[Senate Hearing 113-469]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-469


                 SBIR/STTR: MEASURING THE EFFECTIVENESS
                       OF THE REAUTHORIZATION ACT
                    AND MAXIMIZING RESEARCH DOLLARS
                     TO AMERICA'S SMALL BUSINESSES

=======================================================================

                               ROUNDTABLE

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 18, 2013

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED THIRTEENTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                 JAMES E. RISCH, Idaho, Ranking Member
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     MARCO RUBIO, Florida
MARIA CANTWELL, Washington           RAND PAUL, Kentucky
MARK L. PRYOR, Arkansas              TIM SCOTT, South Caarolina
BENJAMIN L. CARDIN, Maryland         DEB FISCHER, Nebraska
JEANNE SHAHEEN, New Hampshire        MICHAEL B. ENZI, Wyoming
KAY R. HAGAN, North Carolina         RON JOHNSON, Wisconsin
HEIDI HEITKAMP, North Dakota         JEFFREY S. CHIESA, New Jersey
EDWARD J. MARKEY, Massachusetts
              Jonathan S. Hale, Democratic Staff Director
           Skiffington Holderness, Republican Staff Director
           
           
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana.     1
Risch, Hon. James E., a U.S. Senator from Idaho..................     3
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........    27

                           Witness Testimony

Savoie, Robert ``Bobby,'' CEO, Goecent, LLC, Metairie, LA........     3
Wessner, Charles, Director, Technology Innovation and 
  Entrepreneurship, National Academy of Sciences, Washington, DC.     4
Glover, Jere, Executive Director, Small Business Technology 
  Council, Washington, DC........................................     4
Rusco, Frank, Director, Natural Resources and Environment, U.S. 
  Government Accountability Office, Washington, DC...............     5
Jain, Mahendra K., Senior Vice President, Kentucky Science and 
  Technology Corporation, Lexington, KY..........................     5
Rinaldi, Chris, SBIR/STTR Program Administrator, Office of Small 
  Business Program, U.S. Department of Defense, Washington, DC...     5
Gudger, Andre, Director, Office of Small Business Program, U.S. 
  Department of Defense, Washington, DC..........................     5
Oliver, Manny, Director, SBIR/STTR Programs Office, U.S. 
  Department of Energy, Washington, DC...........................     6
Portnoy, Matthew, Director, Office of Extramural Programs, 
  National Institutes of Health, Bethesda, MD....................     6
Raghavan, Pravina, Deputy Associate Administrator, Office of 
  Investment and Innovation, U.S. Small Business Administration..     6
Sobolewski, Lisa, SBIR Program Director, U.S. Department of 
  Homeland Security, Washington, DC..............................     7
Houston, Jenny, Executive Vice President, Warwick Mills, New 
  Ipswich, NH....................................................     7
Green, Dave, President and CEO, Physical Sciences, Inc., Andover, 
  MA.............................................................     8

          Alphabetical Listing and Appendix Material Submitted

Chart titled ``FY2012 SBIR Awards by State''.....................    98
Chart titled ``STTR Increase over 6 Years''--differential from 
  0.3% base......................................................   100
Chart titled ``STTR Increase over 6 Years''--differential from 
  2.5% base......................................................   101
Department of Health and Human Services
    Information for the record...................................   116
Glover, Jere
    Testimony....................................................     4
    Biographical sketch..........................................    47
Green, Dave
    Testimony....................................................     8
    Biographical sketch..........................................    58
    Outline for SBIR/STTR Roundtable.............................   118
    Letter dated September 12, 2013, to Edsel Brown, Jr..........   120
Gudger, Andre
    Testimony....................................................     5
    Biographical sketch..........................................    51
Houston, Jenny
    Testimony....................................................     7
    Biographical sketch..........................................    57
H.R. 5667........................................................   184
Jain, Mahendra K.
    Testimony....................................................     5
    Biographical sketch..........................................    49
    Letter dated December 16, 2013, to Chair Landrieu............   106
Landrieu, Hon. Mary L.
    Opening statement............................................     1
    Responses to post-hearing questions from:
        Robert ``Bobby'' Savoie..................................    59
        Jere Glover..............................................    60
        Frank Rusco..............................................    62
        Mahendra K. Jain.........................................    66
        Andre Gudger.............................................    69
        Manny Oliver.............................................    75
        Matthew Portnoy..........................................    81
        Pravina Raghavan.........................................    86
        Lisa Sobolewski..........................................    92
        Dave Green...............................................    96
Map titled ``Geographic Distribution of SBIR Award Dollars--
  FY2012''.......................................................   102
Markey, Hon. Edward J.
    Prepared statement...........................................    38
Oliver, Manny
    Testimony....................................................     6
    Biographical sketch..........................................    52
    Letter dated December 16, 2013, to Lena Postanowicz 
      transmitting DOE information for the record................   103
Portnoy, Matthew
    Testimony....................................................     6
    Biographical sketch..........................................    53
Raghavan, Pravina
    Testimony....................................................     6
    Prepared statement...........................................    54
Risch, Hon. James E.
    Opening statement............................................     3
    Responses to post-hearing questions from Andre Gudger........    97
Rinaldi, Chris
    Testimony....................................................     5
    Biographical sketch..........................................    50
Rusco, Frank
    Testimony....................................................     5
    Biographical sketch..........................................    48
    Report titled ``Small Business Research Programs: Summary of 
      GAO Reports Since Programs' Reauthorization''..............   109
    Report titled ``Small Business Research Programs: Actions 
      Needed to Improve Compliance with Spending and Reporting 
      Requirements''.............................................   122
Shaheen, Hon. Jeanne
    Opening statement............................................    27
Sobolewski, Lisa
    Testimony....................................................     7
    Prepared statement...........................................
Savoie, Robert ``Bobby''
    Testimony....................................................     3
    Biographical sketch..........................................    45
Wessner, Charles
    Testimony....................................................     4
    Biographical sketch..........................................    46

 
                 SBIR/STTR: MEASURING THE EFFECTIVENESS


                       OF THE REAUTHORIZATION ACT



                    AND MAXIMIZING RESEARCH DOLLARS



                     TO AMERICA'S SMALL BUSINESSES

                              ----------                              


                      WEDNESDAY, DECEMBER 18, 2013

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The committee met, pursuant to notice, 2:09 p.m., in Room 
428-A, Russell Senate Office Building, Hon. Mary L. Landrieu 
(Chair of the Committee) presiding.
    Present: Senators Landrieu, Shaheen, and Risch.

  INTRODUCTORY REMARKS OF HON. MARY L. LANDRIEU, CHAIR, AND A 
                  U.S. SENATOR FROM LOUISIANA

    Chair Landrieu. Good afternoon to everyone. Thank you for 
joining us for this important roundtable on the SBIR and STTR 
program, one of the important programs coordinated by the Small 
Business Administration that affects all the agencies and 
departments of the Federal Government. I want to welcome 
everyone here.
    I am going to give an opening statement just briefly, and 
then I am going to ask each of you to introduce yourself and 
give a one-minute name, title, and why you are excited to be 
here, what you hope to contribute.
    And then, as many of you know who have participated in our 
roundtables, we have a very informal exchange of information 
that is going to help us to understand how this important 
program is working, where it is strong, where it is weak.
    We have just been through a six-year authorization and 
there will be a lot of back and forth. This is not like a 
regular hearing where people read off of a piece of paper and 
submit it for the record.
    There is going to be a lot of back-and-forth questioning, 
and we are going to try to go to about 3:30. If we can exit a 
little bit early, that would be good. If you need to go all the 
way to 4:00, we are authorized to do so.
    But let me again thank you for joining us today to examine 
the comprehensive Small Business Innovation Research and Small 
Business Technology Transfer Reauthorization Act that we passed 
through this Committee and on the House floor two years ago 
this month. It is a good time to look back over the last two 
years and to see how our new authorization is working.
    As many of you know, this program was created back in the 
1980s. I always like to go back to our roots in the beginning 
with Warren Rudman and Congressman LaFalce. Some of you were 
around when it was started, and all of you are familiar with 
its beginnings.
    The purposes of these programs were as important then as 
they are today. They are, one, to stimulate technological 
innovation; number two, to encourage greater utilization of 
small businesses to meet federal research and development needs 
which are quite extensive; three, to foster and encourage 
participation by minority and disadvantaged persons in 
innovation; and four, to increase private sector 
commercialization of innovations derived from federal research 
and development.
    I think this last point is so important. The Federal 
Government spends billions and billions of dollars on research. 
How can we take that good research and commercialize it 
appropriately, giving small businesses an opportunity to grow 
and expand and create jobs in America. There is no sense in 
discovering innovations only to have them lay on the shelf and 
not create jobs and not get into the marketplace.
    So, this is a very important program of the Federal 
Government, and I have taken a particular interest in it. So, 
as you all know, when I took over as chair of this Committee in 
2009, the SBIR program had literally exhausted its 
authorization. It was sputtering.
    It was reauthorized temporarily 14 times until, with all of 
your help, compromise was reached between the House and the 
Senate, and between all the stakeholders, so that we could lay 
down a longer-term six-year authorization--and increase the 
allocations.
    It is very important, in my view, to have the Federal 
Government be sensitive that there are some very high-quality 
small businesses out there inside this Beltway and outside this 
Beltway that are extraordinarily well positioned to bring value 
to the taxpayer, to commercialize new products. This 
partnership I think is one that should be encouraged.
    I want to particularly give special credit to Jere Glover, 
who is here as a strong supporter of this program, Dr. Chuck 
Wessner, Dr. David Green, our program managers and state SBIR 
directors like Dr. Jain, who are also here with us today.
    Now, there were challenges to the reauthorization. I do not 
want to review those now. You all know what they were. But the 
important take away from today is, is that it seems, in the 
last two years in particular, the overall SBIR program is 
exceeding its goal by over $100 million in 2011 and over $200 
million in 2012.
    We also have some information about agencies that are not 
quite, or departments, meeting their goal, but overall the 
numbers of the last two years look particularly encouraging.
    Ranking Member Risch has come. I just want to see if there 
is anything else that I want to add.
    Let me say during today's discussion, I look forward to 
hearing from many of you about the real-life impact of the 
changes that we made to the SBIR and STTR program, how they are 
impacting your sphere of influence, how many more research and 
development dollars are getting to small firms, and what some 
of the agencies can do to increase that pipeline to small 
businesses.
    We need to be perfectly clear, though, that the allocation 
that we have in our law is a minimum, not a maximum. We want 
people to understand that because the Federal Government 
believes, and the members of Congress on both sides of the 
aisle, that small businesses have a great deal of expertise and 
value to bring to the Federal Government and it is not just 
large businesses that make all of the discoveries. In fact, the 
record would show the opposite.
    So, let me turn to Ranking Member Risch for opening remarks 
and then I want to acknowledge additional SBIR program managers 
who are here to listen, even though they are not on the panel--
John Williams from the Office of Naval Research, Mary Clague 
from the National Institute of Standards and Technology, Alan 
Rhodes from the National Oceanic and Atmospheric 
Administration, Natalie Seiling from Defense Logistics Agency, 
Rachel Sack from the Department of Transportation, and Ed Metz 
from the Department of Education.
    So, they are not on the panel but they are here listening. 
We have many, many other people focusing in through the web and 
we appreciate their participation as well.
    Let me turn it over to my Ranking Member for any opening 
remarks that he might have.

 OPENING STATEMENT OF HON. JAMES E. RISCH, A U.S. SENATOR FROM 
                             IDAHO

    Senator Risch. Thank you, Madam Chairman.
    First of all, I apologize. I cannot stay. I have other 
commitments this afternoon but this is an important hearing for 
all of you who are here to address these issues.
    These goals are not a suggestion. If the board of directors 
of a private entity gives the executing authorities direction 
as to what to do, the board of directors expects that those 
directions will be followed; and so, I kind of view this 
hearing as what is wrong here, how come we are not getting to 
where we need to be.
    So, for those of you who are not getting to where you are 
required to be, I will be really interested to hear why and I 
will be interested to hear what the plans are to get there.
    And particularly, I know how things work in the government. 
Promises are wonderful but what I am looking for is some very 
specific statements and facts as to how everybody intends to 
get where the board of directors has said that you need to be.
    So, thank you very much.
    Chair Landrieu. Thank you, Senator. We appreciate your 
participation. Let us begin with Dr. Bobby Savoie, a very good 
friend and a constituent from Louisiana.
    Thank you, Bobby, for being here and please again one 
minute. I know how you can be.
    [Laughter.]
    No. I am just teasing him. He is very efficient. Just one 
minute and then we will go around the room.
    Mr. Savoie. Thank you----
    Chair Landrieu. You have to lean into your mic to pick up 
any volume here. So, if you would just lean into it, that would 
be great.
    Mr. Savoie. Will do. Thank you, Madam Chairman. My name is 
Dr. Bobby Savoie. I am the CEO of a company called Geocent, 
headquartered in New Orleans, Louisiana, with offices in 
Charleston, South Carolina, Huntsville, the Stennis Space 
Center, Baton Rouge, Tulsa, Dallas, and a few other places.
    We are primarily an IT and engineering company. This is the 
third technology company that I have started and built, all 
headquartered in Louisiana, although usually doing a lot of 
work elsewhere in the country.
    We have done quite a number of SBIRs from Phase I through 
Phase III which I am sure we will have a chance to talk about 
later.
    Chair Landrieu. Good. So, your company has actually 
benefitted from an SBIR program. We will come back to that in a 
minute.
    Dr. Wessner.
    Mr. Wessner. Thank you, Senator. My name is Chuck Wessner. 
I am the Director of the Technology, Innovation, and 
Entrepreneurship program, which I founded at the National 
Academy of Sciences, but I wouls emphasize that I am speaking 
in a personal capacity.
    Thanks to the Congress and with the help of our friends in 
key agencies, we have the assignment of assessing the SBIR 
program. The good news is that we have brought some empirical 
rigor to that assessment and the other good news is that what 
we found, after a lengthy assessment led by Dr. Jacques 
Gansler, the former Under Secretary of Defense, is that the 
program is sound in concept and effective in operation.
    We, of course, have suggestions on how the program can be 
improved but I think one of the most compelling points is that 
the rest of the world is copying the program for their own use.
    I look forward to the discussion and thank you for the 
time.
    Chair Landrieu. Thank you, Doctor, for your input.
    Mr. Glover.
    Mr. Glover. Our members have several concerns. One is the 
capital access. It is still critically hard for small business 
venture capitalists really have withdrawn from an early stage 
and seed fundings.
    Lending is still very tough, very hard. The patent 
legislation that is pending in the House and coming over to the 
Senate is very anti-small business and small businesses are 
very concerned about that for the future of innovation. Things 
like the Transfer Act, which is taking basically 22 percent of 
the STTR program away from small business.
    Again, those are all major concerns. But when we look at 
the SBIR reauthorization where Congress took a great step 
forward, we are going to do a much better job of transitioning 
SBIR technology into the commercial space and especially at 
DOD. The law was very specific requiring goals, requiring 
incentives, requiring plans, requiring accountability--all of 
those things would help fill some of the gaps that venture 
capital pulling out of the market has created and lending has 
been challenging.
    Unfortunately, that has been slow in transitioning. It is 
just not happening very quickly and our members are very 
concerned. They think that compliance with the law should be 
happening much better, much faster, and we should see the 
agencies much more involved in transitioning this technology.
    Chair Landrieu. Thank you, Jere, I appreciate it.
    Mr. Rusco.
    Mr. Rusco. Thank you, Madam Chairman. I am Director of 
Natural Resources and Environment of the US GAO. As you know, 
in the past number of years we have written a number of reports 
on various aspects the SBIR and STTR programs, and most 
recently we have, responding to mandates in the Reauthorization 
Act, reported on fraud, waste, and abuse on data protections 
and also on spending requirements and agencies' adherence to 
those.
    Chair Landrieu. Good. We will look forward to getting some 
of that information today.
    Dr. Jain.
    Mr. Jain. Thank you, Madam Chair. My name is Mahendra Jain 
and I am Senior Vice President of the Kentucky Science and 
Technology Corporation. It is a nonprofit, 501(c)(3) 
organization that works with all the faculty and all the small 
technology businesses throughout the State.
    Kentucky has been very fortunate to have had the Kentucky 
Innovation Act passed in 2000 that created several programs, a 
couple of which fall into my portfolio--Kentucky Science and 
Engineering Foundation and Kentucky Commercialization Fund.
    But on top of these is the SBIR/STTR program that I have 
been leading since 2001 in the State. I have been the host of 
two national conferences. One of these was the National SBIR 
Conference in 2006. That was when NSF used to underwrite the 
conference and then last year in 2012 when I hosted in Kentucky 
the NIH National SBIR Conference. And I have continued to work 
with that program.
    Chair Landrieu. Thank you very much.
    Mr. Rinaldi.
    Mr. Rinaldi. Thank you, ma'am. My name is Chris Rinaldi. I 
am the DOD SBIR/STTR program administrator.
    As you may be aware, DOD represents over half of the SBIR 
program in the Federal Government. We have 13 program managers, 
some of whom you named when you listed the attendees.
    In DOD, although we have 13 program managers, I am 
responsible for implementation policy for the reauthorization, 
which we have been working vigorously to achieve.
    SBIR is a bright spot and I think that when we see the 
public discussion of how Congress and the Federal Government is 
not working, SBIR is one program that we can point to as 
working well.
    Chair Landrieu. Great. You have a big part in that, so we 
thank you. We will come back to what you all are doing because 
your numbers look very, very good.
    Mr. Rinaldi. Thank you.
    Chair Landrieu. Mr. Gudger.
    Mr. Gudger. Yes, thank you, Madam Chairwoman, and thank 
you, Ranking Member Risch. I am the Director of Small Business 
and Senior Advisor to the Secretary of Defense on matters of 
small business.
    I would like to thank you for your support. I think Chris 
was exactly right about the quantum leap in the right direction 
over the past few years that we have taken in infusing some of 
our more innovative programs into programs of record and 
getting more small business involvement.
    We made tremendous strides with several big policy 
initiatives over the past couple of years that aligns with the 
direction that Congress set forth for us. I think that we have 
seen tremendous positive results as a result of you getting 
feedback from all the folks that you named earlier as well as 
industry. So, thank you for that.
    Chair Landrieu. Okay. Thank you.
    Mr. Oliver.
    Mr. Oliver. Thank you, Senator. I am Manny Oliver, the 
Director of the SBIR and STTR programs at the Department of 
Energy. I joined the department about three years ago and I 
come from the private sector and was looking forward to 
bringing a new approach to the way we run the programs at DOE. 
I got here before reauthorization and have been caught up in it 
and made a lot of changes to be both responsive to small 
businesses as well as improve the outcomes for the Department 
of Energy.
    Chair Landrieu. Thanks.
    Mr. Portnoy.
    Mr. Portnoy. Thank you, Madam Chairwoman. My name is Matt 
Portnoy and I am the Director of the NIH, National Institutes 
of Health, SBIR and STTR program in the Department of Health 
and Human Services.
    So, we have been working amongst ourselves, with our 
colleagues at agencies and with the SBA vigorously over the 
past two years to implement the provisions of the 
Reauthorization Act, and we have made a good deal of progress, 
and we are happy to continue to talk about that.
    Thank you.
    Chair Landrieu. Okay. I am not sure in my data, staff, do 
we have the NIH broken out from HHS; and if not, if we could 
get that data that would be good.
    Overall the department is up, you know, over the required 
allocation.
    Mr. Portnoy. That is right. NIH is around 98 percent of the 
HHS program and we are meeting and exceeding our set-aside.
    Chair Landrieu. Right. Okay. If you would turn your 
placards a little bit toward me so I can recognize you.
    Ms. Raghavan.
    Ms. Raghavan. Thank you, Chair Landrieu and Ranking Member 
Risch. My name is Pravina Raghavan. I am the Deputy Associate 
Administrator for the Office of Investment and Innovation at 
the SBA.
    I extend my apologies of our Associate Administrator Javier 
Saade. Unfortunately, he was not able to attend today, but he 
looks forward to working with all of you.
    As you correctly said, the SBIR and STTR programs are 
extremely important for small businesses in America. Over $38 
billion has been provided in funding and it has funded 
companies like QUALCOMM and Symantec but also funded research 
that would not normally be commercialized like GPS which is now 
an award-winning and a tremendously competitive industry.
    The reauthorization was extremely critical, and the SBA has 
been supportive of it, and actually has made it one of its top 
priorities, in fact, including moving me down from New York to 
sit here and help with the transition.
    We have been working diligently with all the agencies. We 
have done a lot but we have a lot more to do, and we look 
forward to working with them in a collaborative manner as they 
have been in getting some of these issues tackled and making 
sure that we all hit and exceed our goals.
    Thank you.
    Chair Landrieu. Thank you very much.
    Ms. Sobolewski.
    Ms. Sobolewski. You got it. Great.
    I certainly appreciate the opportunity to be here. My name 
is Lisa Sobolewski. I am the Director of the SBIR program 
within the Department of Homeland Security. We have two 
programs within DHS.
    One is in my directorate, the Science & Technology 
Directorate. The other one is in the Domestic Nuclear Detection 
Office, and we coordinate very closely with the two. But I am 
really passionate about helping small businesses meet their 
dreams, and especially that dream of getting to Phase III. I 
think our directorate is pretty successful in helping companies 
get there, including Geocent.
    We utilize the SBIR program within DHS to actually meet the 
needs of the DHS components, the FEMAs, the ICE, the Coast 
Guard, the Secret Service, because we are an operational 
department and so small business that provide those innovative 
solutions are very important to us.
    So, I work with my colleagues very closely to make sure 
that we implement the program in such a way to get good 
technology solutions for those components.
    Thank you.
    Chair Landrieu. Excellent. Very well said.
    Ms. Houston.
    Ms. Houston. Thank you, Senator. I am Jenny Houston from 
Warwick Mills in New Hampshire. I have been with the company 
for 18 years and we have done several SBIR projects--two Phase 
IIs, one with the Navy and one currently with NSF that we are 
on the brink of commercializing.
    Warwick Mills is a manufacturer and an engineering company 
of high-performance, flexible materials that are used in body 
armor for both military and law enforcement both in the U.S. 
and internationally.
    We also do recreational and industrial protective garments 
and we do quite a bit of aerospace including the successful 
crash bags that were used for NASA's missions.
    So, we view the SBIR program as a very important leg up and 
a partnership with the agencies that we are working with. Every 
technological innovation has its roots somewhere, and we feel 
like the advancements that we have made in our SBIR programs 
have been very important in our commercial programs and feel 
like it is a very good program.
    Chair Landrieu. Thank you.
    Dr. Green.
    Mr. Green. I work for Physical Sciences, a science and 
engineering company that takes ideas from concept through to 
demonstration and sales.
    We have performed SBIRs for a great many agencies. As the 
technology matures, we most often partner with either venture 
or large businesses to transition the technology effectively.
    We thank you for your strong leadership in the 
reauthorization of 2009. What I would like to talk to today is 
the definition of success. What are those metrics? Is it 
revenue, is it patents, is it jobs, is it of a societal 
benefit? I hope to have time to illustrate a number of success 
stories that we would share with you.
    Chair Landrieu. Excellent point. Let us begin. I am just 
going to make a note that one of the key goals of the 
reauthorization, one of my personal goals, was to get a longer 
reauthorization so that we all had a chance to do our best work 
on behalf of the taxpayer and the small businesses that we are 
trying to work for.
    I would remind you all that if we had gotten the two-year 
authorization which some people wanted, we would be finished 
right now instead of really just getting started.
    So, I think we were proven correct, those of us who held 
out for a six-year authorization. The wisdom of that. I would 
have loved to have had an eight-year authorization. We tried a 
14-year authorization. Could not get that far. But we did get 
past two years which is really, really important to this 
particular program.
    I am going to continue to push hard for a longer 
reauthorization because this is a long lead time and you have 
got to get through the politics from one administration to the 
next and try to focus like a laser on the technology, what the 
market is, how the market is moving, et cetera, and what 
opportunities there are.
    So, let me start with you Dr. Wessner. The way this works 
is, I am going to throw out a question. If you want to comment 
or if I do not call on you and you want to comment, just put 
your plaque up like that and I will call on you in as fair an 
order as I possibly can when I recognize that you want to 
speak. If you want to ask a question or respond to someone, put 
up your plaque as well.
    We are going to go for about an hour, maybe a little bit 
longer.
    But Dr. Wessner, let me start with you because I think you 
have one of the biggest overviews of this program. What can you 
tell us about in the last two years, based on the tweaks that 
we did in the reauthorization? What are some of the things that 
you are seeing that are really paying off, either in a 
particular agency or a particular best practice or a particular 
method that is emerging that is promising to you. And then I am 
going to ask you if there is anything that you see that is 
concerning to us that we should focus on now.
    And again, you have to speak into your mic.
    Mr. Wessner. Well, thank you, Senator, and let me join Dave 
Green in emphasizing that, while I am speaking in a personal 
capacity, it is unquestionable that the Nation owes you a great 
debt in having this program reauthorized, and getting it 
reauthorized with a timeframe that provides the necessary 
stability to let it actually work. This stability, of course, 
is one of the attributes of the program.
    Thanks to this program, our war fighters in the field are 
better served, as are those suffering from health challenges. 
Valuable products are going into the market that would not 
otherwise be going into the market.
    Also the program is a great way of improving our nation's 
procurement. It increases competition both in quality and price 
and, as you know, our procurement system is, to put it mildly, 
a little bit sclerotic. So, having new companies come in with 
new initiatives is really important and we thank you for that.
    There are a number of things that I think you will hear 
about. One of the problems that you managed to eliminate was 
the question on venture capital firms where an effective 
compromise was reached.
    But with your permission, I always take these invitations 
very seriously and we have a number of quick points that we 
would like to make.
    Chair Landrieu. Go ahead.
    Mr. Wessner. If I may, I want to demonstrate some figures 
and it is hard to do that.
    Chair Landrieu. That would be terrific. If you want to do 
that. I do not know if everybody can see this.
    Mr. Wessner. It is on both sides.
    Chair Landrieu. Okay.
    Mr. Wessner. It is just a quick couple of points. In a 
sense, what I am really interested in, Senator, is encouraging 
the Committee to take a broader view of innovation and 
entrepreneurship other than SBIR per se. The SBIR program is a 
key part but it is only one part of our innovation system. 
These are a couple of quick points.
    I am going to cut this presentation back. There is a good 
news, bad news story here. The red is the good news. The other 
challenge is China, but China was not there 10 years ago in any 
meaningful way. And there has been this huge surge in their R&D 
spending.

[GRAPHIC] [TIFF OMITTED] 

    Chair Landrieu. Let us make sure we get that onto the audio 
record. Go back and let me just put that into, go back, okay. 
The United States has 28.3 percent of the global share of R&D. 
China has a 14.7 and they were not there 10 years ago.
    Mr. Wessner. You see Germany and Korea are spending huge 
amounts of money and it is interesting. You have those 
challenges from East Asia but you also have mature economies in 
Europe which are really putting in the money.
    What I want to emphasize is that sometimes you hear a 
debate which is fundamentally silly is whether the public 
sector or the private sector should do it and it is sort of the 
importance of mothers versus fathers. There is no versus. They 
are both essential.
    Federal research is a public good particularly basic 
research which provides the foundation for future innovation. 
Some people question whether it is a worthwhile investment.

[GRAPHIC] [TIFF OMITTED] 

    And that is, of course, it is a good investment. It drives 
growth. It actually generates directly employment, and the 
innovations that you have the list of there, I mean, one of the 
funniest things I remember hearing here up in the Senate was a 
young staffer once asked me, why do you think semiconductors 
are so important. Well, what do you think is in this box. [Cell 
phone]
[GRAPHIC] [TIFF OMITTED] 

    But if I could go on, there is some troubling news here and 
the most troubling is that recently there has been a relatively 
steady decline in the U.S. R&D position. You hear a lot of 
people talk positively about the Reagan years. Well, during 
those years, the U.S. was spending significantly more on public 
R&D as a proportion of GDP. Perhaps we should return to that 
public level of investment in R&D. I do not think the world is 
that much safer than it was then.
[GRAPHIC] [TIFF OMITTED] 

    If you go to the next one, this is the most disturbing. If 
you look at this just briefly, Germany under Chancellor Merkel 
has been pushing very hard. They have a goal of 3 percent of 
GDP for R&D and 7 percent for higher education.
    On the other hand, the UK is coasting and not in a good 
direction. But if you look at Finland, a small country, with 
major high-tech industries, there has been a huge increase. 
Look at Japan. Large country, large increase. Look at China and 
Korea, shooting right up off the map. These are really major.
[GRAPHIC] [TIFF OMITTED] 

    I do not like a position where we are flat in terms of our 
R&D expenditures and other countries are moving up their 
investments really fast. That is not a promising situation.
    What is key about this is it is a question of what are we 
going to give our children. In 20 years, if God forbid there is 
another war, what kind of equipment are we going to have. Let 
me go on there very quickly.
    Chair Landrieu. Let me just ask you though to clarify, and 
if someone has a question to Dr. Wessner because we do want to 
move around and I will give you just a few more minutes.
    But is this data from just government funding or is it a 
combination of government and private sector funding and 
university funding in those countries, what you just showed us?
    Mr. Wessner. What we are showing you is a combination of 
private R&D expenditure and of public R&D expenditure----
    Chair Landrieu. And public R&D.
    Mr. Wessner [continuing]. On this last slide which is from 
the OECD, an international organization.
    Chair Landrieu. All right.
    Mr. Wessner. And a key point there is that you need both, 
and often public expenditure in R&D drives private R&D.
    One of the things I wanted to mention just very quickly is 
that there is sometimes a discussion of SBIR versus 
universities, and I would simply argue that that is again a 
mistake. The universities are the sources of many innovations, 
but the private sector excels in bringing those to market.
[GRAPHIC] [TIFF OMITTED] 

    One of the things that we have to work harder at is growing 
the SBIR/university link. I have been out recently to some of 
the leading institutions like Carnegie Mellon University and 
Case Western in Ohio, and it is just discouraging to see how 
few SBIR applications are coming from these top-notch 
universities. So, we need to have a better outreach there and I 
would be eager to hear how we can do better.
[GRAPHIC] [TIFF OMITTED] 

    One of the things I want to emphasize is that we need to 
pay more attention to the manufacturing element in the SBIR 
program, and there are two ways to do that.
    One is, I just want to breakthrough the idea that we can 
put less emphasis on manufacturing and rely on services.
[GRAPHIC] [TIFF OMITTED] 

    Well, and the point is that in agriculture we feed 
ourselves and we export to the world but we are not doing that 
in manufacturing.
    If we could go to the next one please.
    The point is simply that we are losing both in traditional 
manufacturing, we are also losing in high-tech manufacturing.
    Chair Landrieu. This is the side that is up.
    Mr. Wessner. Yes. Exactly. I used to work in Treasury back 
here when we were not worried about this; and everybody always 
told us, oh, we could lose these. Do you know what low-tech 
manufacturing it is is that is where no one in my family works. 
That is the usual definition of it.
    But up here is where you start to find that where we are 
losing at is at the very cutting-edge. So, this is alarming. If 
you are interested in national security--well, if we cannot 
make things, we cannot defend ourselves. We have to make better 
things than anyone else.
    And if you want jobs, which we all do, then we have to do 
something about that.
    Chair Landrieu. When did that red line start to go down, in 
what year?
    Mr. Wessner. In 2000. But could I suggest that this is a 
very nonpartisan process. There are a number of long-term 
trends, and this is what I am going to get to next is what the 
rest of the world is doing.
    You know, people ask, how do the Germans do this? Well, 
because they have programs that are long-term, with a high 
level focus on manufacturing. That is where this Committee has 
been a great strength in focusing on small companies and how to 
help them. They have substantial and sustained funding.
    There is a huge training component. We talk about 
workforce. This is what the rest of the world is doing. They 
are training at the high end, they are training at the middle, 
and they are training at the lower end.
    They offer customized and flexible field services.
    
    [GRAPHIC] [TIFF OMITTED] 
    
    
    
    If you look at this overhead, Germany has a balanced trade 
account with China. Now, German workers make substantially more 
than U.S. manufacturing workers make. They have heavy 
environmental regulations.
    Their unions have representatives on company boards. It is 
not an unfettered capitalist environment, and yet they have a 
balanced trade account with China. One reason for this is that 
they have the Fraunhofer systems, which has over 60 research 
institutes and 22,000 employees and is funded at two and a half 
billion dollars annually.

[GRAPHIC] [TIFF OMITTED] 


    These programs are not confined to Germany. Canada, for 
example, is one-tenth our size in population and in the size of 
economy. Yet, they outspend our Manufacturing Extension 
Partnership program two to one.
[GRAPHIC] [TIFF OMITTED] 

    I would argue that there is a message here. Functionally 
speaking, we are trying to compete with a good college team 
against the pro-teams; and guess what, that does not work so 
well.
    So, if you look here at the next slide, we have the problem 
that we are home alone. A company with an awful lot of promise 
cannot get the support it needs out of the industrial commons, 
and the contribution of the industrial commons is something 
that has been identified by Professors Pisano and Shih up at 
the Harvard Business School.
    So, one other thing I want to really bring to your 
attention looking forward is how do we find a better way of 
supporting an industrial commons. And a second point which is a 
real challenge for some of the smaller forum that has been 
brought to my attention by the Department of Defense is the 
cyber security element.
    When a firm wins an SBIR award, that is a signal to some 
places of the world to hack them immediately and persistently; 
and our firms are entrepreneurial, focused on products and they 
are not spending all of their time in cyber defense.
    So, we need to have an industrial commons where you can 
have a manufacturing institute that provides testing equipment, 
that provides advice that you need and at the same time can 
provide you advice on how to keep your intellectual properties.
    Chair Landrieu. Excellent point.
    Does anybody else want to comment? Okay. I see you go 
ahead, Ms. Houston, because this has spurred a lot of thinking 
in my head. I hope it does for yours.
    Go ahead, Mr. Houston.
    Ms. Houston. I just want to say how much I appreciate----
    Chair Landrieu. You have to speak into your mic. You have 
got to lean into it please.
    Ms. Houston. I apologize.
    Chair Landrieu. That is okay.
    Ms. Houston. Small businesses have two choices if they want 
to do innovative research. They can do IRDD, internal research 
and development dollars, or they can get a program like the 
SBIR or other programs.
    If you get a Phase I and a Phase II and you have close to a 
million dollars worth of research dollars that you are doing, 
to be able to fund that as a small company means that you, say 
you get, you put aside 10 percent of your profits.
    You would have to be making $10 million and spend every 
nickel of your profits to get the same amount of research. That 
is a very tall order for a small business that only makes 10 
million to come up with all of the money toward research.
    Without these programs, companies will not do the internal 
research and development dollars.
    Chair Landrieu. Dr. Oliver.
    Mr. Oliver. Thank you. I wanted to comment on the 
connection between SBIR and universities. That is something we 
have given a lot of thought at DOE, since the science agencies 
pump a lot of money into the universities and federal labs.
    Something we started last year was trying to reach out to 
the tech transfer offices at universities and federal labs. We 
fund the basic science but we do not track what happens when it 
goes over to the tech transfer office.
    Now we are working with the tech transfer offices, both at 
Federal labs and universities, and taking some of those tech 
transfer opportunities and putting them directly in our 
solicitations to help move them out from the universities and 
labs into the private sector. Last year we started with the DOE 
national labs. This year we have included three research 
universities, a total of 12 tech transfer opportunities from 
those universities, in our SBIR solicitations.
    Chair Landrieu. Mr. Glover.
    Mr. Glover. I just want to totally amplify what Dr. Wessner 
said. One of the great frustrations for me is this 
reauthorization bill did tremendous things to try to encourage 
and in some cases require the agencies to do more 
commercialization.
    My frustration is two years after that bill was passed, we 
still do not see the results and things are getting worse 
internationally. Exports, high technology exports in the world, 
457 billion for China, 221 billion for the United States, less 
than half. Germany, 186, almost as much as us and a much 
smaller country. Japan, 126, exporting high technology.
    Exports are jobs. We are not creating the jobs in America. 
If we do not create the jobs in America, the next generation is 
going to suffer.
    So, when some agencies see my frustration, it is because I 
had great expectations. I had great hopes that we could make a 
huge transition and prove some of these things can really work, 
and we are going to have to do that for the next generation.
    Chair Landrieu. Okay. And I am going to ask some of the 
agencies present here to specifically respond to this about 
what you have done in your agency or what you have not done but 
what you plan to do.
    But, Dr. Jain, let me respond to you and also, when you are 
answering, could you tell me what other states besides Kentucky 
have a statewide SBIR program; and if not, if you could submit 
that to the Committee within two weeks.
    Mr. Jain. I can. There are several states that I talked 
with for their input--before I came here including South 
Dakota, Wisconsin, Minnesota, Michigan, Louisiana, and 
Virginia. And, I also talked with a couple of the service 
providers as well.
    Of course, Kentucky is doing well as you recognized. But 
Wisconsin, for example, has an innovation center, the Center 
for Technology Commercialization, that works through the 
Wisconsin Entrepreneurs Network throughout the State. They are 
working with the University of Wisconsin--WARF--which is very 
well known for holding and commercializing the IP by 
transferring the technologies.
    And so, if you can transfer the technologies out of the 
university and somehow create new startup businesses, and then 
you work with those companies through programs like SBIR, you 
can develop a good link between the university and small 
business because the faculty is getting involved there.
    In Kentucky, there are two major research universities, the 
University of Louisville and the University of Kentucky. I have 
been working with those universities for 10 years now.
    Now, they have developed and implemented at least for the 
last five years, a policy called Entrepreneurial Leave. So, a 
faculty who has a technology that can be transferred and 
commercialized can go on entrepreneurial leave for six months, 
commit 51 percent of their time to the company, and manage the 
SBIR/STTR grant. And, during the gap period of Phase I and 
Phase II, they can come back to the university.
    So, it is a leave policy that is working very well at these 
universities and I think other universities can also learn from 
their experience and see how their faculty can benefit from 
such policies, because they are worried about their benefits. 
They are worried about their tenure. If faculty can get credit 
for what they do and if they can get benefits, more and more 
faculty would look at the SBIR/STTR program.
    Chair Landrieu. Interesting, and I really want the staff to 
make a note of that. It is sort of a more flexible approach to 
kind of a partnership with our professors and inventors on our 
university campuses to allow them to do what they want to do 
which is to teach but also so that they can promote a 
technology that creates jobs and benefits.
    And I want to get back to Dr. Green's question to all of us 
is how do we measure success in this program? Is it the number 
of jobs created? Is it jobs plus wealth? Or is it the general 
public's benefit, a greater good or a quality of life? But Ms. 
Lisa, go ahead. Ms. Sobolewski.
    Ms. Sobolewski. So, I wanted to comment, go back to Jere's 
comment about the commercialization. As many of you know, and I 
am not here to make excuses for sure; but we had what? Over 40 
some provisions of the reauthorization to implement from an 
agency perspective, and many of us had solicitations in the 
works. So, it took a little bit of time. But what DHS has done 
and what I wanted to go on record to say is what is very 
important to us is the 10 percent civilian commercialization 
pilot program because within DHS especially, we are a medium 
size agency.
    My S&T directorate SBIR budget is about $14 million; DNDO 
is roughly 2- to 4,000,000. So, we are not talking billions of 
dollars here. And what myself and my colleague have seen is 
that we invest in the technology in Phase I and Phase II and 
then we just do not have the funding to take it further with 
non-SBIR funds to take it into operation. So, that 10 percent 
is really helping us get some of these companies over the hump 
and do some further testing and evaluation.
    And in response to Jere's question, because of some of the 
other priorities that we were all working on with the 
implementation, we responded to SBA's request for our civilian 
commercialization business pilot program in the July time frame 
of this year.
    So, yes, Jere, it was a year and a half into it but we had 
all these other things that we were implementing at the time. 
We did receive approval fairly quickly, and we will be 
implementing that starting in 2014, and we already had initial 
discussions with several of our technical divisions that will 
provide funding into that program to help these companies.
    So, I wanted to let you know that that civilian 
commercialization readiness business pilot program is extremely 
important for DHS especially to be able to use that 10 percent 
of our SBIR funds for such purposes.
    Chair Landrieu. Great. Dr. Green, and I am going to ask 
anybody else who wants to follow up on that comment how this 10 
percent is working either at your agency or how you have 
observed it at an agency or department that you are familiar 
with.
    But, Dr. Green, go ahead.
    Mr. Green. First, I wanted to return to the comment that 
Dr. Wessner did about cyber security.
    As part of the reauthorization, there is an increased 
amount of training and education for new businesses; and I 
think that, in addition to transition philosophy and all, 
adding a cyber security component to that to help ``three guys 
in a garage'' figure out what the minimum they ought to do 
would be a very good course to add for that community.
    I wanted to touch again on successes, if I may. Some of 
them where you create licenses to another company is a powerful 
pathway. We had an NIH-funded SBIR which had to do with 
obtaining better images of your retina.
    We partnered with a large company. In the last six years, 
they sold 12,000 units. There is no way we could have scaled up 
to that, and those units perform tens of millions of eye exams.
    I really do not know how to quantify that as a societal 
benefit or a monetary value but it is something where the 
technology has gotten inserted, and I am very proud of that.
    Under an EPA SBIR, we have developed a natural gas leak 
detector, partnered with another company. They have sold 2400 
units. As a result of this, there are now 2000 quality jobs in 
49 states surveying the gas lines and in a dozen other 
countries.
    We won an R&D 100 award. We had a Phase II SBIR but the 
revenue in return is rather modest; nonetheless, our partner is 
benefitting and society is benefitting by having greater 
safety.
    One more technology that is on the verge of being a 
success: last week I was here in Washington and the EPA gave 
out its 2013 Presidential Green Chemistry Awards.
    One of our subsidiaries, Faraday Technology, won that award 
for a technology that will replace toxic hexavalent chrome 
(chrome six) with chrome three.
    There is a long way to go but the EPA and the partners are 
all advocating that we need to make this change to reduce 
carcinogens in our world, and so I am very pleased with that.
    Another path we take is to partner with the venture 
community once the technology has been matured and developed 
and a certain amount of risk removed.
    We have spun out five companies partnering with the venture 
community most often: A kidney stone lithotriper under NIH 
funding; an environmental emissions monitor that is still in 
place based on NASA and NSF SBIR, that is in use today 
monitoring combustion products; A telecom technology for dense 
wavelength division multiplexing which had NASA and Air Force 
SBIR funding.
    Again, often neither we nor the funding agency can see the 
path that will ultimately be the successful commercial 
incarnation. We are currently working in digital cinema, based 
on an Air Force SBIR; and that is a small company currently 
operating in New Hampshire.
    It has received 35 million in venture funding, has 30 
employees, and is making progress toward reaching the 
marketplace.
    Chair Landrieu. Okay.
    Mr. Green. The third path we follow is whether it is such a 
small market that no single-product company could exist. Every 
material that has gone into space has been tested in an atomic 
oxygen facility that we developed with a NASA SBIR--either at 
our facility or in space facilities around the world in Europe 
and Japan and in this country.
    A company would not exist that could only build those four 
devices. So, having a company that is able to do that and many 
other things is our goal.
    Chair Landrieu. I am going to have to ask you to wrap up. 
Those are very good examples of successes; and if anybody wants 
to comment about basically this technology transferring to a 
larger company that just improves and makes more efficient and 
grows and expands and how do we count those and is that the 
same as launching technology that grows a whole new business 
out of the garage and then may become 10,000.
    But let me get the Director of Small Business for DOD. Go 
ahead, Andre.
    Mr. Gudger. Thank you. There were some very good points. I 
mean Jere made some very good points and Dr. Wessner made some 
great points as well.
    In 2011 when I took over this job, one of my biggest rocks, 
I will call it, was to modernize our industrial base. I knew 
the importance of our industrial commons in gaining 
affordability out of our programs and gaining significant 
capability so that we can not only win future or potential 
conflicts but we can deter them with that capability.
    And I looked at our industrial base and saw where we had 
areas of vulnerability and where we could be weak, and I knew 
that we had to make those, make a significant change.
    So, we started this process called the five-star 
transformational process that focused on outreach, 
commercialization----
    Chair Landrieu. Can you repeat that please? The what 
process?
    Mr. Gudger. The five-star transformational process.
    Chair Landrieu. Five-star transformational process.
    Mr. Gudger. And Chris is going to talk a little bit more 
about that later. I give him the hard stuff to do.
    Mr. Rinaldi. Thank you, sir.
    Mr. Gudger. But, you know, the importance of that was 
figuring out how do we perform outreach, how do we increase 
commercialization, how do we streamline the programs we have, 
move them from the 20th century into the 21st, how do we have 
reporting and compliance.
    And so, one of the first things we did was address capital. 
That was a very significant thing since the DOD is not 
necessarily a lending institution but we can pay our small 
businesses faster. And that is when you saw the accelerated 
payments kick in because I knew that small businesses, and we 
knew at DOD that small businesses would do more with more.
    So getting money in their pockets they would make 
investments in technologies, improve their products and hire 
the right people because innovation is not just technology. 
Sometimes it is people.
    And so we have to make investments in our critical 
thinking, sequential thinking, personnel so that we can make 
tremendous improvements.
    Chair Landrieu. Good. I am looking forward, Chris, to you 
filling in some of that on some specifics but thank you all. We 
will get back to that in a minute.
    Mr. Portnoy, you wanted to say something. Go ahead.
    Mr. Portnoy. Yes, thank you, Madam Chairwoman.
    I would like to bring a couple of points together that were 
brought up by both Dr. Green and Mr. Glover about 
commercialization in general and what we at the NIH have been 
doing and will be doing with newer authorities.
    And so, as Dr. Green said, commercialization is not 
necessarily a linear path. It rarely is, and it takes many 
forms including direct sales from the company that gets the 
award but frequently and especially in life science space, 
depending on the technology, it is long in time and high in 
dollar investment to get technology into the marketplace.
    There are frequently partnerships, licensing deals, 
strategic partners, FDA clearance, et cetera. All of this can 
take a very long time to get technology to the market.
    And so, we at the NIH have developed many programs over the 
years to help this commercialization along and will be using 
newer authority provided under the reauthorizations.
    So, we have had what we call a Phase IIB. Many agencies 
have Phase IIBs. Everybody's is slightly different. Ours is a 
sequential Phase II that we have been doing for nearly 10 years 
now to provide a second Phase II to companies that are really 
moving their technology by and large towards FDA approval and 
that really has helped companies move further along to get them 
to the inflection point where they can attract the next level 
of investment, be it venture, angel, or strategic partner.
    We have had under the discretionary technical assistance 
authority both in the former and the current reauthorization, 
we have had a Phase I and a Phase II program. Our Phase II 
program, called commercialization assistance program, really 
helps our Phase II companies learn about to ``B'' in SBIR about 
business.
    Frequently, many of our companies, especially our new 
companies to the program which are around one third of our 
companies every year are new, they are great scientists and 
they do great research, but they do not quite understand ``B'' 
in how to take their research and get it into the commercial 
marketplace.
    So, we provide lots of guidance, training, and principal 
advisers to help them along the way, and we are going to be 
continuing that program.
    We have expanded it to STTR companies as we are allowed to 
do and increase the amount per company per the reauthorization, 
and we have been excited to do that.
    And then just finally, along with the Department of 
Homeland Security, we applied to SBA over this past summer to 
institute a Civilian Commercial Readiness Pilot Program and 
received approval, and we are working on that and hope to roll 
it out either later in fiscal year 2014 or early fiscal year 
2015 depending on the timing.
    Chair Landrieu. And this would be a good time to call on 
the SBA because they have got their plaque up, but also I want 
to, we have been trying to help them to maintain some ability 
within their budget to really promote entrepreneurship, 
development, and training based around the country.
    So, I am hoping that you all are making the connections 
here with some of these companies emerging out of what we are 
talking about here, getting them the opportunities for either a 
mentorship through the SCORE program which are at 350 chapters 
that work voluntarily to do exactly that, to help somebody that 
is wanting to start a business, get it up and started or 
through some of our partnership programs with the likes of 
Goldman Sachs and American Express or with some of our other 
programs that you all operate internally.
    So, go ahead and maybe you could comment about that.
    Ms. Raghavan. Thank you. So, first, I would like to say 
that the Civilian Commercialization Pilot Program, we have four 
agencies actually apply and all have been approved. So, we are 
looking forward to working with them to ensure that we have 
more commercialization.
    In fact, it is NIST and NASA which are the other two 
agencies as well; and it is really based on what DOD has done 
with their commercialization so that we can increase more of 
these businesses, small businesses in particular, to get to the 
next phase.
    And everyone is right. The next phase is very different for 
different companies. Some it is, some will become the next 
Googles of the world, you know, three guys in a garage who then 
go and get a billion dollar IPO, and the others will get 
bought.
    We see quite a lot of that, and one of the things that we 
are working with the SBA in conjunction with all the partner 
agencies is to figure out ways to get people to understand to 
be in business, because it is great to have a wonderful idea, 
but then how do we make you commercialize it.
    And part of it is that we have monthly webinars where the 
actual program managers themselves come all on and talk. The 
last one was NIH had over 600 people across the country.
    We have been doing these webinars due to travel 
restrictions. It is a great way, and people can listen at any 
time that they want.
    Also, we are trying to kind of marry what is going on in 
the commercialization process with other resource partners. So, 
involving our SBDCs, our SCORE, Women's Business Centers, for 
them to understand what an SBIR company is and how can they 
help them get through the business cycle.
    And then on top of that, we are trying to do demo days 
where we actually bring in SBIR recipient and have them mentor 
with accelerators across the country because it is sometimes a 
local touch that you need. It is not, okay, I am going to 
listen to a webinar. I know how to do a website, and I can 
figure out how to do a business plan but who is that person who 
is actually going to accelerate my growth in the next six 
months.
    And so, working with those accelerators who also have 
funding mechanisms which is very important so that these 
businesses can get additional funds.
    Chair Landrieu. Well, the SBA has a very important role, 
coordinating, cheerleading, facilitating, et cetera, in this. I 
want to hear from the Department of Defense.
    But, Jere, your plaque has been up for a while. So, do you 
want to comment?
    Mr. Glover. Just quickly. Dr. Green's examples where all 
things that would, under the DOD commercialization achievement 
index, would be counted as follow-on funding. The law is very 
clear. Anything that logically flows from or extends SBIR 
technology counts. I have been told informally by SBA that they 
are going to use that broader DOD definition.
    So, I think all of that will be included hopefully. That is 
what we have been told and that is the way the instructions 
will be reading.
    Pravina is nodding yes so I think some of your concerns 
have already been alleviated. So, thank you.
    Chair Landrieu. I would love to hear from the Department of 
Defense and then we will get back to you, Dr. Wessner. You 
started all of this conversation with your excellent 
presentation.
    But can Defense talk about some of the successes that you 
all have had, and Chris, we really thank you for your 
leadership on that.
    Mr. Rinaldi. Well, let me see if I can put it in the 
context of the reauthorization, which may be helpful.
    I want to begin by saying you were corect in getting the 
longer-term reauthorization. The longer term was most helpful 
because it gave us time to steer this big ship. The DOD is a 
huge ship and it takes time to change direction.
    Let me walk you through quickly what happened since 
Congress put the reauthorization in place. The reauthorization 
is quite voluminous and it added many new positive revisions to 
the program but it increased the complexity by an order of 
magnitude.
    Then on top of that, the SBA put out a large SBA policy 
directive which also put good things in place, but also 
increased the complexity of the program.
    Fortunately, the basic program is still intact, Phase I, 
Phase II, Phase III, the way we have been doing it for years. 
But as we go through the implementation, we may encounter 
unintended consequences.
    To responsibly implement this program across the 
department, we separated out tactical imperatives from 
strategic imperatives, which I would like to describe.
    The tactical imperatives are upgrades that we needed to 
make in the department to keep the ball rolling, and they were 
things such as processes, IT systems, and websites.
    We completely rewrote our solicitation so that it complied 
with the legislation and the FAR and the DFAR requirements. We 
had to keep the program going. We were flying the plane and 
building it at the same time.
    Since the reauthorization, we put out a year's worth of 
solicitations: five of them, and that amounts to about 700 
topics, 11,000 proposals, and 3,000 awards. So, we successfully 
kept everything moving.
    And DOD SBIR implementation is a high priority 
notwithstanding sequestration, furloughs, and budget 
challenges.
    Now, we are talking about strategic imperatives that are in 
the reauthorization legislation. This represented excellent 
strategic foresight, which is why Andre mentioned the five-star 
program.
    The five pillars are outreach, commercialization, 
streamlining, reporting, and policy compliance; and to really 
understand how this program works, we need to understand the 
interrelationships between all of them.
    If we do outreach well, we are going to get new people into 
this program, and we are going to get new ideas. DOD currently 
gets roughly 30 percent of new businesses in every single 
solicitation. So, we are creating businesses at the rate of 
about 30 percent.
    Streamlining. When we talk about getting money out the door 
to small businesses, streamlining is very important. We have to 
make sure that we get awards and money out as quickly as 
possible.
    Commercialization. I know Jere is big on commercialization. 
Jere's model is to sell Phase III back to DOD. I believe the 
broader model is: have small businesses work on megatrends that 
sell to the world. That is what I think the broad model is, and 
the gentleman who spoke earlier, Mr. Green, pointed that out 
exactly.
    Chair Landrieu. But this is an important subject to think 
about why the model is, and maybe there is one best model or 
maybe there are several equal models.
    Let us talk a little bit about that. And I want to come 
back. I do not mean to interrupt you, Chris.
    Mr. Rinaldi. Yes, ma'am.
    Chair Landrieu. If there are portions of our law that are 
more complicated than they need to be, please let us know. Just 
submit that in writing. I mean, our goal, and I really want to 
welcome Senator Shaheen, who has been an absolutely spectacular 
partner and former governor, and former chief economic 
development officer of her State. She understands this very 
well.
    I mean, you do need to have some kind of organizational 
structure in an industrial commons. I love that term. An 
industrial commons. There have got to be some rules as to how 
people operate in that commons so that it works well but you 
want to have as few rules and regulations as possible, as much 
freedom and flexibility to reach the goals. So if there is 
something in our reauthorization that you think is 
unnecessarily complicated, please let us know.
    Dr. Wessner, let me get to you. His presentation was 
extraordinary. He is going to give it to us. I may have you 
come speak to the whole Senate about this. I think the whole 
Senate would be interested, but go ahead, Doctor.
    Mr. Wessner. Well, thank you, ma'am. I am always very 
pleased when a Senator is pleased.
    Chair Landrieu. Yes, it is good to keep Senators happy 
because when we are not, we get very grumpy.
    [Laughter.]
    Mr. Wessner. Let me make this one very quick overview 
observation. I think that one key question that has arisen here 
is what are we doing for the innovation ecosystem around the 
SBIR award winners, how can we improve that industrial commons.
    And there are three things that are worth mentioning. One 
is we just completed a study which is outside the door in the 
Manufacturing Extension Program and the answer of that 
evaluation was that that program works pretty well but it is 
123 million in a 16 trillion economy; and our competitors, as I 
illustrated earlier, are outspending us vastly.
    Secondly, Senator Brown and Senator Blunt have introduced 
legislation for a network for manufacturing innovations and 
that would be a way of addressing this.
    You know, in the 1960s we had the missile gap which was 
more or less real. We certainly have a manufacturing support 
gap that we need to address if we are going to compete.
    Thirdly, you mentioned accelerators or several have 
mentioned accelerators and incubators. We would like to do some 
work. We just approved that on our board on Science Technology 
and Economic Policy, to figure out what works.
    You could put a lot of money in an incubator and not 
accomplish much. So, we need to be very careful about what best 
practice is. But my point is that there is a whole series of 
things with a network that the Senators have proposed, with 
strengthening MAP, getting a better grasp on best practice to 
support.
    You raised a very good question. Is there one best practice 
model or equal models? And I would submit that there are many 
appropriate models.
    The diversity of the agencies is what it is. Just the--very 
quickly, you asked the question of Dr. Green about metrics. You 
can look at publications, patent applications, patent granting 
and licensing. That is one group.
    The second group that you can look at is commercialization. 
About 60 percent in our last study of the SBIR firms actually 
reach the market.
    Now, in some cases that may mean they sold their mother 
one; but in other cases, 3 to 5 percent of those, they are 
making serious money and that is normal.
    You know, our joke that the venture capitalist with all 
their money and all their expertise, they succeed 2 out of 20 
times whereas our poor colleagues here only succeed one out of 
10. So, you see the difference.
    Chair Landrieu. Yes.
    Mr. Wessner. The other is that I think it is important to 
understand that with the commercialization you get the cost-
effective procurement that you do not get otherwise.
    You get the hard mission solved. I mean, I think, ma'am, I 
just have enormous respect. You know, we would like to throw a 
small car under the planet Mars and could you figure out some 
way of cushioning that. I mean, that is the most amazing task. 
Yes. And successfully being a key point.
    Ms. Houston. A very difficult public display of R&D that 
did not go well. It would have been quite hard on the company 
of whose fault it was that it went splat.
    Mr. Wessner. The way things usually go it would have been 
hard on the president in many cases.
    Ms. Houston. That is true.
    Mr. Wessner. The other thing that I think Dr. Portnoy 
raised which is really important to understand is the 
unexpected outcomes. I mean, the LASIK eye surgery. You had a 
technology designed to hold spacecraft together and in so 
naturally that was going to end up in LASIK eye surgery. I mean 
no one had any idea.
    And that is one of the great geniuses of the systems is 
that you put these technologies out there and the private 
sector picks them up and enables them.
    So, let me stop there but I really want to emphasize the 
importance of the broader ecosystem. We cannot just drive SBIR 
companies and then have a foreign power come in and hack their 
stuff and take it away. I really like the idea that you 
suggested of operational----
    Chair Landrieu. Absolutely. We need a security, we need a 
parameter, we need a perimeter around this. We have to think 
through that and we need this ecosystem which our Committee 
talks a lot about.
    But, let me recognize Senator Shaheen for some comments and 
she may have a question for some of you.
    Senator Shaheen. Well, thank you very much, Senator 
Landrieu, and thank you all very much for being here, and I 
want to recognize Jenny Houston, who is the Executive Vice 
President at Warwick Mills in New Ipswich, New Hampshire.
    It is very nice and clearly you have already let the panel 
know all of the great things you do at Warwick Mills. I could 
tell by the response from Mr. Wessner so I do not need to say 
more about what you are doing there.
    But let me also recognize Dave Green from PSI as well 
because you have a facility in New Hampshire also, Laser Light 
Engines. So, we are delighted to have both of you here.
    I am sure you all have spoken to the importance of SBIR and 
STTR and innovation. I could hear it just since I came in and 
the remarks that I had a chance to hear you talk about.
    I am especially proud of this program from New Hampshire 
because Senator Warren Rudman was the author of the legislation 
originally from New Hampshire, and so we have been watching it 
closely, and New Hampshire companies have benefitted greatly 
from the legislation.
    I think that speaks to the innovation that is going on 
there. And one of the things that we have heard, Senator 
Ayotte, my other Senate colleague from New Hampshire and I did 
a small business hearing when we were working on 
reauthorization for SBIR.
    One of the concerns that we heard was around the accounting 
and regulatory compliance and you may have already addressed 
this in your discussions but what we heard was concern that the 
different federal agencies have different standards and was 
there a way to make all of those standards compliant in a way 
that would reduce the unnecessary paperwork and overhead.
    I do not know if anybody has had an experience with that 
and you want to speak to that but that is my question. Is there 
a way for us to be able to reduce the paperwork to make the 
programs easier for small businesses who, as you know, often do 
not have a lot of people who do compliance but we want the 
people that they have working on innovation as opposed to 
working on paperwork, and so what can we do to streamline the 
programs in a way that make them work better for small 
business?
    Chair Landrieu. Anybody. Jere.
    Mr. Glover. Well, Senators Landrieu and Shaheen, I want to 
commend you folks for drawing attention to a concern. Your 
staff and armed services staff met with DCAA. That agency in 
particular was having trouble being consistent with itself.
    Things small businesses had done two or three years ago 
that were perfectly acceptable now are not, and so your staff 
had a meeting with them. SBTC has had five meetings with them 
now, SBDC has, and I am pleased to report that DCAA is 
recognizing that they should not be applying the same standard 
to a small business that they do to Boeing.
    They should not be doing the same kind of auditing, the 
same kind of concerns on small business that they do with big 
companies. DCAA has 1,000 new auditors to train. This is a 
success story.
    Senators, you focused the attention on them. SBTC has met 
with the head of DCAA five times, explaining the problems. They 
are working with us. Hopefully, we are going to see some real 
positive results coming out of that.
    So, thank you Senators Landrieu and Shaheen for drawing the 
attention. Thank you for having your staffs and Armed Services 
staff meet with DCAA. I am pleased to say at this stage we have 
had five meetings and they are very promising.
    Chair Landrieu. Okay. Senator, another question?
    Senator Shaheen. No.
    Chair Landrieu. Do you want to comment?
    Ms. Raghavan. I was just actually going to say that 
simplification is a very important part and all of us have been 
looking at it--at reauthorization.
    And one of the things from doing the Interagency Policy 
Committee reports and working together is that we have decided 
to have working groups start off in the new year to look at 
some of the other aspects, and one of them is looking at 
simplification and how do we actually get to more companies and 
make it easier for them and is it using technology that we 
already have such as using things that make it just easier to 
read a solicitation or just having at one place and really 
looking at that and all the agencies have been great on coming 
on board and working on these groups to make sure that we do 
make it easier for small businesses to participate and actually 
become successful.
    Chair Landrieu. Okay. We have about 10 or 15 minutes left. 
We are going to end our meeting a little bit shorter than 4:00. 
But let me call your attention to the graph which you can see 
are in Mardi Gras colors. We are in great anticipation of Mardi 
Gras celebrations soon in Louisiana and other places, other 
lucky places.
    You all can see that the green states are the states that 
receive the most number of awards. That would be Washington 
State, California on the West Coast, New York, Massachusetts, 
Virginia, North Carolina on the East Coast, Texas, South.
    Then, of course, the yellow are the middle 16 states, and 
then the bottom 18 are in the purple which would be 
unfortunately Louisiana, Mississippi, South Carolina, West 
Virginia, four of our poorest states in the union, and then up 
towards the north central part of our country.
    I want to ask each of you representing a department or 
agency here. What are you doing to meet the new goals of our 
reauthorization which were to reach out more aggressively to 
some of these states? And whoever wants to start with what you 
have done or what you are planning to do would be very helpful.
    Go ahead, Manny.
    Mr. Oliver. Yes, I think that there are a couple of things 
we have done and one thing that we are planning to do with 
regard to outreach. In terms of what we have done, I think 
Pravina mentioned webinars before. Starting in 2012, we 
implemented webinar-based outreach; and over the last two 
years, we have reached almost 3,000 potential applicants 
through that program. This is much greater than the number of 
people we meet through National SBIR Conferences.
    Applicants from every state in addition to D.C. and Puerto 
Rico have attended those webinars. So, we are getting to those 
underrepresented states. For how DOE defines underrepresented 
states, about 30 percent of the webinar participants have come 
from those states. So, webinars are a much more cost-effective 
way to do outreach, and we align them with our solicitations.
    When you go out and do outreach, if you do not have a topic 
ready for somebody to apply to, it just goes to the back of the 
mind and then they forget about it. So, we time our webinars to 
occur when we release topics. We get our program managers in 
front of applicants to tell them what they are looking for in 
terms of technology and try to make it a much more personal 
process even though it is still a webinar. We have found that 
to be very successful.
    For particular states, we have also reached out to the 
SBDCs, the Small Business Development Centers, and also other 
organizations. For DOE, a lot of the clean tech organizations 
exist in some of these states and we have gone out to those 
states to do personal visits and talk to those communities. 
Now, we have not visited all the underrepresented states but we 
are working our way through the list.
    Finally, what we are planning to do for this year with the 
administrative funds is to implement a Phase Zero assistance 
program similar to that in Kentucky. That program is focused on 
applicants from Kentucky but we would like to include all of 
the underrepresented groups. These include the minority-owned 
businesses, woman-owned small businesses, and especially first-
time applicants to government R&D.
    Chair Landrieu. All right. That is at the Department of 
Energy. Are there any other departments that want to speak up 
about what they are doing or planning to do?
    Go ahead, Mr. Portnoy.
    Mr. Portnoy. Thank you. So, at the NIH, we have been doing 
many of the similar things; and in fact, I would say also we 
are and will be coordinating with SBA on both webinars and on 
more or less an outreach plan across all agencies.
    But we have also been working with our IDeA program, the 
Institutional Development Award program which represents within 
NIH the 23 states plus D.C. and Puerto Rico which are 
underrepresented in NIH funding and coordinating with that 
program to present at their regional meetings in the purple 
states across the country.
    In addition, we held our large annual conference this past 
year a few months ago in Sioux Falls, South Dakota, a 
purposeful attempt to hit both geographically regions of the 
country we do not get to and also to a place where we do not 
have a lot of awards.
    The conference was one week after the shutdown so we lost 
attendees but we did manage to get all of us out there and we 
did have over 370 plus attendees. Of course, quite a number 
from South Dakota, over 100, and other various places.
    Chair Landrieu. That is a very good strategy too, holding 
your conferences in the purple states to just give them more 
exposure. That is a good idea.
    Mr. Portnoy. Thank you.
    Chair Landrieu. Homeland Security.
    Ms. Sobolewski. Sure. Thank you, Senator.
    Along with Manny from DOE and Matt, we are doing very 
similar things with webinars. We reach out to several women-
owned small business organizations and try to leverage some of 
that and some of the socially and economically disadvantaged.
    We go out and speak or do webinars or webcasts to any 
organization that reaches out to us including states.
    What is more puzzling to us in some of those purple states 
because I firmly believe you can send me to, I will not pick 
one but any one that does not typically do Homeland Security-
type of technologies and we would not get one proposal.
    But what is puzzling to us are states like Ohio or Florida 
or Idaho that we know have technologies that are as strong as 
in some of these other agencies, and for some reason they are 
submitting proposals to us but they are not being successful.
    And so, we are trying to scratch our heads and figure out 
how can we communicate our needs better so that they have 
higher success rates along that way too.
    So, we reach out to underrepresented groups and in states 
as well but also those states that we think should be having 
more success with DHS but for whatever the reason are not.
    Chair Landrieu. Okay. Dr. Jain.
    Mr. Jain. Madam, as I was indicating earlier, 2006 was the 
last year when federal agencies really were underwriting the 
National SBIR Conference. NSF used to underwrite the national 
conference.
    After that year, holding the National SBIR Conference fell 
upon states. States do not have resources to hold these 
conferences. They require a big commitment: financial and 
personal. Very few states can make these commitments. Certainly 
not those states that are in purple and even in yellow on the 
map. They do not really have enough manpower or resources.
    Yes, agencies have been doing their own conferences. For 
example, Kentucky hosted the annual NIH conference in 2012 but 
I know did not get any financial support from NIH. It is hard 
to come up with a program that can be supported financially.
    You make commitments for hotels, you make commitments for 
speakers and for other things. For the last two years or 
beginning this year (2013), the national SBIR conference is 
being held here in Washington, D.C., thanks to the leadership 
of John Williams, who has been named the SBIR person of the 
year. He has taken the lead to coordinate the national SBIR 
conference also in 2014.
    But for a small business person to come to D.C. for four 
days, is nearly impossible. There are a lot of travel costs for 
him or for her.
    I think we need to bring back the conferences in the fall 
and the spring. These can be held at different geographical 
locations, and I think you will see a lot more businesses will 
come.
    Outreach has taken a hit. Yes, the SBIR funding level has 
gone up. The SBIR/STTR program reauthorization is now there but 
I think that outreach has been overlooked. That part has to be 
taken up by all the agencies.
    I agree that webinars are good and have a place, but they 
are not the alternative for in person contact at national 
conferences. I know what happens in Kentucky and how we have 
been successful. We meet with people one on one, hold their 
hands, and tell them their ideas can work.
    If there is a high risk, Federal agencies will take that 
risk for you but you need to develop your proposal. We teach 
them how to do this. We bring them on board.
    They do not listen to me anymore because I repeat things 
like a broken record. But they will listen to the federal 
agencies because they know that they control the purse. That is 
where the money is coming from.
    Yes, we got support from the governor and the legislators 
in Kentucky. We have a Kentucky Matching Funds Program that is 
supporting our businesses but first they have to win the 
federal SBIR/STTR program before they can apply for that. That 
is number one. So, federal agency ownership is missing here for 
the national conference.
    The second one is the SWIFT tours that we used to have at 
one time. There was a bus tour that program managers used to 
take to go to specific geographical locations. A couple of 
program administrators will board on the bus and they would be 
in one city today, another the next morning. The tours brought 
managers together but at the same time they used to cover the 
area that otherwise would not be covered through the National 
SBIR Conferences. By holding national conferences in a city 
with good airline connections and with big hotels you miss 
other geographical areas.
    Chair Landrieu. Those are excellent points because we 
really have to make this a national program, all 50 states, all 
communities, urban, suburban, rural, minority, and women; and 
that is a big focus on the leadership of this Committee.
    Mr. Jain. One more minor point if I can add it here.
    Chair Landrieu. Yes, go ahead, one more and then we are 
going to get Dr. Wessner.
    Mr. Jain. The FAST program that we were fortunate to get 
but it is just a $2 million program covering only 20 states. As 
you are showing there, there are many more states that need 
help, particularly for businesses in rural areas, the women-
owned businesses, and other targeted businesses.
    Every state needs money. My state may contribute some money 
if we get federal money. We need to increase the FAST funding 
level to cover more states, not just 20. This program is for 
every state.
    Thank you, ma'am.
    Chair Landrieu. Thank you.
    Dr. Wessner.
    Mr. Wessner. Thank you, Madam Chairman.
    I would just like to elaborate quickly. It is not only a 
geographical challenge but we have a volume coming out from our 
meeting last February on minorities and women outreach.
    And we have a growing cohort of women engineers, 
particularly in the biomedical space, and we do not seem to be 
able to capitalize on that. I mean a part of the problem seems 
to be you may be familiar with that joke about, particularly 
these days, about the old guy who keeps praying every night to 
win the lottery; and finally there is a flash of light and a 
request for a little help, buy a ticket.
    Women, if they are going to win the awards, have to apply; 
and that seems to be where one of the problems is. So, we need 
to have a targeted outreach both in geographically 
disadvantaged areas. But even in some of the leading schools, 
we are simply not getting the applicants we need. I think with 
modest sums, we could address that.
    Lastly, could I just invite both of you Senators and your 
staff and my colleagues here, on February 5 we are organizing a 
meeting at the National Academies on the SBIR/STTR and the 
commercialization of university research where we want to 
highlight the crucial role this program plays in moving 
research from the university and into the market.
    Chair Landrieu. Thank you.
    Mr. Wessner. We would be deeply flattered if either of you 
could join us.
    Chair Landrieu. Thank you. I would love to. I will mark it 
on my calendar now. So will Senator Shaheen, and we will see if 
we can be there. We will try to get other members of our 
Committee.
    I think this is a really important subject for the whole 
country, not just this program but the ramifications of 
research and development and commercialization for the future 
economy of our Nation and in keeping us competitive with the 
rest of the world.
    Now, Mr. Rusco, you have not said anything.
    Dr. Savoie, you have not added anything. I do not want to 
close this meeting without giving you a chance. Did you want to 
add anything from your perspective on any of the things that we 
have mentioned?
    Mr. Rusco. Thank you. As you know, GAO is performing 
oversight of this program and we are nibbling on the edges of 
it because the program essentially is achieving many of its 
goals. We have reported on that over the years.
    There are some areas that we think could be improved, and I 
would like to just name a couple right now. There is some 
confusion in some agencies as to how to calculate the required 
spending, and only three of 11 agencies over a six-year period 
from 2006 through 2011 actually achieved the full spending of 
their requirements.
    Some of the reasons we got when we asked the agencies this 
was that they were saying, well, we average it over two years. 
Well, that is not what the law says. It is a yearly thing.
    Others say, well, you know, as a program manager I am told 
to spend this amount and they think of it as what they are told 
to spend, a maximum, not as a minimum.
    It is a cultural issue. I can see their point. If you are a 
program manager and you are told to spend $3 million or $30 
million, you are not going to go back to your boss and say I 
spent $35 million, give me a raise.
    So, there are some issues there that are not at the program 
level, that are at the agency level and they need to be 
addressed.
    Secondly, and I think this maybe ties in to the outreach 
and as well as measuring the effects of the program and the 
benefits of the program.
    SBIR.com needs some work. There are still many, many areas 
where you have data that are inconsistently input or missing 
data about awards or types of recipients and/or 
commercialization.
    These things have been problems for the program for many, 
many years and I think it would help to have a better database 
that would allow people to act on that.
    Chair Landrieu. Who is responsible for that? Which agency? 
Is that Small Business?
    Ms. Raghavan. [Indicating.]
    [Laughter.]
    Chair Landrieu. There she goes. All right. But thank you 
and we will get your full report.
    Bobby Savoie. Dr. Savoie.
    Mr. Savoie. Well, I did not say much because most of the 
conversation was focused on Phase I or even Phase II SBIRs. I 
would like to focus more on Phase III.
    We did receive a Phase I SBIR from the Department of 
Homeland Security to develop an open source common operating 
picture because post-Katrina many of the agencies were not able 
to speak to one another or exchange information.
    So, we developed a geospatial information system that 
allowed information on a geospatial level to be exchanged 
between agencies.
    As you mentioned, the Department of Homeland Security is 
not in a position to really fund a lot of Phase III grants. 
However, we were able to obtain a Phase III SBIR grant from the 
Navy to tie in their METOC, meteorological and oceanographic 
data, which we developed for the Navy and tied that into our 
Opencop program and then were able to provide that information 
to not just the Navy but multiple other entities.
    That is now led--we also, I should say, used that same 
program to tie together a number of very different geospatial 
entities, or asset lists would be the best way to describe it, 
during the BP oil spill.
    The reason I bring all of that up is that has now led to a 
joint venture that we are working with a small company to tie 
in weather data with a geospatial system to look at the impact 
of, say, a hurricane, the damage from flood versus wind. It is 
now a requirement to determine that to a certain degree of 
certainty which is not possible without some additional 
information.
    So, we are currently working on that, and I bring that up 
because I am very familiar with the Fraunhofer system in 
Germany. We do not have any such thing here unfortunately.
    However, I have found that the Phase III SBIRs do provide 
small businesses with the ability to take technology to the 
next level and possibly even approximate some of what 
Fraunhofer system does in Germany. It does not get us anywhere 
near as good as the Fraunhofer system is but it is a good 
start.
    The issue here is that numerous people in the different 
agencies do not really know what a Phase III SBIR is all about. 
So when we go forth and talk to different program managers and 
they love the technology and they love the way we can pull data 
together, but they do not realize that they can use the Phase 
III SBIR to issue a contract for that work. They may have the 
money and the need but then we get stuck.
    Again, I am not trying to propose that as a replacement for 
a Fraunhofer-type system but it is something that would be very 
helpful to larger small businesses that know what the ``B'' 
stands for and know how to take something to market but would 
need that little extra push. It is also something that could be 
of great value to other agencies where we are sharing 
information that we developed for the Department of Homeland 
Security with the Department of Defense, in this case the Navy, 
and the Army is very interested in the same thing for its 
helicopter program.
    Eighty percent of the crashes in Afghanistan are due to 
non-enemy fire. They are due to lack of power via the changes 
in weather, and that is something that the system we have would 
address.
    So, my only, and again I did not bring that up because we 
were primarily focused on Phase I and Phase II, but if we focus 
more on Phase III, I think we can generate more of a commercial 
output.
    Chair Landrieu. Thanks. And Senator Shaheen wants to follow 
up on that, and this may be our last word.
    Senator Shaheen. Well, thank you. Mr. Gudger, this is 
actually a question for DOD and it has to do with the Phase III 
awards because Section 5122 of the Defense Authorization Act in 
2012 requires the Secretary of Defense to establish goals and 
incentives for DOD and its large prime contractors to increase 
the number of Phase III SBIR awards to small businesses.
    It is my understanding that DOD to date has not put in 
place the incentives and goals that are required by that 
legislation. Do you know if that is the case and what is being 
done to address that?
    Mr. Gudger. First, that is a great question but that is not 
the case. In 2012, the Secretary of Defense added in his 
defense planning guidance specific language that goes out. This 
is a classified document but it goes out to the Chairman of the 
Joint Chiefs, the directors of field agencies and activities 
and the military departments.
    It specifically called out the development of our goals and 
incentives for SBIR and STTR, and we further implemented that 
here----
    Senator Shaheen. For Phase III?
    Mr. Gudger. For all phases but Phase III in particular.
    And we further implemented that guidance with our DOD 5002, 
just released here recently, where we were very specific not 
only to develop goals and incentives for industry but we also 
are working with our PEOs, our program executive offices, where 
program managers sit that oversee these Phase IIIs. It is very 
deliberate, very clear language and it is going well.
    Senator Shaheen. Good. Well, I am very pleased to hear that 
because, as you know, that could make a difference for 
thousands of small businesses across the country.
    Mr. Gudger. It is a quantum leap in the right direction.
    Senator Shaheen. Good. That is great.
    Chair Landrieu. Okay. I just am going to conclude with, 
just to stay on this Phase III, because in our legislation 
there was a requirement for all of the agencies to provide some 
accountability on this subject.
    I sent a letter in March regarding the commercialization 
section of the law to get an update from all of you on how you 
have established your Phase III goals, are the acquisition 
agencies complying with the SBIR/STTR preference and sole 
source, you know, requirements.
    So, we will get some more information about that. I am 
going to get a brief with the members of the Committee that 
want to from our GAO specifics about weaknesses in the program 
that we have to strengthen, and we will follow up very 
specifically on all of the very good suggestions that you all 
made today on making sure that we are really squeezing every 
benefit we can out of this federal program but recognizing that 
universities--and let me just say this before we close--are 
funded primarily by the states.
    You know, the United States government does not have a line 
item for universities. There are line items in every state 
budget for the University of New Hampshire, the University LSU, 
the university here, and we are seeing some very tough budget 
cuts coming down from the states to the universities.
    I want to say we have seen it unfortunately more than I 
would like to in the State of Louisiana, which is really 
affecting the bottom line here because the Federal Government 
is a partner. State governments have to be a partner, and then 
local, you know, economic development, Chamber of Commerce, 
local incubators, accelerators that are sometimes and very 
often at the local or county level, not just at the state 
level, are a big part of creating this ecosystem.
    While we may not be as organized as Germany is right now on 
this and we may not even want to organize ourselves the way 
they do, it is important that we recognize the trend lines that 
are worrisome, Dr. Wessner in this regard for the future 
economic growth of this country.
    Our Committee has a certain role to play. We are, of 
course, not the only Committee but I think we have a 
particularly important role to play in this space.
    So, I really thank Senator Shaheen. She has just been a 
terrific partner and many of the other members have expressed a 
great interest in this program.
    So, keep them briefed as you all go about your business and 
we will follow up with you all sometime in the months ahead to 
see where we are headed.
    All right. Thank you all so much and the meeting is 
adjourned.

    [Whereupon, at 3:42 p.m., the Committee was adjourned.]
    
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