Summary

Created in 1982 through the Small Business Innovation Development Act, the Small Business Innovation Research (SBIR) program remains the nation’s single largest innovation program for small business. The SBIR program offers competitive awards to support the development and commercialization of innovative technologies by small private-sector businesses. At the same time, the program provides government agencies with technical and scientific solutions that address their different missions.

Adopting several recommendations from a National Research Council (NRC) study of the SBIR program, Congress reauthorized the program in December 2011 for a further 6 years. In addition, Congress called for further studies by the NRC. In turn, the Department of Defense (DoD) Office of Small Business requested the NRC to provide a subsequent round of analysis, focused on operational questions with a view to identifying further improvements in the program.

This study therefore seeks to understand how the DoD SBIR program could work better in addressing the congressional objectives for the SBIR program to stimulate technological innovation, use small businesses to meet federal R&D needs, foster and encourage the participation of socially and economically disadvantaged small businesses, and increase the private sector commercialization of innovations derived from federal R&D. Drawing on the methodology developed in its previous study, an ad hoc NRC committee issued a revised survey of SBIR companies, revisited some case studies and developed new ones, and interviewed agency managers and other stakeholders to provide a second snapshot of the program’s progress toward achieving its legislative goals.

It is important to note at the outset that this volume—and this study—does not seek to provide a comprehensive review of the value of the SBIR program, in particular measured against other possible alternative uses of Federal funding. This is beyond our scope. Our work is focused on assessing the extent to which the SBIR program at DoD has met the Congressional objectives set for the program, to determine in particular whether recent

initiatives have improved program outcomes, and to provide recommendations for improving the program further.

KEY FINDINGS

The Committee’s findings are based on their collective judgment, informed by survey results, case studies of selected firms, discussions with agency managers, and other information complied for this study. Based on this research, the Committee finds that the DoD SBIR program is meeting three of its four legislative and mission-related goals. DoD has failed to meet the important congressional objective of increasing involvement of woman- and minority-owned small businesses in developing and commercializing new technologies through the SBIR program. Key findings with regard to the SBIR program’s legislative goals are highlighted and cross referenced below. Chapter 7 lists the committee findings in full.

SBIR projects at DoD commercialize at a substantial rate. (Finding I-A) With regard to commercialization, projects funded by the SBIR program are reaching the market at, what is in the Committee’s judgment, an appropriate rate, and are also attracting substantial amounts of follow-on investment, which in many cases is a necessary next step toward commercialization.

• The percentage of Phase II projects reporting sales continues to be greater than 45 percent, based on responses to the NRC Survey.
• Data from the DoD commercialization database suggest that over time about 70 percent of Phase II projects at DoD reach the market.

SBIR projects at DoD are in broad alignment with the agency’s mission needs. (Finding II-A)

• There is substantial evidence that outputs from the program are taken up by federal agencies and in particular by DoD and by its primes.

Current participation of women and other under-represented groups in the SBIR program is low and not increasing. (Finding III-A)

• During the study period, approximately 15 percent of awards went to woman-owned small businesses (WOSB) and 7 percent to minority-owned small businesses (MOSB).
• The NRC survey indicated that black- and Hispanic-owned small businesses are themselves a very small share of MOSB overall. Black-owned small businesses accounted for approximately 0.5 percent of all respondents; Hispanic-owned firms, about 1 percent.

• DoD has not made sustained efforts to “foster and encourage” the participation of woman- and minority-owned small businesses.

The SBIR program at DoD supports the development and adoption of technological innovations. (Finding IV-A, B)

• Selection of topics and individual projects for funding maintains a strong focus on developing innovative technologies.
• Data from the survey for linkages with universities, including use of faculty as Principal Investigators (PIs), use of graduate students as researchers, licensing of technology from universities, and use of a university as a subcontractor, all increased from the 2005 survey, suggesting growing university linkages with the DoD SBIR program.

KEY RECOMMENDATIONS

The committee’s key recommendations by thematic area are highlighted and cross-referenced below.

Encouraging Commercialization

• Encourage Prime Contractors: DoD should consider experimenting with different kinds of incentives to encourage primes to work more effectively—and more often—with SBIR firms to commercialize new technologies. (Recommendations I-A, I-B)
• Brief PEOs: DoD should use new administrative funding in part to develop better briefing materials for PEOs and PCOs. DoD should consider developing a briefing program for all PEOs and PCOs, and should in particular focus for new PEOs and PCOs. (Recommendation I-A)
• Financial Incentives: DoD should encourage its components to experiment with financial incentives for the adoption of SBIR technologies. Even where financial incentives are not available, DoD should consider encouraging components to add explicit targets to prime contracts, in the same way that targets for the participation of small businesses more generally have been added to some contracts. (Recommendation I-C)

Addressing Under-Represented Populations

• No Quotas: DoD should not develop quotas for the inclusion of selected populations into the SBIR program. Such an approach is not necessary to meet Congressional intent and is likely to reduce program effectiveness. (Recommendation II-A)

• Outreach and Education: DoD should develop an outreach and education program focused on expanding participation of underrepresented populations. (Recommendation II-C)
• Tracking and Metrics: The DoD Office of Small Business (OSB) should improve tracking and metrics against which to benchmark the activities of components in relation to this Congressional objective. (Recommendation II-C)

Improving Tracking, Data Collection, and Adoption of Best Practices

• Alignment: DoD should address the need for better alignment of data collection, agreed metrics, and utilization of effective evaluation and assessment tools to guide program management. (Recommendation III-A)
• Annual Report: DoD should provide a single, more comprehensive annual report that could —after appropriate consultations—be used to satisfy the reporting requirements of numerous Congressional sponsors. (Recommendation III-A)
• Data Accuracy: DoD should improve the accuracy of data recorded in the Federal Procurement Data System (FPDS). (Recommendation III-B)

Streamlining Program Management and Agency Mission Objectives

• Streamline Guidance: DoD should revise guidance at the Small Business Administration (SBA), DoD, or component levels that impose unnecessary rigidity on program operations. (Recommendation IV-A)
• Maintain TPOC Continuity: DoD should identify ways to ensure that the knowledge of and enthusiasm of sponsoring Technical Points of Contact (TPOC) is not lost to the project. DoD should consider ways to support ongoing engagement by TPOCs in projects after they have formally handed them on at the end of a rotation. (Recommendation IV-B)
• Protect Data Rights: DoD should work with SBA to explore mechanisms that more effectively protect SBIR data rights. (Recommendation IV-C)
• Disseminating Best Practices: DoD should develop a process for tracking experimentation within the SBIR program. Furthermore, DoD needs to focus attention on the development of a comprehensive toolset of mechanisms for transferring both formal and informal knowledge about best practices. (Recommendation IV-D)

Improving Contracts and Audits

• Improve Audits: DoD should explore the development of less onerous and more effective auditing procedures for small businesses that can be completed in a timelier manner. (Recommendation V-A)
• Improve Contracting Practices: DoD should provide opportunities for small business concerns (SBC) to raise concerns about contracting practices at the component level. (Recommendation V-B)

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