United States General Accounting Office GAO Report to Congressional Committees April 1997 FEDERAL RESEARCH DOD’s Small Business Innovation Research Program GAO/RCED-97-122 United States GAO General Accounting Office Washington, D.C. 20548 Resources, Community, and Economic Development Division B-275265 April 30, 1997 The Honorable Strom Thurmond Chairman The Honorable Carl Levin Ranking Minority Member Committee on Armed Services United States Senate The Honorable Floyd D. Spence Chairman The Honorable Ronald V. Dellums Ranking Minority Member Committee on National Security House of Representatives The Department of Defense (DOD) and certain other federal agencies are required to set aside a certain percentage of their research and development (R&D) budgets for the Small Business Innovation Research (SBIR) Program. In fiscal year 1997, this will amount to about $1 billion governmentwide, of which about $500 million is expected to be funded by DOD. The National Defense Authorization Act for Fiscal Year 1997 required GAO to review certain aspects of DOD’s SBIR program and report the results to the Congress.1 To meet these objectives and by agreement with your offices, we reviewed DOD’s policies and procedures to determine if they establish processes that help ensure that (1) quality research is performed under the funding agreements, (2) competitive procedures are being followed, and (3) technologies developed through the program are likely to be used in military programs or projects. DOD has implemented policies and procedures and has established an Results in Brief organizational structure to manage its SBIR program. On the basis of these factors and the results of DOD’s research under the program to date, we believe that processes are in place to help ensure that quality research is being conducted, that competitive procedures are being followed, and that the resulting products and processes are being used in military projects and programs. 1 P.L. 104-201, Sept. 23, 1996. Page 1 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 The Small Business Innovation Development Act of 1982 was intended to Background (1) stimulate technological innovation, (2) use small businesses to meet federal R&D needs, (3) foster participation by minority and disadvantaged persons in technological innovation, and (4) increase private sector commercialization of innovations derived from federal R&D.2 The act required that agencies with “extramural” (external) R&D budgets of $100 million or more set aside a certain percentage of those budgets for the SBIR program. Specifically, the act required that these agencies set aside not less than 0.2 percent of their extramural R&D budgets and provided for annual increases up to a ceiling of not less than 1.25 percent of their budgets. The act provided for a three-phased program: Phase I to determine the scientific and technical merit and feasibility of a proposed research idea; phase II to further develop the idea, taking into consideration such things as the commercialization potential; and phase III to commercialize the resulting product or process with no further SBIR funding. The act gave the Small Business Administration (SBA) responsibility for (1) issuing guidance to the participating agencies on managing their SBIR programs, (2) surveying and monitoring the agencies’ programs, and (3) reporting at least annually to pertinent committees of the Congress on the status of the programs and the results of the monitoring. SBA’s policy directive to the participating agencies recommended that each phase-I and phase-II proposal be funded at $50,000 or less and $500,000 or less, respectively. The Small Business Research and Development Enhancement Act of 1992 reauthorized the SBIR program through fiscal year 2000.3 The act emphasized the program’s goal of increasing private sector commercialization. The act provided for further incremental increases in SBIR funding up to not less than 2.5 percent of agencies’ extramural R&D budgets by fiscal year 1997. In addition, the act directed SBA to modify its policy directive to increase funding for phase-I and phase-II proposals to $100,000 and $750,000, respectively, with adjustments once every 5 years for inflation and changes in the program. Funding for DOD’s SBIR program since fiscal year 1992 is shown in figure 1. 2 P.L. 97-219, July 22, 1982. 3 P.L. 102-564, Oct. 28, 1992. Page 2 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 Figure 1: DOD’s SBIR Expenditures, Current-Year Dollars (i.e., Not Adjusted 600 Dollars in millions for Inflation) 520 500 445 453 400 385 336 300 241 200 100 0 92 93 94 95 96 ) ate 19 19 19 19 19 tim (es 97 19 Fiscal year Note: Percentage of extramural R&D budget—1992 (1.25), 1993-94 (1.5), 1995-96 (2.0), and 1997 (2.5). Following SBA’s guidance, DOD manages its program through its SBIR Ensuring Quality Program Manager in the Office of the Director, Small and Disadvantaged Research Business Utilization, which reports to the Under Secretary of Defense for Acquisition and Technology. There are eight participating military departments and defense agencies, referred to as “components.” The components include the Air Force; Army; Ballistic Missile Defense Organization; Defense Advanced Research Projects Agency; Office of the Director, Defense Research and Engineering; Defense Special Weapons Agency; Navy; and Special Operations Command. The components use the following criteria approved by the Under Secretary to develop their own prospective SBIR R&D solicitation topics. The topics are to • solicit R&D, not procurement; fall within one of DOD’s key technology areas; allow the performing company significant flexibility in formulating its approach to meeting the R&D requirement; include examples of possible Page 3 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 phase III “dual-use” applications;4 and not duplicate each other by soliciting identical or very similar sets of proposals. The components use their own procedures for evaluating and ranking their topics and then submit them to the DOD SBIR Program Manager. DOD has a formal process for reviewing the topics, resolving any areas of concern, and incorporating the approved topics into a DOD-wide solicitation for proposals from small businesses (see app. I). This process is done twice each year. The proposals are received and reviewed by the cognizant DOD components. Each component uses the following criteria by DOD for selecting research proposals. The reviewers are to consider the • soundness and technical merit of the proposed approach; potential for commercial (government or private sector) application and the expected benefits from commercialization; adequacy of the proposed effort for fulfilling requirements of the research topic; and qualifications of the proposed principal/key researchers, supporting staff, and consultants. Qualifications include the ability to perform the R&D and to commercialize the results. However, each component uses its own procedures for evaluating and ranking the proposals and for determining which proposals will be funded. The components provide oversight of the ongoing R&D. Measuring the value or quality of any R&D effort has always proven to be difficult. In a previous report, we used certain statistics to try to measure whether the quality of SBIR proposals governmentwide had kept pace with the program’s expansion.5 We looked at trends in the level of competition (the number of proposals submitted vs. the number funded) and the quality of competition (the number of proposals funded vs. the number deemed worthy of funding but not funded). These statistics indicated that (1) the level and quality of competition had kept pace with the increases in funding and (2) the level of research quality was being maintained. In reporting to the Congress on the quality of its SBIR research, DOD used the same statistics.6 4 Dual use means that the research product or process can be used in military projects or programs and can be used commercially. 5 Federal Research: Interim Report on the Small Business Innovation Research Program (GAO/RCED-95-59, Mar. 8, 1995). 6 Quality of Research Under the DOD Small Business Innovation Research (SBIR) Program, Office of the Under Secretary of Defense (Acquisition & Technology), May 30, 1996. Page 4 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 For this review, we updated these statistics through fiscal year 1996. The percentage of phase-I proposals that were funded (fig. 2) and the ratio of phase-I proposals that were funded to the worthy proposals not funded (fig. 3) have remained fairly constant. Figure 2: Percentage of Phase-I Proposals Funded 16 Percent 14.3 14 13.6 12.5 11.9 11.8 12 10 8 6 4 2 0 1992 1993 1994 1995 1996 Fiscal year Note: Percentage of extramural R&D budget—1992 (1.25), 1993-94 (1.5), and 1995-96 (2.0). Page 5 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 Figure 3: Phase-I Proposals Deemed Worthy of Funding—Funded Vs. Not 30 Percent Funded 26.0 25.4 25 21.7 21.4 20 15 14.3 13.6 12.5 11.8 10 5 0 1993 1994 1995 1996 Fiscal year Funded Not funded As additional potential measures of research quality, we also obtained available statistics on the percentage of phase-I proposals that went on to phase II (see app. II) and on the extent of commercialization of the results of the research. On the basis of the preliminary results of a survey by DOD, we determined that • about one-half of the respondents have had sales of a product, process, or service; average sales amount per project has been about $756,000; and about 52 percent of the total sales have been made to DOD or its prime contractors, about 35 percent to the private sector, and the remaining percent to other customers. These data suggest that quality projects are being funded, that there is adequate competition for the projects, and that the research results are being used in military projects and programs. Page 6 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 DOD has implemented procedures to help ensure that competition for Ensuring Full, Open research funding under the SBIR program is fair. The solicitations for Competition research proposals are published widely through trade publications, regularly established information outlets for DOD’s contracting, and the Internet. The solicitations are generally open to any individual or organization that qualifies as a small business. The solicitations specify the requirements that small businesses must meet to be eligible to apply. Furthermore, in their proposals, the small businesses must certify under penalty of law that they meet all of the requirements. The DOD Inspector General conducts investigations, as warranted, to ensure compliance with these requirements. To promote more competition for its research projects, DOD conducts three national SBIR conferences each year and participates in many state-organized conferences. These conferences are used to provide small businesses with information on R&D opportunities available to them and on how to submit research proposals or how to obtain technical assistance in developing proposals. Technical assistance is available from the Defense Technology Information Center through the mail, walk-in offices, and the Internet. DOD also has a prerelease program, whereby small businesses learn about upcoming research solicitations in advance so that they can contact the appropriate DOD component to get specific information. According to DOD, this results in higher-quality proposals. To better gauge the extent of competition, DOD’s solicitations now require small businesses to provide information on their prior SBIR proposals that have been funded. The DOD components have their own programs to encourage more competition. The components issue brochures and advertisements in trade journals, informing small businesses how to get detailed information on R&D opportunities and how to apply for them. Several factors help ensure that the research efforts under the SBIR Ensuring Military program have military applicability. The research topics are developed by Applicability the components’ technical organizations to support their missions, all of which are military-related. DOD’s guidance requires that the research topics address one of the Department’s key technology areas and that they have dual-use application.7 There is required linkage between the topics and military planning documents. Furthermore, the preliminary results of DOD’s recent survey on commercialization show that about one-half of the sales 7 For example, a primary success story of DOD’s SBIR program is the “SaviTag” system of tracking shipping containers. Combined military and commercial sales of this system were anticipated to be $30 million in 1996. Page 7 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program B-275265 from the program’s research efforts have been made to DOD or its prime contractors for use in military programs. We provided copies of a draft of this report to DOD for review and Agency Comments comment. We discussed the draft with DOD officials, including the SBIR Program Manager, who said that the Department concurs with the facts in the report. The manager also provided information to update certain statistics. That information has been incorporated into the final report. We interviewed officials in SBA, DOD, and the participating DOD Scope and components. We obtained and reviewed implementing instructions, Methodology guidelines, and other pertinent documents. However, we did not evaluate the effectiveness or implementation of DOD’s policies or procedures. Our verification was limited to reviewing statistics on the number of research proposals funded; the ratio of funded proposals to worthy but unfunded proposals; the number of phase-I proposals that go on to phase II; and the extent of commercialization of the research results. Our planned work—mandated by the Small Business Research and Development Enhancement Act of 1992—will examine in greater detail the management and implementation of the SBIR programs of all participating federal agencies, including DOD. We performed our review from January through March 1997 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense and the SBA Administrator. We will make copies available to others on request. If you have any questions or need additional information, please call me at (202) 512-3841. Major contributors to this report are listed in appendix III. Victor S. Rezendes Director, Energy, Resources, and Science Issues Page 8 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program Page 9 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program Appendix I The Department of Defense’s Topic Identification and Approval Process comment and clarification unresolved Component Component Component DOD Final Final Topic Topic Topic Review Review Decision Development Evaluation Ranking approve resubmittal Topic Solicitation Rejection Note: The Department of Defense’s (DOD) review is performed by the Office of the Director, Defense Research and Engineering, which interacts with the components to resolve any concerns. If the concerns cannot be resolved, the topic is submitted to the Integrated Review Committee for final review (this is a 1-year pilot program). The Committee makes its recommendation to the Director, Office of Small and Disadvantaged Business Utilization. The Director makes the final decision in consultation with the Director, Defense Research and Engineering. The review process (from DOD’s review to topic approval) takes about 6 weeks. Page 10 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program Appendix II Phase-I Proposals That Went on to Phase II, Fiscal Years 1983 Through 1996 Percent of phase-I proposals Phase-I proposals Phase-II that went on to funded proposals funded phase II Army 2,681 1,041 38.8 Air Force 3,865 1,448 37.5 Director, Defense 59 22 37.3 Research and Engineering Navy 3,190 1,005 31.5 Defense Special Weapons 248 70 28.2 Agency Defense Advanced 1,360 382 28.1 Research Projects Agency Ballistic Missile Defense 1,555 418 26.9 Organization Special Operations 30 7 23.3 Command Totals 12,988 4,393 33.8 Note: The Special Operations Command and the Director, Defense Research and Engineering, have been participating in the program since fiscal years 1993 and 1995, respectively. Page 11 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program Appendix III Major Contributors to This Report Allen Li Resources, Robin M. Nazzaro Community, and Katherine L. Hale Economic Michael F. Duffy John C. Johnson Development Division, Washington, D.C. Mindi G. Weisenbloom Office of the General Counsel (141014) Page 12 GAO/RCED-97-122 DOD’s Small Business Innovation Research Program Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Federal Research: DOD's Small Business Innovation Research Program
Published by the Government Accountability Office on 1997-04-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)