agreement, or arrangement, and the foreign state(s) and/or the country of the foreign entity (or entities).

4. Is the applicant or recipient wholly owned in a foreign country? □ Yes □ No

• • If yes, disclose the foreign country.

5. Does the applicant or recipient have any venture capital or institutional investment? □ Yes □ No

• • If yes, proceed to question 5a. If no, proceed to question 6.

5a. Does the investing entity have a general partner or any other individual holding a leadership role who has a foreign affiliation with any foreign country of concern? □ Yes □ No □ Unable to determine

• • If yes or unable to determine, disclose the venture capital or institutional investing entity’s name, the percentage of ownership obtained by the investing entity, and the type of investment (i.e., equity, debt, or combination of equity and debt).

6. During the previous 5-year period, did the applicant or recipient have any technology licensing or intellectual property sales or transfers, to a foreign country of concern? □ Yes □ No

• • If yes, disclose the name, address, and country, of the institution or entity that licensed, purchased, or received the technology or intellectual property.

7. Is there any foreign business entity, offshore entity, or entity outside the United States related to the applicant or recipient? □ Yes □ No

• • If yes, disclose the entity name, relationship type (i.e., foreign business entity, offshore entity, entity outside the United States), description of the relationship to the applicant or recipient, and entity address and country.

8. Does the applicant or recipient have an owner, officer, or covered individual that has a foreign affiliation with a research institution located in a foreign country of concern? □ Yes □ No

• • If yes, disclose the first and last name of each owner, officer, or covered individual that has a foreign affiliation with a foreign country of concern, identify their role (i.e., owner, officer, or covered individual), and the name of the foreign research institution and the foreign country of concern where it is located.

Implications for SBIR Applicants

These changes mean that companies must be vigilant in assessing their foreign affiliations. The NIH, CDC, and FDA will only provide a limited opportunity for applicants to address or rectify identified risks prior to the decision, making it crucial to be proactive in compliance. A fundable score may no longer guarantee funding if foreign involvement is flagged as a concern.

Moving Forward

For companies applying for SBIR or STTR funding, it’s essential to conduct a thorough internal review of all foreign relationships and affiliations. Consider whether any partnerships or associations might pose a risk under the new guidelines. While the specific details of each assessment are not disclosed, maintaining transparency and adhering strictly to disclosure requirements is vital.

As we continue to navigate these new requirements, staying informed and prepared will be key.

The evolving geopolitical landscape and its impact on funding decisions remind us that securing grants is not just about scientific merit but also about adhering to national security concerns.

Keeping abreast of policy changes and understanding their implications can help ensure a smoother funding process and avoid unexpected setbacks.

To discuss this piece or for more information and to explore potential collaborations, contact us at Grant Engine by filling out a consultation request form, contacting us via greatscience@grantengine.com or by giving us a call at (650) 937-9164.