United States General Accoimtmg Office / '5^ZZ W GAO Testimony Before the Subcommittee on Technology Committee on Science House of Representatives For Release on Deliveiy Eiqpected at 10 a.m. EDT FEDERAL RESEARCH Thursday September 4,1997 Observations on the Small Business Technology Transfer Prograin Statement by Susan Kladiva Acting Associate Director Energy, Resources, and Science Issues Resources, Commumty, and Economic Development Division GAO/T-RCED-97-230 Madam Chair and Members ofthe Subcommittee: We are pleased to he here today to discuss the results of our review of the first-year ofthe Small Business Technology Transfer (STTR) Program's implementation.^ In addition, we wiU be discussing our work in response to the Subcommittee's recent request for information on companies that have received multiple awards tmder the STTR Program and the Small Business Innovation Research (sem) Program. The two programs share similar goals, which emphasize the benefits of technological innovation and the ability of small businesses to transform the results of researdi and development (S&D) into new products. The STTR Program differsfix)mthe SBIR Program primarily in requiring a company to form a partnership with a nonprofit research institution. The Small Business Research and Development Enhancement Act of 1992 established the STTR Program and authorized it for 3 years, beginning infiscalyear 1994. The program was subsequently extended throughfiscalyear 1997. Under the same 1992 legislation, the Congress also reauthorized the sem Program, which was authorized in 1982 and served as the model for the STTR Program. In our report on the STTR program, we discussed, among other issues, the effect of STTR on SBIR and other agency R&D and the need for the STTR Program. While we have not updated our work since 1996, our report provided a concise picture ofthe program's basic issues. For our work on multiple awardees, we obtained information on the profiles of companies that had received STTR and/or SBIR awards sincefiscalyear 1990. We obtained this information from the Small Business Administration (SBA) and the agencies participating in both the STTR and SBIR prograins. Our discussion today highlights the message of our 1996 report and information on the multiple awardees. In summaiy. Madam Chair: We reported that while agency ofBcials expressed differing views on the effect of and the need for the STTR Program, all of the officials felt that the program was not competing for quality proposals with the SBIR Program or reducing the quality of the agencies' R&D in general in the first year of the program. Furthermore, some officials noted potentially beneficial effects, such as greater collaboration between small businesses and research institutions in the SBIR Program. The similarity ofthe two programs, however, raises three questions that are relevant in evaluating the need for the STTR Program: (1) Is the technology originating primarily in the 'Federal Research: Preliminary Information on the Small Business Terhnolog.v Transfer Program fGAO/BCED-96-19. Jan. 24, 1996) PaRc I (VA*),T-);ri;r>-!»7 :::!0 research institution as envisioned in the rationale for the program or is it originating in the small business? (2) Is the mandatoiy collaboration between the small business and the research institution effective in transferring the technology to the marketplace? (3) Can the SBIR Program accomplish the same objective without the collaboration required by the STTR Program? • Sincefiscalyear 1990, approximately 6,500 companies have received STTR and/or SBIR awards from thefiveagencies that participate in both programs. Ofthese con^anies, 383 companies, or about 6 percent, have received a total of 10 or mor? STTR and/or SBIR awards. While two conq>anies have received over 300 STTR and/or SBIR awards each, agency officials reported that many other recent SBIR awardees had never received an awardfiromtheir agencies. However, all of the companies that have received 3 or more STTR awards have also received 5 or more SBIR awards. Generally, the agencies have not collected information on the numl>er of employees and the annual revenue ofthe companies that receive awards and have limited information on the commercialization resulting fipom these programs. It is important to note, however, that it may be too early for companies that have received STTR awards to have achieved success in commercializing the results of the STTR work. J^a c\c0rn\ in d ^ ® objectives of the STTR Program are to (1) stimulate technological ^ innovation, (2) use small businesses to meet federal R&D needs, and (3) increase the private sector's commercialization of innovation derived from federal R&D. The STTR Program is closely modeled on the SBIR Program, which was established in 1982. The two programs share similar goals and other basic features, including participation by many of the same agencies, the use of a percentage of the extemal budget for funding, and a three-phase approach. To be eligible for an STTR or SBIR award, SBA'S policy directives state that a small business must employ 500 or fewer employees (including employees of subsidiaries and afGliates). Five agencies—^the Department of Defense (DOD); the National Aeronautics and Space Administration (NASA); the Department ofHealth and Human Services and, particularly, its National Institutes ofHealth (NIH); the Department of Energy (DOE); and the National Science Foundation (NSF)—^participate in the STTR Program. Thesefiveagencies also participate in the SBIR Program.- Each agency manages its own -The other five SBIR agencies are the United States Department of Agriculture. Department of Conunerce. Department of Education. Department of Transportation, and En\nronniental Protection Agencv Pai^-;: (; \ O A i ' - i ; r i - | > ;•? 2:to programs, while SBA plays a central administrative role and Issues policy directives and annual reports for each program. In establishing the STTR Program, the legislation required each agency with an extemal R&D budget in excess of $1 billion to set aside not less than 0.05 percent ofthat budget infiscal,year 1994, not less than 0.1 percent in fiscal year 1995, and not less than 0.15 percent in fiscal year 1996 for the STTR Program. The percentage remained at 0.15 when tiie program was extended through fiscal year 1997. These s^encies expended about $34 million in fiscal year 1995 and $62 million in fiscal year 1996 and plan to spend about $62 million again in fiscal year 1997. The legislation establishing the SBIR Program required each agency with an external R&D budget in excess of $100 nullion to set aside a certain percentage ofthis amount for the program. The percentage was increased incrementally until it reached 1.25 percent in 1986. The program's 1992 reauthorization legislation increased funding to not less than 1.5 percent for fiscal years 1993 and 1994, not less than 2 percent for fiscal years 1995 and 1996, and not less than 2.5 percent for fiscal year 1997 and thereafter. Funding for fiscal year 1997 vriU be nearly $1 billion. STTR and SBIR funding is provided in two phases. Phase I is intended to detennine the scientific and technical merit and feasibility of ideas; it generally lasts about 1 year for STTR and 6 months for SBIR. Phase U further develops the proposed ideas and generally lasts about 2 years. The 1992 reauthorization set the general limits for STTR awards at $100,000 and $500,000, respectively. It also directed SBA to set the general limits on the size of SBIR phase I and n awards at $100,000 and $750,000, respectively, although awards may be for less than these amounts. A third phase for STTR and SBIR projects, where appropriate, involves the continuation or coinmercial application ofthe R&D without STTR or SBIR funds. Although the two programs have many points in common, they differ in one important resf ct. To be eligible for an STTR award, a small business must collaborate with a nonprofit research institution such as a imiversity, a federally funded research and development center, or other entity. This collaboration is permitted under the SBIR program but is not mandatoiy. This special STTR requirement, according to a 1992 House of Representatives report,^ was to provide a more effective mechanism for transferring new knowledge from research institutions to industry. 'H.R. Rep. No. .554. 102d Cong., 2d Sess.. pt. 1 (1992). Tne report accompanied H.R. 4400. a predecesst to the bill (S. 2941) that was enacted. Cif;.' :i (^VoT-lM i:If fl7 Agency officials expressed differing \iews on the effect of STTR on SBIR and Agencies' Views other agency R&D. For example, SBA officials contended that STTR was too Differed on the Effect small and too new a program to have any real effect on SBIR or on the of and Need for the broader range of agency research at the time of our report At the time of our review, the officials pointed out that the program represented only STTR Program 0.05 percent of each agency's external R&D budget during its first year and that it was only 1 year old. In contrast to the view that STTR'S effect was very limited, the manager of the Anny's STTR Program said that STTR was influencing SBIR in a beneficial way. In his opinion, STTR is becoming known through hational conferences and other means. Furthermore, he said that small businesses are realizing that they have more credibility and chance of winning an award by collaborating with a university or other research institution. He believes that the STTR Program has also led to more collaboration in SBIR. In general, according to the Program Manager, STTR is a promising program that may be as successful as the SBIR Program. The similarity of the two programs, however, raises a broader issue about the need for the STIR Program. In the 1992 House report, the Committee on Small Business provi Jed two basic arguments in favor ofthe program. First, the report stated that the program addresses a core problem in U.S. econoinic competitiveness—^the inability to translate the nation's worldwide leadership in science and engineering into technology and commercial applications that will benefit the economy. Second, the report stated that, although SBIR has tumed out to be remarkably effective at commercializing ideas in the small business commimity, it is less effective at fostering the commercialization of ideas that originate in universities, federal laboratories, and nonprofit research institutions—a, goal of STTR. The rationale for the STTR Program, which points to certain weaknesses in SBIR and potential strengths in STTR, suggests three questions that are relevant in evaluating the need for the program. First, is the technology originating in the research institution as envisioned in the rationale for the program or is it originating in the small business? The technology may originate in the research institution, the small business, or a combination ofthe two. Under the STTR Program, the assumption is that the research institution will be the primary originator of the new concept. However, data to determine the extent to which research institutions are providing the technologies were not available. Neither SBA nor the agencies had collected this information. The relative roles of the VMif I ( ; A < ) / T - I ; ' : I ' ; ! > :»7-i:::ii research institution and the smaU business as the source ofthe technology bear directiy on the need fof the STTR Program. If a high percentage of the ideas are originating with small businesses rather than with research institutions, this would raise questions about the need for the program. On the other hand, if a high percent£^e of ideas are originating with research institutions, this would suggest that the program was achieving the first step in moving ideasfromresearch institutions to small businesses. Second, ifthe program is effective in moving ideasfromresearch institutions to small businesses, then the next logical question is whether their coUaboration is effective in moving the ideas to the marketplace. This question can be approachedfromtwo directions: (1) short-term views of how well the collaboration is working in general and (2) long-term data on actual commercialization. Infoimation on how well the coUadsoration was working was not available at thetimeof our report. Infonnation on actual coinmercial outcomes will require a greater amount oftime before it can be obtained. GeneraUy, 5 to 9 years are needed totiunan initial concept into a marketable product. Third, because one important difference between the two programs is that the STTR Program makes a smaU business/research institution collaboration mandatory, the foUowing question arises: Can the SBIR Program accomplish the objective of transfening technology from research institutions to the private sector without mandatoiy collaboration? The rationale for the STTR Program tends to assume that such collaborations were relatively rare in the SBIR Program. However, HiH's Program Manager told us that, in an SBIR survey undertaken by NIH several years ago, collaboration between smaU businesses and univiersities was already evident in weU over half of NIH'S SBIR projects. By contrast, the manager of Army's prograins beUeved that STTR'S unpact wiU be greater in the Army than in agencies such as NIH because the Army has had a lesser degree of coUaboration with universities and other research institutions in the past. Given the apparent variation from one agency to another and the lack ofcurrent data, no definite conclusion can be drawn at present conceming the need for STTR in forging new coUaborations. \-:if;t :'> i;,io/!M><'l::!!''«7- Sincefiscalyear 1990,383 companies have received a total of 10 or more Profile Data on STTR and/or SBIR awards from the five agencies that participate in both of Companies That Have the award programs. Two companies have received over 300 STTR and/or Received Multiple SBIR awards each, and another eight companies have received over 100 awards each from both of the prograins. Approximately one-third ofthe STTR and/or SBIR companies that have received STTR awards have also received SBIR awards Awards sincefiscalyear 1990. In addition, aU ofthe companies that have received three or more STTR awards have also receivedfiveor more SBIR awards. On the other hand, many companies have received only a few awards. For example, DOD reported that from 1983 through 1995,61 percent ofits phase n SBIR awardees received only one phase n award from DOD, and 92 percent ofits phase n SBIR awardees receivedfiveor fewer phase n awards from DOD. NSF and DOE reported that almost 25 percent of recent SBIR awardees had never received an award from these agencies before. The Program Manager for the SBIR and STTR programs at NASA reported that multiple awardees have been a smaU proportion of the overaU set 6f award winners. Generally, the agencies have not coUected information on the number of employees or the annual revenue ofthe companies that have received STTR and/or SBIR awards. However, in a survey ofthe companies that have received DOD phase II SBIR awards prior tofiscalyear 1993, DOD obtained this infoimation from some ofthe respondents who received the most phase n awards. Of the 29 companies responding to a question on the company's size, the range wasfiromas few as 7 employees to over 500 employees.^ Annual revenues also varied for the 17 compaiues that reported their annual revenue for 1996. Ofthese, 11 companies reported revenues of between $5 miUion and $19.99 miUion. Four companies reported annual revenues of over $20 miUion, and the remainder reported revenues of under $5 miUion. Limited infonnation is avaUable on the commercialization success ofthe companies that have received STTR and/or SBIR awards. For one thing, it may be too early for companies that have received STTR awards to have achieved success in commercializing the results of the STTR work because it can take many years for a research project to achieve results. However, various studies have reported mixed results on the commercialization success of companies that have received multiple SBIR awards. In 1992, we reported that a comparison of frequent winners—^those receivingfiveor 'Three companies reported that they currently have over 500 employees; however, at the time they roceived phase !1 SBIR awards from DOD. these companies had SOO or lower employees. l':)i;c ti <..\o/;;-),'.< ' i - j t - n : more SBIR phase n awards—^with lessfrequentwinners showed that, in general,frequentwinners were achieving lower levels oftotal sales per project.^ In addition,frequentwinners had obtained substantially less additional developmental fimding per projectfromthe private sector than companies with one to four awards. A recent analysis by DOD confinns our finding. SpecificaUy, survey results indicate that companies that had received nine or more phase n awards were less successful in commercializing the results of their research than companies that had received fewer thanfiveawards. The reasons for this remain unclear, DOD has noted, however, that there are some individual exceptions. A few frequent award winners have been successful in commercializing the results oftheir research. DOE, on the other hand, stated that there does not appear to be a relationship between the number of DOE phase n SBIR awards received by a company and the company's success in commercializing the results ofits research, DOE'S approach for evaluating commercialization success'is to queiy companies about the products that they have developed, DOE asks SBIR awardees which SBIR projects contributed to the development ofa particular product. Using this measure of commercialization success, DOE has found that companies that have received more than ten phase n SBIR awardsfromDOE have received approxiinately the same amount of phase m funding on the average as companies that have received less than five awards, NASA reported that it has incomplete information on companies' commercialization success but stated that avaUable data indicate that commercialization rates are about the same for multiple awardees as they are for companies that have received fewer awards. This concludes my statement. I would be happy to respond to any questions that you or the Members ofthe Subcommittee may have. "'Federal Research: Small Business Innovation Research Shows Success but Can Be Strengthened (GAO/RCED-92-37. March 30, 1992). (MIIIH;) P.-iMo 7 <.;A<V1-|;(:|':I)'t7-2:50 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 qredit 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 37050 Washington, DC 20013 or visit: Room HOC 700 4th St. NW (comer of 4th and G Sts. NW) U.S. Greneral Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any listfiromthe past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. For information on how to access GAO reports on the INTERNET, send an e-mail message with "info" in the body to: email@example.com .gov or visit GAO's World Wide Web Home Page at: http:/Arww.gao.gov
Federal Research: Observations on the Small Business Technology Transfer Program
Published by the Government Accountability Office on 1997-09-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)