[Senate Report 107-54]
[From the U.S. Government Publishing Office]
Calendar No. 142
107th Congress Report
SENATE
1st Session 107-54
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SMALL BUSINESS TECHNOLOGY TRANSFER (STTR) PROGRAM REAUTHORIZATION ACT
OF 2001
_______
August 28, 2001.--Ordered to be printed
Filed under authority of the order of the Senate of July 30, 2001
_______
Mr. Kerry, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 856]
On July 19, 2001, the Committee on Small Business and
Entrepreneurship (Committee) considered S. 856, the Small
Business Technology Transfer (STTR) Program Reauthorization Act
of 2001. The bill amends the Small Business Act to extend
authorization of the STTR Program for nine years and to make
other changes. Having considered S. 856, the Committee reports
favorably thereon and recommends that the bill pass.
I. NEED FOR LEGISLATION
Absent legislative action to reauthorize the Small Business
Technology Transfer (STTR) program, it will expire on September
30, 2001. This legislation is also necessary because it makes
changes to the STTR program in order to facilitate more
effectively the collaboration between small businesses and
research institutions and thereby transfer more technology from
lab into deployed products or processes and create small
businesses around our research institutions.
II. LEGISLATIVE HISTORY
The STTR program funds cooperative research and development
(R&D) projects between small companies and research
institutions as an incentive to advance the nation's
technological progress and the government's research and
development goals. It complements the Small Business Innovation
Research (SBIR) program, which was reauthorized last year.
Whereas the SBIR program funds R&D projects at small companies,
STTR funds cooperative R&D projects between a small company and
a research institution, such as a university or a Federally
funded R&D lab. Like SBIR R&D projects, STTR projects help
participating agencies achieve their missions in the research
and development arena. It was also designed to convert the
billions of dollars invested in research and development at our
nation's universities, Federal laboratories and non-profit
research institutions into new commercial technologies.
The STTR program was started as a pilot in 1992, and the
first grants were made in 1994. The program was reauthorized in
1997. The program is not funded out of the Small Business
Administration's (SBA) budget, but out of the extramural R&D
budgets of Federal agencies or departments with extramural R&D
budgets of $1 billion or more. Such agencies must award at
least .15 percent of that money for STTR projects. Five
agencies currently qualify: the Department of Defense (DoD);
the National Institutes of Health (NIH); the National
Aeronautics and Space Administration (NASA); the National
Science Foundation (NSF); and the Department of Energy (DoE).
There are three phases of the program. Phase I is a one-
year grant for $100,000, and its purpose is to determine the
scientific and commercial merits of an idea. Phase II is a two-
year grant for $500,000, and its purpose is to further develop
the idea. Phase III is used to pursue commercial applications
of the idea and cannot be funded with STTR funds. Only private-
sector and non-STTR Federal funds may be used in Phase III.
This bill to reauthorize the STTR program is the result of
a Committee hearing, Committee research, and a survey by the
U.S. General Accounting Office (GAO).
On June 21, 2001, the Committee on Small Business and
Entrepreneurship held a hearing entitled ``S. 856, the Small
Business Technology Transfer Program Reauthorization Act of
2001.'' The purpose was to gather information about how the
program has been working since it was last reauthorized in 1997
and to get feedback on S. 856. The witnesses included: Dr.
Anthony N. Pirri, Director of the Division of Technology
Transfer at Northeastern University in Boston, Mass.; Mr.
Clifford C. Hoyt, Vice President and Chief Technology Officer
of Cambridge Research and Instrumentation in Woburn, Mass.; Dr.
Barna Szabo, Founder and Chairman of Engineering Software
Research and Development Inc. in St. Louis, Mo.; Mr. Kirk
Ririe, President and CEO of Idaho Technology Inc. in Salt Lake
City, Utah; Mr. Maurice Swinton, Assistant Administrator for
the Office of Technology at the Small Business Administration;
and Mr. Jim Wells, Director of Natural Resources and
Environment at the General Accounting Office.
There was consensus that the program is meeting its
objectives, should be continued, and that the Phase II award
amount should be increased. Examples were given of
technological advances that improved industries, grew
businesses, created jobs and more than returned the Federal
government's investment. One comment, in particular, from Mr.
Kirk Ririe of Idaho Technology Inc., which got its modest start
in a potato shed and now has locations in Idaho and Utah,
demonstrates the power of the STTR program:
We were a tiny company--six people working with the
university group. We were able to, within two years,
launch (with about $100,000 in funding) a product that
basically filled a hole in biotechnology research and
development * * * that has gone on to generate over
$100 million in sales. * * * The GAO figures may not
[reflect this, but] I guarantee that we have paid a lot
more money back to the government in taxes than we
received in any of the funding. * * * The program has
been absolutely crucial to us. If we had not had this
program, we would still be in the potato shed. * * *
In addition to the hearing, as referenced earlier, the
Committee reviewed a survey by the GAO of the participating
STTR companies. The survey was requested by the Chairmen
andRanking Members of this Committee and the House Committee on Science
in anticipation of reauthorization. The purpose was to survey the
participating companies to identify the contributions to and results of
the STTR program.
GAO surveyed all companies that had received Phase II
awards from 1995 to 1997. They chose these years because they
were the first years of the program and it takes generally
three to nine years for a company to progress from basic
research of a concept to commercialization of a developed
product. Though this program is still relatively young, the
survey results indicate it is working effectively. Of the 102
companies participating in the survey, 53.5 percent had either
commercialized the technology or received follow-on funding for
the technology. These companies had approximately $132 million
in sales and $53 million in additional funding. These STTR
winners expect additional sales of more than $900 million
dollars by 2005. Putting this into perspective, the
Government's total awards to these companies was less than $60
million, or less than half of the sales to date and about five
percent of the expected sales by 2005.
Also of note, the survey revealed that the respondents
strongly support continuing the program, and a majority said
they want the STTR and SBIR programs to remain separate. The
Committee strongly agrees with the findings. GAO noted that one
area of improvement would be to involve more universities.
III. SUMMARY OF MAJOR PROVISIONS
The Committee has concluded from its proceedings and its
review of the GAO survey that the STTR program is meeting its
program objectives successfully and merits reauthorization for
an additional nine years.
The Committee also believes the program should be expanded.
This is a very good investment for our nation. According to the
SBA's Office of Advocacy, small firms that collaborate with
universities often have a better rate of return on their R&D
investments than they would otherwise have.\1\
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\1\ ``A New View of Government, University and Industry
Partnerships,'' the Office of Advocacy, U.S. Small Business
Administration, January 1999.
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To date, more than $347 million has been awarded to 1,500
small businesses and more than 250 university partners. From
the GAO survey, the Committee knows that these collaborations
are already showing outstanding commercialization rates, and it
should build on this successful program. Consequently, this
bill raises in small increments the percentage that departments
and agencies set aside for STTR research and development
awards. In FY2004, the percentage increases from .15 to .3
percent. In FY2007, the percentage increases from .3 to .5
percent. Over the past three years, the .15 percent has
amounted to a total of $65 million annually available for STTR
awards. Based on that amount, increasing the percentage to .5
percent would make $216 million available annually for small
business technology transfer.
The Committee recognizes that the research and development
budgets have been reduced at most agencies. However, given that
the small business share of Federal research and development
funds is less than four percent annually and has been static
for [more than] 20 years,\2\ the Committee believes the
increase is justified. Even after both authorized increases are
effective, the percentage will be only one half of one percent.
Further, the percentages are phased in slowly over seven years,
giving the agencies ample time to prepare for the increases.
Also, the agencies continue to have complete autonomy to
solicit proposals for research that in turn will help them
achieve their missions.
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\2\ ``A New View of Government, University and Industry
Partnerships,'' the Office of Advocacy, U.S. Small Business
Administration, January 1999.
---------------------------------------------------------------------------
The Committee also proposes raising the Phase II grant
award amount from $500,000 to $750,000. This change was
intended to address concerns by both the small businesses and
the research institutions that $500,000 typically is no longer
enough for this stage of research and development. As Dr. Pirri
of Northeastern said at the hearing, ``By expanding the STTR
program, funding levels will become more adequate to take
technologies through the prototype stage and increase their
probability of commercial success.'' Raising Phase II STTR
awards to $750,000 makes them consistent with the Small
Business Innovation Research (SBIR) program's Phase II awards.
The main concern about raising the award amount is how it would
impact the overall pool of money available for STTR awards. To
address that concern, the legislation does not increase the
award until FY2004, at which time the percentage increases and
there is more money available for larger awards.
To increase the percentage of research institutions that
originate the key idea and initiate the collaboration, S. 856
includes a provision encouraging the STTR agencies to reach out
to universities to raise awareness of the program and to
provide information to faculty members about taking advantage
of this technology transfer program. According to the GAO
survey, small businesses reported that 75 percent of the time
they originated the key idea for the research and development
that led to the STTR award, not research institutions. While
the Committee acknowledges that research institutions were not
asked that question and the results are not conclusive,
universities themselves reported in other Committee research
that there is a need for STTR awards to develop the research of
their scientists and engineers but that they need to be made
aware of and educated about the STTR program. GAO reported that
only about 250 universities have participated in the program so
far. The Committee believes, and GAO concurs, that there is
tremendous potential to involve more universities in partnering
with small businesses to convert research into new
technologies. One of the goals of the STTR program is to create
economic development around universities, Federal laboratories
and non-profit research institutions all across the country, in
an effort to duplicate the successful clusters similarly
developed along Massachusetts' Route 128 and California's
Silicon Valley.
Lastly, of the major provisions included in this
legislation, S. 856 strengthens the data rights protection for
companies and research institutions that conduct STTR projects.
Thechange in data rights is important because it clarifies that
STTR companies, like SBIR companies, retain the data rights to their
technology through all phases of an STTR project. Some agencies have
been interpreting the law to mean that STTR companies only retain their
data rights through phases I and II.
This clarification helps protect STTR companies from losing
control of their research so that they have a greater chance of
commercializing their technology themselves. This clarification
is important because the Committee has learned that some
agencies are providing the data to bigger contractors for
development, thereby cutting out the small business. This
unfortunate situation not only robs small businesses of
revenues, but it also results in expensive legal costs for
small businesses to protect their data rights.
IV. SECTION-BY-SECTION
Section 1. Short title
The title of the bill is ``The Small Business Technology
Transfer Program Reauthorization Act of 2001.''
Section 2. Extension of program and expenditure
This section reauthorizes the STTR program for nine years,
through 2010, and raises the percentage of an agency's
extramural R&D budget set-aside for STTR awards two times over
the next nine years. In FY2004, it raises the percentage from
.15 to .3 percent, and then in FY2007, it raises the percentage
from .3 to .5 percent. This section also eliminates the word
``pilot'' from all places in the statute.
Section 3. Increase in authorized Phase II awards
This section raises the amount of Phase II awards from
$500,000 to $750,000. It is raised in FY2004, the same year
that the set-aside percentage increases, so that the number of
awards is not decreased. This section also adds flexibility to
the program by giving the awarding agency the discretion to
shorten or extend the amount of time for each phase, where
appropriate for a particular project. Phase I is typically one
year, and Phase II is typically two years. This authority shall
be effective starting in FY2004.
Section 4. Agency outreach
This section requires each of the participating agencies to
implement an outreach program to research institutions and
small business concerns in conjunction with any such outreach
done for the SBIR program. The purpose is to increase new
participation, particularly of universities and research
institutions, in the STTR program.
Section 5. Policy directive modifications
This section requires the SBA to issue a policy directive
to all participating agencies that clarifies the data rights of
STTR companies to their technology developed through STTR
projects for all phases, including Phase I, Phase II and Phase
III. Specifically, they have data rights for four years after
the completion of each phase they are awarded a grant.
Section 6. STTR program data collection
Consistent with requirements of the SBIR program, this
section requires each agency with an STTR program to collect
and maintain, in a common format, information on award winners
as is necessary to assess the success of the STTR program,
including information necessary to maintain the public database
at the SBA. The goal is to collect fundamental information
about the companies that get STTR awards so that they can be
tracked if they close, are sold, or create spin-off companies,
and to keep fundamental information about the award received so
that we can track the technology.
In addition to this information, four specific questions
will be added to information collected on STTR awards. The
Committee wants to know who initiates the collaborations; who
originated the technology; how long it took to negotiate a
licensing agreement between the STTR partners; and the
percentage allocated to each partner from any revenues
resulting from an STTR project.
This section also seeks to minimize the burden on small
businesses by requiring the SBA and the participating agencies
to work together to simplify and standardize reporting
requirements for information included in the databases.
Lastly, this section includes a requirement for the SBA to
report at least once a year to the Senate Committee on Small
Business and Entrepreneurship and to the House Committees on
Small Business and Science regarding output and outcomes of the
STTR program and the extent to which participating agencies are
providing the relevant requisite information to the SBA in
order to maintain current databases.
V. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following vote was recorded on July 19, 2001. A
motion by Senator Bond to adopt S. 856, the Small Business
Technology Transfer (STTR) Program Reauthorization Act of 2001,
was approved by a recorded vote of 19-0, with the following
Senators voting in the affirmative: Kerry, Bond, Levin, Harkin,
Lieberman, Wellstone, Cleland, Landrieu, Edwards, Cantwell,
Carnahan, Burns, Bennett, Snowe, Enzi, Fitzgerald, Crapo,
Ensign and Allen.
VI. 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.
VII. 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.
VIII. 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 discussed in the
following letter from the Congressional Budget Office.
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 2, 2001.
Hon. John F. Kerry,
Chairman, Committee on Small Business,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 856, the Small
Business Technology Transfer Program Reauthorization Act of
2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Ken Johnson.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 856--Small Business Technology Transfer Program Reauthorization Act
of 2001
Summary: S. 856 would change the expiration date of the
Small Business Technology Transfer (STTR) program from 2001 to
2010. The STTR program requires agencies with annual
appropriations for extramural research of more than $1 billion
to set aside a portion of their extramural research budget for
cooperative research between small businesses and a federal
laboratory or nonprofit research institution. The bill also
would make certain modifications to the STTR program, including
gradually raising the percentage of research funds that would
be set aside for the program and altering the data reporting
requirements for the participating agencies.
Assuming appropriations of the necessary amounts, CBO
estimates that implementing S. 856 would cost about $25 million
over the 2002-2006 period. S. 856 would not affect direct
spending or receipts; therefore, pay-as-you-go procedures would
not apply.
S. 856 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 856 is shown in the following table. The
costs of this legislation fall within budget functions 370
(commerce and housing credit), 250 (general science, space, and
technology), 050 (national defense), 270 (energy), and 550
(health).
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By fiscal year, in millions of dollars--
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2001 2002 2003 2004 2005 2006
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SPENDING SUBJECT TO APPROPRIATION
STTR Spending Under Current Law:
Budget Authority \1\........................................ 4 0 0 0 0 0
Estimated Outlays........................................... 4 1 0 0 0 0
Proposed Changes:
Estimated Authorization Level............................... 0 4 4 6 6 6
Estimated Outlays........................................... 0 3 4 6 6 6
STTR Spending Under S. 856:
Estimated Authorization Level............................... 4 4 4 6 6 6
Estimated Outlays........................................... 4 4 4 6 6 6
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\1\ The 2001 level is the amount that CBO estimates was appropriated to administer the STTR program in 2001.
Basis of estimate: The five federal agencies that currently
participate in the program are the Department of Defense, the
Department of Energy, the Department of Health and Human
Services, the National Aeronautics and Space Administration,
and the National Science Foundation. Program oversight is
conducted by the Small Business Administration (SBA). The costs
of the STTR program to the participating agencies consist
primarily of salaries and expenses for personnel to evaluate
grant applications, associated overhead costs, printing costs,
and mailing expenses. The costs associated with administering
awards through the STTR program are slightly higher than
administering the same awards through regular program channels.
Based on information from the SBA and the participating
agencies, CBO estimates that administering the STTR program
will cost a total of about $4 million this year. Therefore, CBO
estimates that extending the current STTR program through 2010
would cost these agencies approximately that amount per year,
assuming appropriation of the necessary amounts.
In addition, S. 856 would increase the percentage of the
agencies' extramural research budgets that would be set aside
for the STTR program starting in 2004. Based on information
from the affected agencies, CBO predicts that this provision
would cause the number of applications for STTR grants to
increase, thereby increasing the administrative cost of the
program. Based on information from the SVA and the
participating agencies, CBO estimates that this expansion would
cost an additional $2 million a year during the 2004-2006
period, subject to the appropriation of the necessary funds.
Finally, S. 856 would modify the STTR program in two other
ways. The bill would expand the program's outreach efforts to
small businesses and the research community. Also, the
legislation would alter and expand the data that the
participating agencies would have to report to the SBA each
year as part of its oversight responsibilities. Based on
information from the affected agencies, CBO estimates that
implementing these provisions would cost less than $500,000 per
year.
Pay-as-you-go considerations: None.
Intergovernmental and private-sector impact: S. 856
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
Estimate prepared by: Federal Costs: Ken Johnson. Impact on
State, Local, and Tribal Governments: Scott Masters. Impact on
the Private Sector: Cecil McPherson.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.