[Senate Report 106-289]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 541
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-289

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 SMALL BUSINESS INNOVATION RESEARCH PROGRAM REAUTHORIZATION ACT OF 2000

                                _______
                                

                  May 10, 2000.--Ordered to be printed

                                _______
                                

Mr. Bond, from the Committee on Small Business, submitted the following

                              R E P O R T

                        [To accompany H.R. 2392]

    The Committee on Small Business, to which was referred the 
bill (H.R. 2392), to amend the Small Business Act to extend the 
authorization for the Small Business Innovation Research 
Program, and for other purposes, having considered the same, 
reports favorably thereon with an amendment in the nature of a 
substitute and recommends that the bill as amended do pass.

                        I. NEED FOR LEGISLATION

    In 1982, Congress established the Small Business Innovation 
Research (SBIR) program to stimulate technological development 
by leveraging the capabilities of small firms to meet the 
Federal government's research and development needs. In order 
to remain competitive in the global economy, the United States 
has historically depended heavily on innovation through 
research and development and has depended significantly on 
small business for such innovation.
    The initial report of the Senate Committee on Small 
Business (Committee) on the legislation that established the 
SBIR program (S. Rep. No. 194, 97th Cong., 1st Session (1981)) 
acknowledged that small businesses are the most efficient and 
fertile sources of innovations in the United States. In 
establishing the program, the Committee pointed to reports 
demonstrating that small firms were prolific innovators, 
producing about 24 times as many innovations per research and 
development dollar as large firms and accounting for 
approximately one-half of the major innovations of this 
country. Despite the superior innovative capabilities of small 
firms, the Committee found that Federal procurement policies 
failed to encourage small business participation in government 
research and development, which in turn led to the decline in 
technological innovation in the United States. According to the 
original Committee report, when Congress was debating the 
establishment of the SBIR program, only four percent of Federal 
research and development funds were awarded to small firms, 
while 70 large companies received 80 percent of Federal 
research dollars provided to private industry.
    Because of this disparity, Congress created the SBIR 
program to ensure that Federal agencies utilized the 
capabilities of small businesses. At its inception, the program 
required Federal agencies subject to the program to set aside 
0.2 percent of their extramural research and development 
budgets for SBIR awards. Ten years after Congress originally 
approved the SBIR program, it was re-authorized by the Small 
Business Research and Development Enhancement Act (P.L. 102-
564, October 28, 1992) (1992 Act). The 1992 Act expanded the 
SBIR program and made certain changes to emphasize the 
program's goal of increasing the private sector's 
commercialization of technologies.
    Presently, the SBIR program requires each Federal agency 
with an extramural research and development budget of $100 
million or more to award no less than 2.5 percent of that 
amount to small businesses to perform research and development 
that meets such agency's needs. Awards under the SBIR program 
are divided into three phases. Phase one awards are designed to 
determine the scientific and technical merit and feasibility of 
a proposed research idea, with funding for individual awards 
limited to $100,000. Phase two awards further develop research 
from phase one and emphasize the idea's commercialization 
potential, with individual awards up to $750,000. Phase three 
awards consist of non-Federal funds for the commercial 
application of the technology, non-SBIR Federal funds for the 
commercialization of products or services intended for 
procurement by the Federal government, or non-SBIR Federal 
funds for continued research and development of the technology.
    This bill to reauthorize the SBIR program is the result of 
Committee proceedings over the last several years and the 
Committee's review of numerous reports that have been written 
on the performance of the SBIR program since its last 
reauthorization. In the last two years, the Committee has held 
one hearing and two roundtable meetings on the SBIR program. 
The first hearing was held on June 4, 1998, to examine the 
operation of the program and address the findings of a General 
Accounting Office (GAO) report on the administration of the 
program that was required by the 1992 Act. The report generally 
found that the SBIR program was running very well, and each of 
the witnesses testified at the Committee's hearing that the 
SBIR program was a great asset to small businesses and should 
be continued. While highlighting the success of the program, 
the witnesses also noted several areas for improvement. For 
example, Susan D. Kladiva, Associate Director, Energy, 
Resources and Science Issues Resources, Community, and Economic 
Development Division, GAO, pointed out that some agencies are 
using different interpretations of the term ``extramural 
budget,'' which may be leading to incorrect calculations of 
their extramural research budgets, thus reducing the funding 
for SBIR projects. Section 8 of this legislation is intended to 
resolve this problem by requiring SBIR program agencies to 
report to the SBA on how they are calculating their extramural 
budgets and requiring the SBA to analyze such calculations to 
ensure that the agencies use a uniform method for calculating 
their extramural budgets that is consistent with the statutory 
definition.
    On April 21, 1999, the Committee held a roundtable meeting 
to review once again the SBIR program. The participants agreed 
that the SBIR program has been successful and has established a 
basis for collaboration between small businesses, universities, 
government, large companies, venture capital firms, and 
commercial banks. This collaboration increases the already 
proven abilities of small businesses to innovate and 
commercialize technology successfully. A significant concern of 
certain participants, however, was the geographic distribution 
of SBIR awards. This issue was also highlighted in a GAO report 
released on June 4, 1999 (GAO/RCED-99-114), which found that 
companies in one-third of the states received 85 percent of the 
SBIR awards from fiscal year 1993 through 1996. While there are 
many reasonsfor this disparity, it is clear that a primary 
reason is that companies in these states submitted the most proposals 
for SBIR awards.
    To address the concerns raised by the GAO report and by 
individuals active in the SBIR program in prior Committee 
proceedings, the Committee held a follow-up roundtable on 
August 9, 1999, to consider specifically the geographic 
distribution of awards made under the SBIR program and to 
examine proposals to encourage greater participation by 
companies located in states that receive a smaller share of 
SBIR awards. At the roundtable, the Committee requested 
recommendations on how the Federal government could best assist 
under-achieving states to encourage the development of high-
technology small businesses that could, if interested, 
participate in the SBIR program and alleviate the geographic 
concentration of SBIR awards. The Committee sought 
recommendations that would not undermine the program's 
strengths, its reliance on competition and merit when making 
awards. Sections 9 and 10 of this legislation establish a 
comprehensive program to encourage organizations in states to 
assist in the development of small high-technology businesses 
based on many of the recommendations the Committee received 
from participants at the roundtable.
    In addition to holding official Committee proceedings on 
the SBIR program, the Committee has closely reviewed numerous 
studies and reports on small business innovation and the SBIR 
program issued in the last several years. As was the case 
during the inception of the SBIR program, the Committee has 
found that small businesses continue to be superior innovators 
that must be utilized to meet the Federal government's research 
and development needs. Statistics compiled in the 1994 
President's Report on the State of Small Business bear this 
out. That report indicates that small firms produce 55 percent 
of our country's innovations and twice as many product 
innovations per employee as large firms. Small firms also 
obtain more patents per sales dollar than larger firms. Despite 
these facts, the share of Federal research and development 
funds awarded to small businesses has not changed significantly 
since the SBIR program's creation in 1982. Small businesses 
still receive approximately four percent of Federal research 
and development dollars (A New View of Government, University, 
and Industry Partnerships, Office of Advocacy, U.S. Small 
Business Administration, February 2000).
    The Committee has further concluded that the SBIR program 
has successfully met the goals Congress initially set for it in 
1982. The goals of the program are threefold. First, the 
program assists the government with its research and 
development needs. Second, the program provides a catalyst to 
groundbreaking research and development. Third, the program 
strengthens the country's economy by promoting the 
commercialization of technologies developed through Federal 
research.
    Several studies, conducted over the last several years, 
indicate that the SBIR program has been effective both in 
assisting the government with its research and development 
needs and in turning such research into new products. A 1989 
GAO study (GAO/RCED-89-39) reported that scientists and 
engineers at Federal agencies found that the overall quality of 
the research performed under SBIR awards equaled, and in some 
cases, exceeded the quality of other agency research they 
monitored. Moreover, these individuals rated SBIR projects 
substantially higher than other research under their 
responsibility regarding the potential for leading to invention 
and commercialization of new products, processes, or services. 
As the program has grown, these conclusions have not changed. A 
1995 GAO study (GAO/RCED-95-59) concluded that the quality of 
SBIR research proposals has kept pace with the program's 
expansion.
    Moreover, the Committee has found that small businesses 
receiving SBIR awards generally have had significant success in 
commercializing the technology they develop. This is especially 
important considering that many of these firms are engaging in 
basic, cutting-edge research that will not always have a 
commercial application. A 1997 internal Department of Defense 
study found that the average phase two SBIR award of $400,000 
generated $759,000 in sales and $614,000 in additional non-SBIR 
investment. Additionally, in 1998, the GAO reported that the 
commercialization rate on SBIR projects is close to 40 percent 
(GAO/RCED-98-132).
    The Committee has reviewed closely the two reports 
undertaken by the GAO on the SBIR program as directed by the 
1992 Act. The unmistakable message from these reports, the 
proceedings of the Committee and other reports reviewed by the 
Committee is clear--the SBIR program is a valuable, cost-
effective program that is operating very well and meeting the 
goals Congress set for it.
    An issue that has been raised to the Committee, however, 
has been Congress' recent direction to the DoD that research 
topics be more closely tied to acquisition programs. While the 
Committee applauds the speed with which the DoD has responded 
to this direction, the Committee is concerned that the DoD's 
implementation of that direction not curtail support of high-
risk research and development projects. Therefore, the 
Committee encourages the DoD to select a balanced mix of SBIR 
topics, serving both the research and development needs of DOD 
programs and DOD research organizations.

                    II. SUMMARY OF MAJOR PROVISIONS

    The Committee has concluded from its proceedings and its 
review of reports on the SBIR program that the program has been 
very successful and deserves reauthorization for an additional 
ten year period. Certain concerns, however, have been raised 
with the Committee over the last several years regarding 
aspects of the administration of the program. This bill is 
intended to resolve those concerns.
    Section 3 of the bill reauthorizes the SBIR program for ten 
years. Sections 4 through 10 are intended to remedy concerns 
raised with the Committee on the administration of the SBIR 
program. With respect to Section 4 of the bill, the Committee 
has found that certain agencies have misconstrued the 
description of phase three of the SBIR program to require 
funding from more than one non-SBIR source, which was not the 
intent of Congress. Therefore, section 4 of the bill clarifies 
that the term ``third-phase award'' applies to each of the 
following activities: (1)commercial applications of SBIR-funded 
research or research and development funded by non-Federal sources of 
capital; (2) products and services intended for use by the Federal 
government funded by follow-on non-SBIR Federal funding awards; and (3) 
the continuation of research or research and development funded by non-
SBIR Federal funding sources.
    The Committee is also concerned that certain agencies are 
not consistently providing the same data rights to small 
businesses that receive SBIR phase three awards as those that 
receive phase one and two awards. It is the Committee's intent 
that all funding agreements for awards meeting the statutory 
description of a phase three award, including, without 
limitation, sole source awards for technology developed under 
the SBIR program, provide the same data rights as are provided 
for phase one and phase two awards. Accordingly, section 5 of 
the bill requires the SBA to issue a policy directive to all 
agencies participating in the SBIR program to clarify that the 
Small Business Act and the intent of Congress require that the 
rights in technical data granted to SBIR awardees in phase 
three are the same rights provided to awardees in phase one and 
phase two funding agreements.
    Under current law, the Small Business Act requires each 
Federal agency with a Small Business Technology Transfer (STTR) 
program to submit to Congress and the Office of Management and 
Budget (OMB) an annual performance plan for program activities 
complying with the requirements of the Government Performance 
and Results Act (Results Act). So that Congress can 
appropriately monitor the results of the SBIR program, section 
6 requires SBIR program agencies to provide to Congress and OMB 
a performance plan on the SBIR program that complies with the 
requirements of the Results Act.
    Within the last year, the Committee received information 
regarding the data the SBA maintains on SBIR awardees. 
Specifically, the Committee learned that the GAO, in preparing 
its reports on the SBIR program in 1998 (GAO/RCED-98-132) and 
1999 (GAO/RCED-99-114), spent substantial resources correcting 
and updating information in the SBA's SBIR database. 
Accordingly, section 7 requires the SBA and the SBIR program 
agencies to collect and maintain reliable and up-to-date data 
so that Congress can better evaluate the SBIR program on an 
ongoing basis. So that the SBA can maintain an up-to-date and 
comprehensive database, the Committee expects each program 
agency to provide the information required by section 7 to the 
SBA in a timely manner.
    Section 8 of the legislation is intended to resolve a 
concern raised in the Committee's June 4, 1998 hearing on the 
SBIR program. At that hearing, the GAO testified that certain 
SBIR program agencies are interpreting the term ``extramural 
budget'' in the Small Business Act in different manners, which 
may lead to incorrect calculations of their extramural research 
budgets. Such errors may cause the amount of funds set aside 
for the SBIR program to be understated. The Committee believes 
that the term ``extramural budget'' as defined by the Small 
Business Act is clear on its face. The term ``extramural 
budget'' is defined as the total amount obligated by an agency 
for research and development, minus amounts obligated for 
research and development performed by employees of such agency 
in or through facilities owned and operated by the Federal 
government. Accordingly, the term ``extramural budget'' would 
include amounts obligated for research and development 
performed in or by Federally Funded Research and Development 
Centers and contractor-operator facilities.
    The law provides for only three very limited exceptions to 
the definition of ``extramural budget'': (1) for the Department 
of Energy, the term ``extramural budget'' does not include 
amounts obligated for atomic energy defense programs solely for 
weapons activities or for naval reactor programs; (2) for the 
Agency for International Development, the term ``extramural 
budget'' does not include amounts obligated solely for general 
institutional support of international research centers or for 
grants to foreign countries; and (3) agencies that are within 
the Intelligence Community (as that term is specifically 
defined in Executive Order 12333) are not subject to the SBIR 
program and, therefore, their research budgets are not to be 
included in the calculation of ``extramural budget.'' Section 8 
of the bill requires each SBIR program agency to provide the 
SBA and Congress with a description of its methodology for 
calculating the amount of its extramural budget. The Committee 
expects that by requiring the SBA to analyze how the agencies 
are calculating their extramural budgets, Federal agencies will 
be more likely to adopt a uniform definition of ``extramural 
budget'' that is consistent with the statutory language. The 
Committee intends that the methodologies SBIR program agencies 
prepare for the SBA contain an itemization of each research 
program that is excluded from the ``extramural budget,'' which 
of the exemptions under the Small Business Act the program 
agency is relying on to exclude the program and a brief 
explanation as to why such program meets a particular 
exemption.
    Sections 9 and 10 of the legislation are intended to 
address a concern raised with the Committee on numerous 
occasions related to the geographic distribution of SBIR awards 
among and within states. On April 21, 1999, the Committee held 
a roundtable meeting to review the SBIR program. A significant 
concern of certain participants was the geographic distribution 
of SBIR awards. This issue was also highlighted in a GAO report 
released on June 4, 1999 (GAO/RCED-99-114), which found that 
companies in one-third of the states received 85 percent of the 
SBIR awards from fiscal year 1993 through 1996. Companies on 
the East and West Coasts received a vast majority of these 
awards, while companies in the South, Midwest and Rocky 
Mountain states generally received very few awards. For 
example, the GAO reported that in fiscal year 1997, companies 
in Massachusetts and California received 202 and 326 phase two 
awards, respectively, out of approximately 1,400 awards 
nationally--almost 38 percent of the awards.
    The GAO report also addressed activities that SBIR program 
agencies are taking to increase the participation of small 
firms in under-performing states. The report specifically 
pointed to the National Science Foundation's (NSF) efforts to 
increase the number of awards to small businesses in states 
with fewer awards as being particularly effective. The NSF's 
efforts relate to its Experimental Program to Stimulate 
Competitive Research (EPSCoR program). The EPSCoR program 
provides awards to universities for research and development in 
states whose universities receive comparatively little Federal 
research dollars. The NSF has used its EPSCoRprogram to assist 
potential SBIR participants in EPSCoR states in two ways. First, the 
NSF reviews for funding under the EPSCoR program SBIR proposals from 
businesses in EPSCoR states that are ranked in the ``highly 
recommended'' or ``recommended'' category in the SBIR review process 
but were not selected because of funding constraints. Second, the NSF 
has used EPSCoR program funds to provide grants to universities to 
provide technical assistance to businesses applying for SBIR awards. 
While other SBIR program agencies have established programs similar to 
the EPSCoR program, such other agencies have not to date linked their 
SBIR and EPSCoR program in a manner similar to the NSF.
    To address the concerns raised by the GAO report and by 
individuals active in the SBIR program in prior Committee 
proceedings, the Committee held a follow-up roundtable on 
August 9, 1999. Participants in the roundtable discussed 
specifically the geographic distribution of awards made under 
the SBIR program and proposals to encourage greater 
participation by companies located in states and areas of 
states that receive a smaller share of SBIR awards. Several 
participants cited a GAO report which stated that earlier 
studies had shown that the number of small high-technology 
firms in a state, its research and development resources, and 
its access to venture capital are important factors in the 
distribution of SBIR awards and that the distribution of these 
awards tends to mirror the distribution of Federal research and 
development funds in general. Accordingly, the Committee 
requested recommendations on how the Federal government could 
best assist states to encourage the development of high-
technology small businesses that could, if interested, 
participate in the SBIR program and alleviate the geographic 
concentration of SBIR awards.
    Participants at the roundtable acknowledged the usefulness 
of the NSF's efforts in coordinating its SBIR program and its 
EPSCoR program. Based on the participant comments and the GAO 
report, the Committee has included, in Section 9 of this 
legislation, language requiring agencies with both SBIR 
programs and programs similar to EPSCoR to review for funding 
under these other technology development programs proposals to 
assist small business concerns in a manner similar to the NSF.
    Most participants at the roundtable agreed that using 
existing state infrastructure to provide assistance to high-
technology small businesses that may participate in the SBIR 
program is the most efficient and effective manner of 
encouraging such participation. As businesses in different 
states may have different needs, many participants also agreed 
that economic development organizations in each individual 
state should have the discretion to determine which activities 
would best assist small firms in the state. The Committee 
further addressed a legislative proposal to utilize mentoring 
organizations that employ ``volunteers'' to provide technical 
assistance (including, marketing, proposal writing, accounting, 
audit assistance, etc.) to small businesses seeking SBIR 
grants. The participants that addressed mentoring agreed that 
it could be a useful tool to expand on traditional outreach by 
matching companies that do not have significant experience in 
dealing with the Federal government or the SBIR program with 
companies that have experience in writing SBIR proposals, 
winning SBIR awards and commercializing technologies. A 
participant that operates a mentoring program on the local 
level lauded the success of the program and expressed the view 
that participating companies enjoy learning from each other. 
While most participants agreed that mentoring was an important 
aspect of assisting small businesses in the SBIR program, some 
participants raised concern about establishing such a program 
without leveraging the existing economic development 
infrastructure in a state.
    To increase the distribution of SBIR awards among and 
within the states, sections 9 and 10 of this legislation 
establish a comprehensive program to encourage organizations in 
states to assist in the development of small high-technology 
businesses, which may include the establishment of mentoring 
networks, based on many of the recommendations the Committee 
received from participants at the roundtable. The Committee 
believes that increasing the overall participation in the 
program by high-technology small businesses will ultimately 
lead to an overall increase in the quality of SBIR proposals 
and completed projects.

                    III. SECTION-BY-SECTION ANALYSIS

Section 1. Short title.

    The title of the bill is ``The Small Business Innovation 
Research Program Reauthorization Act of 2000.''

Section 2. Findings.

    This section sets forth Congressional findings on the value 
of the SBIR Program.

Section 3. Extension of SBIR program.

    Under section 3, the SBIR program is reauthorized for ten 
years, through fiscal year 2010.

Section 4. Third phase assistance.

    Section 4 clarifies that the term ``third-phase award'' 
applies to each of the following activities: (1) commercial 
applications of SBIR-funded research or research and 
development funded by non-Federal sources of capital; (2) 
products and services intended for use by the Federal 
government funded by follow-on non-SBIR Federal funding awards; 
and (3) the continuation of research or research and 
development funded by non-SBIR Federal funding sources.

Section 5. Rights to data.

    This section requires the SBA to issue a policy directive 
to all agencies participating in the SBIR program that 
clarifies the rights in technical data that are granted to SBIR 
awardees.The Committee expects the SBA to clarify that awardees 
are granted rights in data for four years following the completion of 
each stage of the SBIR process, including the first phase, the second 
phase, and the third phase.

Section 6. Report on programs for annual performance plan.

    This section requires that each agency with an SBIR program 
provide to Congress, the OMB and the SBA an annual performance 
plan for program activities, including establishing 
quantifiable performance goals and comparing program results to 
such goals.

Section 7. Collection, reporting, and maintenance of data.

    Section 7 requires each agency with an SBIR program to 
collect and maintain, in a common format, information on award 
winners as is necessary to assess the SBIR program and provide 
such information to the SBA. Additionally, section 7 requires 
that the SBA maintain an up-to-date and searchable public 
database that includes, at a minimum, the following 
information: (1) the name, size, location and an identifying 
number assigned by the Administrator for each small business 
that has received a phase one or phase two SBIR award; (2) a 
description of each phase one or phase two SBIR award received 
by a small business, including an abstract of the project 
funded, the Federal agency that made the award and the date and 
amount of the award; (3) an identification of any business 
concern or subsidiary established for the commercial 
application of a product or service for which an SBIR award is 
made; and (4) information regarding mentors and mentoring 
networks (as that term is defined by Section 10 of the bill).
    The Committee intends that each SBIR program agency 
coordinate with the other program agencies and the SBA so that 
each small business that receives an SBIR award under the 
program is assigned a single, common identifier in both the 
SBA's and each agency's database. The Committee also expects 
that each SBIR program agency will require small businesses to 
submit the information necessary for such agencies to maintain 
a database on business concerns or subsidiaries established for 
the commercial application of a product or service developed 
under an SBIR award. If an agency believes it has not obtained 
such information from each SBIR award winner, the Committee 
expects such agency to take affirmative steps to obtain the 
necessary information.
    This section further requires the SBA to report to the 
Senate and House Committees on Small Business on the data 
collected by the SBIR program agencies that is delivered to the 
SBA and the extent to which the program agencies are providing 
such information to the SBA in a timely manner.

Section 8. Federal agency expenditures for the SBIR program.

    Section 8 of the bill requires each SBIR program agency to 
provide the SBA and Congress with a description of its 
methodology for calculating the amount of its extramural 
budget. The Committee intends that the methodologies SBIR 
program agencies prepare for the SBA contain an itemization of 
each research program that is excluded from the ``extramural 
budget,'' which of the exemptions under the Small Business Act 
the program agency is relying on to exclude the program and a 
brief explanation as to why such program meets a particular 
exemption.

Section 9. Federal and State Technology Partnership Program.

    This section establishes the Federal and State Technology 
Partnership Program (the FAST program), which is a competitive 
matching-grant program to encourage states to assist in the 
development of high-technology small businesses. The FAST 
program is authorized for $10 million each fiscal year through 
fiscal year 2005. The program will be administered by the SBA; 
however, the SBIR program managers at the DoD and the NSF will 
jointly review the proposals submitted for funding with the 
SBA. The Committee expects that each of these program managers 
will have an equal say with the SBA in determining which 
proposals deserve funding and the amount of such funding. While 
the legislation only expressly mentions the DoD, SBA and NSF, 
the Committee intends that these parties consult with the SBIR 
program managers at the other SBIR program agencies when 
establishing guidelines for the review of proposals.
    Under the FAST program, organizations in every state 
(including state economic development agencies, small business 
development centers, or any other entity involved in the 
development of high-technology firms), either individually or 
on a regional basis, are eligible to apply for matching grants 
or to enter into cooperative agreements. Such grants or 
cooperative agreements can be used to enhance or develop: (1) 
technology research and development by small business concerns; 
(2) technology transfer from university research to technology-
based small business concerns; (3) technology deployment and 
diffusion benefitting small business concerns; and (4) the 
technological capabilities of small business concerns through 
the establishment of consortia comprised of state and local 
development agencies, small business concerns, industries and 
universities. The FAST program also permits grants to be used 
by states for SBIR outreach, financial support and technical 
assistance, including: (1) providing grants or loans to 
companies to pay a portion or all of the cost of developing 
SBIR proposals; (2) operating a mentoring network to provide 
technical assistance to small businesses; and (3) encouraging 
the commercialization of technology.
    The Committee intentionally drafted broad descriptions of 
the potential uses of grant funds and funds provided under 
cooperative agreements so that applicants could request funding 
for activities that they believe are the most appropriate for 
the technology business community in their states, provided 
such activities are consistent with the selection 
considerations established in the FAST program. Examples of the 
types of activities that could be funded under the FASTprogram 
include establishing an infrastructure to foster small business contact 
with SBIR program offices or matching companies that have completed 
phase two awards with existing sources of capital, such as angel 
investors, state venture capital funds or private venture capital 
firms.
    The Committee intends that recipients will use funds under 
the FAST program to conduct new activities to assist in the 
development of small high-technology firms. Accordingly, the 
Committee expects the SBA to require an applicant to provide 
information in its proposal that it will not use funds under 
the FAST program to offset funding of any state program simply 
because there is Federal grant money available under the FAST 
program.
    The FAST program establishes selection considerations that 
the SBA, and the SBIR program managers at the NSF and DoD must 
consider when reviewing applications for funding. The 
considerations include, at a minimum: (1) that the assistance 
would address unmet needs and the importance of using Federal 
funds for the proposed assistance; (2) that the need exists to 
increase the number or success of small high-technology 
businesses in the state; (3) the reasonableness of the proposed 
costs; (4) how the assistance would be integrated with existing 
state and local programs; and (5) the manner in which the 
results of the activities will be measured. The legislation 
specifically provides that the total number of SBIR phase one 
and phase two awards received in a state is one measurement for 
determining whether a need exists to increase the number or 
success of high-technology businesses in that state or in parts 
of that state. While the Committee expects that this be 
considered as a factor to determine need, it is not the 
Committee's intent that this be the sole factor. The Committee 
intends applicants to have the flexibility to demonstrate need 
and it is up to the reviewers to determine whether a state has 
made a legitimate case for receiving a FAST award. The 
Committee does not intend that an applicant be deemed 
ineligible for a grant or cooperative agreement under the FAST 
program if the applicant will be conducting activities in a 
state whose businesses, in the aggregate, receive a higher than 
average number of SBIR awards.
    The FAST program requires the SBA to cooperate and 
coordinate in the administration of the program on an ongoing 
basis with the SBIR program agencies and organizations and 
individuals actively engaged in the enhancement or development 
of the technological capabilities of small firms. The Committee 
intends that the SBA cooperate and coordinate with these 
agencies, organizations and individuals in all aspects of the 
administration of the program, to the extent practicable, 
including the SBA's creation of procedures for proposals and 
applications for the FAST program.
    The FAST program establishes a sliding-scale for matching 
grants, whereby states whose businesses receive relatively few 
SBIR awards must match a smaller portion of grant funds. 
Recipients of awards in states that rank among the bottom third 
of states in phase-one SBIR awards are only required to match 
$0.50 for every Federal dollar received. States that rank in 
the top third are required to match $1 for each Federal dollar, 
while the states in the middle third must match $0.75 for each 
dollar.
    The SBA is required by the FAST program to submit an annual 
report to the Senate and House Committees on Small Business on 
the FAST program and its mentoring component. The legislation 
details some of the information that must be included in the 
report, but is not intended to be an exclusive list of the 
information that the SBA should furnish to Congress. The 
Committee intends that the SBA also specifically include in its 
annual report the following: (1) the extent to which small 
businesses have been successful in winning an SBIR award after 
receiving mentoring or other assistance provided for under the 
FAST program; (2) other measurements of successes achieved by 
the FAST program; and (3) any recommendations for improving the 
FAST program and either the mentoring networks or the database, 
or anything related thereto. Moreover, the Committee intends 
that the SBA also provide information on the following relating 
to the mentoring networks and the mentoring database: (1) the 
number of mentors participating in the previous year, and 
during the term of the program; (2) the number of small 
businesses served over both periods; (3) the type of assistance 
provided by each mentor; and (4) the costs of operating the 
network and the database.
    The FAST program further requires agencies with programs 
similar to the NSF's EPSCoR program to coordinate such programs 
with their SBIR programs in the same manner as the NSF. The NSF 
has used its EPSCoR program to assist potential SBIR 
participants in EPSCoR states in two ways. First, through 
EPSCoR, the NSF funds outreach and assistance efforts for SBIR 
companies. Second, SBIR proposals from EPSCoR states that are 
ranked in the ``highly recommended'' or ``recommended'' 
category in the review process, but were not selected because 
of funding restraints, receive a second review and an 
opportunity to be funded through the EPSCoR program.
    The FAST program does not require that agencies fund any 
specific outreach and assistance efforts or SBIR phase one or 
phase two awards through their other technology development 
programs. The Committee expects, however, that such agencies 
will consider proposals for funding under these other programs. 
Additionally, this section of the FAST program provides that 
proposals related to the SBIR program can be considered for 
funding under these other technology programs if such proposals 
are from a state that is in the bottom half of all states in 
the number of phase one and phase two grants received by 
businesses in such state.

Section 10. Mentoring networks.

    Section 10 of the bill sets forth criteria for mentoring 
networks that organizations may establish with matching funds 
from the FAST program. Essentially, establishment of a 
mentoring network requires an organization to identify small 
firms that have successfully completed one or more SBIR or STTR 
funding agreements and that have agreed to provide assistance, 
on a volunteer basis, to small business concerns through all 
stages of the SBIR or STTR program process. The Committee 
intends that different mentors may be able to assist small 
businesses through various stages of the SBIR award process and 
does not intend that each volunteer have expertise in all 
stages of the process or be required to help through all 
stages. Thebill permits a reasonable amount of Federal funds 
from the FAST program to be expended by recipients of grants and 
participants in cooperative agreements for administrative expenses in 
the establishment of mentoring networks and to reimburse volunteer 
mentors. Section 10 also requires that the SBA establish a database of 
small businesses willing to act as mentors in mentoring networks and 
permits SBA to expend a reasonable amount, not exceeding $500,000 over 
the five years of the authorization of the FAST program, for that 
purpose. The Committee expects participating program managers and the 
SBA to aggressively market the availability of the FAST program, of 
funds for establishing mentoring networks and of the mentor database.

                          III. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on March 21, 2000.
    After a quorum was established pursuant to Committee rules, 
a motion by Senator Bond to adopt an amendment in the nature of 
a substitute to the Small Business Innovation Research Program 
Reauthorization Act of 1999 passed unanimously.
    A motion by Senator Bond to adopt the Small Business 
Innovation Research Program Reauthorization Act of 2000, to 
extend the authorization of the Small Business Innovation 
Research Program, and for other purposes, was approved by a 
unanimous recorded vote of 18-0, with the following Senators 
voting in the affirmative: Bond, Kerry, Burns, Coverdell, 
Bennett, Snowe, Enzi, Fitzgerald, Crapo, Voinovich, Abraham, 
Levin, Harkin, Lieberman, Wellstone, Cleland, Landrieu and 
Edwards.

                  IV. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                           VI. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts indicated by the 
Congressional Budget Office in the following letter.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 5, 2000.
Hon. Christopher S. Bond,
Chairman, Committee on Small Business,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2392, the Small 
Business Innovation Research Program Reauthorization Act of 
2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs), and Shelley Finlayson (for the state and 
local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 2392--Small Business Innovation Research Program Reauthorization 
        Act of 2000

    Summary: The Small Business Innovation Research (SBIR) 
program requires federal agencies with extramural research 
expenditures of more than $100 million to set aside 2.5 percent 
of their research and development budgets for small business. 
(In general, extramural expenditures are defined as 
expenditures for activities not performed by agency employees.) 
H.R. 2392 would extend the expiration date of the SBIR program 
from 2000 to 2010 and would require the affected federal 
agencies to include activities related to the SBIR program in 
their annual performance plans. Finally, H.R. 2392 would 
establish the Federal and State Technology Partnership (FAST) 
program to provide matching grants with states to assist high-
technology small businesses.
    Assuming appropriation of the amounts specified for the 
FAST program and amounts necessary to maintain the SBIR program 
at the level provided in 2000, CBO estimates that implementing 
the act would cost $93 million over the 2001-2005 period, 
subject to appropriation of the necessary amounts. 
Alternatively, if appropriations for the SBIR program are 
increased to keep pace with anticipated inflation, CBO 
estimates that implementing the FAST program and extending the 
SBIR program would cost $101 million over the 2001-2005 period.
    H.R. 2392 would not affect direct spending or receipts; 
therefore, pay-as-you-go procedures would not apply. The act 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). Any costs 
to state government would be the result of complying with new 
grant conditions. Local and tribal governments would not be 
directly affected by the act.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2392 is shown in the following table. 
The costs of this legislation fall within several budget 
functions.

----------------------------------------------------------------------------------------------------------------
                                                                     By fiscal years, in million of dollars--
                                                                 -----------------------------------------------
                                                                   2000    2001    2002    2003    2004    2005
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

                                        Without adjustments for inflation

SBIR Spending Under Current Law:
    Estimated Authorization Level \1\...........................      10       0       0       0       0       0
    Estimated Outlays...........................................      10       1       0       0       0       0
Proposed Changes:
    Estimated Authorization Level Outlays.......................       0      20      20      20      20      20
    Estimated Outlays...........................................       0      14      19      20       0       0
SBIR and FAST spending Under H.R. 2392:
    Estimated Authorization Level \1\...........................      10      20      20      20      20      20
    Estimated Outlays...........................................      10      15      19      20      20      20

                                         With adjustments for inflation

SBIR Spending Under Current Law:
    Estimated Authorization Level...............................      10       0       0       0       0       0
    Estimated Outlays...........................................      10       1       0       0       0       0
Proposed Changes:
    Estimated Authorization Level...............................       0      21      22      22      22      23
    Estimated Outlays...........................................       0      15       0       2      22      23
SBIR and FAST Spending Under H.R. 2392:
    Estimated Authorization Level \1\...........................      10      21      22      22      21       0
    Estimated Outlays...........................................      10      16      20      22      22      23
----------------------------------------------------------------------------------------------------------------
\1\ The 2000 level is the amount appropriated for that year for the SBIR program.

    Basis of estimate: The Small Business Administration (SBA) 
currently has a small office devoted to the SBIR program. Other 
agencies that maintain at least a part-time SBIR staff includes 
theDepartments of Agriculture, Commerce, Defense, Education, 
Energy, Health and Human Services, and Transportation, as well as the 
Environmental Protection Agency, the National Aeronautics and Space 
Administration, and the National Science Foundation. The SBIR office 
structures of these agencies vary. Some agencies have a full-time staff 
devoted to the SBIR program, with other staff assisting as part of 
their other duties; some have several employees working part-time on 
the program. Program costs consist primarily of personnel, overhead, 
printing, mailing, and in one case of some agencies, contractors' 
costs.
    H.R. 2392 would extend the SBIR program through 2010. Based 
on information from SBA and other affected agencies, CBO 
estimates that implementing the SBIR program would cost about 
$10 million a year in 2000 dollars, (less than $500,000 of that 
total would be for SBA). CBO expects federal agencies would 
continue to make extramural research expenditures under current 
law regardless of the SBIR program.
    H.R. 2392 would establish the FAST program to provide 
matching grants with states to assist high-technology 
businesses. The act would authorize $10 million a year over the 
2001-2005 period to implement the program. Based on the 
historical spending patterns of SBA's other business assistance 
programs, CBO estimates implementing this provision would cost 
$44 million over the 2001-2005 period.
    Pay-as-you-go consideration: None.
    Estimated impact on state, local, and tribal governments: 
H.R. 2392 contains no intergovernmental mandates as defined in 
UMRA. The act would create the Federal and State Technology 
Partnership program, a new matching-grant program to encourage 
states to assist in the development of high-technology small 
businesses. The amount that participating states would be 
required to match would be determined by a sliding-scale based 
on the amount of SBIR funds awarded to businesses in that 
state. Any costs to state governments to provide matching funds 
to participate in the FAST program would be incurred 
voluntarily.
    Estimated impact on the private sector: The act contains no 
new private-sector mandates as defined in UMRA.
    Previous CBO cost estimate: On July 15, 1999, CBO 
transmitted a cost estimate at H.R. 2392, as ordered reported 
by the House Committee on Small Business on July 1, 1999. CBO 
estimated the House version would cost $42 million over the 
2001-2004 period. It did not include the FAST program that 
would be authorized by the Senate version of the legislation.
    Estimate prepared by: Federal Costs: Mark Hadley. Impact on 
State, Local, and Tribal Governments: Shelley Finlayson. Impact 
on the Private Sector: Patrice Gordon.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      VI. CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirement of section 12 of rule XXVI of the 
Standing Rules of the Senate in order to expedite the business 
of the Senate.
                                  
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