    [House Report 111-190]
    [From the U.S. Government Publishing Office]

    111th Congress                                            Rept. 111-190
                            HOUSE OF REPRESENTATIVES
     1st Session                                                     Part 1

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

          ENHANCING SMALL BUSINESS RESEARCH AND INNOVATION ACT OF 2009

                                    _______

                     June 26, 2009.--Ordered to be printed

                                    _______

      Ms. Velazquez, from the Committee on Small Business, submitted the
                                   following

                                  R E P O R T

                            [To accompany H.R. 2965]

          [Including cost estimate of the Congressional Budget Office]

      The Committee on Small Business, to whom was referred the
    bill (H.R. 2965) to amend the Small Business Act with respect
    to the Small Business Innovation Research Program and the 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.

                                    CONTENTS

                                                                       Page
      I. Purpose of the Bill and Summary.................................11
     II.  Background and Need for Legislation............................13
    III.  Hearings.......................................................18
     IV.  Committee Consideration........................................18
      V.  Committee Votes................................................18
     VI.  Section-by-Section Analysis of H.R. 2965.......................22
    VII.  Congressional Budget Office Cost Estimate......................30
    VIII. Committee Estimate of Costs....................................30

     IX.  Oversight Findings.............................................31
      X.  Statement of Constitutional Authority..........................31
     XI.  Compliance With Public Law 104-4...............................31
    XII.  Congressional Accountability Act...............................31
    XIII. Federal Advisory Committee Statement...........................31

    XIV.  Statement of No Earmarks.......................................31
     XV.  Performance Goals and Objectives...............................31
    XVI.  Changes in Existing Law Made by the Bill, as Reported..........31
      The amendment is as follows:
      Strike all after the enacting clause and insert the
    following:

    SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

      (a) Short Title.--This Act may be cited as the ``Enhancing Small
    Business Research and Innovation Act of 2009''.
      (b) Table of Contents.--The table of contents for this Act is as
    follows:

    Sec. 1. Short title; table of contents.

       TITLE I--PROGRAM EXTENSION AND VENTURE CAPITAL OPERATING COMPANY
                                  INVOLVEMENT

    Sec. 101. Extension of termination dates.
    Sec. 102. Ensuring that innovative small businesses with substantial
    investment from venture capital operating companies are able to
    participate in the SBIR and STTR programs.

     TITLE II--COMMERCIALIZATION ACTIVITIES AND RESEARCH TOPICS DESERVING
                             SPECIAL CONSIDERATION

    Sec. 201. Focus on commercialization.
    Sec. 202. Inclusion of energy-related research topics and rare disease-
    related research topics as deserving ``special consideration'' as SBIR
    research topics.
    Sec. 203. Nanotechnology-related research topics.
    Sec. 204. Clarifying the definition of ``Phase Three''.
    Sec. 205. Agency research goals.
    Sec. 206. Commercialization programs.

                   TITLE III--RURAL DEVELOPMENT AND OUTREACH

    Sec. 301. Outreach and support activities.
    Sec. 302. Rural preference.
    Sec. 303. Obtaining SBIR applicant's consent to release contact
    information to economic development organizations.
    Sec. 304. Increased partnerships between SBIR awardees and prime
    contractors, venture capital investment companies, and larger
    businesses.

                      TITLE IV--SBIR AND STTR ENHANCEMENT

    Sec. 401. Increased number of research topic solicitations annually and
    shortened period for final decisions on applications.
    Sec. 402. Agencies should fund vital R&D projects with the potential
    for commercialization.
    Sec. 403. Federal agency engagement with SBIR awardees that have been
    awarded multiple Phase One awards but have not been awarded Phase Two
    awards.
    Sec. 404. Funding for administrative, oversight, and contract
    processing costs.
    Sec. 405. Comptroller general audit of how Federal agencies calculate
    extramural research budgets.
    Sec. 406. Agency databases to support program evaluation.
    Sec. 407. Agency databases to support technology utilization.
    Sec. 408. Interagency Policy Committee.
    Sec. 409. National Research Council SBIR Study.
    Sec. 410. Express authority to ``fast-track'' Phase Two awards for
    promising Phase One research.
    Sec. 411. Increased SBIR and STTR award levels.
    Sec. 412. Express authority for an agency to award sequential Phase Two
    awards for SBIR-funded projects.
    Sec. 413. First phase required.
    Sec. 414. Involvement of Chief Counsel for Advocacy.

       TITLE I--PROGRAM EXTENSION AND VENTURE CAPITAL OPERATING COMPANY
                                  INVOLVEMENT

    SEC. 101. EXTENSION OF TERMINATION DATES.

      (a) SBIR.--Section 9(m) of the Small Business Act (15 U.S.C. 638(m))
    is amended by striking ``2008'' and inserting ``2011''.
      (b) STTR.--Section 9(n)(1)(A) of the Small Business Act (15 U.S.C.
    638(n)(1)(A)) is amended by striking ``2009'' and inserting ``2011''.

    SEC. 102. ENSURING THAT INNOVATIVE SMALL BUSINESSES WITH SUBSTANTIAL
                        INVESTMENT FROM VENTURE CAPITAL OPERATING COMPANIES
                        ARE ABLE TO PARTICIPATE IN THE SBIR AND STTR
                        PROGRAMS.

      Section 9 of the Small Business Act (15 U.S.C. 638) is amended by
    adding at the end the following:
      ``(aa) Venture Capital Operating Companies.--Effective only for the
    SBIR and STTR programs the following shall apply:
              ``(1) A business concern that has more than 500 employees
            shall not qualify as a small business concern.
              ``(2) In determining whether a small business concern is
            independently owned and operated under section 3(a)(1) or meets
            the small business size standards instituted under section
            3(a)(2), the Administrator shall not consider a business
            concern to be affiliated with a venture capital operating
            company (or with any other business that the venture capital
            operating company has financed) if--
                      ``(A) the venture capital operating company does not
                    own 50 percent or more of the business concern; and
                      ``(B) employees of the venture capital operating
                    company do not constitute a majority of the board of
                    directors of the business concern.
              ``(3) A business concern shall be deemed to be `independently
            owned and operated' if--
                      ``(A) it is owned in majority part by one or more
                    natural persons or venture capital operating companies;
                      ``(B) there is no single venture capital operating
                    company that owns 50 percent or more of the business
                    concern; and
                      ``(C) there is no single venture capital operating
                    company the employees of which constitute a majority of
                    the board of directors of the business concern.
              ``(4) If a venture capital operating company controlled by a
            business with more than 500 employees (in this paragraph
            referred to as a `VCOC under large business control') has an
            ownership interest in a small business concern that is owned in
            majority part by venture capital operating companies, the small
            business concern is eligible to receive an award under the SBIR
            or STTR program only if--
                      ``(A) not more than two VCOCs under large business
                    control have an ownership interest in the small
                    business concern; and
                      ``(B) the VCOCs under large business control do not
                    collectively own more than 20 percent of the small
                    business concern.
              ``(5) The term `venture capital operating company' means a
            business concern--
                      ``(A) that--
                              ``(i) is a Venture Capital Operating Company,
                            as that term is defined in regulations
                            promulgated by the Secretary of Labor; or
                              ``(ii) is an entity that--
                                      ``(I) is registered under the
                                    Investment Company Act of 1940 (15
                                    U.S.C. 80a-51 et seq.); or
                                      ``(II) is an investment company, as
                                    defined in section 3(c)(1) of such Act
                                    (15 U.S.C. 80a-3(c)(1)), which is not
                                    registered under such Act because it is
                                    beneficially owned by less than 100
                                    persons; and
                      ``(B) that is itself organized or incorporated and
                    domiciled in the United States, or is controlled by a
                    business concern that is incorporated and domiciled in
                    the United States.''.

     TITLE II--COMMERCIALIZATION ACTIVITIES AND RESEARCH TOPICS DESERVING
                             SPECIAL CONSIDERATION

    SEC. 201. FOCUS ON COMMERCIALIZATION.

      Section 9(a) of the Small Business Act (15 U.S.C. 638(a)) is amended
    by adding at the end the following: ``It is further the policy of
    Congress that the programs established in this section should focus on
    promoting research and development of projects governed by commercial
    business plans, which have significant potential to produce products or
    services for the marketplace or for acquisition by Federal agencies.''.

    SEC. 202. INCLUSION OF ENERGY-RELATED RESEARCH TOPICS AND RARE DISEASE-
                        RELATED RESEARCH TOPICS AS DESERVING ``SPECIAL
                        CONSIDERATION'' AS SBIR RESEARCH TOPICS.

      Section 9(g)(3) of the Small Business Act (15 U.S.C. 638(g)(3)) is
    amended--
              (1) in the matter preceding subparagraph (A) by inserting
            after ``critical technologies'' the following: ``or pressing
            research priorities'';
              (2) in subparagraph (A) by striking ``or'' at the end; and
              (3) by adding at the end the following:
                      ``(C) the National Academy of Sciences, in the final
                    report issued by the `America's Energy Future:
                    Technology Opportunities, Risks, and Tradeoffs'
                    project, and in subsequent reports issued by the
                    National Academy of Sciences on sustainability, energy,
                    and alternative fuels;
                      ``(D) the National Institutes of Health, in the
                    annual report on the rare diseases research activities
                    of the National Institutes of Health for fiscal year
                    2005, and in subsequent reports issued by the National
                    Institutes of Health on rare diseases research
                    activities; or
                      ``(E) the National Academy of Sciences, in the final
                    report issued by the `Transit Research and Development:
                    Federal Role in the National Program' project and the
                    `Transportation Research, Development and Technology
                    Strategic Plan (2006-2010)' issued by the United States
                    Department of Transportation Research and Innovative
                    Technology Administration, and in subsequent reports
                    issued by the National Academy of Sciences and United
                    States Department of Transportation on transportation
                    and infrastructure;''.

    SEC. 203. NANOTECHNOLOGY-RELATED RESEARCH TOPICS.

      (a) SBIR.--Section 9(g)(3) of the Small Business Act (15 U.S.C.
    638(g)(3)), as amended, is further amended--
              (1) in subparagraph (D) by striking ``or'' at the end;
              (2) in subparagraph (E) by adding ``or'' at the end; and
              (3) by adding at the end the following:
                      ``(F) the national nanotechnology strategic plan
                    required under section 2(c)(4) of the 21st Century
                    Nanotechnology Research and Development Act (15 U.S.C.
                    7501(c)(4)) and in subsequent reports issued by the
                    National Science and Technology Council Committee on
                    Technology, focusing on areas of nanotechnology
                    identified in such plan;''.
      (b) STTR.--Section 9(o)(3) of the Small Business Act (15 U.S.C.
    638(o)(3)) is amended--
              (1) in subparagraph (A) by striking ``or'' at the end;
              (2) in subparagraph (B) by adding ``or'' at the end; and
              (3) by adding at the end the following:
                      ``(C) by the national nanotechnology strategic plan
                    required under section 2(c)(4) of the 21st Century
                    Nanotechnology Research and Development Act (15 U.S.C.
                    7501(c)(4)) and in subsequent reports issued by the
                    National Science and Technology Council Committee on
                    Technology, focusing on areas of nanotechnology
                    identified in such plan;''.

    SEC. 204. CLARIFYING THE DEFINITION OF ``PHASE THREE''.

      Section 9(e) of the Small Business Act (15 U.S.C. 638(e)) is
    amended--
              (1) in paragraph (4)(C) in the matter preceding clause (i) by
            inserting after ``a third phase'' the following: ``, which
            shall consist of work that derives from, extends, or logically
            concludes efforts performed under prior SBIR funding agreements
            (which may be referred to as `Phase III')'';
              (2) in paragraph (8) by striking ``and'' at the end;
              (3) in paragraph (9) by striking the period at the end and
            inserting ``; and''; and
              (4) by adding at the end the following:
              ``(10) the term `commercialization' means the process of
            developing marketable products or services and producing and
            delivering products or services for sale (whether by the
            originating party or by others) to government or commercial
            markets.''.

    SEC. 205. AGENCY RESEARCH GOALS.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by striking subsection (h) and inserting the following:
      ``(h) Agency Research Goals.--
              ``(1) In general.--In addition to the requirements of
            subsection (f), each Federal agency that is required by this
            section to have an SBIR program and that awards annually
            $5,000,000,000 or more in procurement contracts shall,
            effective for fiscal year 2010 and each fiscal year thereafter,
            establish annual goals for commercialization of projects funded
            by SBIR awards.
              ``(2) Specific goals.--The goals required by paragraph (1)
            shall include specific goals for each of the following:
                      ``(A) The percentage of SBIR projects that receive
                    funding for the third phase (as defined in subsection
                    (e)(4)(C)).
                      ``(B) The percentage of SBIR projects that are
                    successfully integrated into a program of record.
                      ``(C) The amount of Federal dollars received by SBIR
                    projects through Federal contracts, not including
                    dollars received through the SBIR program.
              ``(3) Submission to committees.--For each fiscal year for
            which goals are required by paragraph (1), the agency shall
            submit to the Committee on Small Business and the Committee on
            Science and Technology of the House of Representatives and the
            Committee on Small Business and Entrepreneurship of the
            Senate--
                      ``(A) not later than 60 days after the beginning of
                    the fiscal year, the goals; and
                      ``(B) not later than 90 days after the end of the
                    fiscal year, data on the extent to which the goals were
                    met and a description of the methodology used to
                    collect such data.''.

    SEC. 206. COMMERCIALIZATION PROGRAMS.

      Section 9 of the Small Business Act (15 U.S.C. 638) as amended, is
    further amended, by adding at the end the following:
      ``(bb) Commercialization Programs.--
              ``(1) In general.--Each agency required by this section to
            conduct an SBIR program shall establish a commercialization
            program that supports the progress of SBIR awardees to the
            third phase. The commercialization program may include
            activities such as partnership databases, partnership
            conferences, multiple second phases, mentoring between prime
            contractors and SBIR awardees, multiple second phases with
            matching private investment requirements, jumbo awards, SBIR
            helpdesks, and transition assistance programs. The agency shall
            include in its annual report an analysis of the various
            activities considered for inclusion in the commercialization
            program and a statement of the reasons why each activity
            considered was included or not included, as the case may be.
              ``(2) Funding for commercialization programs.--
                      ``(A) In general.--From amounts made available to
                    carry out this paragraph, the Administrator may, on
                    petition by agencies required by this section to
                    conduct an SBIR program, transfer funds to such
                    agencies to support the commercialization programs of
                    such agencies.
                      ``(B) Petitions.--The Administrator shall establish
                    rules for making transfers under subparagraph (A). The
                    initial set of rules shall be promulgated not later
                    than 90 days after the date of the enactment of this
                    paragraph.
                      ``(C) Authorization of appropriations.--There is
                    authorized to be appropriated to the Administrator to
                    carry out this paragraph $27,500,000 for fiscal year
                    2010 and each fiscal year thereafter.
              ``(3) Funding limitation.--For payment of expenses incurred
            to administer the commercialization programs described in
            paragraphs (1) and (2), the head of an agency may use not more
            than an amount equal to 1 percent of the funds set aside for
            the agency's Small Business Innovation Research program. Such
            funds--
                      ``(A) shall not be subject to the limitations on the
                    use of funds in subsection (f)(2); and
                      ``(B) shall not be used for the purpose of funding
                    costs associated with salaries and expenses of
                    employees of the Federal Government.''.

                   TITLE III--RURAL DEVELOPMENT AND OUTREACH

    SEC. 301. OUTREACH AND SUPPORT ACTIVITIES.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by inserting after subsection (r) the following:
      ``(s) Outreach and Support Activities.--
              ``(1) In general.--Subject to the other provisions of this
            subsection, the Administrator shall make grants on a
            competitive basis to organizations, to be used by the
            organizations to do one or both of the following:
                      ``(A) To conduct outreach efforts to increase
                    participation in the programs under this section.
                      ``(B) To provide application support and
                    entrepreneurial and business skills support to
                    prospective participants in the programs under this
                    section.
              ``(2) Authorization of appropriations.--There is authorized
            to be appropriated to the Administrator $10,000,000 to carry
            out paragraph (1) for each of fiscal years 2010 and 2011.
              ``(3) Amount of assistance.--For each of subparagraphs (A)
            and (B) of paragraph (1), the amount of assistance provided to
            an organization under that subparagraph in any fiscal year--
                      ``(A) shall be equal to the total amount of matching
                    funds from non-Federal sources provided by the
                    organization; and
                      ``(B) shall not exceed $250,000.
              ``(4) Direction.--An organization receiving funds under
            paragraph (1) shall, in using those funds, direct its
            activities at one or both of the following:
                      ``(A) Small business concerns located in geographic
                    areas that are underrepresented in the programs under
                    this section.
                      ``(B) Small business concerns owned and controlled by
                    women, small business concerns owned and controlled by
                    service-disabled veterans, and small business concerns
                    owned and controlled by minorities.
              ``(5) Advisory board.--
                      ``(A) Establishment.--Not later than 90 days after
                    the date of the enactment of this subsection, the
                    Administrator shall establish an advisory board for the
                    activities carried out under this subsection.
                      ``(B) Non-applicability of faca.--The Federal
                    Advisory Committee Act (5 U.S.C. App.) shall not apply
                    to the advisory board.
                      ``(C) Members.--The members of the advisory board
                    shall include the following:
                              ``(i) The Administrator (or the
                            Administrator's designee).
                              ``(ii) For each Federal agency required by
                            this section to conduct an SBIR program, the
                            head of the agency (or the designee of the head
                            of the agency).
                              ``(iii) Representatives of small business
                            concerns that are current or former recipients
                            of SBIR awards, or representatives of
                            organizations of such concerns.
                              ``(iv) Representatives of service providers
                            of SBIR outreach and assistance, or
                            representatives of organizations of such
                            service providers.
                      ``(D) Duties.--The advisory board shall have the
                    following duties:
                              ``(i) To develop guidelines for awards under
                            paragraph (1), including guidelines relating to
                            award sizes, proposal requirements, measures
                            for monitoring awardee performance, and
                            measures for determining the overall value of
                            the activities carried out by the awardees.
                              ``(ii) To identify opportunities for
                            coordinated outreach, technical assistance, and
                            commercialization activities among Federal
                            agencies, the recipients of the awards under
                            paragraph (1), and applicants and recipients of
                            SBIR awards, including opportunities such as--
                                      ``(I) podcasting or webcasting for
                                    conferences, training workshops, and
                                    other events;
                                      ``(II) shared online resources to
                                    match prospective applicants with the
                                    network of paragraph (1) recipients;
                                    and
                                      ``(III) venture capital conferences
                                    tied to technologies and sectors that
                                    cross agencies.
                              ``(iii) To review and recommend revisions to
                            activities under paragraph (1).
                              ``(iv) To submit to the Committee on Small
                            Business and Entrepreneurship of the Senate and
                            the Committee on Small Business and the
                            Committee on Science and Technology of the
                            House of Representatives an annual report on
                            the activities carried out under paragraph (1)
                            and the effectiveness and impact of those
                            activities.
              ``(6) Selection criteria.--In awarding grants under this
            subsection, the Administrator shall use selection criteria
            developed by the advisory board established under paragraph
            (5). The criteria shall include--
                      ``(A) criteria designed to give preference to
                    applicants who propose to carry out activities that
                    will reach either an underperforming geographic area or
                    an underrepresented population group (as measured by
                    the number of SBIR applicants);
                      ``(B) criteria designed to give preference to
                    applicants who propose to carry out activities that
                    complement, and are integrated into, the existing
                    public-private innovation support system for the
                    targeted region or population;
                      ``(C) criteria designed to give preference to
                    applicants who propose to measure the effectiveness of
                    the proposed activities; and
                      ``(D) criteria designed to give preference to
                    applicants who include a Small Business Development
                    Center program that is accredited for its technology
                    services.
              ``(7) Peer review.--In awarding grants under this subsection,
            the Administrator shall use a peer review process. Reviewers
            shall include--
                      ``(A) SBIR program managers for agencies required by
                    this section to conduct SBIR programs; and
                      ``(B) private individuals and organizations that are
                    knowledgeable about SBIR, the innovation process,
                    technology commercialization, and State and regional
                    technology-based economic development programs.
              ``(8) Per-state limitations.--
                      ``(A) In general.--To be eligible to receive a grant
                    under this subsection, the applicant must have the
                    written endorsement of the Governor of the State where
                    the targeted regions or populations are located (if the
                    regions or populations are located in more than one
                    State, the applicant must have the written endorsement
                    of the Governor of each such State). Such an
                    endorsement must indicate that the Governor will ensure
                    that the activities to be carried out under the grant
                    will be integrated with the balance of the State's
                    portfolio of investments to help small business
                    concerns commercialize technology.
                      ``(B) Limitation.--Each fiscal year, a Governor may
                    have in effect not more than one written endorsement
                    for a grant under paragraph (1)(A), and not more than
                    one written endorsement for a grant under paragraph
                    (1)(B).
              ``(9) Specific requirements for awards.--In making awards
            under paragraph (1) the Administrator shall ensure that each
            award shall be for a period of 2 fiscal years. The
            Administrator shall establish rules and performance goals for
            the disbursement of funds for the second fiscal year, and funds
            shall not be disbursed to a recipient for such a fiscal year
            until after the advisory board established under this
            subsection has determined that the recipient is in compliance
            with the rules and performance goals.''.

    SEC. 302. RURAL PREFERENCE.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(cc) Rural Preference.--In making awards under this section,
    Federal agencies shall give priority to applications so as to increase
    the number of SBIR and STTR award recipients from rural areas.''.

    SEC. 303. OBTAINING SBIR APPLICANT'S CONSENT TO RELEASE CONTACT
                        INFORMATION TO ECONOMIC DEVELOPMENT ORGANIZATIONS.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(dd) Consent To Release Contact Information to Organizations.--
              ``(1) Enabling concern to give consent.--Each Federal agency
            required by this section to conduct an SBIR program shall
            enable a small business concern that is an SBIR applicant to
            indicate to the agency whether the agency has its consent to--
                      ``(A) identify the concern to appropriate local and
                    State-level economic development organizations as an
                    SBIR applicant; and
                      ``(B) release the concern's contact information to
                    such organizations.
              ``(2) Rules.--The Administrator shall establish rules to
            implement this subsection. The rules shall include a
            requirement that the agency include in its SBIR application
            forms a provision through which the applicant can indicate
            consent for purposes of paragraph (1).''.

    SEC. 304. INCREASED PARTNERSHIPS BETWEEN SBIR AWARDEES AND PRIME
                        CONTRACTORS, VENTURE CAPITAL INVESTMENT COMPANIES,
                        AND LARGER BUSINESSES.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(ee) Increased Partnerships.--
              ``(1) In general.--Each agency required by this section to
            conduct an SBIR program shall establish initiatives by which
            the agency encourages partnerships between SBIR awardees and
            prime contractors, venture capital investment companies,
            business incubators, and larger businesses, for the purpose of
            facilitating the progress of the SBIR awardees to the third
            phase.
              ``(2) Definition.--In this subsection, the term `business
            incubator' means an entity that provides coordinated and
            specialized services to entrepreneurial businesses which meet
            selected criteria during the businesses' startup phases,
            including providing services such as shared office space and
            office services, access to equipment, access to
            telecommunications and technology services, flexible leases,
            specialized management assistance, access to financing,
            mentoring and training services, or other coordinated business
            or technical support services designed to provide business
            development assistance to entrepreneurial businesses during
            these businesses' startup phases.''.

                      TITLE IV--SBIR AND STTR ENHANCEMENT

    SEC. 401. INCREASED NUMBER OF RESEARCH TOPIC SOLICITATIONS ANNUALLY AND
                        SHORTENED PERIOD FOR FINAL DECISIONS ON
                        APPLICATIONS.

      (a) Increased Number of Research Topic Solicitations Annually.--
    Section 9(g)(2) of the Small Business Act (15 U.S.C. 638(g)(2)) is
    amended by inserting before the semicolon at the end the following: ``,
    but not less often than twice per year''.
      (b) Shortened Period for Final Decisions on Applications.--Section
    9(g)(4) of the Small Business Act (15 U.S.C. 638(g)(4)) is amended by
    inserting before the semicolon at the end the following: ``, but a
    final decision on each proposal shall be rendered not later than 90
    days after the date on which the solicitation closes unless the
    Administrator determines, on a case by case basis, that a decision may
    be extended from 90 days to 180 days''.

    SEC. 402. AGENCIES SHOULD FUND VITAL R&D PROJECTS WITH THE POTENTIAL
                        FOR COMMERCIALIZATION.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(ff) Multiple First Phase SBIR Awards Report.--The Administrator
    shall, on an annual basis, submit to the Committee on Small Business
    and the Committee on Science and Technology of the House of
    Representatives and the Committee on Small Business and
    Entrepreneurship of the Senate a list identifying each small business
    concern that, for the period covered by the preceding 5 fiscal years,
    received 15 or more first phase SBIR awards and no second phase SBIR
    awards.''.

    SEC. 403. FEDERAL AGENCY ENGAGEMENT WITH SBIR AWARDEES THAT HAVE BEEN
                        AWARDED MULTIPLE PHASE ONE AWARDS BUT HAVE NOT BEEN
                        AWARDED PHASE TWO AWARDS.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(gg) Requirements Relating to Federal Agency Engagement With
    Certain First Phase SBIR Awardees.--Each Federal agency required by
    this section to conduct an SBIR program shall engage with SBIR awardees
    that have been awarded multiple first phase SBIR awards but have not
    been awarded any second phase SBIR awards and shall develop performance
    measures with respect to awardee progression in the SBIR program.''.

    SEC. 404. FUNDING FOR ADMINISTRATIVE, OVERSIGHT, AND CONTRACT
                        PROCESSING COSTS.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(hh) Assistance for Administrative, Oversight, and Contract
    Processing Costs.--
              ``(1) In general.--From amounts made available to carry out
            this subsection, the Administrator may, on petition by Federal
            agencies required by this section to conduct an SBIR program,
            transfer funds to such agencies to assist with the
            administrative, oversight, and contract processing costs
            relating to such program.
              ``(2) Petitions.--The Administrator shall establish rules for
            making transfers under paragraph (1). The initial set of rules
            shall be promulgated not later than 180 days after the date of
            the enactment of this subsection.
              ``(3) Limit on transfer.--A Federal agency may not receive
            under this subsection in a fiscal year an amount greater than 3
            percent of the SBIR budget of such agency for such fiscal year.
              ``(4) Authorization of appropriations.--There is authorized
            to be appropriated to the Administrator to carry out this
            subsection $27,500,000 for each of fiscal years 2010 and
            2011.''.

    SEC. 405. COMPTROLLER GENERAL AUDIT OF HOW FEDERAL AGENCIES CALCULATE
                        EXTRAMURAL RESEARCH BUDGETS.

      The Comptroller General of the United States shall carry out a
    detailed audit of how Federal agencies calculate extramural research
    budgets for purposes of calculating the size of the agencies' Small
    Business Innovation Research Program and Small Business Technology
    Transfer Program budgets. Not later than 1 year after the date of the
    enactment of this Act, the Comptroller General shall submit to the
    Committee on Small Business and the Committee on Science and Technology
    of the House of Representatives and the Committee on Small Business and
    Entrepreneurship of the Senate a report on the results of the audit.

    SEC. 406. AGENCY DATABASES TO SUPPORT PROGRAM EVALUATION.

      Section 9(k) of the Small Business Act (15 U.S.C. 638(k)) is
    amended--
              (1) in paragraph (2)(A)--
                      (A) by striking ``and'' at the end of clause (ii);
                      (B) by inserting ``and'' at the end of clause (iii);
                    and
                      (C) by adding at the end the following new clause:
                              ``(iv) information on the ownership structure
                            of award recipients, both at the time of
                            receipt of the award and upon completion of the
                            award period;'';
              (2) by amending paragraph (3) to read as follows:
              ``(3) Updating information for database.--
                      ``(A) In general.--A Federal agency shall not make a
                    Phase I or Phase II payment to a small business concern
                    under this section unless the small business concern
                    has provided all information required under this
                    subsection and available at the time with respect to
                    the award under which the payment is made, and with
                    respect to any other award under this section
                    previously received by the small business concern or a
                    predecessor in interest to the small business concern.
                      ``(B) Apportionment.--In complying with this
                    paragraph, a small business concern may apportion sales
                    or additional investment information relating to more
                    than one second phase award among those awards, if it
                    notes the apportionment for each award.
                      ``(C) Annual updates upon termination.--A small
                    business concern receiving an award under this section
                    shall--
                              ``(i) in the case of a second phase award,
                            update information in the databases required
                            under paragraphs (2) and (6) concerning that
                            award at the termination of the award period;
                              ``(ii) in the case of award recipients not
                            described in clause (iii), be requested to
                            voluntarily update such information annually
                            thereafter for a period of 5 years; and
                              ``(iii) in the case of a small business
                            concern applying for a subsequent first phase
                            or second phase award, be required to update
                            such information annually thereafter for a
                            period of 5 years.''; and
              (3) by adding at the end the following new paragraph:
              ``(6) Agency program evaluation databases.--Each Federal
            agency required to establish an SBIR or STTR program under this
            section shall develop and maintain, for the purpose of
            evaluating such programs, a database containing information
            required to be contained in the database under paragraph (2).
            Each such database shall be designed to be accessible to other
            agencies that are required to maintain a database under this
            paragraph. Each such database shall be developed and operated
            in a manner to ensure that each such database is relevant to
            and contributes to the agency's oversight and evaluation of the
            SBIR and STTR programs. Paragraphs (4) and (5) apply to each
            database under this paragraph.''.

    SEC. 407. AGENCY DATABASES TO SUPPORT TECHNOLOGY UTILIZATION.

      Section 9(k) of the Small Business Act (15 U.S.C. 638(k)), as
    amended, is further amended by adding at the end the following new
    paragraph:
              ``(7) Agency databases to support technology utilization.--
            Each Federal agency with an SBIR or STTR program shall create
            and maintain a technology utilization database, which shall be
            available to the public and shall contain data supplied by the
            award recipients specifically to help them attract customers
            for the products and services generated under the SBIR or STTR
            project, and to attract additional investors and business
            partners. Each database created under this paragraph shall
            include information on the other databases created under this
            paragraph by other Federal agencies. Participation in a
            database under this paragraph shall be voluntary, except that
            such participation is required of all award recipients who
            received supplemental payments from SBIR and STTR program funds
            above their initial Phase II award. Each database created under
            this paragraph shall be developed and operated in a manner to
            ensure that each such database is relevant to and contributes
            to the agency's oversight and evaluation of the SBIR and STTR
            programs.''.

    SEC. 408. INTERAGENCY POLICY COMMITTEE.

      (a) Establishment.--The Director of the Office of Science and
    Technology Policy shall establish an Interagency SBIR/STTR Policy
    Committee comprised of one representative from each Federal agency with
    an SBIR program and the Office of Management and Budget.
      (b) Cochairs.--The Director of the Office of Science and Technology
    Policy and the Director of the National Institute of Standards and
    Technology shall jointly chair the Interagency SBIR/STTR Policy
    Committee.
      (c) Duties.--The Interagency SBIR/STTR Policy Committee shall review
    the following issues and make policy recommendations on ways to improve
    program effectiveness and efficiency:
              (1) The public and government databases described in section
            9(k) (1) and (2) of the Small Business Act (15 U.S.C. 638(k)
            (1) and (2)).
              (2) Federal agency flexibility in establishing Phase I and II
            award sizes, and appropriate criteria to exercise such
            flexibility.
              (3) Commercialization assistance best practices in Federal
            agencies with significant potential to be employed by other
            agencies, and the appropriate steps to achieve that leverage,
            as well as proposals for new initiatives to address funding
            gaps business concerns face after Phase II but before
            commercialization.
              (4) Development and incorporation of a standard evaluation
            framework to enable systematic assessment of SBIR and STTR,
            including through improved tracking of awards and outcomes and
            development of performance measures for individual agency
            programs.
      (d) Reports.--The Interagency SBIR/STTR Policy Committee shall
    transmit to the Committee on Science and Technology and the Committee
    on Small Business of the House of Representatives, and to the Committee
    on Small Business and Entrepreneurship of the Senate--
              (1) a report on its review and recommendations under
            subsections (c)(1) and (c)(4) not later than 1 year after the
            date of enactment of this Act;
              (2) a report on its review and recommendations under
            subsection (c)(2) not later than 18 months after the date of
            enactment of this Act; and
              (3) a report on its review and recommendations under
            subsection (c)(3) not later than 2 years after the date of
            enactment of this Act.

    SEC. 409. NATIONAL RESEARCH COUNCIL SBIR STUDY.

      Section 108(d) of the Small Business Reauthorization Act of 2000 (15
    U.S.C. 638 note), enacted into law by reference under section 1(a)(9)
    of the Consolidated Appropriations Act, 2001 (Public Law 106-554), is
    amended--
              (1) by striking ``of the Senate'' and all that follows
            through ``not later than 3'' and inserting ``of the Senate, not
            later than 3''; and
              (2) by striking ``; and'' and all that follows through
            ``update of such report''.

    SEC. 410. EXPRESS AUTHORITY TO ``FAST-TRACK'' PHASE TWO AWARDS FOR
                        PROMISING PHASE ONE RESEARCH.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(ii) Authority To `Fast-Track' Phase Two Awards for Promising Phase
    One Research.--To address the delay between an award for the first
    phase of an SBIR program and the application for and extension of an
    award for the second phase of such program, each Federal agency with an
    SBIR program may develop `fast-track' programs to eliminate such delay
    by issuing second phase SBIR awards as soon as practicable, including
    in appropriate cases simultaneously with the issuance of the first
    phase SBIR award. The Administrator shall encourage the development of
    such `fast-track' programs.''.

    SEC. 411. INCREASED SBIR AND STTR AWARD LEVELS.

      (a) SBIR Award Level and Annual Adjustments.--Section 9(j) of the
    Small Business Act (15 U.S.C. 638(j)) is amended by adding at the end
    the following:
      ``(4) Further Additional Modifications.--Not later than 180 days
    after the date of enactment of this paragraph and notwithstanding
    paragraph (2)(D), the Administrator shall modify the policy directives
    issued pursuant to this subsection to provide for an increase to
    $250,000 in the amount of funds which an agency may award in the first
    phase of an SBIR program, and to $2,000,000 in the second phase of an
    SBIR program, and a mandatory annual adjustment of such amounts to
    reflect economic adjustments and programmatic considerations.''.
      (b) STTR Award Level and Annual Adjustments.--Section 9(p)(2)(B)(ix)
    of the Small Business Act (15 U.S.C. 638(p)(2)(B)(ix)) is amended--
              (1) by striking ``$100,000'' and ``$750,000'' and inserting
            ``$250,000'' and ``$2,000,000'', respectively; and
              (2) by striking ``greater or lesser amounts'' and inserting
            ``with a mandatory annual adjustment of such amounts to reflect
            economic adjustments and programmatic considerations, and with
            lesser amounts''.
      (c) Limitation on Certain Awards.--Section 9 of the Small Business
    Act (15 U.S.C. 638), as amended, is further amended by adding at the
    end the following:
      ``(jj) Limitation on Phase I and II Awards.--No Federal agency shall
    issue an award under the SBIR program or the STTR program if the size
    of the award exceeds the amounts established under subsections (j)(4)
    and (p)(2)(B)(ix).''.

    SEC. 412. EXPRESS AUTHORITY FOR AN AGENCY TO AWARD SEQUENTIAL PHASE TWO
                        AWARDS FOR SBIR-FUNDED PROJECTS.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(kk) Requirements Relating to Additional Second Phase SBIR
    Awards.--
              ``(1) In general.--A small business concern that receives a
            second phase SBIR award for a project remains eligible to
            receive additional second phase SBIR awards for such project.
              ``(2) Technical or weapons systems.--Agencies are expressly
            authorized to provide additional second phase SBIR awards for
            testing and evaluation assistance for the insertion of SBIR
            technologies into technical or weapons systems.''.

    SEC. 413. FIRST PHASE REQUIRED.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(ll) First Phase Required.--Under this section, a Federal agency
    shall provide to a small business concern an award for the second phase
    of an SBIR program with respect to a project only if such agency finds
    that the small business concern has been provided an award for the
    first phase of an SBIR program with respect to such project or has
    completed the determinations described in subsection (e)(4)(A) with
    respect to such project despite not having been provided an award for
    the first phase.''.

    SEC. 414. INVOLVEMENT OF CHIEF COUNSEL FOR ADVOCACY.

      Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is
    further amended by adding at the end the following:
      ``(mm) Involvement of Chief Counsel for Advocacy.--The Chief Counsel
    for Advocacy, as described in section 201 of Public Law 94-305 (15
    U.S.C. 634a), and any individual reporting to the Chief Counsel for
    Advocacy, without regard to whether such individual was hired under
    section 204 of Public Law 94-305 (15 U.S.C. 634d), may not provide to
    the Administrator, to any individual who reports directly or indirectly
    to the Administrator, or to any Federal agency any advice, guidance,
    oversight, or review with respect to the programs authorized under this
    section.''.

                       I. Purpose of the Bill and Summary

        The Enhancing Small Business Research and Innovation Act of
    2009 extends through fiscal year 2011 the Federal government's
    largest small business research and development programs. The
    legislation modernizes the Small Business Innovation Research
    (SBIR) and Small Business Technology Transfer (STTR) programs,
    changing the legislative guidelines and policies in order to
    update the program in response to the unique challenges facing
    small research companies and the changing research priorities
    of Federal agencies.
        The Act is aimed at three broad goals. First, the bill
    seeks to encourage greater participation in SBIR. An increase
    in the number of small businesses applying for SBIR is critical
    to the on going success of the program. Second, the bill
    permits small companies that are majority-owned by qualifying
    venture capital firms to participate in the SBIR program. A
    2003 ruling by the Small Business Administration (SBA) has made
    small firms with large investments from venture capital
    companies ineligible to participate in the SBIR program. The
    SBA ruling forces many small businesses to choose between
    accepting investments from venture capital firms and
    participating in the Federal government's largest R&D program
    for small research firms. Third, the bill seeks to encourage
    and support commercialization initiatives at Federal agencies
    that administer SBIR programs. Under current law certain
    Federal agencies have the authority to develop
    commercialization programs. This bill extends to all agencies
    the authority to develop programs designed to support the
    commercialization of SBIR-funded research.
        Additionally, the bill seeks to codify in statute the
    programmatic flexibility that Federal agencies need in order to
    administer SBIR awards in a manner that is most consistent with
    the agency's specific mission. Along with granting to Federal
    agencies a great degree of autonomy, the bill also requires
    Federal agencies to establish more concrete goals and
    objectives with respect to their SBIR programs and directs the
    agencies to provide Congress with more regular reports.

               ENCOURAGING GREATER PARTICIPATION IN SBIR AND STTR

        The Act includes a number of provisions designed to
    encourage more small firms to apply for SBIR and STTR awards.
    The bill more than doubles the size of SBIR and STTR awards for
    Phase I and Phase II grants and establishes a 90-day timeline
    for issuing a final decision on an SBIR application after the
    solicitation is closed.
        The legislation establishes a federal grant program to
    reach out to small firms located in underrepresented areas, and
    that are owned by service-disabled veterans, women, and
    minorities. Under the grant program established by the bill,
    the SBA Administrator is instructed to make competitive grants
    to organizations to conduct outreach efforts to increase
    participation in the SBIR program and provide application
    support and entrepreneurial and business skills support for
    current and prospective participants in the SBIR program. To be
    eligible for these awards, an organization must have the
    written endorsement of the Governor of the State where the
    targeted regions or populations are based. Awards made under
    grant program established by the bill cannot exceed $250,000
    per year and require matching funds from sources other than the
    Federal government.

     permitting small companies that are more than 50%-owned by qualifying
                  venture capital firms to participate in sbir

        The Act includes provisions that establish clear guidelines
    governing the participation of small businesses with
    substantial investment from venture capital operating companies
    in the SBIR program. The provisions will allow a small company
    that is majority-owned by qualifying venture capital firms\1\
    to participate in the SBIR program, so long as the small
    business concerns do not (1) have a single venture capital
    company owning a majority of the concern or (2) have a venture
    capital company controlling a majority of the concern's board
    of director's seats. Safeguards--including limits on corporate-
    backed entities have been incorporated to prevent large
    companies from using the SBIR program at the expense of smaller
    researchers.
    ---------------------------------------------------------------------------
        \1\Small companies majority-owned by a single venture capital firm
    are not be eligible to participate in the SBIR program under the Act.
    ---------------------------------------------------------------------------

      ADVANCING COMMERCIALIZATION OF SBIR-FUNDED RESEARCH AND DEVELOPMENT
                                    PROJECTS

        To support the successful commercialization of SBIR-funded
    research, the Act permits an agency to grant multiple Phase Two
    awards and requires agencies to establish initiatives designed
    to encourage partnerships between SBIR awardees and prime
    contractors, venture capital investment companies and larger
    businesses. The legislation also allows an agency to issue a
    Phase Two award to a qualifying applicant, even if the
    applicant's research proposal had not been awarded a Phase One
    grant.
        The Act defines ``Phase Three'' of the SBIR program and
    requires agencies to establish commercialization programs that
    support the progress of SBIR awardees towards ``Phase Three''
    of the SBIR program. The commercialization programs may include
    activities such as partnerships databases, partnership
    conferences, mentoring initiatives between prime contractors
    and SBIR awardees, SBIR helpdesks and transition assistance
    programs. The legislation authorizes appropriations to the SBA
    funds equal to approximately 1% of the SBIR set-aside. The SBA
    will allocate these funds to agencies to support the
    commercialization programs that they are required to implement.

                        RETAINS PROGRAMMATIC FLEXIBILITY

        The Committee's legislation makes these meaningful changes
    to the SBIR without reducing the programmatic flexibility that
    is a central feature of the SBIR program as it is currently
    administered.

                    II. Background and Need for Legislation

        In 1982, Congress passed the Small Business Innovation
    Development Act which established the SBIR program. The intent
    of the Act was to increase government funding of small,
    innovative companies for the performance of research and
    development with commercial potential. Supporters of the SBIR
    program argued that while small companies were highly
    innovative, such firms were underrepresented in federal R&D
    activities.
        The potential of small companies to be sources of
    significant innovation led Congress to establish the SBIR
    program. From the program's original development, however, SBIR
    has been intended to stimulate technological innovation related
    to each participating agency's goals and mission, use small
    businesses for federal R&D needs and increase private sector
    commercialization of innovations derived from federal R&D
    expenditures. To meet these objectives, the Act required that
    Federal departments with an extramural research budget of $100
    million or more to set aside a small percentage of their
    agency's overall research budget and award technology
    development contracts to small firms. The percentage of R&D
    activities to be conducted by small firms has increased since
    the Act was originally passed and now stands at 2.5 percent.
        Currently, eleven agencies have research budgets large
    enough to require participation in the SBIR program. In 2006,
    Federal agencies awarded more than $2 billion to small research
    firms through the SBIR program. In 2007, the Department of
    Defense alone awarded more than $1 billion to small firms for
    the development of advanced technologies. From the program's
    inception in FY1983 through FY2006, over $20 billion in awards
    have been made for more than 90,000 projects.
        A key element of the SBIR program is that it establishes a
    three-phase development system for participants. During Phase
    One, participating agencies fund a proposed idea to determine
    if it has scientific and technical merit and is feasible.
    Projects that demonstrate potential after the initial endeavor
    can compete for Phase Two awards (lasting one to two years) to
    perform the principal R&D. Generally, Phase One and Phase Two
    awards may not exceed $100,000 and $750,000, respectively. A
    third phase of the program, aimed at the commercialization of a
    product or process developed in the earlier phases, is intended
    to be funded by the private sector.
        Since SBIR's inception in 1983, the program has been the
    focus of numerous studies, assessments and evaluations. The
    Government Accountability Office (GAO) has issued a series of
    reports on the implementation of the Small Business Development
    Act. The National Academies of Science completed a
    comprehensive three-year evaluation of the SBIR program in
    2007. Additionally, participating federal agencies have also
    provided assessments of their agency's SBIR program.

                  INDEPENDENT EVALUATIONS OF THE SBIR PROGRAM

        The Small Business Innovation Development Act directed the
    GAO to assess the implementation of the Act. GAO has issued at
    least nine reports documenting its findings. A 1987 study found
    that both the evaluation and selection processes were
    sufficient to ``reasonably'' ensure awards were based on
    technical merit. In 1989, GAO reported that agency heads found
    the SBIR effort to be beneficial and met the organization's R&D
    needs. A GAO report issued in May 1992 noted that almost two-
    thirds of the projects already had sales or received additional
    funding (primarily from the private sector) totaling
    approximately $1.1 billion. Another GAO study, released in
    April 1998, noted that between 35% and 50% of SBIR projects had
    resulted in sales or additional private sector investment. A
    more recent report by GAO in June 2005 found that the effort
    appears to be achieving its goal of ``enhanced'' participation
    of small business in the R&D enterprise.
        As part of the reauthorization of the SBIR program in 2000,
    Congress directed the National Research Council (NRC) of the
    National Academies to ``conduct a comprehensive study of how
    the SBIR program has stimulated technological innovation and
    used small businesses to meet Federal research and development
    needs'' and to make recommendations with respect to the SBIR
    program. After more than 3 years of research and analysis, the
    NRC study released its assessment of the SBIR program as
    administered by the five federal agencies that together make up
    some 96 percent of SBIR program expenditures in July 2007.\2\
    ---------------------------------------------------------------------------
        \2\The agencies examined by the NRC study, in order of program
    size, are the Department of Defense, the National Institutes of Health,
    the National Aeronautics and Space Administration, the Department of
    Energy, and the National Science Foundation.
    ---------------------------------------------------------------------------
        The core finding of the study is that the SBIR program is
    sound in concept and effective in practice. In support of the
    report's core finding, the NRC concludes that the SBIR program
    is: (1) stimulating technological innovations, (2) increasing
    private sector commercialization of innovations, (3) using
    small business to meet federal research and development needs
    and (4) providing widely distributed support for innovation
    activity.

     2009 NRC REPORT ON VENTURE CAPITAL FUNDING IN THE NATIONAL INSTITUTES
                                OF HEALTH (NIH)

        A recent NRC report on the venture capital prohibition in
    the SBIR program found that the impact of the 2003 ruling falls
    disproportionately on the most promising firms i.e., those
    firms that have repeatedly been selected by both NIH for their
    promising technologies and by venture investors for their
    commercial potential.\3\
    ---------------------------------------------------------------------------
        \3\Venture Funding and the NIH SBIR Program, National Research
    Council of the National Academies of Science, May 2009.
    ---------------------------------------------------------------------------
        While the report does site a percentage of venture-backed
    firms likely excluded from the SBIR program (4.1 percent to
    11.9 percent), it qualifies this by stating that there is a
    downward bias--this means the percentage excluded is likely
    higher.\4\ This is due to the fact that venture capital
    investment smaller firms considered by the study (1) was just
    beginning in the 1990s and (2) has matured dramatically in the
    last five years to favor investment in commercially viable
    technologies and therapies. The result is that the level of
    exclusion is likely much higher that the report states.
    ---------------------------------------------------------------------------
        \4\Ibid.
    ---------------------------------------------------------------------------
        The report concludes that restricting access to SBIR
    funding for firms that benefit from venture investments would
    thus appear to disproportionately affect some of the most
    commercially promising small innovative firms. To this extent,
    the SBA ruling has the potential to diminish the positive
    impact of the nation's investments in research and development
    in the biomedical area.\5\
    ---------------------------------------------------------------------------
        \5\Ibid.
    ---------------------------------------------------------------------------
        The NRC states that by selecting out some of the most
    commercially promising innovative small firms, the SBA
    directive appears to limit opportunities to exploit the
    nation's substantial investments in research at NIH. This is
    contrary to one of the four key goals of the SBIR program,
    which is the commercialization of federal research. The
    implementation of the SBA ruling appears to be negatively
    affecting current participation by firms and the long-term
    commercialization potential of the NIH SBIR program.\6\
    ---------------------------------------------------------------------------
        \6\Ibid.
    ---------------------------------------------------------------------------

             The Need to Reauthorize and Modernize the SBIR Program

        The SBIR program has been reauthorized three times since
    its enactment, first in 1986 and subsequently in 1992 and 2000.
    The latest authorization was set to expire on September 30,
    2008 but was temporarily extended by the SBA through March 20,
    2009, and again extended by a continuing resolution passed by
    the House and Senate. Under the current extension, SBIR will
    expire on July 31, 2009. The STTR program was last reauthorized
    in 2001 and is scheduled to sunset on September 30, 2009.
        The positive evaluations of the SBIR program issued by
    independent research organizations and testimony presented to
    the Committee on Small Business during the 110th Congress and
    111th Congress in support of SBIR and STTR create the basis of
    support for H.R. 2965. Small firms, federal agencies, patient
    organizations, economic development organizations and academics
    have testified in strong support of reauthorization of the SBIR
    and STTR programs.
        During the eight years that have elapsed since Congress
    last passed legislation extending and modernizing the SBIR
    program, our country's R&D priorities and the role of small
    innovative companies in the U.S. economy have changed. The
    manner in which the participating federal agencies administer
    their SBIR programs has also changed over the last eight years.
    Reflective of these changes, participating small firms,
    participating federal agencies, research organizations and
    other interested parties support modernizing the SBIR program.
    Specifically, expert witnesses have testified that legislation
    is necessary in order to make the following important changes
    to SBIR program.

     EXPAND COMMERCIALIZATION OPPORTUNITIES FOR SBIR AND STTR R&D PROJECTS

        Witnesses have testified before the Committee that small
    businesses face serious challenges in commercializing their
    research following Phases I and II. Many potential partners and
    investors require that a product achieve a certain degree of
    technological readiness before they are willing to support or
    invest in a given product's later stage development. This is
    described as the ``valley of death,'' where promising research
    is derailed because the small business does not have the
    funding required to develop the product to the requisite
    technological readiness. Witnesses have described how SBIR- and
    STTR-funded projects can stall or fail at the end of a Phase II
    award due to a lack of available funding to continue developing
    the product to the desired specifications.
        In order to address the ``valley of death,'' several
    federal agencies have developed initiatives within their SBIR
    programs that offer commercialization support to SBIR awardees.
    These initiatives include business planning assistance,
    business-to-business mentoring, manufacturing assistance,
    technology transition assistance, partnership assistance and/or
    additional funding. Although these initiatives are only a few
    years old, early anecdotal data from these agencies suggest
    that the programs are increasing commercialization of SBIR-
    funded research and development projects.

         PERMIT VENTURE-BACKED FIRMS TO PARTICIPATE IN THE SBIR PROGRAM

        To qualify for SBIR awards, small firms must affirm that
    they meet certain ownership criteria, such as being 51 percent
    or more owned by individuals who are U.S. citizens or permanent
    resident aliens. In 2003, an SBA administrative law judge
    issued a decision that venture capital firms could not be
    considered ``individuals'' for the purpose of satisfying the
    ownership criteria of the SBIR program. As a result, a number
    of firms that are majority-owned by venture capital firms that
    had once been eligible to participate (or did, in fact
    participate) in the SBIR program before the 2003 ruling are no
    longer eligible. Small venture-backed companies that have been
    ruled ineligible for SBIR are unable to secure necessary
    funding to conduct important research activities.
        The ruling created confusion among program participants and
    has led some firms to steer away from the program. Since 2003,
    NIH reports that SBIR applications have been decreasing and
    awards to new applicants are also decreasing. In FY 2006, only
    about one-forth of the awardees were new to the program--the
    lowest proportion in a decade. Many of the small research
    companies that are rendered ineligible by the SBA's 2003 ruling
    have fewer than 100 employees and--in the case of small
    biotechnology companies--no revenue.
        Legislation is needed so that small firms with significant
    venture capital investment can compete for and win SBIR awards.
    However, legislation should also prohibit small firms from
    receiving and competing for SBIR awards if either: (1) a single
    venture capital company owns a majority of the small firm or
    (2) a single venture capital company controls a majority of the
    concern's board of director's seats.

          INCREASE OUTREACH TO RURAL AREAS AND UNDERSERVED POPULATIONS

        Effective outreach to small firms owned and controlled by
    women, veterans and minorities and to businesses located in
    areas that are underrepresented in the SBIR and STTR programs
    is a continuing challenge for the programs. Some state economic
    development offices run effective application support and
    entrepreneurial and business skills support for current and
    prospective participants in the programs while other states
    offer no such support. Federal agencies report that, despite
    their outreach efforts, they struggle to receive applications
    from underrepresented populations.
        The SBIR reauthorization legislation that Congress passed
    during the 106th Congress included the authorization for
    funding of a ``Federal and State Technology Partnership
    Program'' (FAST). FAST was designed to promote awards in states
    that do not have a high volume of SBIR awards, and in low-
    income areas of all states. Before authorization for the
    program expired in 2005, between 2002 and 2005 the SBA was able
    to make grants to organizations to support the development of
    SBIR proposals.

                  RESOURCES FOR SBIR MANAGEMENT AND EVALUATION

        Under current law, participating federal agencies are
    prohibited from using any of the 2.5 percent SBIR set-aside to
    fund the program's administrative costs, including costs
    associated with salaries and expenses. Authorizing agencies to
    separately fund operating expenses may enhance SBIR program
    utilization, management and evaluation. Federal agencies that
    set aside special funds to pay for SBIR management expenses
    have asserted that they have more effective programs than
    agencies that do not set aside special funds for administration
    of the program. Proposals have also called for databases to
    collect relevant information on project outcomes and milestones
    to provide greater transparency to the programs for both the
    government and the private sector.

              INCREASE AWARD SIZE AND SIMPLIFY APPLICATION PROCESS

        The SBIR application process should be reviewed to ensure
    that it is not overly burdensome and that firms receive a
    timely decision. Witnesses have also recommended that the size
    of SBIR awards be increased. The award levels set out in the
    legislation have not increased since 1992 and the value of the
    awards has been eroded by inflation. Simplifying the
    application process and increasing the award levels would,
    according to witness testimony, increase the competition for
    SBIR awards and ultimately result in a more effective program.
    A related issue is a potential cap on the dollar amount that an
    SBIR agency can award a grantee. Under SBA's existing policy
    directive, the agencies are able to grant awards that exceed
    the guidance provided in legislation. Representatives of
    Federal agencies that administer the SBIR program have
    testified that an inflexible cap on SBIR awards dollar amounts
    would undermine programs that have successfully helped small
    firms commercialize SBIR-funded research and development.

                                 III. Hearings

        In the 111th Congress, the Committee on Small Business held
    three hearings on the SBIR and STTR programs and related
    legislation. On June 17, 2009, the Committee convened a hearing
    entitled ``Legislative Initiatives to Strengthen and Modernize
    the SBIR and STTR Programs.'' Testimony was taken from a wide
    range of small businesses that use these programs in the
    defense, health care, and energy arenas. This hearing followed
    a previous full Committee hearing on April 22, 2009, which
    explored issues related to the overall effectiveness of the
    SBIR program and a legislative hearing in the Committee's
    Contracting and Technology Subcommittee on June 4, 2009.
        In the 110th Congress, the Committee on Small Business also
    convened three hearings on the reauthorization of the SBIR
    program. On January 29, 2008, the House Committee on Small
    Business convened a hearing entitled ``SBIR: America's
    Technology Development Incubator.'' The hearing explored the
    numerous contributions that the SBIR program makes to national
    security priorities, economic development objectives and
    America's international economic competitiveness. On February
    13, 2008 the House Committee on Small Business, Subcommittee on
    Investigations and Oversight convened a hearing entitled
    ``SBIR: Advancing Medical Innovations.'' The Subcommittee
    hearing examined the impact of the SBIR program on the
    development of innovative medical technologies, therapies and
    products. On March 13, 2008 the Committee on Small Business
    held a hearing to review a Committee Print of proposed
    legislation that would reauthorize and modernize the SBIR
    program.

                          IV. Committee Consideration

        The Committee on Small Business met in open session on June
    25, 2009 and ordered H.R. 2965 reported, as amended, to the
    House by a recorded vote of 22 yeas to zero nays at 10:55am.
    Four amendments were offered during the markup. Ms. Velazquez
    offered an amendment, which was adopted by voice vote, to
    require the interagency policy committee established in the
    legislation to develop an evaluation framework for the SBIR and
    STTR programs. Mr. Akin offered an amendment, which was adopted
    by voice vote, which would prevent the SBA's Office of Advocacy
    from intervening in matters concerning the SBIR and STTR
    programs. Mr. King offered two amendments. His first amendment,
    which was rejected by voice vote, would have eliminated
    minorities and women from the focus of the legislation's
    outreach program. His second amendment would have prohibited
    SBIR and STTR funds from being directed to certain
    organizations. This amendment was rejected by a recorded vote
    of 9 yeas to 13 nays at 10:49 am.

                               V. Committee Votes

        Clause 3(b) of rule XIII of the Rules of the House of
    Representatives requires the Committee to list the record votes
    on the motion to report legislation and amendments thereto. As
    noted in the comprehensive description of the markup above, two
    recorded votes were conducted. During committee consideration
    of the legislation, an amendment numbered King #2 was offered
    by Mr. King. This amendment was NOT AGREED to by a recorded
    vote of 9 yeas to 13 nays at 10:49 am. A motion by Ms.
    Velazquez to report the bill, as amended, to the House with a
    favorable recommendation was AGREED to by a vote of 22 yeas to
    zero nays at 10:55 am.

                  VI. Section-by-Section Analysis of H.R. 2965

    Sec. 1. Short title

        This provision sets a short title for the Act as ``The
    Enhancing Small Business Research and Innovation Act of 2009.''
        Title 1. Program Extension and Venture Capital Investment

    Sec. 101. Authorization period

        The Small Business Act is amended to extend through FY2011
    the SBIR and STTR programs of the SBA. The Committee believes
    that a two-year authorization period is appropriate given the
    rapid changes in technological evolution and the constantly
    evolving needs on small firms. A biennial authorization
    provides for necessary congressional oversight and program
    evaluation. The Committee believes that programs as valuable as
    SBIR and STTR should be given regular oversight from Congress,
    which is most appropriately conducted through the legislative
    reauthorization process.
        The last SBIR reauthorization bill that Congress passed was
    in 2001 and extended the SBIR program for eight years. The
    length of this authorization did not require Congress to focus
    its attention on this important research and development
    program and allowed years to pass between formal Congressional
    inquiries into the SBIR program's implementation and
    effectiveness.
        It should be noted that Congress is able to reauthorize the
    Department of Defense (DoD), with a budget of nearly a trillion
    dollars (equal to more than 7 percent of GDP), each year. For
    comparison, the SBIR and STTR program's cost is estimated at
    less than $70 million per year. If an agency as complicated as
    DoD, with varied and complex programs, can be reauthorized
    annually, it would seem reasonable that SBIR and STTR could be
    reauthorized biannually.
        The argument that the SBIR and STTR programs should be
    reauthorized for a longer period to give the programs stability
    is weak. Lengthy reauthorization periods serve little purpose
    other than to evade oversight and ultimately reduce the public
    policy nexus for government initiatives. In addition, a program
    like SBIR--which is technology-focused--needs to be continually
    updated to reflect the changing economic realities more
    frequently.
        Finally, the Committee notes that SBIR and STTR funding
    awards are made annually, just as federal contracts are made
    annually. The funding for future awards--much like future
    contracts--is dependent on the agencies budget being funded
    from Congress. Such an annual requirement has not deterred
    small firms from seeking work with the government and has not
    deterred small firms from applying to the SBIR and STTR
    programs.

    Sec. 102. Venture capital investment standards

        This provision permits small businesses with investment
    from venture capital companies to participate in the SBIR and
    STTR program. It reverses a policy that resulted from a 2003
    SBA administrative ruling. This ruling, by an administrative
    law judge of the SBA's Office of Hearing and Appeals, placed a
    restriction on venture capital investment in SBIR awardees. The
    Committee notes that this ruling could have been overturned by
    regulation in the last six years, but the SBA has failed to
    revisit this issue fully. As a result, the Committee has
    incorporated this section into H.R. 2965.
        The Committee believes that the capital structure of a
    small business concern is irrelevant for the purposes of the
    SBIR program. This is supported by the series of hearings
    conducted by the Committee over the last two years and
    independent research. The NRC has found in its May 2009
    research report that small businesses engaged in federal
    research require sufficient sources of external capital to
    successfully commercialize their research.\7\ This is readily
    apparent in the medical and defense industries, but also in
    other fields including transportation and energy. As a result,
    the Committee believes that the overriding policy focus should
    be on enhancing small firms' access to financing--including
    equity investment in the form of venture capital. The Committee
    believes that the recent NRC report provides further
    justification for restoring the SBIR program to its pre-2003
    status when venture capital investment was permitted.
    ---------------------------------------------------------------------------
        \7\For a broader discussion of the May 2009 NRC report please see
    Section II of this Committee Report.
    ---------------------------------------------------------------------------
        The Committee understands that many research companies, in
    particular those that are small, do not possess positive
    revenue streams. This limits the impact on small businesses'
    cash flow and increases their ability to carry out their
    research activities. Such realities make access to venture
    capital even more critical, as such investment often does not
    require immediate repayment. The Committee also recognizes that
    Congress has placed significant weight on small SBIR firms'
    ability to secure non-federal private funding. This emphasis is
    clearly apparent in section 9(e)(4)(B)(ii) and 9(e)(4)(C)(i) of
    the Small Business Act and suggests that reopening sources of
    external financing such as venture capital is aligned with
    Congress' original intent in establishing the SBIR program.
        To accomplish this, the section specifies that portfolio
    companies of venture capital companies are not affiliated with
    the venture capital company itself or other portfolio companies
    of the same venture capital company for the purposes of the
    SBIR and STTR program. This treatment for affiliation is
    sensible for the venture capital industry as employees of one
    portfolio company do not regularly provide uncompensated
    services for, nor are they regularly dually employed by, other
    portfolio companies. In fact, it is not uncommon for portfolio
    companies of the same venture capital company to be in the same
    industry sector as other portfolio companies and even compete
    with one another. As a result, the Committee believes that
    small business concerns with venture capital investment should
    not have employees from other portfolio companies of the same
    venture capital company counted as its own employees.
        In addition, this provision deems a small business concern
    with venture capital investment to be independently owned and
    operated. The nature of venture capital is to provide
    investment capital and not day-to-day management and control of
    a business. Venture capital investors seek financial profits--
    not outright operational control. The Committee finds no
    evidence that venture capital companies are investing in small
    business concerns solely to access SBIR funds. Rather it finds
    that they are seeking to benefit as an investor in the
    underlying research, which has the effect of contributing to
    the success of the small business. Often a venture capital
    company divests itself within seven years of its initial
    investment. As a result, the Committee believes that treating
    SBIR-eligible small business concerns with venture capital
    investment as independently owned and operated is appropriate.
        In both dealing with the affiliation standard and the
    independently owned and operated standard, the legislation is
    limited to small business concerns that: 1) do have a single
    venture capital company owning a majority of the concern and 2)
    do not have a venture capital company controlling a majority of
    the concern's board of director's seats. This ensures that
    while a majority of a small business concern may be owned by
    venture capital companies, no single venture capital company
    can own a majority or control its operations via the board of
    directors.
        The legislation defines venture capital company for the
    purposes of this Act, including requiring that such entity have
    less than 500 employees and be domiciled in the United States.
    It also prevents the venture capital operating company from
    being controlled by a business that is not a small business
    concern. The Committee does not believe a cap of any size is
    appropriate and that such a restraint would create massive
    administrative problems within SBIR agencies and does not
    recognize the recent evolution of capital markets. Such
    constraints serve only to impair the underpinnings of a market-
    based economy and would impair the free flow of capital to
    small businesses. Such federal government intervention in the
    capital markets and such regulation of financial transactions
    is inconsistent with the needs of small firms participating in
    the SBIR program.
        Finally, the legislation clarifies the role that corporate-
    owned venture capital companies can play when investing in SBIR
    eligible companies. Under current law, corporate-owned venture
    capital companies can invest in SBIR eligible companies, so
    long as they do constitute a majority ownership share of the
    small business concern. This section specifies that an SBIR
    company can only have investment from two such corporate-owned
    venture capital companies and that together they can only own
    up to 20 percent of the SBIR eligible concern.

              TITLE II. COMMERCIALIZATION AND RESEARCH PRIORITIES

    Sec. 201. Focus on Commercialization

        The Committee intends this section to place emphasis on
    applied research in the SBIR and the STTR programs. Taxpayer
    funds used for these initiatives are meant to go toward
    research that can be readily commercialized, not basic research
    which is the purview of the universities and the recipient of
    the lion's share (97.5 percent) of federal extramural research
    budgets. The provision amends section 9 to modify the purpose
    and policy of the SBIR and STTR programs as follows:
        ``It is further the policy of Congress that the programs
    established in this section should focus on promoting research
    and development of projects governed by commercial business
    plans, which have significant potential to produce products or
    services for the marketplace or for acquisition by Federal
    agencies.''

    Sec. 202. Rare Disease and Energy-related Research Focus and Priorities

        In issuing research SBIR solicitations, this section
    requires agencies to give special consideration to topics
    contained in the report of the National Institutes of Health,
    in the annual report on the rare diseases research activities
    of the National Institutes of Health for fiscal year 2005, and
    in subsequent reports issued by the National Institutes of
    Health on rare diseases research activities. In addition, this
    section requires agencies to give special consideration to
    topics contained in the report of the National Academy of
    Sciences, in the final report issued by the `America's Energy
    Future: Technology Opportunities, Risks, and Tradeoffs'
    project, and in subsequent reports issued by the National
    Academy of Sciences on sustainability, energy, and alternative
    fuels.
        The intention of this section is to expand the number of
    research activities into rare-disease research and energy-
    related research. The Committee expects federal agencies to
    increase SBIR solicitations in these areas and increase awards
    for meritorious proposals responding to such solicitations.

    Sec. 203. Nanotechnology Research Focus and Priority

        In issuing research SBIR and STTR solicitations, this
    section requires agencies to give special consideration to
    topics contained in the national nanotechnology strategic plan
    required under section 2(c)(4) of the 21st Century
    Nanotechnology Research and Development Act (15 U.S.C.
    7501(c)(4)) and in subsequent reports issued by the National
    Science and Technology Council Committee on Technology,
    focusing on areas of nanotechnology identified in such plan.
        The Committee intends that such designation will increase
    the likelihood of federal SBIR agencies issuing research
    solicitations in this area.

    Sec. 204. Definition of Phase Three

        This section revises the definition of ``Phase Three'' of
    the SBIR program so that it is clear that such work shall be
    directed toward commercial applications and derives from
    research and development completed in earlier phases.
        The purpose of the provision is to identify metrics that
    Federal agencies can use to measure how many of the Phase Two
    projects they fund have successfully reached Phase Three of the
    SBIR program. The Committee expects that a definition of
    ``Phase Three'' of the SBIR program will provide a basis for
    agencies to set goals for successful commercialization of SBIR-
    funded research.

    Sec. 205. Agency research goals

        This provision requires that agencies must establish annual
    goals associated with (1) the percentage of SBIR projects that
    receive Phase Three funds, (2) the percentage of SBIR projects
    that are integrated into a program of record and (3) the amount
    of non-SBIR federal dollars received by SBIR projects through
    Federal contracts. The Committee expects that each Federal
    agency that awards annually $5,000,000,000 or more in
    procurement contracts shall submit to Congress annual goals for
    commercialization and data on the extent to which the goals
    were met. The Committee expects that the report that agencies
    make to Congress will include a description of the methodology
    used to collect the data.

    Sec. 206. SBIR commercialization program

        This section requires that agencies establish efforts
    designed to support SBIR-funded research projects in their
    transition to Phase Three. This provision also authorizes an
    annual appropriation to the SBA of $27,500,000 for such
    purposes of carrying out this program.
        The Committee intends that Federal agencies will develop
    commercialization programs, and in doing so, will consider
    initiatives such as partnership databases, partnership
    conferences, multiple Phase Twos, mentoring between Primes and
    SBIR, multiple Phase Two with matching private investment
    requirements, jumbo awards, SBIR Helpdesks, and Transition
    Assistance Programs. The Committee intends for the agencies to
    petition the SBA in order to receive funds to pay for the
    administration of programs designed to help SBIR-funded
    research projects transition to Phase Three.
        The Committee expects that, not later that 90 days after
    the date of enactment of this section, the Administrator of the
    SBA will develop and establish rules for making transfer to
    agencies that have developed or are developing SBIR
    commercialization programs.

                      TITLE III. OUTREACH AND PARTNERSHIPS

    Sec. 301. Outreach and support activities

        The provisions will establish an annual competitive grant
    program where organizations in all fifty states may submit
    proposals to conduct SBIR outreach efforts and/or application
    support and business skills development efforts directed at
    small businesses in underrepresented states and regions, women-
    , service-disabled veterans- and minority-owned small
    businesses. The provisions are intended to increase the number
    of small firms applying for awards, increase the number of
    small companies owned and controlled by women and minorities
    that apply for SBIR awards, and encourage economic development
    organizations to develop effective programs to increase the
    size of the SBIR economy in their State.
        The Committee expects that, not later than 90 days after
    the date of enactment of this subsection, the SBA Administrator
    will establish an Advisory Board for this program. The Board
    will develop guidelines for the administration of the program
    that are consistent with the statutory direction provided in
    this section. The Committee expects that the Advisory Board
    will serve as stewards of the program and will submit an annual
    report to Congress on the effectiveness and impact of the
    program.

    Sec. 302. Rural preference

        This section requires agencies to give a preference to SBIR
    and STTR award applications submitted by small businesses
    located in rural areas. The Committee notes that the language
    is written to give a priority for applications, not awards, and
    it meant generally to give an emphasis--not a binding
    requirement--to agencies for rural applicants. In addition, the
    Committee recognizes that there are several statutory
    definitions of ``rural.'' The Committee's intent is that the
    SBA, when implementing this provision, select a narrower
    definition of the term ``rural.'' This would focus the
    initiative on those areas most in need of assistance while, in
    turn, would not likely have a significant effect on the number
    of SBIR and STTR applications or award determinations.
        Further, it is not the Committee's intent that this
    provision is used by agencies to exclude meritorious research
    proposals from non-rural areas. The Committee expects the SBA
    to issue a rulemaking for notice and comment in this area and
    solicit a broad range of feedback from the SBIR and STTR
    community before implementing this provision.

    Sec. 303. Privacy and applicants consent required

        The section directs Federal agencies to enable SBIR
    applicants to permit the Federal agency to identify the
    applicant to appropriate local and state-level economic
    development organizations and release the concern's contact
    information to such organizations. The Committee expects that
    Federal agencies will make necessary changes to the SBIR
    applications forms in order to comply with the requirements of
    this section. The Committee also expects that Federal agencies
    will respond to the data requests from appropriate local and
    State-level economic organizations and provide the data in a
    timely manner.

    Sec. 304. Partnering

        This section directs each agency to establish initiatives
    to encourage partnerships between SBIR awardees and prime
    contractors, venture capital investment companies, business
    incubators, and larger businesses in order to facilitate the
    progression of SBIR awardees to Phase Three. The SBA
    Administrator shall establish by regulation protections so that
    small firms retain a substantial benefit from any joint venture
    that results from this section. In addition, the Administrator
    shall establish by regulation joint venture size standards and
    affiliations requirements for this section

                      TITLE IV. SBIR AND STTR ENHANCEMENT

    Sec. 401. Research solicitations

        The intension of the section is to ensure that each agency
    issues at least two rounds of SBIR research solicitations each
    year. A single, annual solicitation forces many small firms to
    wait a year or more to have their SBIR application(s)
    evaluated. The Committee is concerned that the length of this
    delay can discourage potential applicants. The Committee also
    intends that agencies include acquisition personnel and
    executives in the development of the SBIR topics to ensure that
    SBIR topics are truly addressing future procurement needs.
        The section also directs Federal agencies to render a final
    decision on each proposal 90 days after the date a solicitation
    closes. A clear timeline will allow applicants to better
    forecast and prepare for receipt of potential SBIR awards.
    Recognizing that the agencies will not be able to meet with
    this directive in all cases, the section provides the agencies
    with the authority to extend the 90-day deadline to a 180-day
    deadline on a case-by-case basis.

    Sec. 402. Phase One reporting requirements

        This section requires the SBA to submit to Congress the
    firms that have received 15 or more Phase One awards and zero
    Phase Two awards in the previous five-year period. Given the
    statutory emphasis on commercialization, the intention of the
    provision is to ensure that the Congress have access to data
    about SBIR awardees that have received a large number of Phase
    One grants and have not received a Phase Two award.

    Sec. 403. Phase One performance measures

        This provision requires each agency to engage with SBIR
    awardees that have been awarded multiple Phase One awards but
    no Phase Two awards, and to develop performance metrics to
    measure awardee progress in the SBIR program.
        The Committee expects that the Administrator of the SBA
    shall ``develop quality metrics that can assist agencies in
    developing standards to limit the perceived effect of so-called
    `SBIR Mills'.''\8\ The Committee further expects that the SBA
    will incorporate these metrics into the SBIR policy directives.
    ---------------------------------------------------------------------------
        \8\From the statement of Administrator Steven C. Preston delivered
    to the House Committee on Small Business on March 13, 2008.
    ---------------------------------------------------------------------------

    Sec. 404. SBIR Agency Administration and Oversight

        This section authorizes funding at SBA for administrative,
    oversight, and contract-processing costs related to SBIR. This
    authority allows the SBIR program offices in each of the
    Federal SBIR/STTR agencies to withdraw funds from this account
    at SBA that is equal up to 3 percent of their respective
    agencies total SBIR set-aside. The Committee intends that these
    funds are used to strengthen management of the SBIR and STTR
    programs, increase the progress of companies in these
    initiatives, enhance oversight, and result in more SBIR/STTR
    funded research being incorporated into agency procurement
    actions.

    Sec. 405. Extramural Budget

        This provision is intended improve accountability of the
    way Federal agencies determine what is ``extramural'' and what
    is ``intramural''. The Committee is not aware of the existence
    of independent audits that confirm that the agencies are
    performing these calculations correctly. A GAO report analyzing
    this issue will provide more transparency to these
    calculations.

    Sec. 406. Outcomes database

        This section requires SBIR and STTR small business
    participants to provide updated project information for
    purposes of updating agency databases which evaluate the
    outcome of Phase One and Two awards; and participating agencies
    to develop and maintain such databases. This shall include
    milestones where appropriate.
        The intention of the section is to increase the data that
    Federal agencies collect about the small business concerns that
    participate in the SBIR and STTR programs and to require that
    Federal agencies develop a database for the purpose of program
    evaluation.

    Sec. 407. Databases to support technology utilization

        This provision requires each agency to create and maintain
    a technology utilization database, available to the public,
    containing data supplied by award recipients. The purpose of
    this section is to enhance outreach to attract investors and
    potential business partners to the small companies that are
    participating in SBIR.

    Sec. 408. Interagency policy committee and reports

        The purpose of this section is to establish an Interagency
    SBIR/STTR Policy Committee that will examine the programmatic
    challenges facing all agencies administering SBIR/STTR programs
    and develop recommendations on ways to improve program
    effectiveness and efficiency. In addition, the Interagency
    Policy Committee will make recommendations to the SBA regarding
    a process to systematically evaluate the SBIR and STTR program.
    This Interagency Policy Committee will act solely in an
    advisory capacity to the Congress and the SBA and will not have
    any formal authority to implement or enact policy directives
    regarding the SBIR and STTR programs. The Committee will report
    to Congress twelve months, eighteen months and twenty-fours
    months after the date of enactment of this section on its
    progress.

    Sec. 409. NRC SBIR study

        This section removes the authorization established in the
    Small Business Reauthorization Act of 2000 that the NRC provide
    an updated report on the SBIR program.

    Sec. 410. Fast track authority

        A funding gap of 6 to 12 months (which is the timeframe
    that often separates a Phase One and Phase Two grant) can
    derail a small company's ability to continue its research. To
    address this issue, the Committee provided authority to
    agencies to issue Phase Two awards on a timeline that best
    supports the development of promising research and
    technologies. The Committee intends agencies to issue Phase Two
    SBIR awards to promising Phase One awardees as soon as is
    practicable, including in appropriate cases simultaneously with
    the issuance of the Phase One award.

    Sec. 411. Award size increase and authority to exceed awards levels

        Since 1992, the statutory prescriptions for SBIR award
    amounts have remained unchanged at $100,000 for a Phase One
    award and $750,000 for a Phase Two award. The Section increases
    the award levels to $250,000 for Phase One and $2 million for
    Phase Two for both the SBIR and STTR programs. The increase,
    which is greater than a simple indexing for inflation, is
    intended to encourage more small firms to apply for the awards.
    The amount designated by the Committee also recognizes the high
    costs associated with the development of valuable new
    technologies and therapies.
        The section is silent on whether or not federal agencies
    can exceed the award levels that are prescribed in the
    legislation. However, the Committee does not intend such
    silence to prevent agencies from exercising their independent
    judgment regarding awards in excess of the stated award sizes.
    The Committee recognizes that Federal agencies that previously
    exceeded the proscribed award levels are funding research at
    the level necessary to accomplish the Agencies' goals and
    supporting commercialization of promising research. As such,
    the Committee does not seek to end this practice of permitting
    participating agencies to exceed the proscribed award levels.

    Sec. 412. Multiple Phase Two awards

        The section permits the issuance of multiple Phase Two
    awards, including for purposes related to military technology
    and weapons systems. The Committee provides federal agencies
    with this explicit authority with the intention that agencies
    will issue multiple Phase II awards in order to ensure that a
    greater number of SBIR research projects cross the so-called
    ``valley of death''.

    Sec. 413. First Phase required

        The Committee intends this section to limit companies'
    ability to evade Phase One. An exception is granted, however,
    for companies that can demonstrate to agency SBIR proposal
    evaluators that the company has completed phase one work. The
    Committee believes that this is a reasonable way to balance the
    hypothesis testing conducted in Phase One, with the realities
    that some small firms may have progressed passed this stage
    through other means.

    Sec. 414. Involvement of Chief Counsel for Advocacy

        This section provides that the Chief Counsel of SBA's
    Office of Advocacy or any other reporting to the Chief Counsel
    may not provide advice, guidance, oversight, or review to any
    agency participating in the SBIR or STTR programs. The
    Committee intends such provision to limit any involvement by
    the Office of Advocacy in the operation of or policy decisions
    pertaining to the SBIR and STTR programs.

                 VII. Congressional Budget Office Cost Estimate

        The legislation is currently under review by CBO and the
    Committee expects that an estimate will be completed and as
    such made part of the Congressional Record prior to
    consideration of the legislation by the House.

                       VIII. Committee Estimate of Costs

        Clause 3(d)(2) of rule XIII of the Rules of the House of
    Representatives requires an estimate and a comparison by the
    Committee of the costs that would be incurred in carrying out
    H.R. 2965. The legislation is under review by CBO and an
    estimate will be made part of the Congressional Record prior to
    consideration of the legislation by the House. Based on
    estimates provide by CBO for H.R. 5819, as reported by the
    Committee on Small Business in the 110th Congress and further
    analysis by Committee staff, the Committee estimates that the
    bill could cost $142 million over the two year authorization.
    The Committee notes two major changes regarding cost between
    H.R. 5819 and H.R. 2965. First, H.R. 2965 does not increase the
    SBIR and STTR set-aside, which H.R. 5819 did and CBO estimated
    cost $29 million over the five-year budget period. Second, H.R.
    2965 includes a management program that will reimburse agencies
    for their expenses associated with operating the SBIR and STTR
    programs. The Committee assumes that this initiative will
    generally negate agencies direct expenses of operating the
    programs, which CBO estimated at $111 million over the five-
    year budget period. As such, the committee estimates the cost
    of H.R. 2965 would be $260.5 million over the 2010-2014 period,
    subject to appropriation of the specified and necessary
    amounts. In addition, based on prior CBO analysis and current
    staff review, the Committee does not believe that H.R. 2965
    would affect direct spending or revenue.

                             IX. Oversight Findings

        In accordance with 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. 2965 are incorporated
    into the descriptive portions of this report.

                    X. Statement of Constitutional Authority

        Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
    House of Representatives, the Committee finds the authority for
    this legislation in Article I, Section 8, clause 18, of the
    Constitution of the United States.

                      XI. Compliance with Public Law 104-4

        H.R. 2965 contains no unfunded mandates.

                     XII. Congressional Accountability Act

        H.R. 2965 does not relate to the terms and conditions of
    employment or access to public services or accommodations with
    the meaning of section 102(b)(3) of P.L. 104-1.

                   XIII. Federal Advisory Committee Statement

        This legislation does not establish or authorize the
    establishment of any new advisory committees.

                         XIV. Statement of No Earmarks

        Pursuant to clause 9 of rule XXI, H.R. 2965 does not
    contain any congressional earmarks, limited tax benefits, or
    limited tariff benefits as defined in clause 9(d), 9(e), or
    9(f) of Rule XXI.

                      XV. Performance Goals and Objectives

        Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
    House of Representatives, the Committee establishes the
    following performance related goals and objectives for this
    legislation:
        H.R. 2965 includes a number of provisions designed to
    modernize and make more effective the SBIR and STTR programs.

           XVI. Changes in Existing Law Made by the Bill, as Reported

      In compliance with clause 3(e) 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):

    SMALL BUSINESS ACT

               *       *       *       *       *       *       *

      Sec. 9. (a) Research and development are major factors in the
    growth and progress of industry and the national economy. The
    expense of carrying on research and development programs is
    beyond the means of many small-business concerns, and such
    concerns are handicapped in obtaining the benefits of research
    and development programs conducted at Government expense. These
    small-business concerns are thereby placed at a competitive
    disadvantage. This weakens the competitive free enterprise
    system and prevents the orderly development of the national
    economy. Is is the policy of the Congress that assistance be
    given to small-business concerns to enable them to undertake
    and to obtain the benefits of research and development in order
    to maintain and strengthen the competitive free enterprise
    system and the national economy. It is further the policy of
    Congress that the programs established in this section should
    focus on promoting research and development of projects
    governed by commercial business plans, which have significant
    potential to produce products or services for the marketplace
    or for acquisition by Federal agencies.

               *       *       *       *       *       *       *

      (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) * * *

               *       *       *       *       *       *       *

                      (C) where appropriate, a third phase, which
                    shall consist of work that derives from,
                    extends, or logically concludes efforts
                    performed under prior SBIR funding agreements
                    (which may be referred to as ``Phase III'')--
                              (i)  * * *

               *       *       *       *       *       *       *

              (8) the term ``research institution'' means a
            nonprofit institution, as defined in section 4(5) of
            the Stevenson-Wydler Technology Innovation Act of 1980,
            and includes federally funded research and development
            centers, as identified by the National Scientific
            Foundation in accordance with the governmentwide
            Federal Acquisition Regulation issued in accordance
            with section 35(c)(1) of the Office of Federal
            Procurement Policy Act (or any successor regulation
            thereto); [and]
              (9) the term ``commercial applications'' shall not be
            construed to exclude testing and evaluation of
            products, services, or technologies for use in
            technical or weapons systems, and further, awards for
            testing and evaluation of products, services, or
            technologies for use in technical or weapons systems
            may be made in either the second or the third phase of
            the Small Business Innovation Research Program and of
            the Small Business Technology Transfer Program, as
            defined in this subsection [.]; and
              (10) the term ``commercialization'' means the process
            of developing marketable products or services and
            producing and delivering products or services for sale
            (whether by the originating party or by others) to
            government or commercial markets.

               *       *       *       *       *       *       *

      (g) Each Federal agency required by subsection (f) to
    establish a small business innovation research program shall,
    in accordance with this Act and regulations issued hereunder--
              (1) * * *
              (2) issue small business innovation research
            solicitations in accordance with a schedule determined
            cooperatively with the Small Business Administration,
            but not less often than twice per year;
              (3) unilaterally determine research topics within the
            agency's SBIR solicitations, giving special
            consideration to broad research topics and to topics
            that further 1 or more critical technologies or
            pressing research priorities, as identified by--
                      (A) the National Critical Technologies Panel
                    (or its successor) in the 1991 report required
                    under section 603 of the National Science and
                    Technology Policy, Organization, and Priorities
                    Act of 1976, and in subsequent reports issued
                    under that authority; [or]

               *       *       *       *       *       *       *

                      (C) the National Academy of Sciences, in the
                    final report issued by the ``America's Energy
                    Future: Technology Opportunities, Risks, and
                    Tradeoffs'' project, and in subsequent reports
                    issued by the National Academy of Sciences on
                    sustainability, energy, and alternative fuels;
                      (D) the National Institutes of Health, in the
                    annual report on the rare diseases research
                    activities of the National Institutes of Health
                    for fiscal year 2005, and in subsequent reports
                    issued by the National Institutes of Health on
                    rare diseases research activities;
                      (E) the National Academy of Sciences, in the
                    final report issued by the ``Transit Research
                    and Development: Federal Role in the National
                    Program'' project and the ``Transportation
                    Research, Development and Technology Strategic
                    Plan (2006-2010)'' issued by the United States
                    Department of Transportation Research and
                    Innovative Technology Administration, and in
                    subsequent reports issued by the National
                    Academy of Sciences and United States
                    Department of Transportation on transportation
                    and infrastructure; or
                      (F) the national nanotechnology strategic
                    plan required under section 2(c)(4) of the 21st
                    Century Nanotechnology Research and Development
                    Act (15 U.S.C. 7501(c)(4)) and in subsequent
                    reports issued by the National Science and
                    Technology Council Committee on Technology,
                    focusing on areas of nanotechnology identified
                    in such plan;
              (4) unilaterally receive and evaluate proposals
            resulting from SBIR proposals, but a final decision on
            each proposal shall be rendered not later than 90 days
            after the date on which the solicitation closes unless
            the Administrator determines, on a case by case basis,
            that a decision may be extended from 90 days to 180
            days;

               *       *       *       *       *       *       *

      [(h) In addition to the requirements of subsection (f), each
    Federal agency which has a budget for research or research and
    development in excess of $20,000,000 for any fiscal year
    beginning with fiscal year 1983 or subsequent fiscal year shall
    establish goals specifically for funding agreements for
    research or research and development to small business
    concerns, and no goal established under this subsection shall
    be less than the percentage of the agency's research or
    research and development budget expended under funding
    agreements with small business concerns in the immediately
    preceding fiscal year.]
      (h) Agency Research Goals.--
              (1) In general.--In addition to the requirements of
            subsection (f), each Federal agency that is required by
            this section to have an SBIR program and that awards
            annually $5,000,000,000 or more in procurement
            contracts shall, effective for fiscal year 2010 and
            each fiscal year thereafter, establish annual goals for
            commercialization of projects funded by SBIR awards.
              (2) Specific goals.--The goals required by paragraph
            (1) shall include specific goals for each of the
            following:
                      (A) The percentage of SBIR projects that
                    receive funding for the third phase (as defined
                    in subsection (e)(4)(C)).
                      (B) The percentage of SBIR projects that are
                    successfully integrated into a program of
                    record.
                      (C) The amount of Federal dollars received by
                    SBIR projects through Federal contracts, not
                    including dollars received through the SBIR
                    program.
              (3) Submission to committees.--For each fiscal year
            for which goals are required by paragraph (1), the
            agency shall submit to the Committee on Small Business
            and the Committee on Science and Technology of the
            House of Representatives and the Committee on Small
            Business and Entrepreneurship of the Senate--
                      (A) not later than 60 days after the
                    beginning of the fiscal year, the goals; and
                      (B) not later than 90 days after the end of
                    the fiscal year, data on the extent to which
                    the goals were met and a description of the
                    methodology used to collect such data.

               *       *       *       *       *       *       *

      (j)(1)  * * *

               *       *       *       *       *       *       *

      (4) Further Additional Modifications.--Not later than 180
    days after the date of enactment of this paragraph and
    notwithstanding paragraph (2)(D), the Administrator shall
    modify the policy directives issued pursuant to this subsection
    to provide for an increase to $250,000 in the amount of funds
    which an agency may award in the first phase of an SBIR
    program, and to $2,000,000 in the second phase of an SBIR
    program, and a mandatory annual adjustment of such amounts to
    reflect economic adjustments and programmatic considerations.
      (k) Database.--
              (1) * * *
              (2) Government database.--Not later than 180 days
            after the date of the enactment of the Small Business
            Innovation Research Program Reauthorization Act of
            2000, the Administrator, in consultation with Federal
            agencies required to have an SBIR program pursuant to
            subsection (f)(1) or an STTR program pursuant to
            subsection (n)(1), shall develop and maintain a
            database to be used exclusively for SBIR and STTR
            program evaluation that--
                      (A) contains for each second phase award made
                    by a Federal agency--
                              (i) * * *
                              (ii) information collected in
                            accordance with paragraph (3) on
                            additional investment from any source,
                            other than first phase or second phase
                            SBIR or STTR awards, to further the
                            research and development conducted
                            under the award; [and]
                              (iii) any other information received
                            in connection with the award that the
                            Administrator, in conjunction with the
                            SBIR and STTR program managers of
                            Federal agencies, considers relevant
                            and appropriate; and
                              (iv) information on the ownership
                            structure of award recipients, both at
                            the time of receipt of the award and
                            upon completion of the award period;

               *       *       *       *       *       *       *

              [(3) Updating information for database.--
                      [(A) In general.--A small business concern
                    applying for a second phase award under this
                    section shall be required to update information
                    in the database established under this
                    subsection for any prior second phase award
                    received by that small business concern. In
                    complying with this paragraph, a small business
                    concern may apportion sales or additional
                    investment information relating to more than
                    one second phase award among those awards, if
                    it notes the apportionment for each award.
                      [(B) Annual updates upon termination.--A
                    small business concern receiving a second phase
                    award under this section shall--
                              [(i) update information in the
                            database concerning that award at the
                            termination of the award period; and
                              [(ii) be requested to voluntarily
                            update such information annually
                            thereafter for a period of 5 years.]
              (3) Updating information for database.--
                      (A) In general.--A Federal agency shall not
                    make a Phase I or Phase II payment to a small
                    business concern under this section unless the
                    small business concern has provided all
                    information required under this subsection and
                    available at the time with respect to the award
                    under which the payment is made, and with
                    respect to any other award under this section
                    previously received by the small business
                    concern or a predecessor in interest to the
                    small business concern.
                      (B) Apportionment.--In complying with this
                    paragraph, a small business concern may
                    apportion sales or additional investment
                    information relating to more than one second
                    phase award among those awards, if it notes the
                    apportionment for each award.
                      (C) Annual updates upon termination.--A small
                    business concern receiving an award under this
                    section shall--
                              (i) in the case of a second phase
                            award, update information in the
                            databases required under paragraphs (2)
                            and (6) concerning that award at the
                            termination of the award period;
                              (ii) in the case of award recipients
                            not described in clause (iii), be
                            requested to voluntarily update such
                            information annually thereafter for a
                            period of 5 years; and
                              (iii) in the case of a small business
                            concern applying for a subsequent first
                            phase or second phase award, be
                            required to update such information
                            annually thereafter for a period of 5
                            years.

               *       *       *       *       *       *       *

              (6) Agency program evaluation databases.--Each
            Federal agency required to establish an SBIR or STTR
            program under this section shall develop and maintain,
            for the purpose of evaluating such programs, a database
            containing information required to be contained in the
            database under paragraph (2). Each such database shall
            be designed to be accessible to other agencies that are
            required to maintain a database under this paragraph.
            Each such database shall be developed and operated in a
            manner to ensure that each such database is relevant to
            and contributes to the agency's oversight and
            evaluation of the SBIR and STTR programs. Paragraphs
            (4) and (5) apply to each database under this
            paragraph.
              (7) Agency databases to support technology
            utilization.--Each Federal agency with an SBIR or STTR
            program shall create and maintain a technology
            utilization database, which shall be available to the
            public and shall contain data supplied by the award
            recipients specifically to help them attract customers
            for the products and services generated under the SBIR
            or STTR project, and to attract additional investors
            and business partners. Each database created under this
            paragraph shall include information on the other
            databases created under this paragraph by other Federal
            agencies. Participation in a database under this
            paragraph shall be voluntary, except that such
            participation is required of all award recipients who
            received supplemental payments from SBIR and STTR
            program funds above their initial Phase II award. Each
            database created under this paragraph shall be
            developed and operated in a manner to ensure that each
            such database is relevant to and contributes to the
            agency's oversight and evaluation of the SBIR and STTR
            programs.

               *       *       *       *       *       *       *

      (m) Termination.--The authorization to carry out the Small
    Business Innovation Research Program established under this
    section shall terminate on September 30, [2008] 2011.
      (n) Required Expenditures for STTR by Federal Agencies.--
              (1) Required expenditure amounts.--
                      (A) In general.--With respect to each fiscal
                    year through fiscal year [2009] 2011, each
                    Federal agency that has an extramural budget
                    for research, or research and development, in
                    excess of $1,000,000,000 for that fiscal year,
                    shall expend with small business concerns not
                    less than the percentage of that extramural
                    budget specified in subparagraph (B),
                    specifically in connection with STTR programs
                    that meet the requirements of this section and
                    any policy directives and regulations issued
                    under this section.

               *       *       *       *       *       *       *

      (o) Federal Agency STTR Authority.--Each Federal agency
    required to establish an STTR program in accordance with
    subsection (n) and regulations issued under this Act, shall--
              (1) * * *

               *       *       *       *       *       *       *

              (3) unilaterally determine research topics within the
            agency's STTR solicitations, giving special
            consideration to broad research topics and to topics
            that further 1 or more critical technologies, as
            identified--
                      (A) by the National Critical Technologies
                    Panel (or its successor) in reports required
                    under section 603 of the National Science and
                    Technology Policy, Organization, and Priorities
                    Act of 1976; [or]
                      (B) by the Secretary of Defense, in
                    accordance with section 2522 of title 10,
                    United States Code; or
                      (C) by the national nanotechnology strategic
                    plan required under section 2(c)(4) of the 21st
                    Century Nanotechnology Research and Development
                    Act (15 U.S.C. 7501(c)(4)) and in subsequent
                    reports issued by the National Science and
                    Technology Council Committee on Technology,
                    focusing on areas of nanotechnology identified
                    in such plan;

               *       *       *       *       *       *       *

      (p) STTR Policy Directive.--
              (1) * * *
              (2) Contents.--The policy directive required by
            paragraph (1) shall provide for--
                      (A) * * *
                      (B) a simplified, standardized funding
                    process that provides for--
                              (i) * * *

               *       *       *       *       *       *       *

                              (ix) 1-year awards for the first
                            phase of an STTR program, generally not
                            to exceed [$100,000] $250,000, and 2-
                            year awards for the second phase of an
                            STTR program, generally not to exceed
                            [$750,000] $2,000,000, [greater or
                            lesser amounts] with a mandatory annual
                            adjustment of such amounts to reflect
                            economic adjustments and programmatic
                            considerations, and with lesser amounts
                            to be awarded at the discretion of the
                            awarding agency, and shorter or longer
                            periods of time to be approved at the
                            discretion of the awarding agency where
                            appropriate for a particular project;

               *       *       *       *       *       *       *

      (s) Outreach and Support Activities.--
              (1) In general.--Subject to the other provisions of
            this subsection, the Administrator shall make grants on
            a competitive basis to organizations, to be used by the
            organizations to do one or both of the following:
                      (A) To conduct outreach efforts to increase
                    participation in the programs under this
                    section.
                      (B) To provide application support and
                    entrepreneurial and business skills support to
                    prospective participants in the programs under
                    this section.
              (2) Authorization of appropriations.--There is
            authorized to be appropriated to the Administrator
            $10,000,000 to carry out paragraph (1) for each of
            fiscal years 2010 and 2011.
              (3) Amount of assistance.--For each of subparagraphs
            (A) and (B) of paragraph (1), the amount of assistance
            provided to an organization under that subparagraph in
            any fiscal year--
                      (A) shall be equal to the total amount of
                    matching funds from non-Federal sources
                    provided by the organization; and
                      (B) shall not exceed $250,000.
              (4) Direction.--An organization receiving funds under
            paragraph (1) shall, in using those funds, direct its
            activities at one or both of the following:
                      (A) Small business concerns located in
                    geographic areas that are underrepresented in
                    the programs under this section.
                      (B) Small business concerns owned and
                    controlled by women, small business concerns
                    owned and controlled by service-disabled
                    veterans, and small business concerns owned and
                    controlled by minorities.
              (5) Advisory board.--
                      (A) Establishment.--Not later than 90 days
                    after the date of the enactment of this
                    subsection, the Administrator shall establish
                    an advisory board for the activities carried
                    out under this subsection.
                      (B) Non-applicability of faca.--The Federal
                    Advisory Committee Act (5 U.S.C. App.) shall
                    not apply to the advisory board.
                      (C) Members.--The members of the advisory
                    board shall include the following:
                              (i) The Administrator (or the
                            Administrator's designee).
                              (ii) For each Federal agency required
                            by this section to conduct an SBIR
                            program, the head of the agency (or the
                            designee of the head of the agency).
                              (iii) Representatives of small
                            business concerns that are current or
                            former recipients of SBIR awards, or
                            representatives of organizations of
                            such concerns.
                              (iv) Representatives of service
                            providers of SBIR outreach and
                            assistance, or representatives of
                            organizations of such service
                            providers.
                      (D) Duties.--The advisory board shall have
                    the following duties:
                              (i) To develop guidelines for awards
                            under paragraph (1), including
                            guidelines relating to award sizes,
                            proposal requirements, measures for
                            monitoring awardee performance, and
                            measures for determining the overall
                            value of the activities carried out by
                            the awardees.
                              (ii) To identify opportunities for
                            coordinated outreach, technical
                            assistance, and commercialization
                            activities among Federal agencies, the
                            recipients of the awards under
                            paragraph (1), and applicants and
                            recipients of SBIR awards, including
                            opportunities such as--
                                      (I) podcasting or webcasting
                                    for conferences, training
                                    workshops, and other events;
                                      (II) shared online resources
                                    to match prospective applicants
                                    with the network of paragraph
                                    (1) recipients; and
                                      (III) venture capital
                                    conferences tied to
                                    technologies and sectors that
                                    cross agencies.
                              (iii) To review and recommend
                            revisions to activities under paragraph
                            (1).
                              (iv) To submit to the Committee on
                            Small Business and Entrepreneurship of
                            the Senate and the Committee on Small
                            Business and the Committee on Science
                            and Technology of the House of
                            Representatives an annual report on the
                            activities carried out under paragraph
                            (1) and the effectiveness and impact of
                            those activities.
              (6) Selection criteria.--In awarding grants under
            this subsection, the Administrator shall use selection
            criteria developed by the advisory board established
            under paragraph (5). The criteria shall include--
                      (A) criteria designed to give preference to
                    applicants who propose to carry out activities
                    that will reach either an underperforming
                    geographic area or an underrepresented
                    population group (as measured by the number of
                    SBIR applicants);
                      (B) criteria designed to give preference to
                    applicants who propose to carry out activities
                    that complement, and are integrated into, the
                    existing public-private innovation support
                    system for the targeted region or population;
                      (C) criteria designed to give preference to
                    applicants who propose to measure the
                    effectiveness of the proposed activities; and
                      (D) criteria designed to give preference to
                    applicants who include a Small Business
                    Development Center program that is accredited
                    for its technology services.
              (7) Peer review.--In awarding grants under this
            subsection, the Administrator shall use a peer review
            process. Reviewers shall include--
                      (A) SBIR program managers for agencies
                    required by this section to conduct SBIR
                    programs; and
                      (B) private individuals and organizations
                    that are knowledgeable about SBIR, the
                    innovation process, technology
                    commercialization, and State and regional
                    technology-based economic development programs.
              (8) Per-state limitations.--
                      (A) In general.--To be eligible to receive a
                    grant under this subsection, the applicant must
                    have the written endorsement of the Governor of
                    the State where the targeted regions or
                    populations are located (if the regions or
                    populations are located in more than one State,
                    the applicant must have the written endorsement
                    of the Governor of each such State). Such an
                    endorsement must indicate that the Governor
                    will ensure that the activities to be carried
                    out under the grant will be integrated with the
                    balance of the State's portfolio of investments
                    to help small business concerns commercialize
                    technology.
                      (B) Limitation.--Each fiscal year, a Governor
                    may have in effect not more than one written
                    endorsement for a grant under paragraph (1)(A),
                    and not more than one written endorsement for a
                    grant under paragraph (1)(B).
              (9) Specific requirements for awards.--In making
            awards under paragraph (1) the Administrator shall
            ensure that each award shall be for a period of 2
            fiscal years. The Administrator shall establish rules
            and performance goals for the disbursement of funds for
            the second fiscal year, and funds shall not be
            disbursed to a recipient for such a fiscal year until
            after the advisory board established under this
            subsection has determined that the recipient is in
            compliance with the rules and performance goals.

               *       *       *       *       *       *       *

      (aa) Venture Capital Operating Companies.--Effective only for
    the SBIR and STTR programs the following shall apply:
              (1) A business concern that has more than 500
            employees shall not qualify as a small business
            concern.
              (2) In determining whether a small business concern
            is independently owned and operated under section
            3(a)(1) or meets the small business size standards
            instituted under section 3(a)(2), the Administrator
            shall not consider a business concern to be affiliated
            with a venture capital operating company (or with any
            other business that the venture capital operating
            company has financed) if--
                      (A) the venture capital operating company
                    does not own 50 percent or more of the business
                    concern; and
                      (B) employees of the venture capital
                    operating company do not constitute a majority
                    of the board of directors of the business
                    concern.
              (3) A business concern shall be deemed to be
            ``independently owned and operated'' if--
                      (A) it is owned in majority part by one or
                    more natural persons or venture capital
                    operating companies;
                      (B) there is no single venture capital
                    operating company that owns 50 percent or more
                    of the business concern; and
                      (C) there is no single venture capital
                    operating company the employees of which
                    constitute a majority of the board of directors
                    of the business concern.
              (4) If a venture capital operating company controlled
            by a business with more than 500 employees (in this
            paragraph referred to as a ``VCOC under large business
            control'') has an ownership interest in a small
            business concern that is owned in majority part by
            venture capital operating companies, the small business
            concern is eligible to receive an award under the SBIR
            or STTR program only if--
                      (A) not more than two VCOCs under large
                    business control have an ownership interest in
                    the small business concern; and
                      (B) the VCOCs under large business control do
                    not collectively own more than 20 percent of
                    the small business concern.
              (5) The term ``venture capital operating company''
            means a business concern--
                      (A) that--
                              (i) is a Venture Capital Operating
                            Company, as that term is defined in
                            regulations promulgated by the
                            Secretary of Labor; or
                              (ii) is an entity that--
                                      (I) is registered under the
                                    Investment Company Act of 1940
                                    (15 U.S.C. 80a-51 et seq.); or
                                      (II) is an investment
                                    company, as defined in section
                                    3(c)(1) of such Act (15 U.S.C.
                                    80a-3(c)(1)), which is not
                                    registered under such Act
                                    because it is beneficially
                                    owned by less than 100 persons;
                                    and
                      (B) that is itself organized or incorporated
                    and domiciled in the United States, or is
                    controlled by a business concern that is
                    incorporated and domiciled in the United
                    States.
      (bb) Commercialization Programs.--
              (1) In general.--Each agency required by this section
            to conduct an SBIR program shall establish a
            commercialization program that supports the progress of
            SBIR awardees to the third phase. The commercialization
            program may include activities such as partnership
            databases, partnership conferences, multiple second
            phases, mentoring between prime contractors and SBIR
            awardees, multiple second phases with matching private
            investment requirements, jumbo awards, SBIR helpdesks,
            and transition assistance programs. The agency shall
            include in its annual report an analysis of the various
            activities considered for inclusion in the
            commercialization program and a statement of the
            reasons why each activity considered was included or
            not included, as the case may be.
              (2) Funding for commercialization programs.--
                      (A) In general.--From amounts made available
                    to carry out this paragraph, the Administrator
                    may, on petition by agencies required by this
                    section to conduct an SBIR program, transfer
                    funds to such agencies to support the
                    commercialization programs of such agencies.
                      (B) Petitions.--The Administrator shall
                    establish rules for making transfers under
                    subparagraph (A). The initial set of rules
                    shall be promulgated not later than 90 days
                    after the date of the enactment of this
                    paragraph.
                      (C) Authorization of appropriations.--There
                    is authorized to be appropriated to the
                    Administrator to carry out this paragraph
                    $27,500,000 for fiscal year 2010 and each
                    fiscal year thereafter.
              (3) Funding limitation.--For payment of expenses
            incurred to administer the commercialization programs
            described in paragraphs (1) and (2), the head of an
            agency may use not more than an amount equal to 1
            percent of the funds set aside for the agency's Small
            Business Innovation Research program. Such funds--
                      (A) shall not be subject to the limitations
                    on the use of funds in subsection (f)(2); and
                      (B) shall not be used for the purpose of
                    funding costs associated with salaries and
                    expenses of employees of the Federal
                    Government.
      (cc) Rural Preference.--In making awards under this section,
    Federal agencies shall give priority to applications so as to
    increase the number of SBIR and STTR award recipients from
    rural areas.
      (dd) Consent To Release Contact Information to
    Organizations.--
              (1) Enabling concern to give consent.--Each Federal
            agency required by this section to conduct an SBIR
            program shall enable a small business concern that is
            an SBIR applicant to indicate to the agency whether the
            agency has its consent to--
                      (A) identify the concern to appropriate local
                    and State-level economic development
                    organizations as an SBIR applicant; and
                      (B) release the concern's contact information
                    to such organizations.
              (2) Rules.--The Administrator shall establish rules
            to implement this subsection. The rules shall include a
            requirement that the agency include in its SBIR
            application forms a provision through which the
            applicant can indicate consent for purposes of
            paragraph (1).
      (ee) Increased Partnerships.--
              (1) In general.--Each agency required by this section
            to conduct an SBIR program shall establish initiatives
            by which the agency encourages partnerships between
            SBIR awardees and prime contractors, venture capital
            investment companies, business incubators, and larger
            businesses, for the purpose of facilitating the
            progress of the SBIR awardees to the third phase.
              (2) Definition.--In this subsection, the term
            ``business incubator'' means an entity that provides
            coordinated and specialized services to entrepreneurial
            businesses which meet selected criteria during the
            businesses' startup phases, including providing
            services such as shared office space and office
            services, access to equipment, access to
            telecommunications and technology services, flexible
            leases, specialized management assistance, access to
            financing, mentoring and training services, or other
            coordinated business or technical support services
            designed to provide business development assistance to
            entrepreneurial businesses during these businesses'
            startup phases.
      (ff) Multiple First Phase SBIR Awards Report.--The
    Administrator shall, on an annual basis, submit to the
    Committee on Small Business and the Committee on Science and
    Technology of the House of Representatives and the Committee on
    Small Business and Entrepreneurship of the Senate a list
    identifying each small business concern that, for the period
    covered by the preceding 5 fiscal years, received 15 or more
    first phase SBIR awards and no second phase SBIR awards.
      (gg) Requirements Relating to Federal Agency Engagement With
    Certain First Phase SBIR Awardees.--Each Federal agency
    required by this section to conduct an SBIR program shall
    engage with SBIR awardees that have been awarded multiple first
    phase SBIR awards but have not been awarded any second phase
    SBIR awards and shall develop performance measures with respect
    to awardee progression in the SBIR program.
      (hh) Assistance for Administrative, Oversight, and Contract
    Processing Costs.--
              (1) In general.--From amounts made available to carry
            out this subsection, the Administrator may, on petition
            by Federal agencies required by this section to conduct
            an SBIR program, transfer funds to such agencies to
            assist with the administrative, oversight, and contract
            processing costs relating to such program.
              (2) Petitions.--The Administrator shall establish
            rules for making transfers under paragraph (1). The
            initial set of rules shall be promulgated not later
            than 180 days after the date of the enactment of this
            subsection.
              (3) Limit on transfer.--A Federal agency may not
            receive under this subsection in a fiscal year an
            amount greater than 3 percent of the SBIR budget of
            such agency for such fiscal year.
              (4) Authorization of appropriations.--There is
            authorized to be appropriated to the Administrator to
            carry out this subsection $27,500,000 for each of
            fiscal years 2010 and 2011.
      (ii) Authority To ``Fast-track'' Phase Two Awards for
    Promising Phase One Research.--To address the delay between an
    award for the first phase of an SBIR program and the
    application for and extension of an award for the second phase
    of such program, each Federal agency with an SBIR program may
    develop ``fast-track'' programs to eliminate such delay by
    issuing second phase SBIR awards as soon as practicable,
    including in appropriate cases simultaneously with the issuance
    of the first phase SBIR award. The Administrator shall
    encourage the development of such ``fast-track'' programs.
      (jj) Limitation on Phase I and II Awards.--No Federal agency
    shall issue an award under the SBIR program or the STTR program
    if the size of the award exceeds the amounts established under
    subsections (j)(4) and (p)(2)(B)(ix).
      (kk) Requirements Relating to Additional Second Phase SBIR
    Awards.--
              (1) In general.--A small business concern that
            receives a second phase SBIR award for a project
            remains eligible to receive additional second phase
            SBIR awards for such project.
              (2) Technical or weapons systems.--Agencies are
            expressly authorized to provide additional second phase
            SBIR awards for testing and evaluation assistance for
            the insertion of SBIR technologies into technical or
            weapons systems.
      (ll) First Phase Required.--Under this section, a Federal
    agency shall provide to a small business concern an award for
    the second phase of an SBIR program with respect to a project
    only if such agency finds that the small business concern has
    been provided an award for the first phase of an SBIR program
    with respect to such project or has completed the
    determinations described in subsection (e)(4)(A) with respect
    to such project despite not having been provided an award for
    the first phase.
      (mm) Involvement of Chief Counsel for Advocacy.--The Chief
    Counsel for Advocacy, as described in section 201 of Public Law
    94-305 (15 U.S.C. 634a), and any individual reporting to the
    Chief Counsel for Advocacy, without regard to whether such
    individual was hired under section 204 of Public Law 94-305 (15
    U.S.C. 634d), may not provide to the Administrator, to any
    individual who reports directly or indirectly to the
    Administrator, or to any Federal agency any advice, guidance,
    oversight, or review with respect to the programs authorized
    under this section.

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         SECTION 108 OF THE SMALL BUSINESS REAUTHORIZATION ACT OF 2000

    SEC. 108. NATIONAL RESEARCH COUNCIL REPORTS.

      (a) * * *

               *       *       *       *       *       *       *

      (d) Report.--The National Research Council shall transmit to
    the heads of agencies entering into an agreement under this
    section and to the Committee on Science and the Committee on
    Small Business of the House of Representatives, and to the
    Committee on Small Business [of the Senate--
              [(1) not later than 3] of the Senate, not later than
            3 years after the date of the enactment of this Act, a
            report including the results of the study conducted
            under subsection (a)(1) and recommendations made under
            subsection (a)(2)[; and
              [(2) not later than 6 years after that date of the
            enactment, an update of such report].