Equipment purchases can create more questions than many SBIR/STTR awardees expect.

 

Compared with labor, subcontractors, and materials, equipment may seem straightforward. The company needs a piece of equipment to perform the work, the cost is in the budget, and the team wants to buy it.

 

But under a federal award, equipment purchases need careful review.

 

Awardees should understand whether the equipment was approved, when it can be purchased, how it supports the project, whether prior approval is needed, how it should be recorded, whether it should be capitalized, how it should be tracked, what records must be retained, and what happens to the equipment at closeout or after the project ends.

 

At Peter Witts CPA PC, we help SBIR/STTR companies review equipment cost support so purchases are tied to the approved budget, properly documented, coded correctly, and ready for reporting, reimbursement, closeout, or review.

 

Why Equipment Costs Need Careful Review

 

Equipment can raise accounting, allowability, documentation, and closeout questions.

 

A purchase may be technically useful, but that does not automatically mean it can be charged to the federal award.

 

Before spending, the company should be able to answer:

• Was equipment included in the approved budget?
• Is the equipment necessary for the approved project?
• Is it special-purpose or general-purpose equipment?
• Is prior approval required?
• Is the cost within the period of performance?
• Does the purchase follow agency instructions?
• Is pricing documentation available?
• Should the item be capitalized or expensed?
• How will the equipment be coded in the accounting system?
• Where will the equipment be located?
• Who will use it?
• How will the company track it?
• What happens to it after the award ends?

These questions should be addressed before the purchase is made.

 

Start With the Approved Budget

 

The approved budget is the first place to look.

 

Do not rely only on the proposal draft or an internal planning spreadsheet. The final award may have changed, reduced, removed, or restricted equipment costs.

 

Review:

• Was equipment included in the approved budget?
• What specific item was approved?
• What cost was approved?
• Was the item listed under equipment, supplies, other direct costs, or another category?
• Was pricing support submitted?
• Was the equipment tied to a specific task or milestone?
• Were any restrictions included in the award terms?
• Was prior approval required before purchase?

If the equipment was not included in the approved budget, or if the item differs materially from what was approved, review the award terms before spending.

 

Understand the Difference Between Equipment and Supplies

 

Not every purchase is equipment.

 

Some items may be supplies, materials, computing devices, tools, or general operating costs depending on the item, cost, use, and the organization’s capitalization policy.

 

Uniform Guidance generally defines equipment as tangible personal property with a useful life of more than one year and a per-unit acquisition cost that meets or exceeds the capitalization threshold. The current Uniform Guidance equipment threshold is commonly tied to $10,000 unless the organization uses a lower capitalization level.

 

That distinction matters because equipment can trigger additional approval, tracking, use, and disposition requirements.

 

Before coding a purchase, ask:

• What is the item?
• What is the per-unit cost?
• What is the useful life?
• What is the company’s capitalization policy?
• Is it a material or supply?
• Is it a computing device?
• Is it special-purpose equipment?
• Is it general-purpose equipment?
• Does the award define or restrict the category?

The classification should be reviewed before the cost is charged to the award.

 

Special-Purpose vs. General-Purpose Equipment

 

Equipment classification also matters.

 

Special-purpose equipment is typically used only for research, scientific, technical, medical, or other specialized work. General-purpose equipment is more broadly useful for ordinary business operations.

 

A specialized testing instrument needed to perform approved R&D may be easier to support than routine office furniture, general office equipment, or general business technology.

SBIR.gov notes that routine furniture and equipment are generally not treated as eligible direct costs in SBIR/STTR projects.

 

Before purchasing equipment, consider:

• Is the item necessary for the approved technical work?
• Is it specialized for the project?
• Can it be used broadly in the business?
• Was it specifically included in the approved budget?
• Does the agency require prior written approval?
• Is there a less costly alternative, such as rental, lease, or service purchase?

This review helps avoid charging general business costs to the award.

 

Know When Prior Approval May Be Required

 

Prior approval is one of the biggest equipment-related risks.

 

2 CFR 200.439 states that capital expenditures for general-purpose equipment are allowable as direct costs only with prior written approval from the federal agency or pass-through entity. It also states that capital expenditures for special-purpose equipment with a unit cost of $10,000 or more are allowable as direct costs when the federal agency or pass-through entity gives prior written approval.

 

NIH prior approval guidance also identifies the purchase of a unit of equipment exceeding $25,000 as an item requiring prior approval.

 

Because agency rules and award terms can vary, awardees should review the specific Notice of Award, contract, solicitation, and agency instructions before purchasing equipment.

 

Prior approval may be needed when:

• Equipment was not in the approved budget
• The item differs from what was approved
• The cost exceeds agency thresholds
• The purchase changes project scope
• General-purpose equipment is being charged directly
• Equipment will be located at a partner organization
• Equipment will be used across multiple projects
• Equipment is purchased near the end of the award
• The award terms specifically require approval

When in doubt, document the question and confirm before spending.

 

Review Purchase Timing

 

Timing matters.

 

Equipment should be purchased when it is needed for the approved project, within the award period, and early enough to support the work.

 

A purchase made too late in the award period may raise questions if the equipment was not used meaningfully for the project.

 

Before buying equipment, ask:

• Is the purchase within the period of performance?
• Is the equipment needed now?
• Which project task or milestone requires it?
• Will the equipment be delivered in time to support the work?
• Will it be used substantially during the award?
• Is the purchase near the end of the project?
• Would rental, leasing, or service access be more appropriate?
• Does the agency need to approve the timing?

Equipment timing should be tied to project need, not simply remaining budget.

 

Connect Equipment to Project Use

 

The company should document how the equipment supports the approved work.

 

A strong project-use explanation may include:

• The technical task supported
• The milestone supported
• Why the equipment is necessary
• Why existing equipment is not sufficient
• How often it will be used
• Who will use it
• Where it will be located
• Whether it will support only the award or multiple activities
• Whether the item was included in the budget justification
• Whether the purchase affects the technical approach

This documentation should be created before the purchase, not reconstructed at closeout.

 

Obtain Pricing Documentation

 

Pricing documentation helps support reasonableness.

 

NSF SBIR/STTR budget guidance states that budget justifications should include pricing documentation, such as quotes, invoices, online price lists, or past purchase orders, for each budgeted piece of equipment.

 

Before purchasing equipment, retain:

• Vendor quote
• Online price listing
• Prior purchase order, if applicable
• Comparison quotes, if available
• Sole-source justification, if needed
• Purchase approval
• Budget reference
• Project purpose note

The documentation should show that the cost was reasonable and tied to the award.

 

Follow Internal Purchasing Procedures

 

Equipment purchases should follow the company’s purchasing process.

 

Even small companies should have basic procedures for significant purchases.

 

A practical process may include:

• Written purchase request
• Project purpose explanation
• Budget review
• Prior approval review
• Quote or pricing documentation
• Leadership approval
• Purchase order, if used
• Receipt of equipment
• Invoice review
• Payment record
• Accounting entry
• Asset record update

The process does not need to be overly complex, but it should be consistent and documented.

 

Capitalization Policy Matters

 

The company should follow its capitalization policy when recording equipment.

 

A capitalization policy helps determine whether a purchase is recorded as an asset and depreciated, or expensed as a supply or other cost.

 

Review:

• Capitalization threshold
• Useful life
• Asset class
• Depreciation method
• Accounting treatment
• Tax treatment
• Federal award treatment
• Agency instructions
• General ledger coding
• Fixed asset records

NSF SBIR/STTR guidance says equipment should be budgeted consistently with the proposing organization’s capitalization policy.

 

The company should not change its treatment just to fit a proposal or award budget.

 

Record the Purchase Correctly

 

After purchase, the accounting entry should reflect the correct treatment.

 

Depending on the item and policy, the cost may be recorded as:

• Equipment asset
• Capitalized equipment
• Supplies
• Materials
• Other direct cost
• Lease or rental cost
• Depreciation
• Shared-use cost
• Non-award cost

The company should maintain a clear connection between the accounting entry, invoice, project code, budget category, and award support file.

 

If the item is used across multiple projects, the company should document how costs are allocated.

 

Maintain Property Records

 

Equipment purchased under a federal award may require property records.

 

2 CFR 200.313 requires property records to include items such as a description of the property, serial number or other identification number, funding source, title holder, acquisition date, acquisition cost, federal participation percentage, location, use and condition, and disposition information when applicable.

 

A practical equipment record may include:

• Asset description
• Serial number
• Tag number
• Award number
• Funding source
• Purchase date
• Cost
• Vendor
• Invoice number
• Location
• User or custodian
• Condition
• Project use
• Federal participation percentage, if applicable
• Disposition status
• Disposal date and sale price, if applicable

This record should be updated when equipment moves, changes use, or is disposed of.

 

Track Location, Use, and Condition

 

Equipment tracking should continue after the purchase.

 

The company should know where the equipment is, who uses it, and whether it is still supporting the award.

 

Review:

• Physical location
• Assigned custodian
• User access
• Condition
• Maintenance needs
• Calibration records, if applicable
• Project use
• Shared use across projects
• Idle or unused status
• Movement to partner site
• Insurance or security needs

If equipment is located at a partner organization, the company should retain documentation showing access, responsibility, and use.

 

Manage Shared-Use Equipment Carefully

 

Some equipment may support both the SBIR/STTR award and other company activity.

 

That creates allocation and documentation questions.

 

Before charging shared-use equipment to the award, ask:

• Was shared use anticipated in the budget?
• How much use benefits the award?
• How much use benefits non-award activity?
• Is allocation required?
• Is prior approval needed?
• How will usage be tracked?
• Does the cost treatment match agency rules?
• Does the use affect indirect rates?

If equipment benefits multiple activities, the company should document the allocation method and support the award portion.

 

Watch for Equipment Purchased Near Closeout

 

Equipment purchased near the end of the award may raise questions.

 

If the item was bought late, the company should be able to show why it was still necessary for award performance.

 

Ask:

• Why was the equipment needed at this stage?
• Was it included in the approved budget?
• Was prior approval obtained, if required?
• Did the equipment arrive before the award ended?
• Was it used during the period of performance?
• How did it support final project tasks?
• Will it require property reporting or disposition instructions?
• Does the timing affect closeout?

Late purchases should be reviewed carefully before funds are spent.

 

Understand Disposition Requirements

 

Equipment management does not end when the project ends.

 

When equipment is no longer needed for the original project or program, disposition requirements may apply.

 

2 CFR 200.313 includes rules for use, management, and disposition of equipment acquired under a federal award, including requirements related to continued use, property records, and final disposition.

 

Before disposing of, selling, transferring, or repurposing equipment, review:

• Award terms
• Agency instructions
• Federal interest
• Property records
• Current fair market value, if needed
• Continued use requirements
• Disposition approval requirements
• Sale or transfer documentation
• Closeout reporting requirements

The company should not assume it can sell or transfer equipment without reviewing the award terms.

 

Review Agency-Specific Instructions

 

Equipment treatment can vary by agency and solicitation.

 

For example, NSF SBIR/STTR guidance states that equipment may not be purchased in the Phase I component of an NSF SBIR/STTR Fast Track grant but may be included in the Phase II component. It also requires pricing documentation for budgeted equipment.

 

NIH budget instructions require applicants to list each item of equipment exceeding $10,000 in the equipment section unless the organization has established a lower threshold.

This is why awardees should review the current solicitation, Notice of Award, agency policy, and award terms before purchasing equipment.

 

Do not assume that equipment treatment is the same across NIH, NSF, DOE, DoD, or other agencies.

 

Equipment Can Affect Budget-to-Actual Reporting

 

Equipment should be included in regular budget-to-actual review.

 

Each month, review:

• Approved equipment budget
• Equipment purchased
• Remaining equipment budget
• Purchase timing
• Capitalization treatment
• General ledger coding
• Property record status
• Prior approval documentation
• Shared-use allocation
• Closeout impact

If equipment spending differs from the approved budget, the company should review whether rebudgeting or agency approval is needed.

 

Equipment Documentation Should Support Drawdowns or Invoices

 

If equipment costs are included in a drawdown, invoice, voucher, or reimbursement request, the support file should be complete.

 

The file should connect:

• Approved budget
• Project purpose
• Prior approval, if applicable
• Quote or pricing documentation
• Purchase approval
• Invoice
• Proof of payment
• General ledger entry
• Project code
• Property record
• Budget-to-actual report

The company should be able to trace the equipment cost from the payment request back to the underlying documentation.

 

Equipment Closeout Checklist

 

Before award closeout, review:

• Equipment included in the approved budget
• Equipment actually purchased
• Invoices and payment records
• Prior approvals
• Property records
• Location and condition
• Project use
• Shared-use allocation
• Capitalization treatment
• Depreciation or expense treatment
• Remaining federal interest, if applicable
• Disposition instructions
• Final reporting requirements
• Closeout documentation

Equipment closeout should not be handled at the last minute.

 

Common Equipment Purchase Mistakes

 

SBIR/STTR companies often run into problems when equipment purchases are treated like ordinary business purchases.

 

Common mistakes include:

• Buying equipment before checking the approved budget
• Treating routine office equipment as a direct award cost
• Missing prior approval requirements
• Buying equipment too late in the award
• Not documenting project use
• Not keeping pricing support
• Not following capitalization policy
• Coding equipment incorrectly
• Failing to maintain property records
• Losing track of equipment location
• Using award-funded equipment mainly for non-award activity
• Ignoring disposition requirements
• Waiting until closeout to organize support

These issues are easier to prevent before the purchase is made.

 

Questions to Ask Before Buying Equipment

 

Before purchasing equipment under an SBIR/STTR award, ask:

• Was this item included in the approved budget?
• Is it necessary for the approved project?
• Is it special-purpose or general-purpose equipment?
• Is prior approval required?
• Is the purchase within the period of performance?
• Is the timing reasonable?
• Are quotes or pricing support available?
• Does the purchase follow company policy?
• Should the item be capitalized?
• How will the cost be coded?
• Where will the equipment be located?
• Who will use it?
• Will the equipment support only the award or other activities too?
• What property records are needed?
• What happens to the equipment after the award ends?

These questions help prevent equipment costs from becoming reporting or closeout problems.

 

Final Thoughts: Equipment Costs Need Support Before and After Purchase

 

Equipment purchases under SBIR/STTR awards should be reviewed before spending and tracked after purchase.

 

Awardees should confirm that equipment is approved, necessary for the project, purchased at the right time, properly documented, recorded according to the company’s capitalization policy, tracked through property records, and reviewed for closeout or disposition requirements.

 

At Peter Witts CPA PC, we help SBIR/STTR companies review equipment cost support as part of broader award accounting, budget-to-actual reporting, drawdown support, invoicing, property tracking, and closeout readiness.

 

Need Help Reviewing Equipment Cost Support?

 

If your company is preparing for or managing an SBIR/STTR award, Peter Witts CPA PC can help review your approved equipment budget, purchase documentation, project purpose support, prior approval questions, capitalization treatment, property records, drawdown or invoice support, and closeout requirements.

 

Backed by 35+ years of government contract accounting experience and first-hand DCAA knowledge, our team helps innovators organize award costs before they become reporting, billing, or closeout problems.

 

Schedule a strategic consultation with Peter Witts CPA PC to review equipment cost support.