[Senate Hearing 114-602]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-602

               REAUTHORIZATION OF THE SBIR/STTR PROGRAM:
 THE IMPORTANCE OF SMALL BUSINESS INNOVATION TO NATIONAL AND ECONOMIC 
                                SECURITY

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 28, 2016

                               __________

    Printed for the Committee on Small Business and Entrepreneurship
    
    
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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------                              
                   DAVID VITTER, Louisiana, Chairman
             JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                  Zak Baig, Republican Staff Director
               Robert Diznoff, Democratic Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........     3

                               Witnesses
                                Panel 1

Williams, John, Director of Innovation and Technology, Office of 
  Investment and Innovation, U.S. Small Business Administration,.
Washington, DC...................................................     4
Smith, Robert, Director, Department of Navy SBIR/STTR Programs 
  Office of Naval Research, Arlington, VA........................     9

                                Panel 2

Kline-Schoder, Robert, Ph.D., President, Creare LLC, Hanover, NH.    35
Glover, Jere W., Executive Director, Small Business Technology 
  Council, Annapolis, MD.........................................    40

          Alphabetical Listing and Appendix Material Submitted

Biotechnology Innovation Organization
    Prepared statement...........................................   108
Cantwell, Hon. Maria
    Prepared statement and questions.............................   105
Glover, Jere W.
    Testimony....................................................    40
    Prepared statement...........................................    42
    Testimony charts.............................................   102
Kline-Schoder, Robert
    Testimony....................................................    35
    Prepared statement...........................................    37
Keller, Roy
    Prepared statement...........................................    33
Shaheen, Hon. Jeanne
    Testimony....................................................     3
Smith, Robert
    Testimony....................................................     9
    Prepared statement...........................................    11
Vitter, Hon. David
    Opening statement............................................     1
Williams, John
    Testimony....................................................     4
    Prepared statement...........................................     6

 
                    REAUTHORIZATION OF THE SBIR/STTR
                    PROGRAM: THE IMPORTANCE OF SMALL
                    BUSINESS INNOVATION TO NATIONAL
                         AND ECONOMIC SECURITY

                              ----------                              


                       THURSDAY, JANUARY 28, 2016

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
Room 428A, Russell Senate Office Building, Hon. David Vitter, 
Chairman of the Committee, presiding.
    Present: Senators Vitter, Fischer, Ernst, Ayotte, Enzi, 
Shaheen, Cardin, Coons, Hirono, and Peters.

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Good morning. Let us go ahead and get 
started. Welcome, everyone, and thanks for joining us for the 
Senate Small Business and Entrepreneurship Committee's hearing 
on reauthorizing the Small Business Innovation Research and 
Small Business Technology Transfer Programs.
    We are going to be hearing from, first, a panel of federal 
officials and then a panel of stakeholders, and I want to thank 
all of our witnesses today for being here and for your work.
    While small businesses are more easily able to adapt to 
market changes and drive the innovation sector of the economy, 
it is often very difficult for smaller firms and entrepreneurs 
to find funding for their new ideas, especially in the critical 
early stages of R&D. That is why the very existence of SBIR and 
STTR Programs is crucial.
    These programs are vital to the success of many small 
businesses and have ultimately helped create thousands of new 
jobs by fostering innovation and stimulating the economy 
through public-private partnerships. Likewise, they are crucial 
to federal agencies as those agencies solve some of our biggest 
science and technology challenges, and giving small innovative 
firms access to already appropriated federal R&D funding is a 
win-win for entrepreneurs and for taxpayers.
    These programs exist to foster innovation and to facilitate 
public-private partnerships so that firms have the funding they 
need to develop new technologies and innovations that help 
federal agencies meet their R&D needs. The programs not only 
create jobs, but also lead to a path for commercialization for 
many participating firms, which is a crucial key to their 
success.
    These programs have been front and center in improving our 
nation's capacity to innovate. Over the course of the SBIR 
Program history, from 1982 to 2014, federal agencies have made 
over 152,000 SBIR awards to small businesses to develop 
innovative technologies. The total dollar amount awarded out of 
existing federal R&D budgets through that SBIR mandate is $42 
billion. In 2014 alone, SBIR has given 5,496 Phase I and Phase 
II awards worth $2.2 billion. The SBA is currently reporting an 
average of 5,000 awards per year.
    Our discussion this morning will examine the SBIR/STTR 
Programs and why they are an effective way to meet national 
needs while jump-starting entrepreneurs, growing our economy, 
and creating jobs. The hearing will focus on the successful 
increase of innovation and how the incentive to commercialize 
these technologies helps our country's general economy as well 
as our national security.
    As many of you know, Congress last reauthorized the 
programs in 2011 for a period of six years, so that means the 
programs are currently set to expire September 30, 2017. As 
Ranking Member Shaheen and I can both attest, it was a 
tumultuous process to complete the last reauthorization. 
Participating agencies and firms had to endure a process that 
took three years and 14 short-term extensions.
    I am optimistic that, working together with Ranking Member 
Shaheen, we will work to avoid those types of delays that can 
really cripple innovation and create uncertainty for those 
small businesses affected. Reauthorizing these programs this 
year will ensure stability and foster an environment of 
innovative entrepreneurship by directing more than $2 billion 
annually in federal R&D funding to the nation's small firms 
that are most likely to create jobs and commercialize their 
products.
    SBIR has been a priority of mine this Congress. My bill, S. 
2136, the Improving Small Business Innovative Research and 
Technologies Act, is the only SBIR-related bill reported out of 
any committee so far this Congress. The bill, which received 
unanimous support, establishes the Regional SBIR State 
Collaborative Initiative Pilot Program and will help low-
participation states to work together to attract R&D funding 
for their innovative firms.
    The pilot program provides one-year renewable grants of up 
to $300,000 to a regional collaborative to address the needs of 
small business in order to, one, be more competitive in the 
proposal and selection process for SBIR and STTR Program 
awards, and two, increase technology transfer and 
commercialization.
    I am grateful to have the support and guidance of Senator 
Shaheen and look forward to working with her to ensure that 
this program is included in the reauthorization bill.
    Now, let us get today's conversation started. I welcome our 
expert panelists, who will inform us of their insights into 
SBIR and STTR Programs, how it has made a difference in their 
work and the innovative advances of our nation, and provide us 
with thoughts and opinions on reauthorization.
    Again, I want to thank everyone for being here today and 
look forward to our discussion.
    With that, I would like to turn it over to our Ranking 
Member, Senator Shaheen.

OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Shaheen. Well, thank you very much, Mr. Chairman, 
and thank you for calling our first hearing of the year to 
discuss the need to reauthorize both the SBIR Program, the 
Small Business Innovation Research Program, and the Small 
Business Technology Transfer Program.
    As you have pointed out, these are programs that have had 
broad bipartisan support, and they have had that support 
because they have been so effective. The programs work by 
harnessing the creativity and the ingenuity of America's small 
businesses to meet the research and development missions of our 
federal agencies, and they also support the growth of those 
small high-tech companies that create good jobs in local 
communities across the country.
    And, as you pointed out, the last time we tried to 
reauthorize these programs, it took three years and 14 short-
term extensions, so it is very important, I think, that we are 
starting early. I think we ought to make these programs 
permanent so we do not have to go through this process 
periodically, but that will be part of our discussion as we go 
forward.
    And, you know, we recently--we have been doing military 
reform hearings in the Armed Services Committee in the Senate 
and we had a hearing not too long ago talking about R&D within 
our military. And, one of the things that people express 
concern about is the declining support for research and 
development for innovation within the military. But, Dr. 
Jacques Gansler, who testified, pointed out that the only 
program that we can consistently count on is the SBIR program, 
and he called it a no-brainer that we should continue to 
support this.
    In fact, back in 2011, when we were working on 
reauthorization, Dr. Charles Wessner, who led the National 
Academies of Science study of the SBIR Programs, testified, and 
I quote, ``The rest of the world thinks this is the greatest 
thing since sliced bread. The rest of the world is copying it, 
putting it on steroids, while we are debating it.''
    Well, hopefully, given the bipartisan support, we are not 
going to continue to debate it. We are going to move forward, 
point out again why this is such a good investment at the 
federal level, and get this reauthorized very quickly.
    So, let me, before I conclude, take a minute to welcome one 
of our next panelists, who is Dr. Bob Kline-Schoder from Creare 
in New Hampshire. I want to point out Creare, in particular, 
because back when former Senator Warren Rudman of New Hampshire 
was working on developing this legislation, and maybe that is 
one reason I feel so supportive of it, they worked with Creare 
in thinking about how to structure it so it would really work. 
And, obviously, there have been a lot of improvements over the 
years, but I think this is--both SBIR and STTR are things that 
work and we should continue to support them.
    So, thank you very much, Mr. Chairman, for moving forward, 
and I thank all of the witnesses who are here today.
    Chairman Vitter. Thank you, Senator Shaheen.
    Our witnesses at this hearing today have administered, 
promoted, and participated in the SBIR and STTR Programs. They 
will speak to the successes and challenges of these programs in 
expanding opportunities for small innovative firms while 
solving some of the most pressing science and technology 
challenges U.S. government agencies are trying to address.
    The witnesses on our first federal panel are Mr. John 
Williams, Director of SBA's Office of Innovation and 
Technology. His primary responsibility is to serve as Senior 
Principal for the Federal Policy Implementation and 
Programmatic Oversight of the SBIR and STTR Programs across all 
11 participating agencies.
    And our second witness is Mr. Robert Smith from the 
Department of the Navy's Office of Naval Research. In his 
current capacity, Mr. Smith manages the Navy's SBIR and STTR 
Programs and assists small businesses in getting their 
technology fully developed, tested, and inserted into products 
and services used by the Navy.
    I certainly look forward to hearing from you all. Your full 
written statements will be part of the hearing record, and 
here, you will have five minutes to present your testimony to 
the committee.
    And, so, Mr. Williams, you may begin.

    STATEMENT OF JOHN WILLIAMS, DIRECTOR OF INNOVATION AND 
  TECHNOLOGY, OFFICE OF INVESTMENT AND INNOVATION, U.S. SMALL 
            BUSINESS ADMINISTRATION, WASHINGTON, DC

    Mr. Williams. Chairman Vitter, Ranking Member Shaheen, and 
distinguished members of the committee, thank you for inviting 
me here today to discuss the SBIR and STTR Programs, 
affectionately known as America's Seed Fund.
    I would like to begin by formally acknowledging the great 
work of Dr. Arthur Obermayer, famed entrepreneur, activist, 
technologist, and philanthropist who passed away three weeks 
ago. Arthur and his wife, Judy, were honored this past summer 
at our SBIR Hall of Fame Awards for their seminal work on 
helping spearhead the creation of the program, working with 
Senators Kennedy and Rudman. Having the opportunity to work 
with the entrepreneurial folks like Arthur makes the efficacy 
and the efficiency of these programs all that much more 
important and personal to me.
    Many of you know me from the rigor, success, and discipline 
I brought to the Navy SBIR Program. A little over a year ago, I 
was asked by SBA to provide oversight across the federal agency 
programs. I accepted that position and now make it my personal 
mission to ensure that we deliver a quality product to all 
stakeholders.
    At the ceremony where we honored Arthur, we also had the 
privilege to honor companies like Hydronalix, Flexsys, Orbital 
ATK, and LiftLabs, companies using SBIR dollars to push 
frontiers of technology across multiple spectrums, from 
national security, to material science, to space exploration, 
and to health care.
    Last week, prominently featured in the New York Times, 
there were two SBIR-funded company CEOs, Nina Tandon of EpiBone 
and Eben Bayer of Ecovative Design, discussing their coveted 
invites to the World Economic Forum at Davos, not an easy 
ticket to get. They discussed how their companies' promising 
technologies could help solve pressing challenges in health 
care and waste reduction and were invited over to that world 
event to discuss those and find customers.
    The SBIR and STTR Programs stimulate our nation's economy 
and increase our national security by providing seed money to 
small businesses, funding that is in short supply from other 
private sources. This funding is critical at a critical time, 
to make the advance from early stage ideas to product and to 
future follow-on funding.
    The Air Force recently published the most comprehensive 
study on commercialization of SBIR funding. I have copies of 
that for the group. This study shows substantial follow-on 
activities and that they take a variety of forms. It is not a 
direct path from Phase I to Phase II to Phase III. There is 
licensing, there is partnering, a variety of ways that the 
technology moves along, but all of it shows a very high percent 
of the SBIR dollars go into follow-on research that gets into 
products and things like that.
    SBA's role is to provide programmatic and policy oversight. 
We work closely with the agencies and the external stakeholders 
to ensure that the intent of Congress is carried out in the 
operation of the programs.
    Last month, many of you and your staffers attended the SBIR 
Innovation Awareness Day at the Rayburn Building. The turnout 
was fantastic and the companies present were truly cutting-
edge. None of those companies' groundbreaking efforts are 
possible without your continued support.
    The SBIR and STTR Programs are not only critical components 
of America's economic growth, they are also the keys to the 
next generation of science and technology advances. Jobs 
creation is great, but jobs creation plus innovative research 
leads to national competitiveness, and that is what sets this 
great country apart from the rest of the world.
    Since 1982, through the SBIR and STTR Programs, 11 agencies 
have made over 150,000 awards, over $40 billion in funding. 
Thanks to this committee, the SBIR and STTR Program was 
reauthorized, as mentioned, with a lot of pain, but by December 
of 2011. We look forward to your support to reauthorize it 
again prior to the 30 September 2017 end.
    As SBA's Director of Technology and Innovation, I will 
continue to work closely with you and our sister agencies to 
make sure that the SBIR and STTR Programs are priorities in 
each agency and continue to benefit American small business.
    This Senate at this time can send a message going forward 
that smart, innovative programs can originate from all corners 
of the United States government. I look forward to working with 
you to make these programs permanent.
    Thank you.
    [The prepared statement of Mr. Williams follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you, Mr. Williams.
    And now, we will hear from Mr. Smith.

STATEMENT OF ROBERT L. SMITH, DIRECTOR, DEPARTMENT OF THE NAVY 
SBIR AND STTR PROGRAMS, OFFICE OF NAVAL RESEARCH, ARLINGTON, VA

    Mr. Smith. Mr. Chairman, Senator Shaheen, and members of 
the Small Business and Entrepreneurship Committee, thank you 
for the opportunity to speak to you today about SBIR/STTR, 
specifically the value the Department of the Navy achieves from 
the program.
    The Department's fleet and force value the SBIR/STTR 
Program because through the program, American small businesses 
throughout this country have proven over and over again their 
ability to quickly provide lean, agile, and innovative 
solutions to the warfighters' requirements to help ensure our 
naval warfighters have the best technology solutions available 
to support military and humanitarian operations today and help 
achieve even greater mission success tomorrow.
    An adage we believe in the Navy is you cannot have 
successful technology transition into acquisition, 
commercialization, without a successful company. I am proud 
that we help companies realize their success. Let me give you 
three examples.
    International Mezzo Technologies in Baton Rouge, Louisiana, 
thermal management solutions for our electronic components in 
Navy radars.
    Creare from Hanover, New Hampshire, advanced manufacturing 
technologies and processes.
    And Hydronalix from Sahuarita, Arizona, first created the 
unmanned air vehicle, Silver Fox, used by the Marines in 
combat, and recently in EMILY, the Emergency Integrated 
Lifesaving Lanyard system being used for humanitarian 
operations in the Mediterranean.
    Let me talk briefly on metrics that support improving the 
business of the science such as the solicitation, contracting, 
funding, and execution of management functions. Ensuring we 
have timely and accurate data to support sound decisions is key 
to the effective execution of the program. I do not believe we 
are producing the reports that you need, and I and the Navy 
SBIR/STTR Programs stand ready to support, for want of a better 
term, an SBIR data summit where we can agree on the required 
data to be collected and development of processes to collect 
and report the data in the most timely and efficient manner. 
This data summit can help establish a new baseline for metrics 
that matter.
    For the Navy, an SBIR/STTR metric that does matter is 
investment of non-SBIR/STTR mission dollars. Beginning with 
2010, that investment, those Phase III fundings, is unmatched 
throughout the Department of Defense and the federal 
government. Our Phase I awards rebounded in 2014 to 423 awards 
and continued in 2015 with 390 awards. Awards made to new 
firms, despite the intense competition for SBIR/STTR awards--
some solicitations sometimes garner 30 proposals to each 
topic--we have averaged 22 percent awards to first-time winners 
in every solicitation since 2012, due, I believe, to improved 
outreach.
    Reducing award delays. In 2015, the Office of Naval 
Research piloted a program focused on improving contracting 
processes. I am happy to say, using the three percent 
administrative funds that you provided in the 2011 
reauthorization, we have been able to reduce Phase II award 
times from 11.2 months to 4.7 months.
    Phase III investment. Three-hundred-and-ninety-four million 
dollars in non-SBIR/STTR dollars were invested in 145 projects 
in 2015. That is an average of $2.7 million per project to 
mature vitally needed technologies.
    As this committee approaches SBIR/STTR reauthorization, 
consider four factors that have made the Department's SBIR/STTR 
Program successful.
    Culture. Our naval research and development enterprise, 
including universities and national research organizations, 
consider SBIR/STTR part of the solution for quickly delivering 
affordable innovation to our warfighters. In short, Navy 
acquisition gets it.
    Our dedicated professionals make continual improvements to 
small business assistance, such as improving partnering 
opportunities with industry and government through our proven 
SBIR/STTR Transition Program and its annual forum.
    Outreach. Through SBA's SBIR Road Tours, national or 
regional SBIR conferences, and our own command visits to 
regions throughout the U.S., we look for new entrepreneurs, 
especially women, veterans, and the disadvantaged, for our 
SBIR/STTR pipeline.
    Leadership. I would be remiss if I did not mention the 
support the Navy program receives from Mr. Kenyata Wesley and 
the OSD Office of Small Business Programs. Even more 
significant is the senior leadership support the program 
receives from Secretary Mabus, Secretary Stackley, the Chief of 
Naval Operations, the Chief of Naval Research, and Ms. Emily 
Harman, Director of Navy Small Business Programs, here with me 
today. These champions provide continuous advocacy for the 
program, including guidance to our acquisition community.
    In conclusion, it is my honor to be part of such a 
productive and valued program that directly supports our 
warfighters while also providing solutions to our nation. 
Performance as mentioned above led Secretary Jacques Gansler to 
tell the Senate Armed Services Committee recently that SBIR/
STTR should be made a permanent program. The Department of the 
Navy continues to seek improvements in our program, to seek a 
more diverse vendor base, increase small business integration 
into Navy business, and leverage small business advances for 
Navy requirements.
    I look forward to working with you and your staff regarding 
the importance of SBIR/STTR authorities.
    [The prepared statement of Mr. Smith follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Great. Thank you both very much.
    Now, we will start rounds, five-minute rounds of questions, 
and I will kick it off.
    Mr. Williams, let me turn to you. Your role is to provide 
programmatic and policy oversight on these programs from the 
SBA. Given that, I was disappointed, quite frankly, in your 
testimony that you did not provide the committee with any 
concrete information about progress or accomplishments in the 
program since Congress last reauthorized them. And 
unfortunately, that is consistent with your office having 
failed to issue annual reports on the program, as required by 
law. The latest data available seems to be from fiscal year 
2012. When will we see an annual report as required by law?
    Mr. Williams. So, we are working on the annual report. When 
I came over in December of last year, one of the big issues we 
had was the data that we had was not 100 percent accurate. And, 
so, what we worked on was developing our sbir.gov site to 
actually put real-time data on that site and focus on that. So, 
actually, if you go to that site, you can see data up through 
2014 and split it and look at it in a variety of different 
ways.
    What we have been focused on, and as often happens with 
these systems, we--the data source, we have 152,000 awards. 
Each award has 79 records. And we have to merge that from 11 
agencies, which all have different database systems. We moved 
from an old system, TechNet, about three years ago, once the 
reauthorization kicked in, to this newer system that is a more 
robust data system. We have been having challenges with getting 
data accuracy, and so we have been spending time and effort on 
that data that feeds into our report.
    Our report has been completed. It has been briefed out 
through SBA and it should be released to the agencies over the 
next couple of weeks. Then it will go through OMB review for 
the agencies, and then we hope to get it out within less than 
three months.
    Chairman Vitter. So, we should see it in less than three 
months?
    Mr. Williams. Yes.
    Chairman Vitter. Okay. And, the data that will be included 
in it--that is included in it--it is done--will be how current?
    Mr. Williams. So, that will be the 2013 report. We are 
going to do them annually. What we had done was a 2000--before 
I got there, there was a 2010, 2011, 2012. So, this is going to 
be the 2013. Right behind it is going to be the 2014. The 2015, 
we--we wait until March, when each agency has to submit their 
information to us from the prior year. So, March 15, that 
information is due, and then we work on that data for a while 
and then try to push it out. My goal is to actually try to get 
these reports out within six months of the time that all the 
data is submitted to us from the agencies.
    Chairman Vitter. And, so, when will we see the 2014 report, 
which has obviously long ended?
    Mr. Williams. I would like to see that three to four months 
after the 2013.
    Chairman Vitter. Okay. Has each of the 11 agencies required 
to participate in SBIR met their statutory participation goals 
in each of the past five years?
    Mr. Williams. So, yes, they have--the challenge with that 
is in the way the budget is measured, in two years, multi-year 
programs. So, for all the agencies that have one-year funding, 
where they have to spend all the money in one year, they have 
met--they have spent and obligated above the requirement of 
the, right now, three percent requirement.
    The way GAO would like us to start to gather the data is to 
actually see what they obligated that year. So, Defense has 
two-year funding. They spend their 2013 money over 2013 and 
2014. And, so, they have been measuring their results based on 
two years of funding, not what happened in a single year. So, 
as the budget goes up, they are always a little bit behind. 
And, so, measured in the way GAO has been measuring it 
recently, they are not, but actually as what they have set 
aside, they are meeting their requirements.
    So, we are working with those agencies to define that so 
the rules are clearer, and part of that is the terminology of 
budgets and obligations and things like that that we are trying 
to clear up.
    Chairman Vitter. Okay. How does SBA seek to improve 
participation in the two programs in states with a 
significantly lower number of awards per capita?
    Mr. Williams. So, we have focused on two main efforts. One 
is to improve our website and to do more electronic web-based 
training, train the trainer--well, a couple ways. The FAST 
Program that we have that has been supported, and you talked 
about another bill that you have been working to get boots on 
the ground, people within individual states who really 
understand the program to train.
    What we have coupled that with is something we started last 
year called the SBIR Road Tour, where we actually put 15 to 20 
program managers on a bus. We do five days at a time. We go 
state by state and we visit those states. We did 20 states last 
year. This year, we have a plan to do 20--well, we are actually 
going to do 17 states and then we are going to do five regional 
events, including one in New Orleans April 4, 5, and 6. We are 
going to do another one in the New England area, one in 
California, and continue to try to do that.
    So, we are hitting all the underrepresented states and I 
have got a plan and a program and time frame for where we are 
going to hit a lot of the states that are in those 
underrepresented, under one-third of the awards.
    Chairman Vitter. Okay. Thank you.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    I would suggest, Mr. Williams, that you talk to Senator 
Enzi about your budget process issues, because as Chairman of 
the Budget Committee, I am sure he can fix what is happening at 
DOD.
    [Laughter.]
    Just trying to inject a little levity here.
    [Laughter.]
    What do you think, Mr. Williams, of Mr. Smith's idea of a 
data summit?
    Mr. Williams. So, it is a great idea. We have been working 
with the agencies. One of the big challenges we have is we have 
agencies that are as large as the Navy, which has about a $300 
to $400 million program, and we have agencies that are a $5 
million EPA program. And, so, what they are able to do and 
develop and the dollars they have to put towards those 
resources has been a challenge. So, we have data coming in from 
an Excel format everywhere to very modern formats and databases 
and stuff. And we, then, at SBA, have to manipulate all those 
and get them into one format.
    So, I think a value--and I think this is where the 
administrative funding and things can go towards--is it makes--
so, right now, the approach has been each of the 11 agencies 
develop their own systems that then feed into ours. What we 
need to look at is can we develop common systems that everyone 
can use, and especially at those poorer agencies or smaller 
agencies can leverage off of that and use that same system that 
they do not have the resources to develop. So, it is a great 
idea.
    Senator Shaheen. I think it is a great idea, too.
    Mr. Smith also talked about one of the ways in which they 
have used that three percent administrative funds was for a 
pilot in the last reauthorization. Can you talk about how some 
other agencies are using those funds and whether you see those 
as beneficial for us to continue? Also, can you talk about some 
of the other changes that we made in the last reauthorization, 
such as adjusting caps on the size of awards and also the role 
of venture capital firms in SBIR?
    Mr. Williams. So, I will start with the easy ones. The role 
of venture capital, it has not really seemed to have any 
impact. The GAO did a study, I think it was 24 proposals, seven 
awards, in that range, $7 to $8 million over two years between 
the two organizations, HHS and ARPA-E that run the program. So, 
really, we never saw a big influx of venture capital companies. 
So, I see no reason to change anything. It does not seem to 
have a big impact.
    Senator Shaheen. Were they able to quantify the funds that 
were put into majority vc firms?
    Mr. Williams. Yeah. Eight-million dollars was awarded to 
companies, but that is out of, like, $2 billion.
    Senator Shaheen. Okay.
    Mr. Williams. So, it is a very small percent of the funding 
that HHS and ARPA had funded. So, they are allowed to play. 
They are allowed to participate. But, they just are not playing 
because they probably have other resources and funding.
    Senator Shaheen. So, is there any downside to continuing 
that provision in the----
    Mr. Williams. I do not----
    Senator Shaheen [continuing]. New reauthorization?
    Mr. Williams. I do not see a downside, because I do not 
think it had a--it did not have a negative impact. It allowed 
those that wanted to to participate, and they won programs and 
it was a small amount. I would be concerned if it was a higher 
percentage.
    Caps, I think there has been a challenge with caps in that 
there are programs, especially at the larger agencies--HHS is a 
perfect example--where it just takes more dollars, and DOD is a 
great example, and I had a lot of experience there. RIF tried 
to address that. That is the Rapid Innovation Fund, that would 
allow additional dollars to kind of do the test and evaluation 
work. What has now happened, where when I was at Navy, I was 
allowed to put additional SBIR dollars above the cap limits if 
I could get matching dollars from a program of record. I can no 
longer do that.
    So, I think there is interest in maybe--is there a program 
that you could address the 6.4, what we call the 6.4 to 6.7, 
the test and evaluation, dollars and put almost a separate 
program that would be a follow-on to SBIR that would allow, 
instead of separate new research projects, but really take the 
research projects you developed and provide the test and 
evaluation or the dollars that basically reduce the risk, prove 
them out so a program of record can actually accept them.
    And, that has always been a problem. As you know, with the 
Defense, by the time we have a need and the time we get money 
is usually three to five years. A lot of times, we need money 
then. So, you kind of need a fund that says, wow, these are my 
five really important projects. If they each had $6 million, 
that could actually go on the JSF, or that could go solve this 
problem right away.
    Senator Shaheen. So, can I ask you to comment on that, too, 
Mr. Smith. What would you like to see with respect to those 
caps? Is there----
    Mr. Smith. We find on the Phase IIs, flexibility is always 
helpful. Two cases. One is the amount of money. It is expensive 
to do research, and to get over that ``valley of death,'' I 
either need SBIR dollars to give them another three to six 
months of development, or I need to have someone else with a 
checkbook on the other side. Their other checkbooks are two 
years away unless they change the plan they approved two years 
previously. So, there is a challenge there when it comes to 
taking it to the second phase.
    RIF, we found exceedingly important to the Navy. We find 70 
percent of our RIF awardees have a lineage from the SBIR 
community. So, it is part of that. They have developed that 
relationship with the Navy. They understand the Navy 
requirements. They are ready to answer those Navy demand 
signals. So, absolutely.
    Senator Shaheen. Okay. Thank you. Thank you, Mr. Chairman.
    Chairman Vitter. Okay. Thank you very much.
    Next, we will go to Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman and Ranking Member 
Shaheen, for holding this hearing. I want to congratulate both 
of you. As the Chairman of the Budget Committee, I know that I 
am just appalled at how many reauthorizations have not been 
done, but we are still spending money on them. You are taking a 
forward look, getting ready to have this reauthorized in a 
timely manner so that the program can continue without either 
violating the budget and knowing where the funding is going to 
come from.
    I have been really pleased with the successes of the SBIR 
and STTR and how they work together. We have had some good 
successes in Wyoming. I do an Inventor's Conference once a year 
in Wyoming, where we invite people in that have an idea, or are 
hoping they can learn how to have an idea. We even go through 
the patent process. But, we go through the SBIR process so that 
they can take a look, if they need to build prototypes or do 
something like that.
    And then the opposite time of the year, we have a 
Procurement Conference, and that is where we encourage the 
federal agencies to come to Wyoming and see what products we 
have. And, I have been pleased at the number of agencies that 
come out to do that and we wind up with several million 
dollars' worth of contracts each year because we have some 
great products that are at a low price.
    One of the first ones that I ran into a few years ago, in 
fact, 9/11, we had a little problem with some chemical things 
around the Capitol, and we bought a nice huge truck and any 
time there was some kind of a chemical spill, whether it was 
powdered sugar or whatever, around the Capitol, this big van 
would pull up and guys in space suits would jump out and they 
would run in, they would get some samples, and they would take 
it back to the van and analyze it and figure out what to do.
    Because of SBIR, we had an innovative group in Wyoming that 
came up with a thing that looked like a speed gun hooked to a 
little hand-held computer. And they just point that at the 
substance, pull the trigger, and ten seconds later, they would 
know what it was and what to do about it. Unfortunately, that 
has not developed into mass marketing yet across the world, but 
I think it should. But, it is just one example of a number of 
things where a little bit of encouragement helps. Big companies 
can get some special credits for their research and 
development, but small companies do not have that. So, I 
appreciate what you are doing.
    My question would be if you could tell me a little bit more 
about what outreach efforts you have planned for the future to 
get more businesses into the SBIR and STTR Programs. What have 
you found to be successful outreach programs?
    Mr. Williams. Sure. So, we will be going to Wyoming on June 
27. Hopefully, we will get your support there, I am sure.
    So, we tried this Road Tour event and it actually worked 
really well. We had about 100 individuals at each location we 
went to. We learned a lot from the first go-around. It has two 
focuses, basically. One is underrepresented states, so we look 
at the states that are getting the lower one-third of the 
awards. And, so, we go to each one of those.
    So, this year, what we are trying to do is then also place 
an emphasis on women and minority. It is challenging--it is 
obviously easier to go to a location where you know there is 
underrepresented in the community you are addressing. To bring 
in the women and minority has been harder, but we have 
developed relationships with the Society of Women Engineers and 
the Minority Business Development Agency and things like that 
to try to get them to help us do the outreach so when we go to 
events.
    What we have expanded to, so, from our 17 individual state 
Road Tour events, where we will go there for each a day, we are 
going to add two-day events that there will be five of that we 
will also do in different regions.
    So, as much as possible, my goal is we have set up a 
program where we will be within 250 miles of every state in the 
country. We have been to Hawaii earlier this year. So, we are 
trying to get out there and just put boots on the ground to 
bring program managers there. That is really important.
    But, what is also important is once we leave, do you have 
people in that state who understand what SBIR is, who can do 
the training, who can walk them through grants.gov and figure 
out, how do I put in an application, all those things. So, what 
we are also trying to invest in with the administrative 
dollars, that NSF has provided some to us, is train the trainer 
tools, so instead of them each individually developing 
training, we develop it for them and then we train them on what 
SBIR is. When there are changes at DOE or DOD and other places, 
we provide that information so they are aware of what is 
current.
    So, we are trying to kind of hit it in multiple ways, but 
it is having people there. It is bringing the program managers. 
And it is having the material available so that they can train.
    Senator Enzi. Thank you. Excellent explanation and my time 
has expired.
    Thank you, Mr. Chairman.
    Chairman Vitter. Okay. Thank you.
    Senator Hirono.
    Senator Hirono. Thank you, Mr. Chairman.
    I am a very strong supporter of the SBIR and the STTR 
Programs, and, in fact, I had introduced legislation to provide 
more funds and permanence for these programs when I was a 
member of the House. So, I know that both of you would like 
this program to be made permanent so that we are not facing a 
reauthorization gap with regard to these programs.
    And, I am sure that if we do make these programs permanent, 
that there is some language that we should consider to make 
sure that there is enough flexibility within the permanent 
program, and I would appreciate that kind of--you know, the 
areas where you would like to see that kind of flexible 
language as we go forward, because the impression I have is 
that both the Chair and the Ranking Member very much support--
if not all of us--very much support these two programs. So, 
could you give some thought and provide some guidance as to 
what kind of flexibility.
    So, Mr. Williams, I am glad that you came to Hawaii. Was 
that because Hawaii is considered one of the underrepresented 
places?
    Mr. Williams. It is actually--they put on an event every 
two years, and they have been for probably 25 years. And, so, 
every two years, the program managers will go out to Hawaii.
    Senator Hirono. Great. So, it is not because we are----
    Mr. Williams. You are not an underrepresented.
    Senator Hirono. Yes.
    Mr. Williams. You actually do reasonably well.
    Senator Hirono. Good. We could always do better. And, I do 
not know if you have the data as to whether or not we are doing 
well in Hawaii with regard to minority-owned and women-owned 
businesses.
    Mr. Williams. I can provide that data to you. I do not have 
it with me.
    Senator Hirono. That would be great.
    So, one thing that is important is that the small 
businesses in the various states are aware of these two 
programs, and then the other thing is that, you know, one of 
you mentioned--I think it was Mr. Smith--the ``valley of 
death.'' That is when, I take it, that when our companies are 
in Phase III, where they have to go on and get their own 
funding to keep going, that is where things begin to happen 
that do not allow them to go forward.
    So, I think you mentioned--both of you might have mentioned 
that there could be some way that some of the funds that you 
have could go into Phase III support. Did you mention that, Mr. 
Smith?
    Mr. Smith. Senator, what we do at day one, essentially, 
with our SBIR companies, is start thinking about where is your 
Phase III money, because there are multiple places where you 
may or may not find those funds. But, you have got to start 
working that issue at day one. And, it can be difficult, 
aligning the technology development with the POM process. In 
DOD, it is exceedingly difficult because it is locked down. 
But, we start those conversations. We start those linkages. We 
put the right folks together early on so there is not that gap, 
okay.
    One of the ways that gap has been filled is with the Rapid 
Innovation Program the Congress authorizes every year.
    Senator Hirono. Yes.
    Mr. Smith. That has been exceedingly helpful. In fact, the 
Navy has got a very good transition rate on those SBIR 
technologies making it into the program of record, because that 
up to $3 million makes the difference.
    Senator Hirono. Is the Rapid Innovation Fund, is that a 
program available to all of the 11 entities that participate?
    Mr. Smith. No. No, it is not, and it is also done once a 
year. Definitely with the agencies that continue to purchase--
there are certain agencies, like NIH--well, no, I take it back. 
I think all agencies, there is a value of almost funding a 
stage past Phase II. You have proven it out. You have 
demonstrated it. But, then, really to commercialize it.
    So, we have definitely taken the administrative funds, and 
one of the challenges with the administrative funds is it was a 
pilot. So, it was a three-year pilot of a six-year program, and 
so a lot of agencies were really concerned with actually even 
using it, and we have really only spent about 25 percent of the 
funds that were available. They had to come to us at SBA first 
to get approval for it, and then they had to implement it. They 
were concerned about hiring people and doing things that would 
really impact commercialization, because if the program stopped 
in three years, in the government, it is hard to get rid of 
people and things like that.
    So, I think one of the things in flexibility is to make 
that program permanent so we could use it, cap the amount, but 
the--and then, so, like, the Air Force hired six individuals 
that, like at the Navy, they were more forward thinking in 
aligning with acquisition, but they did the same thing in the 
Air Force. They hired people that would help in 
commercialization. And HHS has done the same. They have hired 
some of their people to work with the physicians to figure out, 
okay, now the technology needs to go. Who are your markets? 
Same with NSF. They have all developed programs.
    So, I think everyone could use, whether it is funding or 
more assistance with people that have expertise on how you find 
those other markets--it may not be providing money, but just 
the experience is what most of the firms do not have.
    Senator Hirono. I think that continuity is very important, 
because if you have already made the investment in these 
companies in Phase I and Phase II----
    Mr. Smith. Correct.
    Senator Hirono [continuing]. I hate for them to get into 
Phase III and not be able to find the funding that they--to 
commercialize----
    Mr. Smith. Correct.
    Senator Hirono [continuing]. What they have come up with.
    So, my time is up. Thank you.
    Chairman Vitter. Thank you.
    And, Senator Fischer.
    Senator Fischer. Thank you, Mr. Chairman, and thank you, 
Ranking Member, for holding the hearing today. I appreciate you 
being in the leadership and moving this forward. It is very 
important.
    Thank you for the panel for being here, as well.
    Mr. Williams, you mentioned to Senator Enzi that you were 
going to be headed to Wyoming. I know that Nebraska is 
underrepresented----
    Mr. Williams. June 28.
    [Laughter.]
    Senator Fischer. Can you tell me where? Can you tell me 
where in Nebraska on June 28 you will be?
    Mr. Williams. Actually, you know, I do not have it in front 
of me, but we have picked a city----
    Senator Fischer. Let us know.
    Mr. Williams. Is it Omaha? Yes, Omaha.
    Senator Fischer. Great.
    Mr. Williams. Yes, and we are working with people on the 
ground to make sure they have got----
    Senator Fischer. Okay. Thank you. I have more questions. Do 
not worry.
    Mr. Williams. Yes.
    [Laughter.]
    Senator Fischer. One of the aspects of the SBIR and the 
STTR Programs that I particularly like is the competition that 
it spurs between these small firms. I think that is important 
when they are applying for these awards.
    So, my question for both of you would be, do you see any 
aspects of that application and approval process that could be 
streamlined so that maybe we could see an increase in the 
number of firms that are applying?
    Mr. Williams. So, the answer is yes, but it is a real 
challenge, and it is one that----
    Senator Fischer. And you are going to tell us how on June 
28.
    Mr. Williams. Yes. That will be great. The one challenge is 
with contract authority--so, I work at SBA and you are talking 
about something that is handled by a contracts authority or a 
grants shop in each, and they have to follow rules that are 
FAR, DFAR rules, and there are not special rules if you are an 
SBIR company. They cannot, you know, set aside. And, actually, 
in the last reauthorization, there was a fraud, waste, and 
abuse element to it, so it actually added more paperwork 
required by Congress to be put on the small businesses to 
address--to be proactive in fraud, waste, and abuse.
    I would love to tell you we have moved in a better 
direction, but if anything, we have actually moved in a more 
conservative direction to protect taxpayer dollars, to make 
sure that it is being spent in a wise way, which hurts small 
companies that have never had experience working with the 
government.
    So, what we have tried to do, because--so, I think one of 
my recommendations to the committee is to actually bring in the 
folks that manage the contracting shops, the grants shops, to 
ask them what can they do to streamline. Are there ways that 
they can treat small businesses differently than large 
businesses? There have been some rules put in place about 
accepting outside audits as opposed to having the government 
audits come in, which usually take six months and a long time. 
So, there have been things in there, but I have not seen them 
put to practice and I think maybe asking them.
    But, what we have tried to then do is to say, look, I 
cannot solve that problem, but what I can do is, again, better 
training. So, I can walk a company through grants.gov. I can 
tell them how to get their EIN numbers and DUNS Numbers and 
what they need to do to write a proposal. We could help them 
evaluate that proposal and say, this is where it really should 
go.
    So, we focused on that side, which we can impact, and 
again, I am going to plug the three percent administrative 
funding, but those are the tools that we use to do those 
things, because this is one of the unique programs where all 
the money that comes from the Hill has to go and get contracted 
on the small businesses. The government is not allowed to use 
any of it to manage the program. And it is probably the worst 
program to do that with, because it is a program we are 
purposely trying to get small businesses that have never done 
work with the government to understand the government system.
    And, so, we really need to provide more man hours and 
bodies to help those companies get through these issues, that 
we have FAR and DFAR that are not going to change, but we can 
provide the assistance. So, having that ability to provide 
those resources is helping us streamline, but--it is making it 
easier, but we are not really addressing the streamlining 
issues.
    Senator Fischer. Do you think you would have suggestions 
for us on maybe what different regulations are needed for 
smaller companies----
    Mr. Williams. I can come back with some of that kind of 
thing.
    Senator Fischer. We get to the old quandary there of one-
size-fits-all again----
    Mr. Williams. Correct.
    Senator Fischer [continuing]. And it seems like government 
does that quite a bit. Yes, we want to protect taxpayer 
dollars, but we want to make sure that the dollars are spent 
wisely, as well, and when you look at the costs involved to 
companies when perhaps it is not needed, I would really be 
interested in----
    Mr. Williams. Absolutely. No, I would be glad to provide 
that. And in SBTC, who is talking later, has groups that 
represent those small businesses that have ideas. But, I, 
certainly from my perspective, have ideas that I would be glad 
to forward.
    Senator Fischer. Thank you.
    And, Mr. Smith, did you have anything to add on that?
    Mr. Smith. One of the things we are working with our three 
percent in focus is it is not normally--necessarily the SBIR 
community that I have got challenges with. It is working with 
the other restrictions other folks have to live with. My 
contracts officers have to follow the FAR, but there are ways 
to have proportionality, okay. There is a difference between a 
$1.2 million SBIR award and a $12 million SBIR, or a $120 
million, so----
    Senator Fischer. So, you could look at the award amount as 
well as looking at size of companies?
    Mr. Smith. Yes, ma'am.
    Senator Fischer. Would that be a practical way you could 
handle it, too?
    Mr. Smith. Those are two of the variables we can look at to 
work those. And, one of the things is we are working best 
practices within our contracts community. Same thing. They 
require training. SBIR contacts are usually a small percentage 
of their workload. But, we found when you put a dedicated team 
to doing SBIR contracts, it flows much, much smoother.
    Senator Fischer. Thank you very much. Thank you, Mr. Chair.
    Chairman Vitter. Thank you.
    Senator Ayotte.
    Senator Ayotte. I want to thank the Chair and the Ranking 
Member for having this important hearing, and I fully support a 
permanent reauthorization of SBIR and STTR. I know as Senator 
Shaheen has probably mentioned, these programs have a great New 
Hampshire tradition when Senator Rudman really was the founder 
of this because he was concerned about innovation and getting 
small businesses engaged in new ideas that could come to the 
fore in research and development and giving those opportunities 
to have the government have the benefit of that.
    You know, Mr. Smith, as I look at the other committee that 
some of us serve on on this panel, or the Armed Services 
Committee, and I serve as the Chair of the Readiness 
Subcommittee, we have had numerous hearings on acquisition 
reform. And having seen the matrix for what it actually takes 
to get through to get a defense contract, as a small business, 
especially as we are trying to really engage on these 
particular programs, SBIR and STTR, I think it would be 
daunting for anyone.
    And, so, we are trying to undertake that in the Armed 
Services Committee to really make it a better, more efficient 
process, because I think we have proven that layers do not 
necessarily mean more accountability for taxpayers. They can 
just mean more paperwork as opposed to really focusing on 
accountability.
    So, I would also add that any recommendations that you have 
in particular in your shop that you think would be helpful, 
many of us serve on both committees and we could take those up 
not only in the Small Business Committee, but also in the Armed 
Services Committee. We are very focused on acquisition reform. 
And, this is an area where we want to get things quickly, 
obviously, because this is opportunities to drive innovation in 
our security space.
    So, if you can get back to us on that, that would be 
tremendously helpful.
    Mr. Smith. Yes, ma'am. We will work with you.
    Senator Ayotte. Appreciate it.
    I also wanted to follow up. Mr. Williams, in the 2014 
Interagency Policy Committee's report to Congress on 
commercialization, it noted that SBA planned to start 
leveraging and expanding partnerships with high-growth 
stakeholders like incubators, accelerators, and clusters, trade 
associations, universities, by taking a lead in a train the 
trainers model. So, can you give me an update on how that 
initiative is going, how effective it has been.
    Recently, I visited an incubator, for example, in New 
Hampshire, and we have seen a lot of exciting growth in these 
incubators and I think it is a great way for us to partner on 
making sure that those who are engaged in the incubators also 
know about the availability of SBIR and STTR.
    Mr. Williams. So, we are making progress in that area. One 
of the other things under my responsibility is the accelerator 
program within SBA, and so that has been two years. We have 
gotten a million dollars this year, but we had 2.5, 4.5 in the 
last two years, and a million this year.
    What we do with that is--and it is really small seed 
dollars that we are just adding to existing accelerators. But, 
the network of accelerators is well over a thousand across the 
U.S. and one of our goals is to--so, we provide a prize contest 
where we award $50,000 to what was 100, or 88 accelerators last 
year.
    Part of that, then, is to make them aware--so, now they are 
a partner with SBA and we have these other programs that we 
want to make sure they are aware of, SBICs, which is a loan 
program for businesses that are also under the OII portfolio, 
and then the SBIR and STTR Programs. So, we have been spending 
a lot of resources developing our sbir.gov, and then that tool, 
developing the train the trainer materials, and so I have a 
contract. So, we have put out more materials already.
    We have our FAST awardees which we have been funding at 
about $2 million a year, which is 20 individual state awards at 
$100,000 each, where the state provides a match, and those 
folks, we have monthly calls with, then we try to share best 
practices and what materials are out there. So, at first, we 
have not had as much resources to develop the materials until 
just recently where we got some of the three percent from--I 
mean, HHS, NSF gave us some dollars so we could build out the 
train the trainer stuff.
    But, what we have been doing in the short term was to get 
individuals to share across states so that they would have that 
material, and accelerators and incubators are a really good 
sweet spot that, you know, SBA has kind of been focused on our 
SBDCs, but these are two other sources that really have a great 
potential, especially in the SBIR world.
    Senator Ayotte. Great.
    Just a quick follow-up. Also, as you are creating an 
interagency unified outreach plan, are you engaging groups like 
SCORE and the VSOs as we think about some of the, obviously, 
the veteran-related groups, as well, that are focused on 
employment?
    Mr. Williams. Yes, and they all work on the same floor as I 
do----
    Senator Ayotte. Great.
    Mr. Williams [continuing]. So we work closely with them.
    Senator Ayotte. Excellent. Thank you.
    Chairman Vitter. Great.
    And, Senator Ernst.
    Senator Ernst. Thank you. I would like to thank the Chair 
and the Ranking Member for holding this meeting.
    This is really important and I want to echo what Senator 
Enzi had said about reauthorization of these programs. These 
programs are phenomenal, and I have heard from a lot of Iowa 
small companies that have utilized this process to get off the 
ground. So, thank you, Mr. Chair, Ranking Member. Thank you for 
doing this very, very important work.
    As you can imagine, back in Iowa, we do not have a lot of 
venture capital to get a lot of these programs started, so it 
has been an essential tool in Iowa. Sometimes we talk about 
brain drain, our young college graduates that are moving on to 
other areas. Well, with these programs, we have found that a 
number of them have been able to stay in Iowa and develop their 
own businesses. So, we have a lot of great talent that is now 
staying in Iowa, a lot of technology companies, and so forth. 
We are really excited about it, so thank you for that. These 
are great programs.
    You have touched on a number of issues. Mr. Williams, you 
talked about the underrepresented areas. Rural areas fall into 
that. Iowa is obviously a very rural area. So, I am glad that 
you do those types of activities. I actually live just about an 
hour from Omaha, Nebraska, so that is one that would be 
important for a lot of folks in Southwest Iowa, Western Iowa, 
to know about.
    We have talked about streamlining the process. Senator 
Fischer brought that up, as well. And, one thing about 
streamlining the application process, you said the government 
puts more emphasis on the paperwork. You would maybe like to 
see that streamlined. Folks from Iowa have said that the 
different agencies do things a little bit differently. So, what 
is your best advice on how do we streamline this, yet allow 
flexibility for those agencies to work with their population?
    Mr. Williams. First, on August 16----
    Senator Ernst. August 16, thank you.
    Mr. Williams. So, the streamlining--the small businesses 
would love one form for all agencies and just be able to fill 
it out and push it, and unfortunately, I do not have the power 
and authority--nothing personal, but I am not even sure you 
do--I certainly do not----
    [Laughter.]
    To make that happen.
    Senator Ernst. Well, you are right.
    [Laughter.]
    Mr. Williams. So, it is something we need to strive 
towards, but their view, and I fully understand that, is we 
have a role, the FAR, the DFAR, this is how we do contract. 
Just because it is a small business and SBIR, we cannot treat 
them differently.
    We have tried to look and we are continuing to look at 
flexible ways of some of the different contract authorities 
that you can do. We have gotten pretty good at Phase Is. Grants 
seem to be a better way to contract quickly with a lot less 
paperwork. But certain agencies in the DOD have issues with the 
amount of profits you can allow under a grant that does not 
allow the flexibility.
    So, there is--again, these are issues that kind of are the 
contracting community. So, most of my peers work on the 
technical side. We understand the science, we understand where 
it goes, and then we have to throw it over the wall to the 
contracting office and say, now, please award this in a timely 
fashion, and there are a lot of pressures by that community on 
getting other contracts in place and things like that.
    So, as I am sure you are aware, the problem in contracts is 
widespread across the government. It is a staffing and it is, 
you know, things that are different, and the big ones get done 
faster. And, it is a real problem for small businesses.
    I think what has helped is that we have--we are actually--I 
am hosting a meeting when we have our annual event in D.C. in 
May. We are going to have a one-day event where we are bringing 
in a bunch of contracting officers and grants officers and we 
are going to have two different rooms to say best practices and 
try to learn.
    So, those are the things that we can do, but I think 
pressure from above on asking those questions and measuring.
    Senator Ernst. Okay. I think that is great. I think we have 
been tasked right there with finding some sort of solution 
along the way.
    And for Mr. Smith, I know my time is getting short here, 
but the federal government spends about $530 billion in 
procurement every year and about $154 billion is on DOD weapons 
systems. A number of us serve on Armed Services, as well. And, 
the weapons system acquisition has been on the GAO's High-Risk 
List since 1990, a very long time, because of the recurring 
issue of cost overruns and program management.
    So, the SBIR does play a huge role in DOD acquisitions. If 
you could just give me an overview on how you ensure that there 
is proper oversight and program management for the types of 
programs that you are working with.
    Mr. Smith. Thank you for that. There are two things 
recently that have occurred. One is the change to the 5002, 
which now requires you have plans for small business. One of 
the great things Secretary Stackley has done was put out his 
memo, Doing Business with Small Business in a Big Way, which 
designated the deputy program managers as the small business 
advocate. So, we have seen from that them reaching out on how 
we can help them do their job effectively and efficiently, 
because they are busy folks. So, we have been doing outreach 
and training within the Navy with our program managers to help 
them do their job more efficiently.
    We have quite the vetting process to get a topic even 
issued for a company to reply to, and then it does get down to 
FAR, where we do a source selection competitive selection 
process for it. And from that, it is only a five percent 
selection rate. It is exceedingly difficult, and that is why we 
do get such great results, because only the best get selected.
    Senator Ernst. Very good. Well, I thank you.
    My time is up. Thank you, Mr. Chair.
    Chairman Vitter. Thank you.
    Senator Coons.
    Senator Coons. Thank you, Chairman Vitter and Ranking 
Member Shaheen, for convening this important hearing into a 
valuable program that is, I think, among the most effective in 
terms of technology transfer and helping get out of our 
national labs innovations and to encourage federal resources to 
be used more broadly for research and development.
    Making sure that America continues to lead in the global 
innovation economy requires sustained and strategic efforts 
from both public and private sectors in support of both basic 
science and applied R&D, and I think they are the lifeblood of 
great American companies, large and small, and we have often 
seen that small businesses are the ones that are the best at 
taking risks, at quickly commercializing and taking to scale 
the most groundbreaking innovations.
    So, that is why I, too, support a permanent authorization, 
reauthorization of SBIR and STTR. I think the need to provide a 
predictable, stable long-term funding for the small business 
community in support of innovation is critical to their 
effective planning. It is also a reason I was glad to work with 
Senator Enzi and the other Senators on a permanent extension of 
the vital R&D tax credit and steps to make it accessible to 
early stage and small businesses.
    Just a quick example, if I could, of SBIR's impact in 
Delaware. A company I am familiar with, Compact Membrane 
Systems, which is an advanced materials company based in 
Newport, Delaware. It has over a million in annual revenue from 
projects that were originally funded through the SBIR Program. 
Their technologies add value in a range of applications, from 
power plants, to global transport, to paper mills, saving their 
clients millions of dollars while reducing waste, risk, and 
environmental impact.
    I just wanted to take a moment and recognize that SBIR has 
had this kind of meaningful, lasting impact, I suspect in every 
one of our states. In fact, CMS continues to benefit from SBIR 
support and is working on new solutions with NIH, Energy, EPA, 
and Ag. Just a great example of what is possible.
    So, I would be interested if both members of the panel 
might speak to how federal agencies can do a better job of 
ensuring that potential grantees understand the benefits, the 
challenges, the application processes for both programs, and 
what we can do to help our researchers and entrepreneurs to 
develop the business skills that they need to access the 
market. And if that question has previously been asked, forgive 
me and feel free to adjust your answer accordingly.
    Mr. Williams, if you might.
    Mr. Williams. Sure. Well, I will answer it again. We have 
definitely talked about the area, and, so, one of the 
challenges is it is typically not a normal government activity 
to help someone commercialize. We fund research, and especially 
where I came from, the DOD, there really is not a 
commercialize. We are the customer and things like that. But, 
even in NIH and things like that, we hire people that are 
experts in those medical science areas and we do not hire 
business development people and things like that. So, that is 
the structure for good reasons, that we are put in place and 
that is what we live with.
    So, with SBIR, we have been lucky to have the 
administrative dollars where we have started to then hire 
outside consultants to do that commercialization. When I was at 
the Navy, I was fortunate to have an administrative budget 
where none of my other peers at the other agencies did, and one 
of the things we did, we ran a program for about 15 years where 
we helped every Phase II company develop that commercialization 
plan, understand their market, understand how to get into that, 
understand where their financing is, can they build it, so they 
license, all those kind of things.
    So, I think there has been--well, I know there has been a 
goal of commercialization within this program since the 
beginning. The challenge has been it is not a normal government 
activity and so we have been--and we have not necessarily--the 
agencies have not been willing to put the extra resources to do 
that to benefit the private sector. And, so, I think the three 
percent helps with that.
    Senator Coons. You say it is not a normal government 
activity. Do you have any fundamental objection to it? Do you 
think it is a----
    Mr. Williams. I do not.
    Senator Coons [continuing]. Unwelcome or an abnormal 
government activity? I do think that is an area that has not 
been a core competency for the federal government, but in this 
setting, in the small business setting, in the SBIR transition, 
to make sure we have got more Phase Is who go to II and III, it 
is a vital role.
    Mr. Williams. Right. I agree.
    Senator Coons. Mr. Smith.
    Mr. Smith. Two things, Senator. Outreach--I really had a 
great year last year, going out to the SBA Road Tours and 
seeing these companies and talking to these young companies 
about how to work with the Navy. They have not had the 20 years 
of experience of working within the federal government. They 
are probably a recent graduate from their university who have 
just a great idea and they are ready to go forward. So, 
congratulations. You have gotten your first Phase I, $150,000.
    And the first thing the Navy throws at you is, what are you 
going to do if it is successful? Start thinking about this. The 
beauty of the program is, from a Phase I to Phase II to Phase 
III, you have five to seven years to mature that technology, 
usually to where we see realization of its commercialization. 
That is time for you and your company to grow. But, you do not 
know what you do not know. You are an engineer. You did not get 
your MBA, much less get our Juris Doctorate to understand how 
to work with the federal government.
    That is where we talk about those experts that are not the 
scientists and engineers helping them in the teamwork concept 
on how to become a successful company.
    Senator Coons. Thank you.
    I see my time has expired. Thank you, Mr. Chairman.
    Chairman Vitter. Thank you, and thanks to our first two 
witnesses.
    Senator Shaheen. Mr. Chairman.
    Chairman Vitter. Sure. Senator Shaheen has some follow-up.
    Senator Shaheen. Thank you.
    I just wanted to go at this Phase III issue a little more, 
because as part of the 2011 authorization, the Department of 
Defense was required to establish goals related to Phase III to 
help boost commercialization of technologies developed through 
SBIR and STTR. The goal there was to promote greater 
commercialization. I wonder if either of you can tell me if DOD 
has established those Phase III goals and how they are working 
and what this committee might do to encourage a greater sense 
of urgency on the part of the Department of Defense to do that.
    So, I do not know, Mr. Smith, if you want to start, and 
then Mr. Williams.
    Mr. Smith. I can answer that we have not been given goals 
to achieve within DOD. I know it is important to the Navy that 
we transition, because we find the value from it. I cannot 
speak for DOD. I will go back and talk to Mr. Wesley about that 
to see where it is at. I do know we made the change to 5002, 
which requires you to have small business goals. We are now 
looking at acquisition strategy within the Navy as they move 
forward to make sure it is addressed. But, we have not 
quantified what that goal should be, ma'am.
    Mr. Williams. So, yes. I have not seen the goals. I think 
one of the issues that was raised to me was, it was in the 
legislation, but it requires a FAR and DFAR change since it did 
not say to do immediately, and so--and as you probably are 
aware, FAR and DFAR changes take some time. And, so, I have not 
focused on that, and maybe at SBA we need to try to work to do 
the FAR and DFAR. But, I think if language talked about 
implement immediately, that gets around that FAR/DFAR. And, so, 
yes, they have not implemented it that I have seen.
    Senator Shaheen. Well, as a number of people have 
mentioned, there are a number of Armed Services Committee 
members on this committee, and so perhaps we can take this up 
before the Armed Services Committee, as well.
    Just a final point that I would like to make. I had the 
opportunity to go out and embark with the USS New Hampshire 
nuclear-powered Virginia Class submarine last spring, and as I 
was getting the tour, one of the things that they talked about 
was the challenge of getting laundry done on a submarine. It 
sounds really simple, but because of the danger of fires, that 
is one of the biggest concerns that submarines have.
    And, I was able to tell them that I had visited a company 
in New Hampshire, Creare, that was working on technology to 
address the problem of fires resulting from dryers on 
submarines. And, so, it was really exciting to be able to talk 
about that. Even though that is not what most people think of 
as a national security issue, it is very critical as we think 
about how the Navy operates.
    So, Mr. Smith, can you just sum up why innovation through 
the SBIR is so important to the work that you do.
    Mr. Smith. It comes back to that culture, Senator. Part of 
it is, it is we are in there for the long game, because it may 
take years to finally get that overnight success. And it is 
working for today's warfighter, fixing the dryers so they work, 
so the quality of life for that sailor is better, so they can 
more focus on their job to be a warfighter and not a laundry 
person. To the long-term, how do I stay in front of the enemy 
who wants to think faster than I do.
    So, these small companies are agile. They can address it 
right now very quickly. Not only do they cause competition 
within the small business community, but they also make the big 
guy look over their shoulder and make them leaner and faster.
    Senator Shaheen. Thank you. Very well put.
    Thank you, Mr. Chairman.
    Chairman Vitter. Thank you.
    And Senator Cardin, to wrap up our first panel.
    Senator Cardin. Thank you, Mr. Chairman. I apologize for 
being late. Other committees were in session. This is an 
extremely important subject.
    Mr. Williams, I want to sort of ask you a question here. 
You are not only in charge of a very important program, but you 
are also the advocate for small business. And, I appreciate we 
have a representative of Defense. I find that the set-asides 
for small business, the requirements to actively engage smaller 
companies at times becomes more of a burden for our agencies 
than a commitment to engage the smaller companies.
    We all have talked about here today how important small 
businesses are in regards to technology growth for our national 
defense or for health or for transportation or for 
communication. We could go through the list. The set-asides in 
the SBIR program are critically important. We are coming to a 
point where Congress is going to have to look at a 
reauthorization bill. The sooner we get that done, I think, the 
better for predictability.
    But, I would hope that you would share with us your 
thoughts of how we could improve this program. I see in my 
State of Maryland so many of the companies that benefit from 
the partnerships they have on the research funds and what they 
are able to do with it, but there is a constant friction 
between the small companies and our academic centers and the 
larger companies as to how the federal mandate interferes with 
what they would like to see done.
    So, if you are prepared to talk a little bit here, I would 
appreciate it, as to ways that we could make the program from a 
statutory point of view, Congressional action, a smoother 
program, a program that builds on the benefits of the 
innovation from smaller companies, but in a way that is, I 
guess, less confrontational. Is there a way that we can get 
this done in the next authorization level that we should be 
thinking about now? And, as the advocate for small business, we 
would hope that you would be pretty aggressive in giving us 
options to improve the program statutorily.
    Mr. Smith. So, I probably want to get back to you on some 
of that, but off the top of my head, and we have talked about 
it a little bit, is there is still a ``valley of death'' stage 
after the demonstration Phase II is kind of done to do the 
further test and evaluation, especially in the DOD, but I think 
in all agencies. There is a challenge in understanding how to 
commercialize, having the business wherewithal. So, a lot of 
our small businesses that are extremely strong in the technical 
sides, but they need assistance in the business side that the 
government could do more of and mandating more of those 
activities. But, that requires money put towards those things.
    So, with the SBIR, the money is all put, except for this 
new admin funding with the three percent, it was all put to go 
towards the company. Anything else, the agency then would have 
to provide out of hide to provide additional assistance and to 
get their foot in the door or put more money on them. And, so, 
that has been a constant challenge, and I think the 
administrative pilot has started to break that free a little 
bit, and I think expanding upon that.
    But, also potentially--I do not know if it is requiring 
another program, but there has been a talk about a program that 
would take things that were proven out of SBIR, developed and 
prototyped, then into scale-up and things like that. And, so, 
whether you set kind of a tax aside for that kind of activity 
or that idea, or how do you encourage that activity.
    Unfortunately, my experience, the way, especially my 
background at DOD, money has to be laid out way in advance. It 
goes to the big primes and things like that. So, for it to go 
to small companies in a more rapid program, you have to almost 
do something like SBIR, which allows ideas to come in and get 
funding quickly.
    Senator Cardin. I agree with that, and I think moving 
towards Phase III is much more of a challenge, so it does 
require some additional attention as to how we can make that 
easier for the smaller tech companies.
    I know Mr. Glover is here from the Maryland Small Business 
Tech Council, and there are other states that have done some 
creative things. I would hope that you would reach out to get 
their ideas. Be prepared to work with members of the Senate who 
will be looking for ways that we can make this program more 
effective as we reauthorize, and I hope we do that, again, 
sooner rather than later.
    I was part of the group during the last authorization 
process, as were members of this committee, and we were very 
proud we got to the finish line. It was not an easy process. It 
is never an easy process to get to the finish line on any bill 
around here. But, I think the more that you have coalesced the 
needs of the small business tech community, the easier our job 
will be and the sooner we will be able to get that done. So, I 
look forward to getting your thoughts and ideas.
    Mr. Smith. I am available at any time.
    Senator Cardin. Thank you.
    Chairman Vitter. Great. Well, thanks again to our first two 
witnesses.
    We will now move to our second panel, which reflects 
stakeholders who have used the SBIR and STTR Programs.
    Ranking Member Shaheen, I will first turn to you to 
introduce your constituent, Dr. Kline-Schoder, and then I will 
introduce the rest of the panel.
    Senator Shaheen. Well, thank you very much, Mr. Chair.
    Dr. Kline-Schoder, as I said, has been heading Creare and 
has been very successful both at the work that Creare has done 
with SBIR and the--being able to get grants awarded, and it has 
been important not just for Creare, but I think it has been a 
very important model for other small businesses in New 
Hampshire to see the success that they have been able to 
achieve and to have them sort of proselytize on SBIR in a way 
that is very helpful.
    So, it is very nice to have you here and thank you very 
much for being willing to share the story of Creare and how 
successful you have been.
    Chairman Vitter. Great. And we are also joined by Mr. Jere 
Glover, Executive Director of the Small Business Technology 
Council and an attorney representing small businesses on SBIR-
related issues.
    Mr. Glover has public and private sector experience, having 
served as a Chief Counsel for Advocacy at the SBA, as well as 
the CEO and principal of a biotech company and a medical 
technology company. He is a well-known leader and a strong 
voice for small innovative firms and the SBIR program.
    We were supposed to have Mr. Roy Keller, Director of the 
Louisiana Technology Transfer Office at Louisiana State 
University's Innovation Park. Unfortunately, Roy is unable to 
join us today due to illness. His full testimony will be 
included in the record. And, in addition, I have an outline of 
highlights of that testimony, which I think the highlights are 
particularly significant about the program in general and his 
specific experience in Louisiana. So, I will also add that 
outline to the record.
    [The prepared statement of Mr. Keller follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. And, with that, let us start with Dr. 
Kline-Schoder.

STATEMENT OF ROBERT J. KLINE-SCHODER, Ph.D., PRESIDENT, CREARE 
                        LLC, HANOVER, NH

    Mr. Kline-Schoder. Thank you, Chairman Vitter, Ranking 
Member Shaheen, and other distinguished members of the 
Committee on Small Business and Entrepreneurship, for inviting 
me here today to testify in front of you about the 
reauthorization of the SBIR and STTR Programs.
    As you have heard, Creare has had a long relationship with 
the SBIR program and which we think serves as a very strong 
example of a successful public and private partnership. Since 
1982, the program has played a key role in our business and in 
the economy in our region of New Hampshire. Our family of 
companies now employs over 2,200 individuals in high-paying 
manufacturing and high-tech service jobs, and most of those 
positions are still actually in New Hampshire.
    SBIR has helped Creare to establish some of these spin-off 
companies to develop new products for important government 
missions, as well as to license SBIR-funded technologies to 
product firms.
    Through every economic downturn during the past 35 years, 
Creare has been able to continue to grow, to develop new 
technologies, and to create high-paying jobs, due in large part 
to the SBIR Program.
    Since the last reauthorization, the programs continue to 
operate much as they have since the beginning. They are a 
highly competitive, highly efficient contracting mechanism for 
the small businesses to meet some of the research and 
development needs of the federal government while also 
fostering the capability to develop products that could be used 
commercially.
    The increase in the award sizes and in the set-aside in the 
last reauthorization has made the program stronger by allowing 
more work to be done for a given award while maintaining the 
ability to award a diversity of breadth and number of 
technologies.
    In addition, the funding that has been targeted since the 
reauthorization for these Phase III type activities that we 
have just been talking about has also been very effective. 
These new Transition Assistance Programs, like the Rapid 
Innovation Fund, have allowed many DOD programs to benefit by 
increasing the speed at which new technologies, enhanced 
capabilities, and cost savings can be incorporated into mission 
critical programs.
    As the program moves forward towards the next 
reauthorization, we make the following recommendations. As 
you--probably no surprise--reauthorize for an adequate term or 
make permanent. Frequent reauthorizations over time are very 
disruptive to both the small businesses as well as the federal 
agencies that rely on the program. We recommend the program be 
reauthorized for at least ten years, and hopefully made 
permanent.
    Continue the competitive structure. We believe that the 
competitive Phase I/Phase II program has been a hallmark from 
the beginning of the program and has made it very strong, that 
this focuses the funding only on those programs and those 
technologies that really deserve to be funded.
    Maintain the eligibility requirements. The last time 
through in the reauthorization, there was a compromise that 
came about, and we support that compromise and would like to 
see that continue.
    Keep, certainly, and potentially expand the allocation 
levels. As I mentioned, we endorse the current allocation level 
and would even advise that we increase that allocation level, 
similar to the way we have done in the past, increasing it 
slowly over time to help keep pace with inflation.
    Enforce the existing regulations on award size. As you 
mentioned, or as previous speakers have mentioned, the current 
law recognizes a good balance, in our mind, between the number 
of awards and the amount of work that can be done for each 
given award.
    Enforce Phase III requirements. As was also mentioned 
previously, there is some language that suggests that DOD and 
other agencies use SBIR technologies to the greatest extent 
possible. However, we still notice reluctance on behalf of 
large DOD contractors as well as some government agencies to 
actually embrace some of the SBIR technologies that have been 
developed.
    And then, finally, standardize the commercialization data 
and data gathering, as both Mr. Williams and Mr. Smith have 
talked about earlier. Today, much of that data is gathered 
agency by agency with very different rules, and it makes it a 
little complicated to keep up with all the changes and all the 
requirements.
    On behalf of all of the employees of Creare, I would like 
to thank you for your efforts to reauthorize, hopefully 
permanently, the SBIR and STTR Programs and for your continuing 
work to preserve and enhance the participation of small 
businesses in federal research and development.
    Thank you.
    [The prepared statement of Mr. Kline-Schoder follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much.
    Now, Mr. Glover.

STATEMENT OF JERE W. GLOVER, EXECUTIVE DIRECTOR, SMALL BUSINESS 
               TECHNOLOGY COUNCIL, ANNAPOLIS, MD

    Mr. Glover. Good morning. My name is Jere Glover. I am 
Executive Director of the Small Business Technology Council of 
the National Small Business Association, the oldest small 
business organization in America.
    I am here to urge you to make a great program better by 
increasing the allocations and by making the program permanent. 
This is half of the National Academy of Science's reports on 
the SBIR Program. Over $10 million have been spent and there 
have been 25 GAO reports. I would direct your attention to 
Appendix 1, which has selected quotes from all of those 
reports, but let me just give you one.
    The SBIR Program has a history of supporting not only the 
growth of jobs and the overall economy, but also the agency's 
missions. Every study that has been done comes to more or less 
that conclusion. After 5,000 pages of National Academy studies, 
25 GAO reports, 33 years of success helping thousands of small 
businesses, it is time to make this program permanent and it is 
time to make it larger and bigger.
    When we look at the chart, we see where innovations come 
from, and the Keller and Block study looked at key innovations 
and found that if you look at the red line, large firms in 
America have been steadily declining in creating key 
innovations, and this one little SBIR Program, two percent of 
the whole federal R&D budget and 3.3 percent of the extramural 
budget, goes to this one little program that creates 25 percent 
of the key innovations.
    Let us go to the next chart. When you look at the Air Force 
Impact Study, what you find in that study is very interesting 
in terms of return on investment. The government, the Air 
Force, for every dollar they spent on SBIR, they get a dollar 
in military sales and 2.6 dollars in additional commercial 
sales, and 50 cents of venture capital outside money added to 
those projects. Ten percent of those companies--this is all the 
companies that got awards from the Air Force Phase II between 
2000 and 2013--10 percent of them had sales in excess of $10 
million. Four of them had sales in excess of $500 million. Ten 
percent of those companies license their technology to somebody 
else. Another 10 percent were acquired. This study, that is the 
first really comprehensive that got a 96 percent response rate, 
shows how effective the SBIR Program has been.
    Now, there is a lot of discussion about success stories and 
there are certainly on my website links to all those, but I 
will simply mention one, IntraLase, which is highlighted in the 
Air Force study. It is a LASIK, a small business that got a 
LASIK--an award to improve LASIK surgery so pilots--as we get a 
little older, sometimes our eyesight is not quite as good and 
they suddenly get kicked out of the air. They cannot fly and do 
what they were trained to do. This new surgery allows them to 
keep doing that. So, not only does it keep pilots in the air, 
it saves the government thousands of dollars training.
    The second thing is the ``valley of death,'' I want to 
address briefly. It is really a ``Grand Canyon of death'' when 
it comes to technology. When we look at it, there are a number 
of reasons that small businesses do not commercialize and 
succeed in taking their technology. Institutional bias against 
small business, minority, women, veterans, well known, well 
documented. It is there against high technology companies 
there, as well.
    Banks have been declining in their lending to small 
business. Home equity loans, a lot of home equity is gone. 
Venture capital--let us go to the next chart. What you find in 
venture capital, unfortunately, is seed investing is way down. 
A hundred-and-eighty-five seed investments made in the entire 
U.S. in 2015, and quite frankly, many states and many 
industries did not get a single seed dollar. So, SBIR is the 
only opportunity. It is a great program.
    The Rapid Innovation Fund has been mentioned. It is truly a 
wonderful program. Eleven-thousand firms applied to the Rapid 
Innovation. Only 435 got awards. It shows you how much demand 
there is for follow-on technology that is not being met. Four 
percent is all of the companies that applied that actually won. 
So, there needs to be a lot more done.
    The law that was passed in the reauthorization bill four 
years ago has yet to be implemented in many instances. We still 
do not have reports. We do not know what Phase III contracts, 
we do not know how many prime contractors are making awards to 
small business, all specifically required in the law, Section 
5122. Section 5108 says that to the greatest extent 
practicable, federal agencies and prime contractors shall issue 
Phase III awards to SBIR and STTR award recipients.
    Only the Navy has issued a directive requiring--
encouraging, not requiring--encouraging folks to do that. 
Nothing from the civilian agencies, nothing from the rest of 
DOD. I, quite, frankly, am sort of old school. I kind of 
believe when Congress passes laws, people should adhere to 
them. Unfortunately, we have not seen that.
    So, we urge you to make a great program better and 
reauthorize this. Thank you.
    [The prepared statement of Mr. Glover follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much, Mr. Glover.
    Let me kick off questions. Again, we will have a five-
minute round.
    Mr. Glover, as we reauthorize, what are the top three or so 
tweaks or reforms or improvements that you would suggest we 
make?
    Mr. Glover. Well, my first recommendation is make people 
comply with the law. Find out why the civilian agencies have 
not to the greatest extent practicable opened the rest of their 
97 percent of their federal R&D dollars open to small business 
and giving SBIR the preference the law required.
    Also, make sure that the reporting requirements and that 
are done quickly. There is no excuse for these reports not to 
be--to be years and years behind. If SBA cannot get them filed, 
then they ought to send them directly to the committee and get 
that information in. There is no accountability in the system 
and it needs to be done.
    In terms of the top three priorities for new legislation, 
one, make it permanent. This uncertainty for businesses knowing 
what is going on is just driving you crazy. We have people lose 
good scientists and engineers because the 14 Continuing 
Resolutions, why work for this company when you can go work for 
somebody else that has a long-term plan.
    Two, increase the program significantly. This is a great 
program. It is working well. There is no other R&D program that 
even comes close to this program. So, why is it still down 
three, four, five, six percent? It ought to be double that or 
more. The STTR Program, likewise, needs to be increased 
substantially. So, that is number two.
    And, one of the questions that came up earlier, I would 
like to address, and that is the simplification of the process. 
There are all kinds of rules and regulations for government 
contractors, rooms and rooms of regulations. There is no reason 
that Congress cannot direct the government to come up with 
simple, clear rules that just apply to SBIR. You may want to 
cap it at some number of dollars, but there is no reason we 
cannot have a simple program like it was when it started. That 
is the whole idea. The money that people spend complying with 
government regulations when it is this small amount means that 
they are not spending the money on doing the innovation and 
they are not doing the money on commercialization.
    So, we do need a simplified, streamlined process. There is 
no reason to wait around for years for a DCAA audit. They are, 
on average, three or four years behind anyhow. Let CPAs do it. 
It is not that much money. We could certainly streamline the 
process.
    So, those three would be three recommendations. I have a 
number more in my testimony.
    Chairman Vitter. Okay. Thank you.
    To both of you, we have talked a lot about the challenge of 
commercialization, either within these programs or outside of 
these programs. What can we do to help smaller firms meet that 
commercialization challenge?
    Mr. Glover. Well, one of the things that I think that John 
Williams mentioned earlier is that we need to have specific 
allocations of the testing and evaluation, the 6.4 and above 
kind of money, going specifically to not only SBIR, but other 
challenging companies. There are some university technology 
that have small businesses license it. There are some other 
non-traditional vendors that need to get into the process. So, 
there needs to be a way to open all that up, but there needs to 
be a significant pot of money.
    And I think the Rapid Innovation Fund is a great program, 
but it only helps 100 companies a year--only 100 a year. We can 
do better than that, because every time we create a need--we 
meet a need for the military, what we are finding is 2.5 times 
that much in commercial sales on the outside. So, this is a 
huge job creation and economy program. It really does great 
things, and the multiplier effect of a dollar spent on this 
program, 3.6--58 percent of those Phase IIs at the Air Force 
ended up with sales in excess of a million dollars.
    Mr. Kline-Schoder. So, one of the things we have seen is 
that some of the large Defense contractors, when they have a 
very large program, are reluctant to hire a small business 
because we do not seem stable. We are not going to be around 
for a long time, and so they do not want to invest their 
program funds in taking technology from a small company and 
inserting it into a program that might have a 30-year lifetime.
    So, one of the things that might be helpful would be to 
reduce that risk for the large contractors, and I think it is 
also partly some of the folks in the federal government, as 
well. They see we are going to have this long program. You 
know, I have been asked, ``Is Creare going to be around in 10 
years?'' Well, I usually say, I know I am going to be around. 
Are you going to be around in 10 years?
    And, so, what--if you could come up with a way of 
potentially--as for instance, we have worked on some very 
expensive refrigerators that go into space, and we compete 
against the Lockheeds, the Boeings, the Raytheons, and Ball 
Aerospace and Northrup Grumman, and then they have cryocoolers 
and we have a cryocooler. And when a large program looks at 
which one should we take, you know, it is a little hard for us 
to compete against these multi-billion-dollar companies.
    And, so, if there were a way to help either develop 
technologies in parallel in a situation like that, to provide 
funding so that it could give reassurance to the program 
managers and also the contractors, the Defense contractors, 
that we are behind Creare. We are really going to help them 
make sure that they make it and they are going to be there for 
the rest of the time. But, if they are not, in parallel, we are 
going to allow you to fund a little bit extra work over here to 
come up with an alternative in case your primary selection does 
not pan out for the long term.
    So, reducing that risk, I think, in people's minds and 
providing some reassurance is something that could be helpful.
    Chairman Vitter. Okay. Thank you very much.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman, and thank you 
both for that really helpful and informative testimony.
    I was interested, there was a lot of discussion on the 
first panel about simplifying the regulations, the paperwork 
around SBIR and STTR awards. Mr. Glover, you talked about that 
in your testimony. But, I was interested, Mr. Kline-Schoder, 
that you did not talk about that. If the program were going to 
simplify the paperwork, the regulations, where would you like 
to see that simplification first occur?
    Mr. Kline-Schoder. Right. So, I am not an attorney. I am an 
engineer, one of those guys. And, so, I am told the Uniform 
Commercial Code is 30 pages long and it has been in existence 
for about 50 years. As I think all of you know, the FAR, I 
think, is 30,000 pages and keeps changing every single year. 
And, so, to the extent that one could look at trying to 
simplify some of those 30,000 worth of pages that do get 
imposed upon small businesses, that would probably be quite 
helpful.
    The other thing that I think is actually quite helpful that 
we have been trying to do a little bit more is actually to do 
more firm fixed price contracts. I know there has been a push, 
I think, in the Senate Armed Services Committee to try to 
encourage that, and those contracts actually are not audited in 
the end, so it gets around the problem that Jere was talking 
about, having the DCAA come in three or four or five or six, or 
in our case seven or eight, years later to look at sort of what 
has happened and then make changes after the fact. And, so, 
that would be something that I would consider, as well.
    Most Phase I projects actually are firm fixed price 
contracts. There is a reluctance for some reason for the 
contracting officers to use firm fixed price contracts for 
Phase II awards, and I am not exactly sure why that is, but if 
we could encourage that a little bit more. NASA does that, and 
so I guess I am not sure--I do not see why other contracting 
agencies can do that, anyway.
    There is, as you all know, a difference between the 
contracting agencies and the granting agencies. As it turns 
out, I think what John Williams said earlier is actually true. 
The contracting agencies actually have a much simpler 
application process than the granting agencies do. But when it 
comes to contracting, they are totally opposite. Once you are 
awarded a contract, then you enter into the world of talking to 
contracting officers and doing all those things.
    On the grant side, one day a notice shows up in your e-mail 
and says your grant started, and you do not have to sign 
anything, you do not have to do anything. It just happens.
    And, so, although on this side it usually takes nine months 
to have that happen, things are happening, I guess behind the 
scenes on this side. So, in the end, it sort of winds up being 
the same amount of time, but it does seem like we could gather 
something from either side, to take the best from both worlds 
and try to combine those.
    Senator Shaheen. That is a good thought.
    Did you want to add anything to that?
    Mr. Glover. I am mindful of Irwin Jacobs, head of Qualcomm, 
who testified here and also at the White House that the SBIR 
Program let Qualcomm get started and provided the early money 
that let them survive. He said there has been significant 
requirement creep. When the program first started, $25,000 was 
Phase I. He said, you just got the $25,000. You did your work. 
You sent a report in. They liked it. They funded another round. 
And you sent that report in and you got paid. And it has been a 
lot of difference now. So, they have added more and more 
regulations.
    By the way, the FAR, they have not updated the FAR for the 
2000 reauthorization and 2001 STTR reauthorization, much less 
the 2011 one. So, do it immediately, but let us get serious. We 
are so low on their list, you know, 2000, it has not been done. 
No FAR regulation updates. None of that is in there.
    Senator Shaheen. So, you both talked about the allocation 
amounts and increasing those as a way to get more small 
businesses involved and to make the program more effective. 
Now, you have both been affiliated or associated with this 
program longer than I have. So, is the--I remember the last 
reauthorization debate and some of the concerns that Congress 
expressed about increasing the allocation amounts. Are there 
other concerns that you have heard over the years? Are there 
agency concerns about increasing those allocation amounts that 
you think we ought to take a look at, or what is the problem 
with increasing those amounts, since there seems to be 
agreement from all of you working with the program that we 
should do that.
    Mr. Kline-Schoder. I think what I have heard on the 
government side is they kind of view the SBIR as a tax on their 
programs, and for those organizations or those groups that do 
not actually participate actively, I could see how that would 
be a tax that you are just paying and you are not getting any 
return for.
    But, those groups that actually look at it as an 
opportunity rather than a tax are the ones that really benefit 
the most, because they are the ones who are most motivated to 
actually have something come out of the program, as well, and 
it allows them to do rapid innovations and insert new 
technologies much quicker than they can otherwise.
    Senator Shaheen. Mr. Glover.
    Mr. Glover. There is virtually no risk for somebody in the 
government making a decision to give Lockheed or Boeing or one 
of the giant companies a contract. If they fail, if they 
overrun, nobody gets punished. If they give an award to a small 
business, that is why the previous reauthorization, I believe 
Congress put in there, you will have goals, you will have 
incentives, you will do reports. Four years later, you heard 
the testimony, no goals. The incentives, they reauthorized to 
create any incentive they wanted to to insert this and they 
have not done it. And reports, no reports exist.
    So, you are going to have to get tough and you are going to 
have to be serious about it, because if not, they are going to 
continue to ignore it. Business as usual is always the easiest 
thing to do. Disruptive technology, there is disruptive 
government. If we do not disrupt the status quo, we will be 
sitting here in another 10 years saying, you know, we could 
have created a lot of jobs in America if we had made this 
program bigger and better.
    The Air Force study just to me nails it clear. Every dollar 
that is spent by the Air Force got 2.6 dollars in follow-on 
sales. I defy anybody in the government to find a better result 
on investment. It is just phenomenal and it has got--it needs 
to be done, for America, for job creation. How many innovative 
companies did not get started, did not grow because they did 
not have a chance?
    Senator Shaheen. Well, thank you both very much for your 
testimony, and shame on us if we do not require the provisions 
that were passed in the reauthorization to be implemented by 
all of the government agencies involved.
    Chairman Vitter. Okay, thank you.
    And, Senator Ayotte.
    Senator Ayotte. Thank you, and it is great to see you 
again, Doctor, and appreciate all the important work being done 
at Creare.
    I am very curious, Mr. Glover, and also just to hear, Dr. 
Kline-Schoder, your feedback on the regulations. I think your 
analogy of the Uniform Commercial Code versus the contracting 
regulations and what you are dealing with, and even the grant 
regulations, it almost seems like we need to do--you know, I 
visit manufacturers and they are always talking about lean 
process. It seems like we need to do a lean process on how this 
whole thing--how do you--how does a small business go through 
this process, and whether it is a grant or whether it is a 
contract award, let us face it, it takes too long. Even when 
you are awarded the contract, the nine months that it takes is 
too long, especially for small businesses, especially if we are 
focusing on innovation.
    And, so, I guess I would ask both of you, especially you, 
Mr. Glover, you say they have not yet even done what we asked 
to do four years ago. So, you are in our shoes. What would you 
do? How do we get to the bottom of this so they actually make 
this easier, streamline it, do it in a logical way? We would 
love to see people like you at the table as they do that so 
that they are not just doing it in some vacuum.
    Mr. Glover. The three percent administrative money, we took 
three percent out. We were told by the government, we will 
streamline the process. We will make awards faster. We will 
compress it. The Navy has done it and they are to be commended. 
The rest of the government has not done it. If they want their 
three percent, make sure they comply with the law that is here 
and make certain that they streamline the process----
    Senator Ayotte. I like it.
    Mr. Glover [continuing]. Come up with a new set of 
regulations that are quick, short, simplified, and easy. Make 
this a model in government to show how you can eliminate 
government regulations. Every dollar a small business spends on 
accounting and paperwork, regulatory compliance, is a dollar 
they are not spending on innovation and technology.
    Senator Ayotte. I like it. So, basically, you know, you 
want the three percent, then you make this happen, and we want 
to see accountability for it. I like it.
    I wanted to get your thoughts, Doctor.
    Mr. Kline-Schoder. Yeah. An analogy could be--and I know 
you are on the Senate Armed Services Committee--recently, the 
ITAR regulations were looked at----
    Senator Ayotte. Yes.
    Mr. Kline-Schoder [continuing]. And there has been a 
process to go through and kind of streamline those and try to 
get them modernized. It seems like the same thing could happen 
to the FAR----
    Senator Ayotte. Yes.
    Mr. Kline-Schoder [continuing]. Spending a little time 
looking at that and asking the questions, you know, do we still 
need this, and is it----
    Senator Ayotte. And what are we accomplishing with it?
    Mr. Kline-Schoder [continuing]. With it, right, and for 
each of the----
    Senator Ayotte. That is a great idea. We should think about 
that as a way to--because there needs to be a forcing mechanism 
to have them look at all this, because as a small business, you 
know, you think about what it takes, all the regulations. A lot 
of people with great ideas are going to be discouraged and are 
not going to go forward just because of the paperwork. So, I 
think that would be a worthy undertaking as we, hopefully, 
permanently reauthorize these programs.
    And, Dr. Kline-Schoder, when we had the hearing, Senator 
Shaheen and I, in 2013 that you participated in, in Manchester, 
one of the things that you raised to us then is the need for 
uniformity in the administration of the SBIR, and that has sort 
of been, I think, a theme we have heard today at the hearing. 
So, have you seen--since we had this hearing in 2013, here we 
are in 2016--any change, any progress, or are we pretty much in 
the same situation?
    Mr. Kline-Schoder. It has probably gotten a little worse.
    Senator Ayotte. It has gotten worse?
    Mr. Kline-Schoder. Yeah.
    Senator Ayotte. Okay.
    Mr. Kline-Schoder. I think, although it may be one of those 
things where it needs to get worse before it gets better, and 
the benefit, actually, is going to go to John Williams, I 
think, because he had set up--and this is mostly related to the 
commercialization reporting that I was talking about as an 
example----
    Senator Ayotte. Right, uniformity.
    Mr. Kline-Schoder. Yeah. The current--you know, since we 
spoke, NASA came up with a different model of commercialization 
reporting than they had, or they had one and they added some 
things to it, and DOD changed theirs a little bit, and DOE 
changed theirs a little bit. And then SBA came in and they set 
up their own. And, I think the reason SBA set up their own is, 
hopefully, in the end, they are going to be the central----
    Senator Ayotte. The standard----
    Mr. Kline-Schoder [continuing]. Repository for everybody. 
And, so, since then, we have had a few more changes, plus we 
had a new one that we have to deal with. But, John has been 
great about setting that up and making sure that it was as 
smooth as possible, and I am hoping that he is successful in 
getting all of the other agencies to kind of just standardize 
on that SBA database.
    Senator Ayotte. What can we do to make sure that happens, 
so when we already look at where we are sort of behind on 
implementation, but if we can help this process and, obviously, 
make sure that it does become more uniform, that there is one 
central repository and you are not trying to meet all these 
different----
    Mr. Kline-Schoder. Right. Yeah, I mean, I think what Jere 
said before in terms of having some incentive for the different 
agencies. I also liked what Mr. Smith said about maybe having a 
summit where you get together with a number of the agencies so 
that they can talk about, you know, best practices and try to 
figure out how to get more streamlined-type things, that would 
probably be quite helpful, too.
    Senator Ayotte. Great idea.
    Mr. Glover. The SBIR community is excited that John 
Williams is at SBA. He did a magnificent job at the Navy and we 
are excited he is there.
    The sad thing is he has got virtually no budget and 
virtually no people. To try to run a $2.5 billion a year 
program with four people is just a joke. Years ago, when it was 
less than half this size, they had 11 people in the office. 
And, to try to run it--it has just been lower and lower 
priority at SBA. It has just been bumped down and bumped down. 
It is a $2.5 billion program.
    It should be--somebody should be making sure that the 
Paperwork Reduction Act, which is a joke, is real. There is no 
reason.
    And, OMB should have allowed every agency to come up with 
anything they wanted to on commercialization. They should have 
said, SBA is going to be it. Everybody else, stop. And, quite 
frankly, we told SBA, use the Defense Department's Commercial 
Achievement Index. It is working. It is great. We all 
understand it. Half the companies know how to use it. For 
whatever reason, they did not choose to do that.
    But, they are not thinking about paperwork reduction. They 
are not thinking about the burden they are putting on these 
companies. They do not understand, when they put burdens on the 
companies, they take away money that they could be using to 
innovate and create new jobs.
    Senator Ayotte. Oh, absolutely. I mean, the people it takes 
to comply with this stuff is unbelievable, and a small business 
does not have an army of lawyers and accountants and every 
other person.
    Mr. Glover. We have been meeting with DCAA. We tried to do 
it the right way, and Senator Shaheen wanted to--but DCAA was 
coming along, helping out. The head of DCAA left and it is dead 
now. And, there are some--Armed Services did something--I am 
not sure it was good enough or far enough--in the last bill----
    Senator Ayotte. Right.
    Mr. Glover [continuing]. But that needs to be made tougher. 
And, quite frankly, there is no reason--for the kinds of awards 
they are making, you need to have auditors go in and hold up 
for years these accounting procedures. It drives the CEO of the 
company crazy----
    Senator Ayotte. Right.
    Mr. Glover [continuing]. When a DCAA auditor comes in on a 
million-dollar contract and stays there for weeks.
    Senator Ayotte. Well, I was really struck when Dr. Kline-
Schoder talked about eight years later. That is absurd for any 
business. Eight years later? How do you possibly deal with 
that?
    So, I really appreciate both of you being here and the 
important feedback, and hopefully, as we take up a permanent 
reauthorization, we will also address these concerns to make it 
a more efficient program.
    Chairman Vitter. Thank you very much, and thanks to both of 
you and our previous two witnesses again. I think this was a 
very informative and productive hearing, and we will absolutely 
take away these key thoughts and, hopefully, produce a good, 
strong bipartisan reauthorization which reauthorizes and 
improves the two programs. So, that is our very determined goal 
which we are actively working on.
    Thanks very much, and with that, the hearing is adjourned.
    [Whereupon, at 11:54 a.m., the committee was adjourned.]

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