[House Report 104-850]
[From the U.S. Government Publishing Office]



                                                                       
104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-850
_______________________________________________________________________


 
 PILOT SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM EXTENSION ACT OF 1996

_______________________________________________________________________


 September 26, 1996.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mrs. Meyers of Kansas, from the Committee on Small Business, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 3158]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 3158) to amend the Small Business Act to extend the 
pilot Small Business Technology Transfer program, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Pilot Small Business Technology 
Transfer Program Extension Act of 1996''.

SEC. 2. PROGRAM EXTENSION.

  Section 9(n) of the Small Business Act (15 U.S.C. 638(n)) is 
amended--
          (1) in paragraph (1)--
                  (A) by striking ``in fiscal year 1994, 1995, or 
                1996,'';
                  (B) by striking ``and'' at the end of subparagraph 
                (B);
                  (C) by striking the comma at the end of subparagraph 
                (C) and inserting ``; and''; and
                  (D) by inserting after subparagraph (C) the following 
                new subparagraph:
                  ``(D) not less than 0.25 percent of such budget in 
                fiscal year 1997 and each succeeding fiscal year,''; 
                and
           (2) by adding at the end the following new paragraph:
          ``(4) Program expiration.--Authorization to carry out the 
        STTR program pursuant to this subsection (and subsections (o) 
        and (p) of this section) shall expire on September 30, 2000.''.

SEC. 3. ASSESSMENT BY THE COMPTROLLER GENERAL.

  (a) Assessment Required.--The Comptroller General of the United 
States shall conduct an assessment of the ongoing implementation of the 
Small Business Innovation Research (SBIR) program and the pilot Small 
Business Technology Transfer (STTR) program. The assessment shall 
address the following issues with respect to each program:
          (1) The extent of competition and the quality of proposals 
        submitted for the award of SBIR and STTR agreements, and the 
        quality of subsequent performance by the recipients of such 
        awards.
          (2) Whether any adverse effects on the research or research 
        and development programs of any sponsoring agency are 
        attributable to the agency's participation in the SBIR program 
        or the pilot STTR program.
          (3) Whether any awards by a sponsoring agency in each fiscal 
        year represent the applicable percentages of such agency's 
        extramural budget, identifying any systemic management 
        weaknesses contributing to such limitation on implementation.
          (4) Any management techniques initiated by sponsoring 
        agencies that attempt to minimize delays between the successful 
        completion of a Phase I agreement and the award (and 
        commencement of performance) under a Phase II agreement or 
        ameliorate the adverse effects of such delays.
          (5) The implementation of Phase III by participating 
        agencies, including awards in support of Phase III and other 
        techniques adopted by the agencies to foster commercialization.
          (6) The extent to which small business participants in each 
        program, especially recipients of STTR awards, utilize the 
        results of research undertaken for Federal agencies by 
        universities, federally funded research and development 
        centers, and other research institutions, and the extent to 
        which the results were subsequently developed by such small 
        firms to meet the needs of Federal, State, and local government 
        or advanced to use in the commercial marketplace.
          (7) Whether the required and structured collaboration between 
        a small business and a research institution under the pilot 
        STTR program is necessary in light of the experiences with 
        voluntary collaborations under the SBIR program.
          (8) Any duplication between the SBIR program and the pilot 
        STTR program.
          (9) The extent to which each agency participating in the SBIR 
        program has complied with the policy directives to enhance 
        outreach efforts to increase the participation of socially and 
        economically disadvantaged small business concerns and women-
        owned small business concerns issued under section (9)(j)(2)(F) 
        of the Small Business Act (15 U.S.C. 638(j)(2)(F)) and the 
        extent to which each agency participating in the STTR program 
        has made outreach efforts to increase the participation of such 
        concerns in the agency's STTR program.
          (10) Any other relevant information as determined by the 
        Comptroller General.
  (b) Period of Assessment.--The assessment required by subsection (a) 
shall focus on the implementation of each program during the period 
beginning October 1, 1995, and ending September 30, 1999.
  (c) Report.--
          (1) Submission of report.--The Comptroller General shall 
        submit a report of the assessment required by subsection (a) to 
        the Committees on Small Business of the Senate and House of 
        Representatives not later than February 1, 2000.
          (2) Appendices to report.--The report shall include--
                  (A) an appendix summarizing the findings of previous 
                reports issued by the Comptroller General with respect 
                to the SBIR program and the pilot STTR program; and
                  (B) an appendix listing reports of other assessments 
                of the SBIR program or the pilot STTR program issued by 
                the Small Business Administration, any of the 
                sponsoring agencies, and any other entities determined 
                by the Comptroller General to be useful resources to 
                the Congress in evaluating each program for 
                reauthorization.

SEC. 4. INTERAGENCY TASK FORCE ON COMMERCIALIZATION.

  (a) In General.--The Administrator of the Small Business 
Administration shall convene and supervise an interagency task force on 
fostering commercialization of the results of projects being undertaken 
by small business concerns through the SBIR program and the pilot STTR 
program.
  (b) Duties.--The interagency task force shall--
          (1) review existing studies and analyses and conduct 
        independent assessments, as may be appropriate, regarding the 
        obstacles faced by small business entrepreneurs seeking to 
        commercialize results of basic research or research and 
        development undertaken through Federal funding;
          (2) devise recommendations to overcome (or minimize the 
        effects of) such obstacles; and
          (3) address other matters that the Administrator determines 
        are appropriate to ensure a comprehensive analysis and the 
        development of practical recommendations.
  (c) Participation.--
          (1) Task force membership.--The interagency task shall 
        include participation by representatives of--
                  (A) the Office of the Chief Counsel for Advocacy of 
                the Small Business Administration;
                  (B) the 5 Executive agencies having the greatest 
                dollar value of awards under the SBIR program in fiscal 
                year 1995;
                  (C) the Executive agencies participating in the pilot 
                STTR program in fiscal year 1995;
                  (D) the Office of Science and Technology Policy, 
                Executive Office of the President; and
                  (E) any other Executive agencies invited by the 
                Administrator.
          (2) Public participation.--In undertaking its assessments and 
        fashioning its recommendations, the interagency task force 
        shall provide opportunities for consultation with 
        representatives of--
                  (A) small businesses and other entities that have 
                participated in the SBIR program or the pilot STTR 
                program;
                  (B) organizations representing small business 
                concerns;
                  (C) organizations representing venture capital 
                sources, especially those focusing on the needs of 
                small high-technology entrepreneurs; and
                  (D) any other public or private entities that the 
                Administrator determines are appropriate.
  (d) Schedule.--
          (1) Notice and initial call for public participation.--Not 
        earlier than May 1, 1997, the Administrator shall publish in 
        the Federal Register (and through other means likely to result 
        in broad dissemination) a notice, which at a minimum, announces 
        the existence of the interagency task force, identifies the 
        members of task force, summarizes purposes and objectives of 
        the task force, requests suggestions and recommendations from 
        the public regarding the work of the task force, providing at 
        least 180 days to make a submission in response to such notice, 
        and announces any schedule of meetings of the task force or 
        other public meetings.
          (2) On-going public participation.--In conducting its 
        assessments and fashioning its recommendations the task force 
        shall make every reasonable effort to solicit ideas from the 
        public.
  (e) Report.--Not later than March 1, 1999, the Administrator shall 
submit to the Committees on Small Business of the Senate and House of 
Representatives a report of the work of the interagency task force, 
including such recommendations for legislative or administrative 
action.

SEC. 5. TECHNICAL CORRECTION.

  Section 9(e)(4)(A) of the Small Business Act (15 U.S.C. 638(e)(4)(A)) 
is amended by striking ``(B)(ii)'' and inserting ``(B)''.

                                Purpose

    The purpose of the bill, H.R. 3158, the ``Pilot Small 
Business Technology Transfer Program Extension Act of 1996,'' 
is to: (1) Extend for four additional years the three-year 
Pilot Small Business Technology Transfer (STTR) Program, 
through September 30, 2000, providing a longer period to 
evaluate thoroughly the Program's effectiveness as a means to 
foster small business commercialization of Federally-sponsored 
research through structured collaborations between small firms 
and non-profit research institutions, such as universities or 
Federally-funded Research and Development Centers (FFRDCs); (2) 
increase by one-tenth of one percent, from 0.15 percent to 0.25 
percent, the percentage of the extramural research budgets 
dedicated to the Pilot STTR Program by participating Federal 
agencies, those agencies with annual extramural research 
budgets of $1 billion or more (five in FY 95); (3) specify the 
parameters of on-going monitoring of the implementation of the 
Pilot STTR Program and the complementary Small Business 
Innovation Research (SBIR) Program by the General Accounting 
Office (GAO) so as to have available for Congressional 
consideration a comprehensive report prior to September 30, 
2000, the current expiration date for the SBIR Program and the 
bill's proposed expiration date for the Pilot STTR Program; and 
(4) establish a public-private task force on fostering 
commercialization of the results of projects undertaken by 
small businesses through the SBIR Program and the Pilot STTR 
Program, which is required to submit to Congress a report, with 
appropriate legislative and administrative recommendations, by 
March 1, 1999.

Background on the Pilot Small Business Technology Transfer Program and 
                    Justification for Its Extension

                           I. program history

    The Pilot Small Business Technology Transfer (STTR) Program 
was established by Title II of Public Law 102-564, the ``Small 
Business Research and Development Enhancement Act of 1992,'' 
and authorized for an initial three-year demonstration, 
beginning in fiscal year 1994. Building upon the established 
model of the Small Business Innovation Research (SBIR) Program, 
the Pilot STTR Program provides the statutory basis for 
structured collaborations between small technology 
entrepreneurs and non-profit research institutions, such as 
universities or Federal-funded Research and Development Centers 
(FFRDCs), to foster commercialization of the results of 
Federally sponsored research. Title I of P.L. 102-564 provided 
a multi-year extension of the SBIR Program, extending it 
through fiscal year 2000. This 1992 extension of the SBIR 
Program was the third, and longest, since that Program's 
creation in 1982.
    The SBIR Program and Pilot STTR Program both seek to 
stimulate technological innovation and increase private-sector 
commercialization of innovations derived from basic research as 
well as more mission-oriented advanced research and development 
undertaking by Federal agencies. Each program is founded upon 
independent separate statutory authority that provides 
legislative frameworks aimed at providing sustained support for 
those innovations that are most technologically competitive and 
show promise for commercialization. Both programs also assure 
minimal involvement of small businesses in the so-called 
extramural research and development (R&D) activities conducted 
by Federal agencies, that is, those undertaken through private 
sector sources, including Federally-supported research 
institutions such as universities and FFRDCs. To assure such 
minimal small business participation and to maintain stable 
funding for technology commercialization, both the SBIR Program 
and the Pilot STTR Program require a participating Federal 
agency to reserve a small percentage of its external R&D budget 
for each program. Both the Pilot STTR Program and the basic 
SBIR Program use a highly competitive three-stage process that 
is designed to identify and nurture only the most promising 
technology innovations, seeking to move them to full 
commercialization, under the technical and entrepreneurial 
leadership of small business owners. The common technological 
and entrepreneurial objectives of both the Pilot STTR Program 
and the underlying SBIR Program are to:
          Stimulate technological innovation, especially that 
        with application in the commercial marketplace;
          Foster small businesses participation in meeting the 
        needs of Federal agencies for both basic and applied 
        research and subsequent development that addresses 
        agency mission requirements; and
          Increase successful private-sector commercialization 
        of innovations derived from Federally-sponsored basic 
        research and more advanced mission-oriented agency R&D 
        projects.
Both programs are directed at small business concerns with 
fewer than 500 employees, including those owned and controlled 
by socially and economically disadvantaged individuals. P.L 
102-564 provided additional emphasis with regard to such 
historically underutilized firms within the on-going STTR 
Program as well as for the implementation of the Pilot STTR 
Program. The two programs differ, however, in one fundamental 
aspect: under the Pilot STTR Program, a small business must 
collaborate with a nonprofit research institution, such as a 
university or FFRDC.
    In considering the rationale for a separate STTR Program in 
1992, the House Committee on Small Business noted that the STTR 
Program was expected to address a core problem in U.S. economic 
competitiveness--the country's inability to translate its 
worldwide leadership in basic science and technology into 
marketable technology, especially with broad commercial 
applications, benefitting the national economy and fostering 
competitiveness internationally. What was needed was an 
effective, systematic technology transfer mechanism to move 
innovation from the research institution to practical 
application in the commercial marketplace. The Committee agreed 
that the Pilot STTR Program would provide an effective 
mechanism for such small business-led technology transfer. The 
Pilot STTR Program was established on the premise that 
collaborative endeavors between a small business entrepreneur 
and a researcher at a university, Federal laboratory, or 
nonprofit research institution holds great potential for 
effectively transforming the new ideas and innovations derived 
from basic research from the laboratory to the marketplace.
    The Small Business Administration (SBA) is the coordinating 
agency for both the established SBIR Program and the Pilot STTR 
Program. It assists the participating Federal agencies in 
implementing each program, monitors and analyzes their 
performance, and reports annually to Congress on the programs'' 
operations. The SBA is also the centralized information 
provider for the Pilot STTR Program, collecting solicitation 
information from each participating agency and publishing 
periodically a Pre-Solicitation Announcement (PSA). The PSA is 
the single source for the research topics designated by each 
participating agency, identifying the anticipated release date 
for each agency's solicitations as well as the expected closing 
date for submission of proposals.

         II. ELIGIBILITY AND FUNDING FOR THE PILOT STTR PROGRAM

A. Program eligibility criteria

    The Pilot STTR Program involves cooperative research and 
development performed jointly by a small business and a 
qualified research institution. To be eligible for competitive 
selection for an STTR award, each partner must meet the 
specified eligibility criteria, as follows:
    Small Business Partners: Company size limited to 500 
employees; American-owned and independently operated; other 
than the dominant firms in the field in which they are 
proposing to carry-out the STTR project; for-profit enterprise; 
and principal researcher need not be employed by small 
business.
    Nonprofit Research Institution: Located in the U.S.
    Meet one of the following definitions: Nonprofit college or 
university; domestic nonprofit research organization; and 
federally funded research and development center (FFRDC).
    One of the core features of the Pilot STTR Program, which 
makes it distinct from the SBIR Program, is the statutory 
requirement that a small business concern must lead the team 
working under an STTR award. Under the Pilot STTR Program, a 
small business must perform at least 40 percent of the work; 
the research institution must perform at least 30 percent of 
the work. The small business is required to be responsible for 
management and control of the STTR project. This is in sharp 
contrast to the SBIR Program, which permits collaborative 
endeavors with Federally-sponsored research institutions, but 
fails to prescribe the small business leadership position and 
other protections for the small business partners that are the 
core rationale for the Pilot STTR Program.

B. Program funding

    Like the SBIR Program, the Pilot STTR Program is funded by 
annually reserving for the Program's support a percentage of 
the extramural (or contracted-out) research and development 
budget of the participating agency. To be designated a 
participant in the Pilot STTR Program, an agency must have an 
extramural R&D budget of at least $1 billion. Agencies become 
participants in the SBIR Program when the annual extramural R&D 
budget exceeds $1,000,000.
    During FY 1996, five agencies participate in the Pilot STTR 
Program: Department of Defense (DOD), Department of Energy 
(DOE), National Institutes of Health (NIH) within the 
Department of Health and Human Services, National Aeronautics 
and Space Administration (NASA), and the National Science 
Foundation (NSF). P.L. 102-564 specified a very small, but 
gradually increasing, minimum percentage of the agency's 
extramural R&D budget for support of STTR Program projects, as 
follows: 0.05 percent in Fiscal Year 1994; 0.10 percent in 
Fiscal Year 1995; and 0.15 percent in Fiscal Year 1996.
    During the first two years of the Pilot STTR Program, the 
five participating agencies made 436 Phase I awards valued at 
$40.5 million and 22 Phase II awards valued at $10.7 million. 
The SBA estimates that in fiscal year 1996, approximately $50 
million in awards can be expected under the Pilot STTR Program.

C. Demonstrated need for a separate STTR Program

    From the initial authorization of the Pilot STTR Program, 
questions have been raised regarding whether the Program 
duplicates the SBIR Program, without adequate justification. As 
previously noted, the Pilot STTR Program contains statutory 
requirements that concurrently assure the leadership of the 
small business entrepreneur in a collaborative enterprise with 
a Federally-sponsored research institution, and afford the 
small firm essential protections with respect to its likely 
larger and more established for-profit partner.
    All of the witnesses at the Committee's March 6, 1996 
hearing advocated maintaining a separate STTR Program, despite 
the expansion of the SBIR Program, addressing in more detail 
the benefits summarized in this report. Several statements for 
the record also cited the importance of a distinct STTR 
Program, the most thorough and persuasive of which came from 
the largest agency participant in the Pilot STTR Program. On 
behalf of the Department of Defense, the Honorable R. Noel 
Longuemare, Principal Deputy Under Secretary of Defense for 
Acquisition and Technology, stated:

          The Department of Defense (DOD) administers the 
        largest of the SBIR and STTR programs in the federal 
        government, accounting for about half of the total 
        program funding. * * * We find evidence that the DOD 
        STTR Program, while much newer, serves as an important 
        complement to our SBIR program by harnessing a new and 
        different source of technologies--technologies that 
        originate in our nation's research institutions.
          STTR is the vehicle enabling a researcher at a 
        research institution to spin off a commercially-
        promising idea by joining forces with a small 
        technology company. Thus, whereas SBIR harnesses the 
        ideas in our small business sector, STTR taps into a 
        vast new reservoir of ideas in our nation's research 
        institutions.
          These institutions employ one in four R&D scientists 
        and engineers in the United States, and perform more 
        than $40 billion in R&D each year. * * * The quarter of 
        a million scientists and engineers in these 
        institutions often recognize important commercial 
        applications of their research. But there exist few 
        efficient mechanisms enabling these scientists and 
        engineers to pursue commercial applications of their 
        research.

    DOD recently conducted an informal survey of 25 small 
companies and research institutions that participate in the DOD 
STTR Program. The participants were asked why they chose to 
participate in the STTR Program and, if in their experience, 
the STTR Program serves a different function than the SBIR 
Program. Their responses indicate that the Pilot STTR Program 
is serving its intended purpose.
    University collaborators, for example, noted that the two 
programs serve very different functions. STTR is more focused 
on technology transfer. As one professor observed, ``Without 
STTR, technology transfer, if it occurs, would occur by 
serendipity, and would take much longer.'' Another noted that 
``STTR makes an immense difference to a university professor 
who's an entrepreneur but finds it unfeasible or undesirable to 
leave the university to start a new business.''
    A small business partner in an STTR project told SBA that 
``STTR taps into something different than SBIR--it gives a 
direct, practical channel for technology transfer.''
    Mr. Robert M. Pap, President and CEO of Accurate Automation 
Corporation of Chattanooga, Tennessee echoed similar sentiments 
in the March 6th testimony that he provided to the Committee. 
Mr. Pap's small company has extensive experience with both 
Programs. Accurate Automation Corporation has received 30 SBIR 
Phase I awards, 17 SBIR Phase II awards, and one of the first 
STTR awards from the Department of Defense, winning both a 
Phase I and Phase II award. He also identified a concern 
expressed by the Committee concerning foreign interests in and 
lost economic benefit from U.S. innovation and research:

          The STTR does a number of things that SBIR does not 
        and it allows room for greater basic discoveries in the 
        future. We will still need SBIR as it is formulated. 
        The STTR program can solve a number of problems that 
        divide the research community. The STTR allows small 
        business to access technology that is in the National 
        Labs or FFRDCs today. The only way this technology can 
        get into commercial use is for the information to be 
        published for all the world to see and exploit before 
        small business can get at it. STTR provides the 
        technology maturation for our country to benefit from 
        our research investment.

    As Daniel O. Hill, Assistant Administrator for Technology 
SBA, stated in testimony before the Committee:

          Studies show that small businesses are our leading 
        source of innovations and that small firms produce 
        twice as many innovations per employee as large firms. 
        The SBIR and STTR Programs serve to ensure that high-
        quality small business talent is able to participate in 
        federal R&D efforts. As a result of these programs, 
        there is a flow of innovative new products and services 
        to the American marketplace.

                  III. EXTENSION OF PILOT STTR PROGRAM

    The STTR Program was established as a three-year pilot 
program under Title II of P.L. 102-564, the ``Small Business 
Research and Development Enhancement Act of 1992.'' Unless 
reauthorized, the program will terminate on September 30, 1996. 
As repeatedly noted in this report, there is broad support for 
extension of the Pilot STTR Program by private and public 
sector participants, by the Administration, and by the General 
Accounting Office.
    H.R. 3158 extends the Pilot STTR Program through September 
30, 2000. The program extension provides for the expiration of 
STTR at the same time as the most recent extension of SBIR 
Program, in October, 1992. This extension will facilitate 
concurrent oversight and future legislative consideration of 
these related small business technology programs by the 
Congress and provide an additional four years to assess more 
conclusively the value of the Pilot STTR Program.

                          IV. COMMITTEE ACTION

A. Hearing--March 6, 1996

    The Committee held a hearing on March 6, 1996 to assess the 
implementation of P.L. 102-564, the ``Small Business Research 
and Development Enhancement Act of 1992,'' which improved and 
expanded the SBIR Program and authorized the Pilot STTR 
Program. Testimony was received from small business 
participants in both the Pilot STTR Program and the established 
SBIR Program. Two of these small business witnesses expressed 
support on behalf the U.S. Chamber of Commerce and National 
Small Business United. As previously noted, SBA expressed 
support of extension of the Pilot STTR Program on behalf of the 
Administration. Similarly, GAO's representatives recommended 
extension of the Pilot STTR Program to provide a longer period 
for evaluation, but were complimentary of STTR in their 
preliminary assessments of the Program.

B. 1995 White House Conference on Small Business

    The Committee emphasizes that a recommendation regarding 
both the SBIR Program and the Pilot STTR Program was ranked 
13th by the delegates to the 1995 White House Conference on 
Small Business. The recommendations call on Congress and the 
President to ``expand, improve and make permanent the SBIR/STTR 
programs.''
    A recommendation ranked 6th by the delegates to the 1980 
White House Conference on Small Business was instrumental in 
the enactment of the initial authorization for the SBIR Program 
in 1982. Similarly, a recommendation ranked 14th by the 
delegates to the 1986 White House Conference on Small Business 
was used to propel the enactment of P.L. 102-564.

         V. ASSESSMENTS OF SBIR PROGRAM AND PILOT STTR PROGRAM

A. GAO assessments of the SBIR Program--Numerous and favorable

    The ``Small Business Research and Development Enhancement 
Act of 1992,'' P.L. 102-564, continued the practice of 
requiring the Comptroller General to conduct another assessment 
of the SBIR Program, as modified and expanded by Title I of the 
Act, as well as the initial implementation of the Pilot STTR 
Program, authorized by Title II of the Act. The GAO issued two 
of these statutorily-mandated reports on the SBIR Program and 
the Pilot STTR Program. The March, 1995 report, Interim Report 
on the Small Business Innovation Research Program (GAO Report 
No. RCED 95-59; March 8, 1995), compared the Program's 
performance during the three prior fiscal years to its 
performance during FY 1993, the initial year of the Program 
modifications and higher percentages of agency participation 
mandated by Title I of P.L. 102-564. The GAO is continuing to 
monitor the implementation of the expanded SBIR Program, with a 
comprehensive report on the Program's implementation during 
Fiscal Year 1993 through Fiscal Year 1996, currently required 
for submission in October, 1997.
    In January, 1996, GAO submitted a report entitled: 
``Preliminary Information on the Small Business Technology 
Transfer Program'' (GAO Report No. RCED 96-19; January 24, 
1996). This report provided GAO's initial, and favorable, 
impressions of the Pilot STTR Program, after only a single 
fiscal year's implementation during FY 1994.
    While the GAO's March 1995 report on the SBIR Program was 
styled as an ``interim report,'' it was actually the GAO's 
eighth report on the SBIR Program since the program was 
initially authorized in 1982. The GAO has previously submitted 
the following reports on the SBIR Program:
          Implementing the Small Business Innovation Act--The 
        First Two Years (GAO Report No. RCED 86-13; October 25, 
        1985);
          A Profile of Selected Firms Awarded Small Business 
        Innovation Research Funds (GAO Report No. RCED 86-
        113FS; March 21, 1986);
          Effectiveness of Small Business Innovation Research 
        Program Procedures (GAO Report No. RCED 87-63; June 2, 
        1987);
          Small Business Innovation Research Participants Give 
        Program High Marks (GAO Report No. 87-161BR; July 27, 
        1987);
          Assessment of Small Business Innovation Research 
        Programs (GAO Report No. RCED 89-39; January 23, 1992);
          Proposed Amendments to the Small Business Innovation 
        Research Program (GAO Report No. RCED 89-173; June 30, 
        1989); and
          Small Business Innovation Research Shows Success But 
        Can Be Strengthened (GAO Report No. RCED 92-37; March 
        30, 1992)

B. March 1995 GAO Review of SBIR--Quality being maintained

    The March, 1995 report, Interim Report on the Small 
Business Innovation Research Program (GAO Report No. RCED 95-
59; March 8, 1995), compared the Program's performance over the 
three prior fiscal years to its performance during FY 1993, the 
initial year of the Program modifications and higher 
percentages of agency participation mandated by Title I of P.L. 
102-564. The GAO presented the results of this preliminary 
review to the Committee's Subcommittee on Government Programs 
during a hearing in April, 1995. To address the allegations 
that the expansion of the SBIR Program, although phased and 
gradual, would result in a diminution of the quality of 
proposals submitted, GAO focused on this issue. The GAO also 
looked at the question of SBIR Program participants receiving 
awards from more than one participating agency in support of 
the same proposal. Finally, GAO was tasked with reviewing the 
implementation of Section 301 of P.L. 102-564, which granted 
discretionary authority to the Executive agencies participating 
in the SBIR Program to provide technical assistance to SBIR 
awardees.
    The GAO found that:
          The high level of competition and large numbers of 
        worthy but unfunded projects suggest that the quality 
        of research proposals kept pace with the Program's 
        initial increase in funding from 1.25 to 1.50 percent. 
        However, GAO noted that after reviewing only one-year's 
        experience, it could not make a conclusive judgment 
        about the long-term quality of research proposals.
          The five major agencies have not taken steps to 
        implement the discretionary technical assistance 
        program to provide small businesses engaged in SBIR 
        projects with technical assistance services. SBIR 
        officials did not see a need for technical assistance 
        because projects are selected primarily for their 
        technical merit. Further, there was concern that the 
        funds available for awards would be reduced to pay for 
        the technical assistance program. Some agencies have, 
        however, taken other steps to foster commercialization 
        of research results.
          Duplicate funding of similar research projects 
        submitted to more than one agency has become a problem, 
        as awardees seek to aggregate funding to provide 
        sufficient support for increasingly costly projects.
    GAO recommended that the SBA Administrator take the 
following steps to reduce the incidence of duplicate funding:
          Determine whether the certification form included in 
        SBIR proposals needs to be improved and take any 
        necessary steps to revise the form.
          Define key terms and guidelines for agencies and 
        companies regarding ``duplicate'' research.
          Provide interagency access to current information 
        regarding SBIR awards.
    Mr. Daniel O. Hill, SBA Assistant Administrator for 
Technology, reported to the Committee during its March 6th 
hearing that the SBA has taken action, including issuance of a 
modification to the SBA's policy directive, to address the 
duplicate funding of SBIR Research Proposals. The SBA has also: 
(1) clarified and further defined the role of the principal 
investigator; and (2) refined the certification of possible 
duplication statement and added further clarification of the 
similar award definition. Further, SBA has begun work on 
developing a computer system that would allow all agencies to 
access information on awards being made by other agencies. The 
system is expected to be operational by the end of fiscal year 
1996.

C. DOD's assessment of expanded SBIR Program--Quality maintained

    During House consideration of the legislation that became 
P.L. 102-564, the ``Small Business Research and Development 
Enhancement Act of 1992,'' concern was expressed by the 
Committee on Armed Services that the increased percentages of 
extramural R&D directed to the SBIR Program might adversely 
affect DOD's research programs and result in the funding of 
SBIR proposals of lesser quality. Section 106 of P.L. 102-564 
directed the Secretary of Defense to assess these potential 
problems and to furnish a report, independent of the GAO's 
assessment, to the Congress by March 31, 1996.
    On May 30, 1996, the Under Secretary of Defense for 
Acquisition and Technology, Dr. Paul R. Kaminski, submitted the 
report required by Section 106, Quality of Research under the 
DOD Small Business Innovation Research (SBIR) Program. Despite 
the substantial increase in funding allocated to the SBIR 
Program, DOD's assessment reflected that there has been no 
decrease in the quality of proposals receiving funding. 
Specifically, the DOD analysis cites two indicators, also used 
by the GAO: (1) the ratio of funded to unfunded proposals; and 
(2) the number of proposals deemed worthy of funding, but for 
which existing SBIR Program funding allocations were 
insufficient to make awards. Despite the program expansion 
authorized by P.L. 102-564, DOD found that its ratio of funded 
to unfunded SBIR proposals remained essentially constant at 1:7 
or 12 percent. Similarly, SBIR Program managers within the 
Military Services and participating Defense agencies all 
reported a ``large pool'' of proposals with the ``highest 
technical and commercial merit'' and ``worthy of funding'' but 
unfunded.
    The DOD report also cited examples of SBIR-developed 
technologies that resulted in improvements to capabilities of 
U.S. military forces as well as significant savings. Some of 
these are subsequently highlighted in the ``Success Stories'' 
section of this report.
    Finally, the DOD report identified Program management 
improvements developed by DOD, which are now being implemented. 
For example, DOD is putting in place procedures to accelerate 
proposal evaluation, contract award, and payment, all major 
concerns to the often very small technology firms that 
participate in the SBIR Program. DOD is also initiating a 
process in which prospective SBIR proposers can informally 
interact with the authors of SBIR solicitation topics to better 
understand the technology objectives being pursued. Further, 
DOD has begun to implement its pilot SBIR ``Fast Track'' 
process for Phase II awards that give priority to those 
proposals that can demonstrate financial support for 
commercialization from non-Federal sources.

D. GAO's initial report on STTR--More experience needed

    The GAO's January 1996 report on the first year of the STTR 
Program focused on three areas:
          The quality and commercial potential of the STTR 
        Program's research as shown by technical evaluations of 
        the winning proposals in the first year;
          How agencies addressed potential conflicts of 
        interest resulting from the involvement of FFRDCs; and
          Agencies'' views on the effects of and need for the 
        STTR Program in view of its close similarity to the 
        SBIR Program.
    The GAO found that:
          Participating agencies rated highly the quality and 
        commercial potential of the proposals received. 
        Technical experts were somewhat cautious, though, about 
        the commercial potential of the Pilot STTR Program, due 
        to limited duration of experience and the inability to 
        assess the commercial risks associated with the 
        proposals. GAO found that the evaluation process varied 
        greatly among agencies.
          The five agencies have taken steps to prevent 
        conflicts of interest from occurring as a result of the 
        involvement of FFRDCs in the program. For example, DOD 
        and DOE, which received the greatest number of 
        proposals and accounted for all but 3 of the 32 awards 
        involving FFRDCs as research partners, have taken steps 
        to prevent the centers from gaining an unfair advantage 
        in preparing follow-on proposals.
          Agency officials have not found any evidence that the 
        STTR Program was competing for quality proposals with 
        SBIR. Conclusive data concerning the effect, if any, of 
        the STTR Program on SBIR and other agency R&D were not 
        available because of the program's newness and 
        smallness.
    GAO suggested monitoring of three key issues during 
subsequent assessments of the Pilot STTR Program:
    1. Does the technology being commercialized originate 
primarily in the research institution or is it originating in 
the small business?
    2. Is the mandatory collaboration between the small 
business and the research institution and the protections 
accorded the small entrepreneurs under the STTR Program 
essential to effect commercialization of Federally-sponsored 
research to the marketplace?
    3. Can the SBIR Program accomplish the same technology 
commercialization objective without the required collaboration, 
small business leadership and other protections provided by the 
Pilot STTR Program?

                          VI. SUCCESS STORIES

A. SBIR Program

     After more than ten years of implementation, the SBIR 
Program has matured sufficiently to be a steady source of 
``success stories.'' They can be found in the annual reports on 
the Program issued by the SBA's Office of Technology, the SBA 
office charged with the Program's policy direction and the 
coordination of the various agency SBIR Programs. In 1995, the 
SBA's Office of Advocacy initiated the Tibbetts Awards process 
to identify through a national competition models of excellence 
in the SBIR Program. The program is named for recently-retired 
Roland Tibbetts of the National Science Foundation (NSF), who 
in 1977 designed the prototype of the program that became the 
SBIR Program. The first Tibbetts Awards competition was 
conducted in 1996, with awards being made in June during Small 
Business Week. At least one SBIR recipient in each State was 
identified for recognition under the Tibbetts Awards program.
    The following are just a few examples of the remarkable 
success achieved by SBIR Program award recipients:
            II-VI, Inc.
    II-VI of Saxonburg, Pennsylvania, developed a process, 
under a DOD SBIR contract, which substantially reduced the 
deficits in optical codings used with high energy lasers. The 
technology was so successful that it was commercialized during 
phase II and was in full operation by the end of Phase II. 
Since 1988, the technology has generated roughly $30 million in 
revenue from sales, 20 to 30 percent of which have been to DOD 
or defense contractors--including Hughes Aircraft, Raytheon, 
Martin-Marietta, Texas Instruments, and Westinghouse--and the 
rest to private sector customers.
            Microflip, Inc.
    Microflip, located in Glenn Dale, Maryland, is the 
recipient of two Phase I and two Phase II awards. Mr. Dillip 
Emmanuel, vice president, is profoundly deaf and has earned 
numerous awards and recognition for his work in the field of 
disabilities. Without SBIR Program funding, Microflip would 
have been unable to sustain the research and development in the 
field of disabilities, which produced the first internal modem. 
The modem and software is widely used in corporations, banks 
and investment houses to provide access for persons who are 
deaf.
            Integrated Systems, Inc.
    Integrated Systems of Santa Clara, California, conducted 
two of the most commercially-successful DOD SBIR projects, as 
identified by the 1992 GAO study. The SBIR projects involved 
the development of technology for the efficient writing of 
embedded software, including software for a robot to load 
munitions, which had important spin-offs in the automobile 
industry. Cumulative sales revenues to date from the SBIR-
developed technology exceeded $100 million, about 15-20 percent 
of which are from sales to DOD or prime contractors. All of the 
software for the DC-X experimental launch vehicle developed by 
McDonnell Douglas used Integrated Systems' technology. 
McDonnell Douglas has said that if it has not used that 
technology, the software would have cost two times as much to 
develop, and taken two to three times as long. DC-X was the 
first launch vehicle project in which software was developed 
ahead of hardware and within schedule and budget.
            Chemtrak Inc.
    Located in Sunnyvale, California, Chemtrak has developed 
the AccuMeter, a palm size, disposable device that measures 
substances in biological fluids. It does this in minutes with 
accuracy comparable to major clinical analyzers. The device has 
been used on whole blood samples to measure cholesterol, High 
Density Lipoproteins (HDL), and drug levels, and to detect 
infectious diseases. The device and its applications are 
covered by over a dozen United States and international 
patents.
    Chemtrak invested over $20 million in the development of 
AccuMeter technology, received regulatory clearance, and built 
an automated manufacturing assembly line for high volume 
production. The first commercial application, CholesTrak is a 
Home Cholesterol Test that allows consumers to measure 
accurately their cholesterol in minutes. This is the only 
device for home testing of cholesterol that has been approved 
by the FDA. Manufacturing and distribution began three years 
after expiration of the Phase II grant.
            Abiomed, Inc.
    Abiomed, Inc., in Danvers, Massachusetts, has taken 
advantage of the idea that temperature differentials can be 
used to detect active periodontal disease sites. They have 
developed a periodontal disease screening device, PerioTemp, 
that measures temperature in the region between the gum and the 
tooth to detect an active inflammatory process. With Phase I 
and II support from NIH, Abiomed invested more that $8 million 
in clinical trials and the development of automated 
manufacturing techniques for low cost production of disposable 
components. Manufacturing and distribution began six years 
after expiration of Phase II support. Annual sales are in 
excess of $1 million, and their annual growth rate is greater 
the 100 percent. So far, about 15 persons per year are employed 
as a direct result of the development of this instrument, and 
this number is expected to rise as sales increase.
            Oval Window Audio
    Individuals with hearing impairments are greatly helped by 
induction loop systems, which compensate for the effects of 
room noise, reverberation, and distance effects. Initially 
supported by the Department of Education, Oval Window Audio in 
Nederland, Colorado, improved on this 50-year old technology by 
developing a new ``3-D loop'' that makes it possible to use two 
adjacent induction loop systems (for example, two classrooms) 
at the same time without interference problems. The 3-D loop 
also improves over conventional loop systems by minimizing 
signal spillover and signal uniformity problems. Patented in 
1990, the 3-D loop has exceeded $600,000 in sales, and 
distribution agreements in several foreign countries are being 
concluded.
    Spin-off products include a full line of conventional 
induction loop system technologies used by the Congress (both 
the House and the Senate), the Social Security Administration, 
the Veterans Administration, the American School for the Deaf, 
and Gallaudet University. With additional Phase I support from 
NIH, Oval Window Audio and United Airlines have recently 
completed a project to develop technology to assist hearing-
impaired airplane passengers.
            Savi Technology, Inc.
    The SaviTag, developed under a Navy SBIR Program, uses 
patented, advanced two-way radio communications/microcomputer 
technology to monitor remotely the movement and location of 
trucks/trailers, rail/air cargo and containers in minutes, 
automatically and simultaneously. GAO estimates that $3.4 
billion of excess inventory (five times the required material) 
was sent to Saudi Arabia in Desert Shield/Desert Storm because 
soldiers had no way of finding their goods. Often, the needed 
material was actually at the destination port, but goods could 
not be expediently found and additional supplies were ordered. 
According to Principal Deputy Under Secretary of Defense for 
Acquisition and Technology, Noel Longuemare, ``The SaviTag 
solves a real problem for the DOD. The Army has estimated that 
if an effective way of tracking the location and content of the 
cargo containers--such as the SaviTags--had existed at that 
time, DOD would have saved roughly $2 billion. That is an 
enormous savings--far more than our entire annual SBIR 
budget.''
            Power Spectra, Inc.
    Under a DOD SBIR contract, Power Spectra of Sunnyvale, 
California, developed and tested a bulk avalanche semiconductor 
switch activated by a laser. The switch can deliver 15 
kilovolts in less than a nanosecond and can achieve this in an 
excess of a billion times during its life. Boeing Corp. was the 
principal source of financing after phase II, supplying $21 
million since 1989 for the development of technology into a 
product with broad commercial and military applications--
primarily ultra wide band radars for foliage and earth 
penetration. The technology has since become classified, and 
the primary customer is the military electronic warfare 
community. Cumulative sales revenues from the switch are 
roughly $11 to $12 million--$9 million to DOD and $2-3 million 
to the private sector.
            Irvine Sensors Corporation
    Irvine Sensors Corporation, Inc., of Irvine, California, 
developed a chip-stacking technology, using funding from NASA's 
SBIR program and a small contract from the Air Force. The 
technology enables four to eight computers or memory chips to 
be glued into a small stack in the footprint of a single chip. 
After phase II, IBM and Irvine Sensors invested over $20 
million to develop the technology into a manufacturable 
product. Total sales this year (1996) are expected to be $5-6 
million, about half of which will be to the DOD or defense 
contractors and half will be to private sector customers. Sales 
are expected to increase significantly in the subsequent years.

B. STTR Program

    Although the STTR Program is young, with the first Phase I 
awards made only three years ago, the Program can point to 
numerous success stories from the small firms who have received 
awards.
            Zoex Corporation
    Zoex Corporation in Lincoln, Nebraska, a small business 
with two employees, received STTR funding in 1995 from the 
National Science Foundation to collaborate with Southern 
Illinois University at Carbondale. The collaboration has been 
very successful, developing a method for observing and 
identifying more than 6,000 individual chemical substances in 
gasoline. There are numerous potential applications, especially 
in the environmental chemistry and petroleum industry.
            HNC Software, Inc.
    Under STTR, HNC, Inc. of San Diego, California, is working 
with the University of Maryland to develop a high-performance 
target identification system, with high-detection probability 
and a very low false alarm rate. It has broad applicability in 
many types of target identification, in the battlefield 
situation and threat assessment, as well as in resource 
monitoring and weather forecasting. The president of the 
company says that the STTR program makes sense--it gets 
universities and companies working together. HNC's 
collaboration with the University of Maryland has been a very 
positive activity, resulting in a close working relationship 
and an effective transfer of technology.
            Magnetic Imaging Technologies, Inc.
    Under STTR, Magnetic Imaging Technologies, Inc., a start-up 
company in Durham, North Carolina, is developing and 
commercializing the results of basic research done in optical 
physics at Princeton. Their new technology would significantly 
improve the ability of MRI machines to create images of a 
patient's head, lungs, and heart, and thus potentially 
represents a major advance in medical diagnosis. The estimated 
market size is $100 million. The STTR project is now completing 
Phase I, but has already attracted independent investors from 
the private sector to match STTR funding.
            Megan Health
    Collaborating with Washington University, Megan Health in 
St. Louis, Missouri, won Phase I and Phase II STTR grants from 
NIH to develop vaccine technology that would provide higher 
levels of immunity against disease. A third proposal is 
pending. Megan Health found the STTR Program ``has a special 
role that is quite separate and vital to the technology 
transfer process which is not addressed by the SBIR Program.''
            Advance Process Combinatorics, Inc.
    Advance Process Combinatorics, Inc., of West Lafayette, 
Indiana, in collaboration with Purdue University, is developing 
a distributed decision support system called DOMINION. DOMINION 
will work as a stand-alone system that can run on desktop 
workstation networks, and as the computation engine for 
proprietary chemical plant scheduling and design software. 
DOMINION will be scaleable to handle very large problems. 
Advance Process Combinatorics anticipates a widespread and 
lucrative market for DOMINION, and several chemical and 
petroleum companies have expressed serious interest in using 
DOMINION as it becomes available.
            Accurate Automation Corporation
    Accurate Automation in Chattanooga, Tennessee, and Wake 
Forest University won Phase I and Phase II awards from the 
Department of Defense. Their collaboration resulted in the 
development of a new, revolutionary technology that will allow 
Accurate Automation to field the first sensor fusion integrated 
circuit.
            Digital System Resources, Inc.
    Digital System Resources (DSR) of Fairfax, Virginia, 
successfully collaborated with Duke University to win an STTR 
award from the Department of Defense for technology research 
and applications to improve U.S. weapons systems. DSR and Duke 
have submitted a proposal for Phase II funding to expand the 
project.
            Holoplex, Inc.
    Under the DOD STTR program, Holoplex, Inc., a small start-
up company in Pasadena, California, is working with Jet 
Propulsion Laboratory (JPL) to develop and commercialize an 
important breakthrough in optical storage disk technology. 
Their new technology uses holography to store hundreds of 
billions of bytes of data on an optical disk--a many-fold 
increase over the current technology--and therefore has major 
commercial and military applications. It was the cover story 
for the November 1995 issue of Scientific American. STTR is an 
effective vehicle for working with JPL because, in order for 
the technology to be developed and ultimately commercialized, 
JPL must do the more basic research on the project. STTR 
provides Holoplex with a direct, practical channel for 
technology transfer.

                         VII. commercialization

A. SBA Three-year commercialization study

    In 1992, the SBA issued the report of its three-year study 
of commercialization under the SBIR Program, Results of Three-
Year Commercialization Study of the SBIR Program. During FY 
1988, FY 1989, and FY 1990, SBA's Office of Innovation, 
Research and Technology reviewed the status of Phase II awards 
made to 834 SBIR projects during FY 1984 through FY 1986.
    The study found that commercialization was successful and 
had, in fact, already exceeded original expectations. Further, 
the study found that the SBIR Program played a critical role in 
this commercialization success: nearly 85 percent of the 
program participants said their technology development would 
not have been pursued without SBIR assistance. Of the eleven 
participating agencies, the Department of Health and Human 
Services had the largest percentage of commercialized projects, 
with more than 30 percent of its SBIR projects in 
commercialization.

B. Too early to assess STTR commercialization success

    Fostering increased private-sector commercialization of 
innovations derived from Federal research and development is a 
fundamental objective of the SBIR Program and the Pilot STTR 
Program. During the Committee's March 6th hearing, various 
witnesses, including the representatives of the GAO, observed 
that with respect to the commercialization potential of STTR-
funded projects, it may be too soon to ascertain the STTR 
Program's potential. Like the SBIR Program, the 
commercialization-potential of STTR projects will require 
further program maturation, given the typical time needed to 
transform a concept into a marketable technology. In a 
statement for the record from SBA's Chief Counsel for Advocacy, 
Jere W. Glover, he identified the time it takes for 
``technology transfer,'' or the time required to move products 
from the laboratory to the marketplace for various industry 
segments, as follows:

          In health sciences, clinical trials may involve three 
        to ten years before a product is declared safe and 
        efficacious.
          In the defense community, technical evaluations and 
        operational evaluations may involve four to seven years 
        before production authorization is provided.
          Even in the commercial or consumer marketplace, three 
        to ten years for product acceptance is a common time 
        line for new technologies.
          The data from the SBA's commercialization study 
        [Results of Three-Year Commercialization Study of the 
        SBIR Program] indicates a typical product maturation 
        schedule of seven to ten years.

    During the March 6th hearing, SBA's Assistant Administrator 
for Technology, Daniel O. Hill, indicated that SBA anticipates 
a commercialization success rate for STTR similar to the high 
percentage rate demonstrated in the SBIR Program. Firms that 
have completed a Phase II SBIR project have achieved 
approximately a 24 percent rate of commercialization after four 
years. The percentage rises to nearly 40 percent when 
considering products that are the result of more than one 
contributory SBIR project.

                   VIII. section-by-section analysis

Section 1. Short title

    This section establishes the short title of the bill as the 
``Pilot Small Business Technology Transfer Program Extension 
Act of 1996''.

Section 2. Program extension

    This section extends the Pilot Small Business Technology 
Transfer (STTR) Program, authorized by Section 9(n) of the 
Small Business Act, through September 30, 2000. Established as 
a three-year pilot program by Title II of Public Law 102-564, 
the ``Small Business Research and Development Act of 1992,'' 
the Pilot STTR Program will otherwise expire on September 30, 
1996. The proposed program extension provides for the 
expiration of the Pilot STTR Program at the same time as Small 
Business Innovation Research (SBIR) Program, initially 
authorized in 1982 and most recently reauthorized in 1992 by 
Title I of Public Law 102-564. The proposed extension will 
facilitate concurrent oversight and future legislative 
consideration of these related small business technology 
programs by the Congress and provide an additional four years 
to assess more conclusively the value of the Pilot STTR 
Program.
    This section also provides for a one-tenth of one percent 
increase in the percentage of extramural research budgets 
dedicated to awards under the Pilot STTR Program, from 0.15 
percent to 0.25 percent, by those agencies participating in the 
program. Only those Executive agencies with an annual 
extramural research budget of $1 billion or more are required 
to reserve at least the specified percentage for exclusive 
competition among proposals from small businesses collaborating 
with non-profit research institutions, such as universities or 
Federally Funded Research and Development Centers (FFRDCs). The 
proposed percentage would remain constant during the entire 
four-year term of the program extension. As initially 
authorized in 1992, the Pilot STTR Program provided for annual 
increases.

Section 3. Assessment by the Comptroller General

    Subsection (a) requires the General Accounting Office (GAO) 
to monitor the implementation of both the extension of the 
Pilot STTR Program and the on-going SBIR Program, specifying 
the matters to be assessed. Similar statutory requirements for 
assessing the implementation of both programs were included in 
Public Law 102-564, and resulted in two thorough and thoughtful 
reports.
    In March, 1995, GAO issued its report entitled Federal 
Research: Interim Report on the Small Business Innovation 
Research Program (GAO Report No. RCED 95-59), which reviewed 
the results of the SBIR Program modifications and expansion 
made by Public Law 102-564 for Fiscal Years 1993 and 1994. The 
report was highly favorable in that the expansion in the SBIR 
Program resulted in an expansion in the intensity of 
competition for awards and sustained or enhanced the high 
quality of the proposals being submitted. Pursuant to Section 
105 of Public Law 102-564, the GAO is required to submit, by 
October 28, 1997, a report on the implementation of the 
enhanced SBIR Program encompassing Fiscal Year 1993 through 
Fiscal Year 1995.
    In January, 1996, the GAO issued its report entitled 
Federal Research: Preliminary Information on the Small Business 
Technology Transfer Program (GAO Report No. RCED 96-19), which 
reviewed the initial year's implementation of the Pilot STTR 
Program. The GAO reported that the participating Federal 
agencies rated highly the quality of the proposals received 
under the STTR Program. With respect to the commercialization 
potential of STTR-funded projects, the GAO observed that it was 
simply too early to tell. Additional years of experience with 
the program would provide a more reliable assessment.
    Subsection (b) specifies that the GAO assessment address 
implementation of both the SBIR Program and the STTR Program 
over a four-year period, covering Fiscal Year 1995 through 
Fiscal Year 1999.
    Subsection (c) requires that a report be submitted by not 
later than February 1, 2000. It also specifies that the report 
include summaries of previous GAO reports relating to the SBIR 
Program and the STTR Program as well as any reports by the 
Small Business Administration, any of the sponsoring agencies, 
or others, that would be helpful during consideration of the 
reauthorization of both programs during Fiscal Year 2000.

Section 4. Interagency task force on commercialization

    Subsection (a) establishes an interagency task force on 
fostering commercialization of the results of projects being 
undertaken by small businesses through the SBIR Program and the 
Pilot STTR Program. The Administrator of the SBA (or a 
designee) is tasked with leading the effort.
    Subsection (b) establishes the purposes and objectives of 
the work of the interagency task force.
    Subsection (c) specifies the Executive agencies to be 
represented on the interagency task force. They include 
representatives of the Office of the Chief Counsel for 
Advocacy, the five Executive departments or agencies having the 
greatest dollar value of awards under the SBIR Program during 
Fiscal Year 1995, the five Executive departments or agencies 
participating in the Pilot STTR Program in fiscal year 1995, 
and the President's Office of Science and Technology Policy. 
The SBA Administrator may invite participation by 
representatives of other Executive agencies. The subsection 
also requires the interagency task force to consult closely 
with representatives of the small business community and others 
in the private sector.
    Subsection (d) requires the SBA Administrator to give 
notice of the work of the interagency task force, invite public 
participation, and announce any schedule of public meetings. 
The subsection also makes explicit that the interagency task 
force should seek public participation throughout its work.
    Subsection (e) requires the interagency task force to 
submit a report of its work, including recommendations for 
appropriate legislative and administrative actions, to the 
Committees on Small Business by March 1, 1999.

Section 5. Technical correction

    This section corrects an erroneous cross-reference in 
Section 9(e) of the Small Business Act, which authorizes the 
SBIR Program.

         IX. MATTERS REQUIRED TO BE DISCUSSED UNDER HOUSE RULES

Committee action

     In compliance with clause 2(l)(2) of rule XI of the House 
of Representatives, the following statement is made relative to 
the vote on the motion to report H.R. 3158. The Committee met 
on March 29, 1996. A quorum of the Committee was present and 
the motion to order the bill reported was approved by unanimous 
voice vote, 21 members being present. Prior to ordering the 
bill reported, the Committee adopted by a voice vote an 
amendment to Section 3 offered by Rep. Nydia Velazquez of New 
York. The amendment would assure that the General Accounting 
Office continues to monitor the extent to which each 
participating agency has implemented enhanced outreach efforts 
to foster increased participation of small business concerns 
owned and controlled by socially and economically disadvantaged 
individuals and women and the results of those efforts.

               Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 17, 1996.
Hon. Jan Meyers,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Madam Chair: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3158, the Pilot 
Small Business Technology Transfer Program Extension Act of 
1996.
    Enactment of H.R. 3158 would not affect direct spending or 
receipts. Therefore, pay-as-you-go procedures would not apply 
to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    1. Bill number: H.R. 3158.
    2. Bill title: Pilot Small Business Technology Transfer 
Program Extension Act of 1996.
    3. Bill status: As ordered reported by the House Committee 
on Small Business on March 29, 1996.
    4. Bill purpose: H.R. 3138 would extend from 1996 to 2000 
the expiration date of the Pilot Small Business Technology 
Transfer (STTR) program. The STTR program requires federal 
agencies with annual appropriations for extramural research of 
more than $1 billion to set aside a specified percentage of 
their extramural research budget for cooperative research 
between small businesses and a federal laboratory or nonprofit 
research institution. The Small Business Administration (SBA) 
is responsible for policy direction and oversight of the STTR 
program.
    H.R. 3138 would require the General Accounting Office (GAO) 
to monitor the implementation of both the STTR program and the 
similar Small Business Innovation Research (SBIR) program. The 
bill also would require the Administrator of the SBA to 
establish an interagency task force to foster commercial 
applications of STTR funded research.
    5. Estimated cost to the Federal Government: CBO estimates 
that enacting H.R. 3158 would result in costs to the federal 
government of about $8 million over the 1997-2000 period, 
assuming appropriations of the necessary amounts. The average 
estimated cost of about $2 million a year for 1997 through 2000 
exceeds the $1.2 million that is being spent for administering 
the STTR program in fiscal year 1996. The estimated increase 
reflects the cost of a larger set-aside for the STTR program 
and the new requirements that would be placed on SBA and GAO by 
H.R. 3158. The costs of this bill fall within several budget 
functions.
    6. Basis of estimate: H.R. 3158 would require agencies with 
annual extramural research budget in excess of $1 billion to 
earmark 0.25 percent of their research and development (R & D) 
budget for the STTR program in each of fiscal years 1997 
through 2000. The five federal agencies that meet the $1 
billion threshold and currently participate in the program are: 
Department of Defense; Department of Energy; Department of 
Health and Human Services; National Aeronautics and Space 
Administration; and National Science Foundation.
    Assuming that the number of agencies qualified to 
participate in the program does not change, and that their R & 
D Budgets remain at or near current levels, CBO estimates that 
the total amount allocated to small business would be about 
$100 million in each fiscal year.
    The costs to the STTR program to the participating agencies 
consist primarily of personnel, overhead, printing, and mailing 
expenses. The costs associated with administering awards 
through the STTR program are slightly higher than administering 
the same awards though regular program channels. Based on 
information from the affected agencies, CBO estimates that the 
costs of administering the awards would be between $1 million 
and $2 million in each of fiscal years 1997-2000, assuming 
appropriations of the necessary amounts. We estimate that the 
costs of SBA to monitor the program and establish the 
interagency task force would total less than $500,000 per year, 
subject to the availability of appropriated funds.
    Based on information from the GAO, CBO estimated that it 
would cost about $500,000 over the next four years to monitor 
the STTR and SBIR programs and report to Congress.
    7. Pay-as-you-go considerations: None.
    8. Estimated impact on state, local, and tribal 
governments: H.R. 3158 contains no intergovernmental mandates 
as defined by Public Law 104-4 and would not result in direct 
costs to any state, local, or tribal government.
    9. Estimated impact on the private sector: This bill would 
impose no new private sector mandates, as defined in Public Law 
104-4.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: Federal Cost Estimate: Rachel 
Forward. State and Local Government Mandates Estimate: Marc 
Nicole. Private Sector Mandates Estimates: Amy Downs.
    12. Estimate approved by: Robert R. Sunshine (for Paul N. 
Van de Water, Assistant Director for Budget Analysis).

                     inflationary impact statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee estimates that H.R. 
3158 will have no inflationary impact on prices or costs in the 
operation of the national economy.

                   unfunded federal mandates estimate

    Pursuant to the provisions of P.L. 104-4 (109 Stat. 48, et 
seq.), the Unfunded Mandates Reform Act of 1995, the Committee 
estimates that H.R. 3158 will not impose unfunded mandates as 
defined in the Act.

                           oversight findings

    In accordance with clause 2(l)(3)(D) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that no oversight findings or recommendations have been made by 
the Committee on Government Reform and Oversight with respect 
to the subject matter contained in H.R. 3158.
    In accordance with clause 2(l)(3)(A) of rule XI and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the oversight findings and recommendations of the Committee on 
Small Business with respect to the subject matter contained in 
H.R. 3158 are incorporated into the descriptive parts of this 
report.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                  SECTION 9 OF THE SMALL BUSINESS ACT

  Sec. 9. (a) * * *
          * * * * * * *
  (e) For the purpose of this section--
          (1) * * *
          * * * * * * *
          (4) the term ``Small Business Innovation Research 
        Program'' or ``SBIR'' means a program under which a 
        portion of a Federal agency's research or research and 
        development effort is reserved for award to small 
        business concerns through a uniform process having--
                  (A) a first phase for determining, insofar as 
                possible, the scientific and technical merit 
                and feasibility of ideas that appear to have 
                commercial potential, as described in 
                subparagraph [(B)(ii)] (B), submitted pursuant 
                to SBIR program solicitations;
          * * * * * * *
  (n) Required Expenditures for STTR by Federal Agencies.--
          (1) Required expenditure amounts.--Each Federal 
        agency which has an extramural budget for research or 
        research and development in excess of $1,000,000,000 
        [in fiscal year 1994, 1995, or 1996,] is authorized to 
        expend with small business concerns--
                  (A) not less than 0.05 percent of such budget 
                in fiscal year 1994;
                  (B) not less than 0.1 percent of such budget 
                in fiscal year 1995; [and]
                  (C) not less than 0.15 percent of such budget 
                in fiscal year 1996[,]; and
                  (D) not less than 0.25 percent of such budget 
                in fiscal year 1997 and each succeeding fiscal 
                year,
        specifically in connection with STTR programs which 
        meet the requirements of this section, policy 
        directives, and regulations issued under this section.
          * * * * * * *
          (4) Program expiration.--Authorization to carry out 
        the STTR program pursuant to this subsection (and 
        subsections (o) and (p) of this section) shall expire 
        on September 30, 2000.
          * * * * * * *