Democratic View

September 21, 2001

Small Business Technology Transfer Program Reauthorization

Democratic Members of the Committee on Small Business are well aware of the important role that technology plays in not only developing small businesses, but in strengthening the nation's economy. This was well-proven by the technology boom of the 1990s, fueled by small businesses and, especially high-tech firms. The strength of the economy, for such an unprecedented time period, was directly related to the success of the high-tech sector.

The Small Business Technology Transfer (STTR) Program, and its sister program, the Small Business Innovation Research (SBIR) Program, both work to foster the development of small technology businesses. These businesses can, in turn, improve the economic stability of their towns and communities. Reauthorizing the STTR Program through fiscal year 2009, is an important step in growing these small high-tech firms.

This reauthorization legislation also increases the percentage of agency's extra-mural research budgets to be devoted to the STTR Program from .15 percent to .3 percent beginning in fiscal year 2004. This action doubles the amount of research that the government will be devoting to small firms.

By increasing the grant amount of Phase I awards from the current $500,000 to $750,000 as proposed in the bill, small businesses will have more funding with which to conduct their research, thereby increasing the likelihood that their research will result in useful items that will culminate with commercialization.

Additionally, language in the bill includes provisions that will assist with the assessment of the STTR program, by requiring the collection and maintaining of pertinent data, that can later be used to evaluate the program's strengths and weaknesses.

Further, agency outreach for the STTR program has traditionally been incorporated with that of the SBIR program at many agencies. There have been numerous conferences for the SBIR program over the years that focused on the SBIR program only. The mandate to implement an outreach program to research institutions and small businesses to increase participation in the program is a necessary and much needed enhancement.

Democratic Committee Members included three very important changes to encourage the growth of high-tech businesses. These changes include developing an STTR Program-wide model agreement, increasing awards to low-income areas, and tracking low income awards.

The STTR Program operates by small businesses forming partnerships with either research institutions, federally-funded research and development centers (FFRDCs), or non-profit organizations. This partnership then submits a proposal for necessary federal research requirements. The partnership is formalized with an agreement outlining the rights and responsibilities of each partner, and addressing the intellectual property rights and rights to carry out follow-on research, development or commercialization, if any, that are assigned to each partner.

It has come to the Committee's attention that each participating agency has a model agreement, and many universities and FFRDCs have model agreements. The result is an exercise in which the small business and its research partner must come to an agreement, and have that agreement parallel the agency's agreement. The scenario often occurs wherein a small business doing work for the same agency, but with multiple research partners, must have multiple agreements, none of which are standard. Ultimately, this results in time devoted to developing partnership agreements when that time would be more effectively used to actually conduct research.

Therefore, Committee Democrats have included language that requires the Small Business Administration (SBA) to go through a rule-making process to develop a single model agreement that can be acceptably used by all small businesses, agencies, and research partners. It is intended that this rule-making process involve commentary from affected agencies, small business owners, research institutions, and other interested parties. The resulting model agreement shall be used by all agencies as their model agreement so that small research firms can devote their time to that which they do best - research.

Secondly, Committee Democrats have included language in the STTR reauthorization bill to modify the Federal and State Technology Partnership (FAST) Program that was made part of the statute with the enactment of P.L. 106-554. This five-year temporary program was designed to promote the development of high-technology firms in states that have few SBIR awards, and states that have few awards in low income areas. Firms who participate in the STTR Program will also benefit from this Program.

Grants or loans under the FAST Program, may be given to companies to pay all or some of the cost of developing SBIR or STTR proposals. Outreach, financial support and technical assistance may be provided to establish a Mentoring Network will be developed within the FAST program to assist small businesses identified by FAST participants, SBIR agencies, the Administrator or other entities; a training program for individuals providing SBIR outreach and assistance at the state level; and to "encourage" commercialization of SBIR-funded technology.

There is a limit of one proposal for each state in the FAST program in any fiscal year. The matching requirements for FAST Program grants are as follows: Fifty cents private for each federal dollar for the 18 states that receive the fewest SBIR first phase awards. One dollar private for each federal dollar for the 16 states receiving the greatest number of SBIR first phase awards. For the rest of the states: 75 cents private for each federal dollar.

Language was included in this Program by House Democrats on the Committee on Small Business that allows a 50 cents private for each federal dollar for assistance directed to low-income areas - even if the state is a high-volume state as far as SBIR awards. We were concerned when this language was included, that it would not be implemented properly, and that not enough emphasis would be placed on this issue. This has become a reality in that the SBA did not include any reference to low-income area assistance under the FAST Program in its recent Policy Directive.

Therefore, at the insistence of Committee Democrats, language was included in the STTR reauthorization legislation to require that a separate evaluation criteria for FAST proposals be developed to ensure that these proposals address how they are going to increase technology in low income areas of states - areas that have been historically underutilized as far as the STTR and SBIR programs. It is the intent of the proposal that the SBA go through a rule-making process to determine the weight that this criteria should have compared to other criteria, and to determine the standards by which these proposals shall be evaluated.

Lastly, we included language in the STTR reauthorization to require that the SBA report to Congress, on an annual basis, on the number of SBIR and STTR awards made to small businesses located in HUBZones. These "Historically Underutilized Business" Zones are specifically defined as areas of high unemployment and low income. These locations have been out of the mainstream of economic growth that the nation has experienced over the past 10 years, and, as such, would benefit greatly from the economic strength that technology provides to a community. Further, tracking awards made to these businesses will assist in evaluating the success of the FAST Program.

From a program administration standpoint, we believe it is important to address the staffing needs of the Office of Technology within the SBA's Office of Government Contracting and Business Development. We also believe it is important to address the placement of the Office of Technology within the SBA's current organizational structure. The Office of Technology administers the SBIR and STTR Programs.

We are concerned that with a staff of six, with three employees being support personnel, the Office of Technology is approaching the point of critical under-staffing. This division manages and administers the two research and development programs, two outreach grant programs, the National Research Council study on the SBIR Program, the public/private database, submits annual reports for SBIR and STTR to Congress, conducts outreach for technology programs to the ten participating agencies and small businesses across the country, implements a program policy directive, and administers an internal initiative through Historically Black Colleges and Universities. With all of these functions and only three professional staff members, we believe that the success of the programs could be dooomed before all of the programs and initiatives are fully implemented.

We are also concerned with the fact that the Office of Technology is effectively buried within the Office of Government Contracting and Business Development, under the supervision of the Associate Administrator for the Office of Policy Planning and Liaison. The SBIR and STTR Programs do not have the same mission as the Office of Government Contracting and Business Development. The purpose of the Office of Government Contracting and Business Development is to ensure that small businesses receive their fair share of contracts with the Federal government. The SBIR and STTR Programs within the Office of Technology are in place to improve the capacity of small research and development companies, by ensuring that small firms receive Federal R&D projects.

The SBA, overall, has a scatter-shot approach, at best, to assisting small businesses with technology, and particularly electronic commerce. This is especially disturbing to Committee Democrats in light of a recent report by Forrester Research that predicted online sales will reach $3 trillion by 2003. SBA's electronic commerce initiatives include various memoranda of understanding with private companies to provide training, but no long-term strategic plan to increase the number of small businesses who have the capacity to take advantage of electronic commerce. Further, SBA appears to have no strategy whatsoever to encourage small businesses to improve their internal ordering mechanisms through business-to-business electronic commerce. There is no focal point for the existing electronic commerce-related initiatives other than directly within the Administrator's office.
Therefore, we believe it is more reasonable to expand the mission of the existing Office of Technology to include electronic commerce and other technology-related issues and place this Office under the direct supervision of the Administrator, than to have the Office of Technology report to the Office of Government Contracting and Business Development, and to have no office evaluating electronic commerce and business-to-business electronic commerce initiatives.

To conclude, Committee Democrats are committed to ensuring that small businesses across the country are able to grow and expand their technology capabilities. We know that not only do small businesses, in general, employ more than half of the non-farm workforce, but small businesses account for 38 percent of the private sector workforce in the high tech industry. We believe the STTR and SBIR Programs are critical to increasing the capacity of small business technology companies, and that these Programs should continue to be monitored and evaluated, and given the appropriate resources to ensure their continued success.