Federal Research and Development: Contributions to and Results of
the Small Business Technology Transfer Program (04-JUN-01,	 
GAO-01-766R).							 
								 
Research and development are major factors in the growth and	 
progress of industry and the national economy. However, basic	 
research done by the nation's research institutions--universities
and colleges, federal laboratories, and nonprofit research	 
centers--may not translate into marketable technologies. To link 
the ideas and resources of the research institutions with the	 
commercialization experience of small businesses, Congress	 
authorized the Small Business Technology Transfer (STTR) Pilot	 
Program in 1992 and reauthorized it in fiscal year 1997. The STTR
program is scheduled to expire in September 2001. Each of the	 
five participating federal agencies manages its own program,	 
while the Small Business Administration plays a central 	 
administrative role, issuing policy directives and annual reports
for the program. The program, which requires that small 	 
businesses partner with a nonprofit research institution, is	 
closely modeled to the Small Business Innovation Research (SBIR) 
Program. In preparation for the review and potential		 
reauthorization of the STTR program, this correspondence	 
identifies participating companies' views on (1) the		 
contributions that the companies and the research institutions	 
made to research and development, (2) the results of research and
development, and (3) options for the future relationship between 
the STTR and SBIR programs. The companies reported that both the 
companies and institutions contributed significantly to research 
and development. The companies also reported various results,	 
including sales of a product, process, or service; the receipt of
additional developmental funding; patents granted; and		 
discontinuation of projects. The companies also preferred	 
maintaining the current separation of the STTR and SBIR programs.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-766R					        
    ACCNO:   A01164						        
  TITLE:     Federal Research and Development: Contributions to and   
             Results of the Small Business Technology Transfer Program        
     DATE:   06/04/2001 
  SUBJECT:   Interagency relations				 
	     Research and development				 
	     Small business					 
	     Technology transfer				 
	     Nonprofit organizations				 
	     Small Business Innovation Research 		 
	     Program						 
								 
	     Small Business Technology Transfer Pilot		 
	     Program						 
								 

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GAO-01-766R
     
GAO- 01- 766R Small Business Technology Transfer Program United States
General Accounting Office

Washington, DC 20548

June 4, 2001 The Honorable Christopher S. Bond Chairman The Honorable John
F. Kerry Ranking Member Committee on Small Business United States Senate

The Honorable Sherwood L. Boehlert Chairman The Honorable Ralph M. Hall
Ranking Minority Member Committee on Science House of Representatives

Subject: Federal Research and Development: Contributions to and Results of
the Small Business Technology Transfer Program

Research and development (R& D) are major factors in the growth and progress
of industry and the national economy. However, basic research performed by
the nation?s research institutions- universities and colleges, federal
laboratories, and nonprofit research centers- may not be translated into
marketable technologies. Small businesses have a well- earned reputation for
bringing new ideas to the marketplace but often lack the resources to carry
out extensive R& D. In an effort to join the ideas and resources of the
research institutions with the commercialization experience of small
businesses, the Congress authorized the Small Business Technology Transfer
(STTR) Pilot Program in1992 and reauthorized it in fiscal year 1997. The
STTR program is scheduled to expire in September 2001.

Five agencies participate in the program, including the departments of
Defense and Energy, and Health and Human Services? National Institutes of
Health, the National Aeronautics and Space Administration, and the National
Science Foundation. Each agency manages its own program, while the Small
Business Administration plays a central administrative role, issuing policy
directives and annual reports for the program. The 1992 act authorizes each
agency having an external R& D budget in

GAO- 01- 766R Small Business Technology Transfer Program 2 excess of $1
billion annually to set aside not less than 0.15 percent of that budget for

the Program. Since the first grants became available in 1994, the STTR
program has awarded approximately $300 million to small businesses and
research institutions to foster R& D.

The 1992 act established a three- phase structure for the STTR program. The
first phase, not to exceed 1 year, is designed to determine the scientific,
technical, and commercial merit and feasibility of a proposed idea. Upon
successful completion of phase I, the second phase, not to exceed 2 years,
is designed to further develop the idea. The statute established $100,000
and $500,000 as the general funding limits for phases I and II,
respectively. The third phase, in general, is expected to result in
commercialization or further continuation of R& D. However, no STTR funding
is allowed for phase III. Additional developmental funding for phase III can
include private- sector funds and federal, non- STTR funds.

The STTR Program is closely modeled on the Small Business Innovation
Research (SBIR) Program, which was established in 1982. The two programs
share the same goals and other basic features, including participation by
many of the same agencies, the use of a percentage of the external budget
for funding, and a three- phase approach. The key difference is that under
the STTR program, a small business must partner with a nonprofit research
institution. While this partnership is permitted under the SBIR program, it
is not mandatory. This special STTR requirement reflects the fact that STTR
was envisioned primarily as a technology transfer program, in which
promising concepts originating in the nonprofit research community would
move toward commercialization with the assistance of small businesses.

In preparation for the review and potential reauthorization of the STTR
program, you asked us to address several issues. As agreed with your
offices, we identified participating companies? views on (1) the
contributions that the companies and the research institutions made to the
R& D, (2) the results of the R& D, and (3) options for the future
relationship between the STTR and SBIR programs.

In conducting our work, we surveyed all 166 companies that had received 201
Phase II STTR awards in fiscal years 1995 through 1997, the first 3 years
when such awards were made. We chose the earliest recipients because studies
by experts on technology development concluded that 5 to 9 years are needed
for a company to progress from a concept to a commercial product. Our
results are based on responses for 102 projects. See enclosure I for a copy
of the questionnaire and the aggregate responses.

The following summarizes our findings:

For the 102 partnerships that we reviewed, the companies reported that both
the companies and the research institutions contributed significantly to the
R& D. For example, the companies believed that both parties contributed
significantly to the knowledge and/ or expertise essential to the project.
Furthermore, they generally believed that both parties contributed
significantly in constructing or testing prototypes and in providing special
equipment or facilities. However, the companies reported that, in aggregate,
the companies played a substantially greater role in originating the key
ideas for the

GAO- 01- 766R Small Business Technology Transfer Program 3 R& D; in their
view, they originated or were primarily responsible for originating

the key ideas in 72 percent of the projects.

The companies reported a variety of results, including sales of a product,
process, or service, the receipt of additional developmental funding,
patents granted, and discontinuation of projects. As of April 2001, the
companies reported about $132 million in total sales and about $53 million
in additional developmental funding. About two- thirds of the projects with
reported sales achieved their first sale in 1999 or 2000 and projected about
$900 million in additional sales by December 31, 2005. The companies also
reported receiving 41 patents for the core technologies associated with
their projects and the creation of 12 spin- off companies. Twenty- seven
projects were discontinued. When asked to identify those factors that had a
great role in the decision to discontinue the project, companies most
frequently cited insufficient additional funding for further technical
development.

The companies reported a preference for maintaining the current separation
of the STTR and SBIR programs. For 96 percent of the projects in our survey,
the companies had also won an award under the SBIR program. In this context
we asked them to choose between four options for the future of the STTR
program in relation to the SBIR program: (1) preserve its current separation
from the SBIR program, (2) subsume it under the SBIR program with a portion
of funds reserved for STTR- type partnerships, (3) subsume it under the SBIR
program with no funds reserved for STTR- type partnerships, and (4)
eliminate it entirely. For approximately 50 percent of their projects, the
companies preferred the current separation of the STTR program from the SBIR
program. Thirty- three percent favored the second option, 19 percent the
third option, and only 1 percent supported the program?s elimination.

Scope and Methodology

We surveyed 166 companies that had received 201 Phase II STTR awards in
fiscal years 1995 through 1997, the first 3 years when such awards were
made. We did not include Phase II recipients from 1998 or later because, in
most cases, they have not had sufficient time to demonstrate Phase III
activity. We received questionnaire responses for 126 of the 201 projects.
However, due to technical difficulties, we were not able to include the
results from 24 of the questionnaires that we received. Thus, our results
are based on 102 of the 201 projects. We did not survey the research
partners of these companies. The questionnaire contained specific questions
on the contributions to and results of the R& D for these awards. In
addition, it identified companies that had received both STTR and SBIR
awards. Participation in both programs enabled companies to choose among
various options for the future of the STTR program in relation to the SBIR
program. We conducted our review from July 2000 to June 2001 in accordance
with generally accepted government auditing standards.

- - - - -

GAO- 01- 766R Small Business Technology Transfer Program 4 As arranged with
your offices, unless you publicly announce its contents earlier, we

plan no further distribution of this letter until 30 days after the date of
this letter. At that time, we will send copies to the Honorable John D.
Whitmore, Acting Administrator, Small Business Administration, and the heads
of the other federal agencies participating in the Small Business Technology
Transfer Program. We will also make copies available to others on request.
The report will also be available on GAO?s home page at http:// www. gao.
gov.

If you have any questions about this letter or need additional information,
please call me on (202) 512- 3841 or Robin Nazzaro on (202) 512- 6246. Key
contributors to this report were Dennis Carroll, Vondalee Hunt, and Lynn
Musser.

Jim Wells Director, Natural Resources

and Environment Enclosure

Enclosure I

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Enclosure I

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