[Federal Register Volume 85, Number 159 (Monday, August 17, 2020)]
[Notices]
[Pages 50062-50063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17815]


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SMALL BUSINESS ADMINISTRATION

RIN 3245-AH31


Small Business Innovation Research Program and Small Business 
Technology Transfer Program Policy Directive

AGENCY: Small Business Administration.

ACTION: Notice of technical amendment; request for comment request for 
comments.

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SUMMARY: The Small Business Administration is amending the Small 
Business Innovation Research (SBIR) and Small Business Technology 
Transfer (STTR) programs Policy Directive to clarify that successor-in-
interest entities are eligible to receive phase III awards.

DATES: These revisions to the SBIR/STTR Policy Directive take effect on 
October 1, 2020, without further action, unless significant adverse 
comment is received by September 16, 2020. If significant adverse 
comment is received, SBA will publish a timely withdrawal of the notice 
in the Federal Register.

ADDRESSES: You may submit comments, identified by number SBA-2020-XXXX 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    SBA will post all comments on www.regulations.gov. Please do not 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jennifer Shieh at (202) 205-6817 or 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    The mission of the Small Business Innovation Research (SBIR) and 
Small Business Technology Transfer (STTR) programs is to engage small 
business concerns (SBCs) to support scientific excellence and 
technological innovation through the investment of Federal research and 
research and development (R/R&D) funding in critical American 
priorities to build a strong national economy. Both programs follow a 
three-phase process throughout the Federal Government to solicit 
proposals and award funding agreements for R/R&D: Phase I, Phase II, 
and Phase III.
    The Small Business Act (the Act) requires that the Small Business 
Administration (SBA) issue a policy directive setting forth guidance to 
the Federal Agencies participating in the SBIR and STTR programs 
(Participating Agencies). The SBIR and STTR (SBIR/STTR) Policy 
Directive outlines how agencies must generally conduct their programs. 
Each Participating Agency, however, may tailor its program to meet the 
needs of the individual Agency, as long as the general principles of 
the program set forth in the Act and directive are followed. Therefore, 
when incorporating SBIR/STTR policy into agency-specific regulations 
and procedures, Participating Agencies may develop and apply processes 
needed to implement the policy effectively; however, no Participating 
Agency may develop and apply policies, directives, or clauses, that 
contradict, weaken, or conflict with the policy as stated in the 
directive.
    SBA reviews its Policy Directive regularly to determine areas that 
need updating and further clarification. It has come to SBA's attention 
that the language in section 6(a)(5) requires clarification to confirm 
for Participating Agencies and applicants that successor-in-interest 
entities are eligible to receive phase III SBIR/STTR awards. Section 
6(a) of the Policy Directive addresses eligibility to receive SBIR/STTR 
awards. Paragraph (5) of this section specifically relates to the 
eligibility of entities that have received a novated award, a 
similarly-revised award, or are successor-in-interest entities. SBA is 
clarifying this paragraph in order to confirm the Agency's long-
standing interpretation that permits successor-in-interest entities to 
receive phase III SBIR/STTR awards.

II. Amendment

Section 6--Eligibility and Application (Proposal) Requirements

    The Small Business Act describes the three-phase nature of the 
programs. The first phase (phase I) award generally does not exceed 
$150,000 and is intended to fund the determination of the technical and 
scientific merit, and feasibility of ideas that appear to have 
commercial potential. See 15 U.S.C. 638(e)(4)(A). The second phase 
(phase II) award generally does not exceed $1,000,000 and is intended 
to further develop proposals with commercial potential. See id. at 
Sec.  638(e)(4)(B). The final third phase award (phase III) is defined, 
as follows:

    (C) where appropriate, a third phase for work that derives from, 
extends, or completes efforts made under prior funding agreements 
under the SBIR program--
    (i) in which commercial applications of SBIR-funded research or 
research and development are funded by non-Federal sources of 
capital or, for products or services intended for use by the Federal 
Government, by follow-on non-SBIR Federal funding awards; or
    (ii) for which awards from non-SBIR Federal funding sources are 
used for the continuation of research or research and development 
that has been competitively selected using peer review or merit-
based selection procedures;

15 U.S.C. 638(e)(4)(C) (emphasis added). One way that an SBC has 
achieved commercialization is through a phase III award.
    A major feature of the SBIR/STTR programs, and incentive for SBC 
participation, is that the Government receives a limited rights license 
in data developed under an SBIR/STTR award, which fosters a competitive 
advantage for the SBC, as opposed to potential larger competitors, to 
achieve commercialization. The Government's limited rights license in 
SBIR/STTR data, combined with the statutory requirement for 
Participating Agencies to pursue phase III awards on a non-competitive 
basis with the SBC that performed prior SBIR/STTR awards, is a central 
aspect of the program.
    The SBIR/STTR programs are intended to economically assist SBCs 
performing R/R&D work by creating an advantage for those firms to 
receive Government funding at the early often riskiest stage, from an 
investment perspective, through commercialization. This intention may 
be hindered if the SBC's rights and interests in SBIR/STTR data cannot 
be assigned through a merger or sale with another business concern, 
along with the attendant incentives for non-competitive phase III 
awards. Such a policy interpretation would create inefficiencies in the 
marketplace and discourage valuations and transactions among businesses 
that may otherwise allow for greater investment in new ideas and 
products.

[[Page 50063]]

    Consistent with the statutory purposes and policy goals of the 
program, a firm may be considered a successor-in-interest and receive a 
subsequent SBIR/STTR award. An entity may be considered a successor-in-
interest, if it has secured the transfer of: (1) All the small business 
concern's assets; or (2) the entire portion of the assets involved in 
performing the award. Examples of such transactions include, but are 
not limited to: (1) Sale of these assets with a provision for assuming 
liabilities; (2) transfer of these assets incident to a merger or 
corporate consolidation; and (3) incorporation of a proprietorship or 
partnership, or formation of a partnership. Further, to be considered a 
successor-in-interest, the firm must meet any applicable eligibility 
requirements. If performance of the funding agreement is complete prior 
to the transfer of assets, an entity may be considered a successor-in-
interest without a novation. If the transfer of assets occurs during 
performance of the funding agreement, the awardee should verify with 
the awarding agency whether a novation is necessary.
    Section 6(a)(5) of the Policy Directive provides, only as an 
example, that a phase III award can be made when the previous SBIR/STTR 
awardee has received a phase I or phase II award, or been novated one 
of those awards. This was never intended to be an exclusive list of all 
scenarios where an SBIR/STTR award could be made to a firm other than 
the recipient of a prior phase I or phase II award.
    SBA amends the second sentence of section 6(a) of the Policy 
Directive to clarify SBA's long-standing intent regarding the 
eligibility of successor-in-interest entities to receive phase III 
awards. Currently, the first two sentences of this paragraph read as 
follows: ``An SBIR/STTR Awardee may include, and SBIR/STTR work may be 
performed by, those identified via a `novated' or `successor in 
interest' or similarly-revised Funding Agreement. For example, in order 
to receive a Phase III award, the Awardee must have either received a 
prior Phase I or Phase II award or been novated a Phase I or Phase II 
award (or received a revised Phase I or Phase II award if a grant or 
cooperative grant).'' SBA changes ``must'' to ``may'' in the second 
sentence and adds ``successor-in-interest'' to the list of possible 
eligible entities at the end of the sentence. This would not be a 
change in policy, but rather, a clarification of existing policy.
    This clarification is necessary to provide confidence to 
Participating Agencies and applicants that entities that acquire access 
to the relevant SBIR/STTR data developed pursuant to prior SBIR/STTR 
awards, may be eligible to receive a phase III award as a successor-in-
interest without novation if the performance of the prior SBIR/STTR 
award is complete.

Notice of Clarification of Phase III Eligibility in the Policy 
Directive for the Small Business Innovation Research (SBIR) and Small 
Business Technology Transfer Research (STTR) Programs

To: The SBIR and STTR Program Managers
Subject: SBIR/STTR Policy Directive
    1. Purpose. The Small Business Administration (SBA) is updating its 
Small Business Innovation Research and Small Business Technology 
Transfer Research (SBIR/STTR) Policy Directives to clarify SBA's 
current policy that successor-in-interest entities are eligible to 
receive phase III SBIR/STTR awards.
    2. Authority. The Small Business Act (15 U.S.C. 638(j) and (p)) 
requires the SBA Administrator to issue an SBIR and STTR program Policy 
Directive for the general conduct of the programs.
    3. Procurement Regulations. There are no procurement regulations 
created by this proposed clarification.
    4. Personnel Concerned. This SBIR/STTR Policy Directive serves as 
guidance for all Federal Government personnel who are involved in the 
administration of the SBIR and STTR programs, issuance and management 
of funding agreements or contracts pursuant to the programs, and/or the 
establishment of goals for small business concerns in research or 
research and development acquisition or grants.
    5. Originator. SBA's Office of Investment and Innovation.
    This amendment to the SBIR/STTR Policy Directive will be effective 
on the date shown in the DATES section unless SBA receives any 
significant adverse comments on or before the deadline for comments set 
forth in the DATES section. Significant adverse comments are comments 
that provide strong justifications why the clarifying amendment to the 
PD should not be adopted as written or should be changed further. SBA 
does not expect to receive any significant adverse comments because the 
amendment does not change SBA's or Participating Agencies' 
interpretation of existing policy, and continues to confer the intended 
incentive for SBIR/STTR awardee successor-in-interest entities. 
Implementation of this change will benefit the public by ensuring that 
the plain language interpretation of the SBIR/STTR Policy Directive is 
consistent with SBA's policy intent. If SBA receives any significant 
adverse comments, SBA will publish a notice in the Federal Register 
withdrawing this notice before the effective date.
    6. Date. Public comments on the proposed amendments to the Policy 
Directive must be submitted within 30 days following publication in the 
Federal Register.

    Authorized By:
Jovita Carranza,
Administrator.

    SBA revises section 6(a)(5) of the SBIR/STTR Policy Directive as 
follows:

6. Eligibility and Application (Proposal) Requirements

(a) Eligibility Requirements

    (1) * * *
* * * * *
    (5) Novated/Successor in Interested/Revised Funding Agreements. An 
SBIR/STTR Awardee may include, and SBIR/STTR work may be performed by, 
those identified via a ``novated'' or ``successor in interest'' or 
similarly-revised Funding Agreement. For example, a phase III Awardee 
may have either received a prior Phase I or Phase II award or been 
novated a Phase I or Phase II award (or received a revised Phase I or 
Phase II award if a grant or cooperative grant) or be a successor-in-
interest entity. * * *
* * * * *
[FR Doc. 2020-17815 Filed 8-14-20; 8:45 am]
BILLING CODE 8026-03-P