[Federal Register Volume 79, Number 5 (Wednesday, January 8, 2014)]
[Rules and Regulations]
[Pages 1303-1309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-31374]



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  Federal Register / Vol. 79, No. 5 / Wednesday, January 8, 2014 / 
Rules and Regulations  

[[Page 1303]]



SMALL BUSINESS ADMINISTRATION

13 CFR Chapter I

RIN 3245-AF84


Small Business Innovation Research Program Policy Directive

AGENCY: Small Business Administration.

ACTION: Notice of amendments to final policy directive.

-----------------------------------------------------------------------

SUMMARY: The U.S. Small Business Administration (SBA) is amending its 
Small Business Innovation Research (SBIR) Program Policy Directive in 
response to public comments SBA received on the final SBIR Policy 
Directive, published on August 6, 2012. SBA is also making several 
minor clarifying changes to ensure that the SBIR participants clearly 
understand certain program requirements.

DATES: These amendments to the SBIR Policy Directive are effective 
January 8, 2014.

FOR FURTHER INFORMATION CONTACT: Edsel Brown, Assistant Director, 
Office of Innovation, at (202) 401-6365 or [email protected].

SUPPLEMENTARY INFORMATION: On December 31, 2011, the President signed 
into law the National Defense Authorization Act for Fiscal Year 2012 
(Defense Reauthorization Act), Public Law 112-81, 125-Stat. 1298. 
Section 5001, Division E of the Defense Reauthorization Act contains 
the SBIR/STTR Reauthorization Act of 2011 (Reauthorization Act), which 
amended the Small Business Act and made several amendments to the SBIR 
Program. The Reauthorization Act required SBA to issue amendments to 
the SBIR Policy Directive and publish the amendments in the Federal 
Register within 180 days of when the Reauthorization Act was passed.
    On August 6, 2012, SBA published a final SBIR Policy Directive 
implementing the various provisions of the Reauthorization Act at 77 FR 
46806. The directive made several key changes to the SBIR Program 
relating to eligibility, the SBIR award process, SBIR Program 
administration, and fraud, waste and abuse. Although the SBIR Policy 
Directive is intended for use by the SBIR participating agencies, SBA 
believed that public input on the directive from all parties involved 
in the program would be invaluable. Therefore, SBA sought public 
comments on the final directive, and stated that it may amend the 
directive in response to these comments at a later time.

Response to Comments

    In response to this request, SBA received comments on various parts 
of the directive. Several comments recommended that SBA strengthen and 
clarify the Policy Directive language with regard to SBIR data rights 
and the obligation of federal agencies to give a preference in 
contracting to SBIR awardees for follow-on Phase III work. SBA agrees 
that these are areas of the SBIR policy that are vital to the program 
and require clarification and improvement. SBA continues to evaluate 
these issues and will address them in a subsequent Policy Directive 
revision.
    SBA also received comments that the definition of Essentially 
Equivalent Work in section 3(j) of the Policy Directive should be 
changed to be more in line with the common usage. The concern is that 
the definition in the Policy Directive is more stringent than the norm 
for Government contracting and places a higher burden on the small 
businesses participating in the SBIR program. The commenter, however, 
did not provide SBA with this commonly used definition and SBA could 
not find one. Therefore, SBA has not modified the definition at this 
time. However, SBA has revised the language in section 7(d) of the 
Directive to further clarify funding of ``essentially equivalent 
work.''
    Section 4(a)(3) of the Policy Directive, ``Agency benchmarks for 
progress towards commercialization'' sets forth the program policy 
regarding an eligibility requirement for Phase I awards. SBA received 
comments requesting clarification of the time periods used to calculate 
the transition rate and commercialization rate benchmark requirements. 
Commenters also requested clarification about how agencies determine 
which firms must comply with the transition rate and commercialization 
rate benchmarks. In response to these comments, SBA revised and 
reorganized section 4(a)(3) to clarify several procedural elements 
about the benchmark determinations and enhance its readability.
    Section 4(a)(3) clarifies the time periods used to calculate 
awardee rates of transition from Phase I to Phase II and provides two 
examples of the calculation. While the rate is calculated using Phase I 
awards received in the most recent 5,10, or 15-year period (agencies 
choose which period they use), excluding the most recently completed 
fiscal year; the period used when counting the Phase II awards is 
lagged one year. That is, when calculating the number of Phase I awards 
received over a particular time period, the time period evaluated does 
not include the most recently completed fiscal year; however, when 
calculating the number of Phase II awards received, the time period 
evaluated does include the most recently completed fiscal year but does 
not include the first year of the period evaluated for Phase I awards 
received. The period used to calculate Phase II awards is lagged one-
year because it is unlikely that a new Phase I would transition to a 
Phase II within the same year. SBA also clarified that the Phase II 
transition benchmark requirement applies only to awardees that have 
received more than 20 Phase I awards over the applicable time period 
and that the commercialization benchmark applies only to firms that 
received more than 15 Phase II awards over the applicable time period.
    Based on additional input from the agencies participating in the 
SBIR program, SBA also revised several procedural elements of the Phase 
II transition benchmark requirement in section 4(a)(3) to simplify the 
process for small businesses and reduce the administrative burden on 
the agencies. Specifically, in section 4(a)(3)(iii), SBA changed the 
start date for the one-year ineligibility period for firms that do not 
meet the benchmarks. The date was changed from the date of application 
submission to June 1st of each year. SBA made this change for several 
reasons: (1) It is a clearly defined period for affected small 
businesses; (2) to

[[Page 1304]]

provide sufficient time for agencies to enter fully verified award data 
from the prior fiscal year into the TechNet database; and (3) to 
eliminate the need for agencies to track multiple periods of 
ineligibility. SBA will use its TechNet Data system to generate the 
list of companies that do not meet agency Phase II transition 
benchmarks and provide this list to the agencies each year on June 1. 
Finally, SBA also added a procedure to notify awardee firms if they are 
on the ineligible list and to enable firms to provide feedback directly 
to SBA if they believe their rate was calculated using incomplete award 
information.
    Some respondents asked if the provision in section 4(b)(5) allowing 
one Sequential Phase II award included supplementary awards such as 
Phase 2.5 or Phase IIb awards in the definition of a Phase II award. 
SBA relocated the language at section 4(b)(6) to new section 4(b)(8) 
and added new section 4(b)(6) to clarify SBA's policy on supplemental 
phase II awards. Section 4(b)(6) now clarifies how Phase II award 
amounts are calculated when supplemental awards are issued. 
Furthermore, section 4(b)(6) specifies that all supplementary awards, 
such as a Phase IIb, must be linked to either an initial Phase II or a 
sequential Phase II award and is added to the amount of that award for 
the purpose of determining the size of the Phase II award. This means 
that all supplementary Phase II awards including options, enhancements, 
administrative supplements, and Phase IIb-type programs are considered 
as part of the initial Phase II or sequential Phase II from which they 
derive and are therefore subject to the Phase II per-award guideline 
amount of $1 million and limit of $1.5 million.
    SBA repeated the language in section 9(d)(2) in new section 
4(b)(7), which explains how a Phase I awardee may receive an award from 
one agency and also may receive a subsequent Phase II award from 
another agency. SBA also clarified in section 4(b)(7) that the same 
process applies to a second, sequential Phase II award that follows an 
initial Phase II award from a different agency. This policy is relevant 
to interagency actions, which are found at section 9 of the Policy 
Directive, and also to Phase II awards, which is found at section 4 of 
the Policy Directive.
    SBA received comments concerning section 9 of the Policy Directive, 
which address measures to prevent fraud, waste and abuse in the 
program. The respondents commented that the administrative requirements 
contained in section 9 may be too stringent and may discourage small 
businesses from applying. SBA notes that it developed these 
requirements, including the procedures and requirements for 
certification, in consultation with the Council of Inspectors General 
on Integrity and Efficiency. SBA believes that these provisions can 
help reduce fraud, waste and abuse in the program and does not think 
these provisions should be changed at this time.
    SBA received comments on the Department of Defense's (DoD's) 
Commercialization Readiness Program, outlined in section 12(b) of the 
SBIR Policy Directive. In response to comments that agency efforts to 
increase transitions to Phase III could reduce the innovative nature of 
SBIR awards, SBA has added that when DoD reports on its Phase II 
insertion incentives, it should note efforts to ensure that such 
incentives do not act to shift the focus of SBIR Phase II awards away 
from relatively high-risk innovation projects. SBA also amended the 
provisions relating to the use of SBIR funds for the DoD 
Commercialization Readiness Program. According to section 1615 of the 
National Defense Authorization Act for Fiscal Year 2013 (NDAA), Public 
Law 112-239, 126 Stat. 1632, DoD has the authority to use 1% of its 
SBIR funding for purposes of administering the Commercialization 
Readiness Program.
    A number of comments asked us to change features that, because they 
are required by statute, we were not able to modify.

Miscellaneous Changes

    The inadvertent omission of the term ``extramural'' before ``R/R&D 
budgets'' was corrected in section 2(b), which identifies the source of 
funds for the program.
    Section 3 contains definitions of terms that appear throughout the 
Policy Directive. SBA made an editorial revision to the definition of 
``Awardee'' in section 3(e). SBA revised the word ``receiving'' to 
``that receives.''
    Section 4(b)(1), which identifies the objective and nature of a 
Phase II award, includes a statement regarding the eligibility of 
successor in interest firms for SBIR awards. Because this statement 
pertains more generally to eligibility for all SBIR awards, it was 
removed from section 4(b)(1) and added to section 6(a) which addresses 
program eligibility requirements.
    In Section 6, SBA removed the reference to the STTR program 
regarding the option to make awards to small businesses that are 
majority owned by multiple venture capital operating companies, hedge 
funds or private equity firms. When SBA issued its final size 
regulations on December 27, 2012 (77 FR 76215), it reviewed this issue 
and determined that such businesses may not participate in the STTR 
program. Additionally, SBA added the language previously found at 
section 4(b)(1) regarding successor in interest firms to section 
6(a)(5), because section 6(a) addresses general program eligibility. 
Sections 6(a)(2) through 6(a)(6) were reorganized and renumbered in 
order to increase readability.
    Section 7 addresses issues related to program funding processes. 
SBA revised the language in paragraph 7(d) to clarify that while 
duplicate or similar proposals may be submitted in response to 
apparently similar solicitation topics, essentially equivalent work may 
not be funded. In addition, SBA revised paragraph (h)(1), which says 
that funding agreement modifications should be kept to a minimum, to 
address only modifications that increase the dollar amount of awards. 
Paragraph (h)(1) also referred to modifications of periods of 
performance and scope of work. SBA clarified section 7(h)(1) to specify 
that the concern regarding the number of modifications made to an award 
pertains only to changes that increase the dollar amount of awards.
    Section 8 of the Directive addresses the terms of agreement under 
SBIR awards. SBA clarified section 8(a) by removing language stating 
that agencies should discourage SBCs from submitting proprietary 
information and revised section 8(d) to clarify that the continued use 
of agency-owned property applies to property acquired by the awardee 
under the contract.
    In response to concerns regarding the cost and accountability of 
the continuing study by the National Academy of Sciences, SBA modified 
section 9(h) to clarify that the agreement required between the 
agencies and the National Academy of Sciences must be made in 
consultation with the SBA and must comprehensively address the scope 
and content of the work to be performed.
    Section 10(h) explains the process for agencies to submit their 
SBIR program annual reports to SBA. Paragraph (h)(4) contains a list of 
information that must be included in each agency's annual report. SBA 
clarified section 10(h)(4)(xi) to note that agencies must report all 
instances in which an agency pursued R/R&D, services, production, or 
any combination thereof of a technology developed under an SBIR award 
with an entity other than that SBIR awardee.
    Section 10(j) contains information on the other reporting 
requirements for

[[Page 1305]]

SBIR participating agencies. Section 10(j)(2) discusses a system that 
will list any individual or small business concern that received an 
SBIR award and that has been convicted of a fraud-related crime 
involving SBIR funds or found civilly liable for a fraud-related 
violation involving SBIR funds. SBA clarified this section to note that 
SBA will list those individuals and small business concerns of which 
SBA has been made aware.
    Section 12(b) addresses the Commercialization Readiness Program at 
the Department of Defense (DoD). SBA clarified the source of funding 
for this program by removing the sentence in paragraph (b)(4)(ii) 
stating that funds for the program would come from the 3% 
administrative set-aside, and by clarifying that the funds shall not be 
subject to the limitations on the use of funds in section 9(e)(3). In 
addition, in section 12(b)(6)(iii)(C), SBA clarified that the DoD must 
include, along with its description of the incentives used for this 
program, information on measures taken to ensure that such incentives 
do not shift the focus of the SBIR Phase II awards away from the 
relatively high-risk innovation projects they are intended to promote.
    Section 12(b)(5) addresses DoD's Commercialization Readiness 
Program. The Policy Directive states that DoD may establish transition 
goals and reporting requirements for awards less than $1,000,000,000. 
The amount listed in section 12(b)(5) contained a typographical error, 
which was corrected to $100,000,000.
    Appendix I provides instructions for the preparation of program 
solicitations. In Appendix I, SBA revised the certification check box 
regarding notification if work is subsequently funded by another 
Federal agency to clarify that it pertains to work funded and completed 
under the award rather than to the work proposed for the award.
    The updated SBIR Policy Directive, incorporating all changes noted 
here, will be posted on www.sbir.gov.

Notice of Amendments to Final Policy Directive; Small Business 
Innovation Research Program

    To: The Small Business Innovation Research Program Managers.
    Subject: Amendments to SBIR Policy Directive Published on August 6, 
2012 at 77 FR 46806.
    1. Purpose. The purpose of this notice is to inform SBIR agencies 
of amendments made to the recently published SBIR Policy Directive.
    2. Authority. Section 9(j)(3) of the Small Business Act (15 U.S.C. 
638(j)) requires the Administrator of the U.S. Small Business 
Administration (SBA) to issue an SBIR Program Policy Directive for the 
general conduct of the SBIR Program.
    3. Procurement Regulations. It is recognized that the Federal 
Acquisition Regulations and agency supplemental regulations may need to 
be modified to conform to the requirements of the final Policy 
Directive. SBA's Administrator or designee must review and concur with 
any regulatory provisions that pertain to areas of SBA responsibility. 
SBA's Office of Innovation coordinates such regulatory actions.
    4. Personnel Concerned. This Policy Directive serves as guidance 
for all federal government personnel who are involved in the 
administration of the SBIR Program, issuance and management of Funding 
Agreements or contracts pursuant to the SBIR Program, and the 
establishment of goals for small business concerns in research or 
research and development acquisition or grants.
    5. Originator. SBA's Office of Innovation and Technology.
    6. Date. The policy directive is effective on January 8, 2014.

    Authorized by:

    Dated: December 26, 2013.
Pravina Raghavan,
Deputy Associate Administrator, Office of Investment and Innovation 
Small Business Administration.
    Dated: December 26, 2013.
Jeanne Hulit,
Acting Administrator.
    SBA amends the SBIR Policy Directive as follows:
    1. Amend section 2(b) by adding the term ``extramural'' before ``R/
R&D budgets'' each place it appears.
    2. Revise section 3(e) to read as follows:
    (e) Awardee. The organizational entity that receives an SBIR Phase 
I, Phase II, or Phase III award.
    3. Revise section 4(a)(3) to read as follows:
    (3) Agency benchmarks for progress towards commercialization. Each 
agency must determine whether an applicant for a Phase I award that has 
won multiple prior SBIR awards meets the agency's benchmark 
requirements for progress towards commercialization before making a new 
Phase I award to that applicant. For the purpose of this requirement, 
applicants are assessed using their prior Phase I and Phase II SBIR and 
STTR awards across all SBIR agencies.
    (i) Agencies must apply two benchmark rates addressing an 
applicant's progress towards commercialization--the Phase II Transition 
Rate Benchmark and the Commercialization Rate Benchmark.
    (A) The Phase II Transition Rate Benchmark sets the minimum 
required number of Phase II awards the applicant must have received for 
a given number of Phase I awards received during the specified period. 
This Transition Rate Benchmark applies only to Phase I applicants that 
have received more than 20 Phase I awards over the time period used by 
the agency for the benchmark determination.
    (B) The agency Commercialization Rate Benchmark sets the minimum 
Phase III commercialization results that a Phase I applicant must have 
realized from its prior Phase II awards in order to be eligible to 
receive a new Phase I award from that agency. This benchmark 
requirement applies only to Phase I applicants that have received more 
than 15 Phase II awards over the time period used by the agency for the 
benchmark determination.
    (ii) Consequence. If an awardee fails to meet either of the 
benchmarks, that awardee is not eligible for an SBIR Phase I award (and 
any Phase II award issued pursuant to paragraph (b)(1)(ii) below) for a 
period of one year from the time of the determination.
    (iii) Timing of the determination and consequence period. The SBIR 
awardee Phase II transition rates and commercialization rates are 
calculated using the data in SBA's TechNet database. For the purpose of 
these benchmark requirements, awardee firms are assessed once a year, 
on June 1st, using their prior SBIR and STTR awards across all 
agencies. SBA makes this tabulation of awardee transition rates and 
commercialization rates available to the agencies. Each SBIR agency 
uses this tabulation to determine which companies do not meet that 
agency's benchmark rates and are therefore ineligible to receive new 
Phase 1 awards from that agency during the one-year period beginning on 
June 1st and ending on May 31st. SBA notifies these ineligible firms of 
the determination and the one year restriction on Phase I awards. 
Agencies must notify SBA of any applications denied because of the 
failure to meet the benchmarks.
    (iv) Phase II Transition Rate Benchmark. Each agency must establish 
an SBA-approved Phase II Transition Rate Benchmark and applicable time 
period. The benchmark rates and time periods are posted at 
www.sbir.gov. Agencies must seek approval for any subsequent changes 
from SBA.
    (A) The agency Phase II Transition Rate Benchmark establishes the 
number of Phase II awards a small business

[[Page 1306]]

concern must have received for a given number of Phase I awards 
received over the past 5, 10 or 15 fiscal years, excluding the most 
recently completed fiscal year. Each agency selects both the rate to be 
applied and the length of time that the agency will use to evaluate 
whether a small business concern has met the Transition Rate Benchmark. 
The period over which Phase I awards are counted excludes the most 
recently completed fiscal year. The time period over which Phase II 
awards are counted includes the most recently completed fiscal year and 
excludes the first year of the time period evaluated for Phase I 
awards.

    Example: On August 1, 2014, an SBC submits an application to an 
agency using a Transition Rate Benchmark of 0.25 and a 5-year time 
period. The June 1, 2014 TechNet Company Registry tabulation shows 
that the SBC received 24 Phase I awards during FY08-FY12. Since this 
SBC has received 20 or more Phase I awards during the 5-year period, 
the SBC is required to meet the Transition Rate Benchmark. The SBC 
received 8 Phase II awards in FY09-FY13 and therefore has a 5-year 
Phase II transition rate of 8/24 or 0.33 ( of Phase II 
awards in FY09-FY13/ of Phase I awards in FY08-FY12). 
Because the SBC meets or exceeds the agency Transition Rate 
Benchmark, it is considered for award through the usual proposal 
evaluation process.
    Example 2: On September 1, 2014, an SBC is interested in 
applying for a Phase I award, knows it has received a number of 
Phase I awards in recent years, but is unsure if it is meeting the 
required Phase II transition rate. The company official logs onto 
the Company Registry at SBIR.gov to check its status and sees a flag 
saying it did not meet the required benchmark transition rate of 
0.25 on June 1, 2014 and is therefore ineligible for a Phase I award 
through May 31, 2015. The company checks its records and sees that 
it received 30 Phase I awards during FY08-FY12 and 6 Phase II awards 
during FY09-FY13. Its transition rate is therefore 6/30 or 0.20 
which is under the required rate of 0.25. The SBC does not apply for 
a new Phase I award through May 31, 2015 because it knows its 
application would be rejected.
    Example 3: On September 1, 2014, an SBC official interested in 
applying for a Phase I award logs onto the Company Registry at 
SBIR.gov and sees the flag saying it did not meet the required 
benchmark transition rate of 0.25 on June 1, 2014 and is not 
eligible for a Phase I award through May 31, 2015. However, when the 
company checks its own records, it sees that it received 8 Phase II 
awards during FY09-FY13, not the 6 awards showing on the Web site. 
Its transition rate is therefore 8/30 or 0.26 which is above the 
required rate of 0.25. The company official therefore goes to 
SBIR.gov, clicks on the ``Dispute Transition Rate'' button, and 
enters the information about the discrepancy. SBA uses the 
information provided by the company and, working with the relevant 
agencies, identifies that two Phase II awards from FY09 had been 
inadvertently omitted. SBA updates and corrects the database and 
informs the firm that it is indeed eligible to receive SBIR Phase I 
awards.

    (B) An SBC that has received more than 20 Phase I awards in the 
relevant time period can view its Phase II transition rate on the 
Company Registry page at SBIR.gov. Generally, the award data used to 
calculate an SBC's transition rate will be complete by the end of March 
each year. An SBC may view its SBIR/STTR award information on the 
Company Registry at any time. If an awardee believes its Phase II 
transition rate is calculated using incomplete award information, the 
awardee may dispute the rate using the link provided on the Company 
Registry, provide the additional award information, and request a 
reconsideration of its transition rate. Requests for reconsideration of 
a firm's transition rate received by SBA from April 1st through April 
30th of each year will be considered for the June 1st transition rate 
assessment.
    (C) Agencies must set the Phase II Transition Rate Benchmark as 
appropriate for their programs and industry sectors. When setting the 
Transition Rate Benchmark, agencies should consider that Phase I is 
designed and intended to explore high-risk, early-stage research ideas 
and, as a result, not all Phase I awards are expected to result in a 
Phase II award.
    (v) Commercialization Rate Benchmark. By October 1, 2013, each 
agency will establish an SBA-approved Commercialization Rate Benchmark 
that establishes the level of Phase III commercialization results an 
SBC must have received from work it performed under prior Phase II 
awards, over the prior 5, 10 or 15 fiscal years, excluding the most 
recently completed two fiscal years. Agencies may define this 
benchmark:
    (A) in financial terms, such as by using the ratio of the dollar 
value of revenues and additional investment resulting from prior Phase 
II awards relative to the dollar value of the Phase II awards received 
over the time period;
    (B) in terms of the share of Phase II awards received over the time 
period that have resulted in the introduction of a product to market; 
or
    (C) by other means such as using a commercialization scoring system 
that rates awardees on their past commercialization success.
    (vi) Agencies must submit their Transition Rate Benchmark, 
Commercialization Rate Benchmark, and time periods to SBA for approval. 
SBA will publish the benchmarks and time periods, seek public comment, 
and maintain a table of the current requirements on www.sbir.gov. The 
benchmarks and time periods become effective when SBA posts the 
approved measures on www.sbir.gov. Agencies must submit any changes to 
the benchmarks or time periods to SBA for prior approval.
    (vii) SBA maintains a system that records all Phase I, Phase II and 
Government Phase III awards, and other commercialization information; 
and calculates the Phase II transition rates for all Phase I awardees 
and the commercialization rates for all Phase II awardees.
    (viii) If an applicant fails to meet an agency's benchmark, its 
name will appear on the list of companies made available to the 
agencies on June 1 of each year. An agency may not make a Phase I award 
to an applicant that does not meet the agency's benchmark.
    (ix) If an awardee believes its determination was made in error, it 
may provide SBA with the pertinent award information and request a 
reassessment. To do so, awardees may use the link on the Company 
Registry at www.sbir.gov.
    4. Amend section 4(b) by revising paragraph (b)(1) by moving 
language to 6(a)(4), renumbering paragraph (b)(6) as (b)(8), and 
inserting paragraphs (b)(6) and (b)(7) to read as follows:
    (b) Phase II.
    (1) The object of Phase II is to continue the R/R&D effort from the 
completed Phase I. Unless an exception set forth in paragraphs (i) or 
(ii) below applies, only SBIR Phase I awardees are eligible to 
participate in Phase II.
    (i) A Federal agency may issue an SBIR Phase II award to an STTR 
Phase I awardee to further develop the work performed under the STTR 
Phase I award. The agency must base its decision upon the results of 
work performed under the Phase I award and the scientific and technical 
merit, and commercial potential of the Phase II proposal. The STTR 
Phase I awardee must meet the eligibility and program requirements of 
the SBIR Program in order to receive the SBIR Phase II award.
    (ii) During fiscal years (FY) 2012 through 2017, the National 
Institutes of Health (NIH), Department of Defense (DoD) and the 
Department of Education (DoEd) may issue a Phase II award to a small 
business concern that did not receive a Phase I award for that R/R&D. 
Prior to such an award, the heads of those agencies, or designees, must 
issue a written determination that the small business has demonstrated 
the scientific and technical merit and feasibility of the ideas that 
appear to have commercial potential. The determination must be

[[Page 1307]]

submitted to SBA prior to issuing the Phase II award.
     . . . [paragraphs (2) through (4) are unchanged] . . .
    (5) A Phase II awardee may receive one additional, sequential Phase 
II award to continue the work of an initial Phase II award. The 
additional, sequential Phase II award has the same guideline amounts 
and limits as an initial Phase II award.
    (6) Agencies may offer special SBIR awards, such as Phase IIB 
awards, that supplement or extend Phase II awards. For example, some 
agencies administer Phase IIB awards that differ from the base Phase II 
in that they require third party matching of the SBIR funds. Each such 
supplemental award must be linked to a base Phase II award (the initial 
Phase II, or the second sequential Phase II award). Any SBIR funds used 
for such special or supplementary awards are aggregated with the amount 
of the base Phase II to determine the size of that Phase II award. 
Therefore, while there is no limit on the number of such special/
supplementary awards, there is a limit on the total amount of SBIR 
funds that can be administered through them--the amounts of these 
awards count towards the size of the initial Phase II or the sequential 
Phase II, each of which has a guideline amount of $1 million and a 
limit of $1.5 million. (Note that Phase IIB awards under the NIH SBIR 
program are administered as second, sequential Phase II awards, not 
supplemental awards. As such, they are base Phase II awards and subject 
to the Phase II guideline amounts and limits of $1 million and $1.5 
million).
    (7) A concern that has received a Phase I award from an agency may 
receive a subsequent Phase II award from another agency if each agency 
makes a written determination that the topics of the relevant awards 
are the same and both agencies report the awards to the SBA including a 
reference to the related Phase I award and initial Phase II award if 
applicable.
    (8) Agencies may issue Phase II awards for testing and evaluation 
of products, services, or technologies for use in technical or weapons 
systems.
    5. Revise section 6(a)(2) through Sec.  6(a)(6)to read as follows:
    (2) For Phase I, a minimum of two-thirds of the research or 
analytical effort must be performed by the awardee. For Phase II, a 
minimum of one-half of the research or analytical effort must be 
performed by the awardee. Occasionally, deviations from these 
requirements may occur, and must be approved in writing by the funding 
agreement officer after consultation with the agency SBIR Program 
Manager/Coordinator. An agency can measure this research or analytical 
effort using the total contract dollars or labor hours, and must 
explain to the small business in the solicitation how it will be 
measured.
    (3) For both Phase I and Phase II, the primary employment of the 
principal investigator must be with the SBC at the time of award and 
during the conduct of the proposed project. Primary employment means 
that more than one-half of the principal investigator's time is spent 
in the employ of the SBC. This precludes full-time employment with 
another organization. Occasionally, deviations from this requirement 
may occur, and must be approved in writing by the funding agreement 
officer after consultation with the agency SBIR Program Manager/
Coordinator. Further, an SBC may replace the principal investigator on 
an SBIR Phase I or Phase II award, subject to approval in writing by 
the funding agreement officer. For purposes of the SBIR Program, 
personnel obtained through a Professional Employer Organization or 
other similar personnel leasing company may be considered employees of 
the awardee. This is consistent with SBA's size regulations, 13 CFR 
121.106--Small Business Size Regulations.
    (4) For both Phase I and Phase II, the R/R&D work must be performed 
in the United States. However, based on a rare and unique circumstance, 
agencies may approve a particular portion of the R/R&D work to be 
performed or obtained in a country outside of the United States, for 
example, if a supply or material or other item or project requirement 
is not available in the United States. The funding agreement officer 
must approve each such specific condition in writing.
    (5) An SBIR awardee may include, and SBIR work may be performed by, 
those identified via a ``novated'' or ``successor in interest'' or 
similarly-revised funding agreement, or those that have reorganized 
with the same key staff, regardless of whether they have been assigned 
a different tax identification number. Agencies may require the 
original awardee to relinquish its rights and interests in an SBIR 
project in favor of another applicant as a condition for that 
applicant's eligibility to participate in the SBIR Program for that 
project.
    (6) NIH, Department of Energy and National Science Foundation may 
award not more than 25% of the agency's SBIR funds to SBCs that are 
owned in majority part by multiple venture capital operating companies, 
hedge funds, or private equity firms through competitive, merit-based 
procedures that are open to all eligible small business concerns. All 
other SBIR agencies may award not more than 15% of the agency's SBIR 
funds to such SBCs. SBIR agencies may or may not choose to utilize this 
funding option. A table listing the agencies that are currently using 
this authority can be found at www.SBIR.gov. This authority is set 
forth in 13 CFR 121.701 through 121.705.
    (i) Before permitting participation in the SBIR program by SBCs 
that are owned in majority part by multiple venture capital operating 
companies, hedge funds, or private equity firms, the SBIR agency must 
submit a written determination to SBA, the Senate Committee on Small 
Business and Entrepreneurship, the House Committee on Small Business 
and the House Committee on Science, Space, and Technology at least 30 
calendar days before it begins making awards to such SBCs. The 
determination must be made by the head of the Federal agency or 
designee and explain how awards to such SBCs in the SBIR program will:
    (A) induce additional venture capital, hedge fund, or private 
equity firm funding of small business innovations;
    (B) substantially contribute to the mission of the Federal agency;
    (C) address a demonstrated need for public research; and
    (D) otherwise fulfill the capital needs of small business concerns 
for additional financing for SBIR projects.
    (ii) The SBC that is majority-owned by multiple venture capital 
operating companies, hedge funds, or private equity firms must register 
with SBA in the Company Registry Database, at www.SBIR.gov, prior to 
the date it submits an application for an SBIR award.
    (iii) The SBC that is majority-owned by multiple venture capital 
operating companies, hedge funds, or private equity firms must submit a 
certification with its proposal stating, among other things, that it 
has registered with SBA.
    (iv) Any agency that makes an award under this paragraph during a 
fiscal year shall collect and submit to SBA data relating to the number 
and dollar amount of Phase I awards, Phase II awards, and any other 
category of awards by the Federal agency under the SBIR program during 
that fiscal year. See section10 of this directive for the specific 
reporting requirements.
    (v) If an agency awards more than the percentage of the funds 
authorized under section 6(a)(2) of the Policy Directive, the agency 
shall transfer from its non-SBIR and non-STTR R&D funds to the agency's 
SBIR funds any amount

[[Page 1308]]

that is in excess of the authorized amount. The agency must transfer 
the funds not later than 180 days after the date on which the Federal 
agency made the award that exceeded the authorized amount.
    (vi) If a Federal agency makes an award under a solicitation more 
than 9 months after the date on which the period for submitting 
applications under the solicitation ends, a Covered Small Business 
Concern is eligible to receive the award, without regard to whether it 
meets the eligibility requirements of the program for a SBC that is 
majority-owned by multiple venture capital operating companies, hedge 
funds, or private equity firms, if the Covered Small Business Concern 
meets all other requirements for such an award. In addition, the agency 
must transfer from its non-SBIR and non-STTR R&D funds to the agency's 
SBIR funds any amount that is so awarded to a Covered Small Business 
Concern. The funds must be transferred not later than 90 days after the 
date on which the Federal agency makes the award.
    6. Revise section 7(d) to read as follows:
    (d) Essentially Equivalent Work. SBIR participants often submit 
duplicate or similar proposals to more than one soliciting agency when 
the announcement or solicitation appears to involve similar topics or 
requirements. However, ``essentially equivalent work'' must not be 
funded in the SBIR or other Federal programs, unless an exception to 
this rule applies. Agencies must verify with the applicant that this is 
the case by requiring them to certify at the time of award and during 
the lifecycle of the award that they do not have essentially equivalent 
work funded by another Federal agency.
    7. Revise section 7(h)(1) to read as follows:
    (h) Periods of Performance and Extensions.
    (1) In keeping with the legislative intent to make a large number 
of relatively small awards, modification of funding agreements to 
increase the dollar amount should be kept to a minimum, except for 
options in original Phase I or II awards.
    8. Revise section 8(a) to read as follows:
    (a) Proprietary Information Contained in Proposals. The 
standardized SBIR Program solicitation will include provisions 
requiring the confidential treatment of any proprietary information to 
the extent permitted by law. The solicitation will require that all 
proprietary information be identified clearly and marked with a 
prescribed legend. Agencies may elect to require SBCs to limit 
proprietary information to that essential to the proposal and to have 
such information submitted on a separate page or pages keyed to the 
text. The Government, except for proposal review purposes, protects all 
proprietary information, regardless of type, submitted in a contract 
proposal or grant application for a funding agreement under the SBIR 
Program, from disclosure.
    9. Revise section 8(d) to read as follows:
    (d) Continued Use of Government Equipment. Agencies must allow an 
SBIR awardee participating in the third phase of the SBIR Program 
continued use, as a directed bailment, of any property transferred by 
the agency to the Phase II awardee or acquired by the awardee for the 
purpose of fulfilling the contract. The Phase II awardee may use the 
property for a period of not less than 2 years, beginning on the 
initial date of the concern's participation in the third phase of the 
SBIR Program.
    10. Revise section 9(h) to read as follows:
    (h) National Academy of Sciences Report. The National Academy of 
Sciences (NAS) will conduct a study and issue reports on the SBIR and 
STTR programs.
    (1) Prior to and during the period of study, and to ensure that the 
concerns of small business are appropriately considered, NAS shall 
consult with and consider the views of SBA's Office of Investment and 
Innovation and the Office of Advocacy and other interested parties, 
including entities, organizations, and individuals actively engaged in 
enhancing or developing the technological capabilities of small 
business concerns.
    (2) The head of each agency with a budget of more than $50,000,000 
for its SBIR Program for fiscal year 1999 shall, in consultation with 
SBA, and not later than 6 months after December 31, 2011, cooperatively 
enter into an agreement with NAS regarding the content and performance 
of the study. SBA and the agencies will work with the Interagency 
Policy Committee in determining the parameters of the study, including 
the specific areas of focus and priorities for the broad topics 
required by statute. The agreement with NAS must set forth these 
parameters, specific areas of focus and priorities, and comprehensively 
address the scope and content of the work to be performed. This 
agreement must also require the NAS to ensure there is participation by 
and consultation with, the small business community, the SBA, and other 
interested parties as described in paragraph (1).
    (3) NAS shall transmit to SBA, heads of agencies entering into an 
agreement under this section, the Committee on Science, Space and 
Technology, the Committee on Small Business of the House of 
Representatives, and to the Committee on Small Business of the Senate a 
copy of the report, which includes the results and recommendations, not 
later than 4 years after December 31, 2011, and every subsequent four 
years.
    11. Revise section 10(h)(4)(xi) to read as follows:
    (xi) All instances in which an agency pursued R/R&D, services, 
production, or any combination thereof of a technology developed under 
an SBIR award with an entity other than that SBIR awardee. See section 
9(a)(12) for minimum reporting requirements.
    12. Revise section 10(j)(2) to read as follows:
    (2) The system will include a list of any individual or small 
business concern that has received an SBIR award and that has been 
convicted of a fraud-related crime involving SBIR funds or found 
civilly liable for a fraud-related violation involving SBIR funds, of 
which SBA has been made aware.
    13. Revise section 12(b)(4) to read as follows:
    (4) Funding.
    (i) Beginning with FY 2013 and ending in FY 2015, the Secretary of 
Defense and each Secretary of a military department is authorized to 
use its SBIR funds for administration of this program in accordance 
with the procedures and policies set forth in section 9(e)(3) of this 
directive.
    (ii) In addition, the Secretary of Defense and Secretary of each 
military department is authorized to use not more than an amount equal 
to 1% of its SBIR funds available to DoD or the military departments 
for payment of expenses incurred to administer the Commercialization 
Program. Such funds--
    (A) shall not be subject to the limitations on the use of funds in 
9(e)(2) or 9(e)(3) of this directive; and
    (B) shall not be used to make Phase III awards.
    14. Revise section 12(b)(5) to read as follows:
    (5) Contracts Valued at less than $100,000,000. For any contract 
awarded by DoD valued at less than $100,000,000, the Secretary of 
Defense may:
    (i) establish goals for the transition of Phase III technologies in 
subcontracting plans; and
    (ii) require a prime contractor on such a contract to report the 
number and dollar amount of the contracts entered

[[Page 1309]]

into by the prime contractor for Phase III SBIR projects.
    15. Revise section 12(b)(6) to read as follows:
    (6) The Secretary of Defense shall:
    (i) set a goal to increase the number of SBIR Phase II contracts 
that lead to technology transition into programs of record of fielded 
systems;
    (ii) use incentives in effect as of December 31, 2011 or create new 
incentives to encourage agency program managers and prime contractors 
to meet the goal set forth in paragraph (6)(i) above; and
    (iii) submit the following to SBA, as part of the annual report:
    (A) the number and percentage of Phase II SBIR contracts awarded by 
DoD that led to technology transition into programs of record or 
fielded systems;
    (B) information on the status of each project that received funding 
through the Commercialization Program and the efforts to transition 
these projects into programs of record or fielded systems; and
    (C) a description of each incentive that has been used by DoD, the 
effectiveness of the incentive with respect to meeting DoD's goal to 
increase the number of SBIR Phase II contracts that lead to technology 
transition into programs of record of fielded systems, and measures 
taken to ensure that such incentives do not act to shift the focus of 
SBIR Phase II awards away from relatively high-risk innovation 
projects.
    16. Revise paragraph 1(a) of the Appendix I: Instructions for 
Preparation of SBIR Program Solicitation to read as follows:
    (a) Summarize in narrative form the request for proposals and the 
objectives of the SBIR Program.
    17. In Appendix I, in the SBIR Funding Agreement Certification and 
the SBIR Funding Agreement Certification--Life Cycle Certification, 
revise the checkbox addressing potential duplicative funding to read as 
follows:


It will notify the Federal agency immediately if all or a portion of 
the work authorized and funded under this award is subsequently funded 
by another Federal agency.

[FR Doc. 2013-31374 Filed 1-7-14; 8:45 am]
BILLING CODE 8025-01-P