Federal Research: Observations on the Small Business Technology Transfer
Program (Testimony, 09/04/97, GAO/T-RCED-97-230).

GAO discussed the results of its review of the first-year implementation
of the Small Business Technology Transfer (STTR) Program, focusing on:
(1) the effect of STTR on the Small Business Innovation Research Program
(SBIR); and (2) the need for the STTR program.

GAO noted that: (1) while agency officials expressed differing views on
the effect of and the need for the STTR Program, all of the officials
felt that the program was not competing for quality proposals with the
SBIR Program or reducing the quality of the agencies' research and
development in general in the first year of the program; (2)
furthermore, some officials noted potentially beneficial effects, such
as greater collaboration between small businesses and research
institutions in the SBIR Program; (3) the similarity of the two
programs, however, raises three questions that are relevant in
evaluating the need for the STTR Program: (a) Is the technology
originating primarily in the research institution as envisioned in the
rationale for the program or is it originating in the small business?
(b) Is the mandatory collaboration between the small business and the
research institution effective in transferring the technology to the
marketplace? and (c) Can the SBIR Program accomplish the same objective
without the collaboration required by the STTR Program?; (4) since
fiscal year 1990, approximately 6,500 companies have received STTR
and/or SBIR awards from the five agencies that participate in both
programs; (5) of these companies, 383 companies, or about 6 percent,
have received a total of 10 or more STTR and/or SBIR awards; (6) while
two companies have received over 300 STTR and/or SBIR awards each,
agency officials reported that many other recent SBIR awardees had never
received an award from their agencies; (7) however, all of the companies
that have received 3 or more STTR awards have also received 5 or more
SBIR awards; (8) generally, the agencies have not collected information
on the number of employees and the annual revenue of the companies that
receive awards and have limited information on the commercialization
resulting from these programs; and (9) it is important to note, however,
that it may be too early for companies that have received STTR awards to
have achieved success in commercializing the results of the STTR work.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-97-230
     TITLE:  Federal Research: Observations on the Small Business 
             Technology Transfer Program
      DATE:  09/04/97
   SUBJECT:  Small business assistance
             Research program management
             Research and development contracts
             Non-government enterprises
             Technology transfer
             Research programs
IDENTIFIER:  Small Business Innovation Research Program
             Small Business Technology Transfer Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Before the Subcommittee on Technology
Committee on Science
House of Representatives

For Release on
Delivery Expected at
10 a.m.  EDT
Thursday
September 4, 1997

FEDERAL RESEARCH - OBSERVATIONS ON
THE SMALL BUSINESS TECHNOLOGY
TRANSFER PROGRAM

Statement by Susan Kladiva
Acting Associate Director
Energy, Resources, and Science Issues
Resources, Community, and Economic
Development Division

GAO/T-RCED-97-230

GAO/RCED-97-230


(141106)


Abbreviations
=============================================================== ABBREV

  STTR -
  R&D -
  SBA -
  SBIR -
  DOD -
  NSF -
  DOE -
  NASA -
  NIH -

============================================================ Chapter 0

Madam Chair and Members of the Subcommittee: 

We are pleased to be here today to discuss the results of our review
of the first-year of the Small Business Technology Transfer (STTR)
Program's implementation.\1 In addition, we will be discussing our
work in response to the Subcommittee's recent request for information
on companies that have received multiple awards under the STTR
Program and the Small Business Innovation Research (SBIR) Program. 
The two programs share similar goals, which emphasize the benefits of
technological innovation and the ability of small businesses to
transform the results of research and development (R&D) into new
products.  The STTR Program differs from the SBIR Program primarily
in requiring a company to form a partnership with a nonprofit
research institution.  The Small Business Research and Development
Enhancement Act of 1992 established the STTR Program and authorized
it for 3 years, beginning in fiscal year 1994.  The program was
subsequently extended through fiscal year 1997.  Under the same 1992
legislation, the Congress also reauthorized the SBIR Program, which
was authorized in 1982 and served as the model for the STTR Program. 

In our report on the STTR program, we discussed, among other issues,
the effect of STTR on SBIR and other agency R&D and the need for the
STTR Program.  While we have not updated our work since 1996, our
report provided a concise picture of the program's basic issues.  For
our work on multiple awardees, we obtained information on the
profiles of companies that had received STTR and/or SBIR awards since
fiscal year 1990.  We obtained this information from the Small
Business Administration (SBA) and the agencies participating in both
the STTR and SBIR programs. 

Our discussion today highlights the message of our 1996 report and
information on the multiple awardees.  In summary, Madam Chair: 

  -- We reported that while agency officials expressed differing
     views on the effect of and the need for the STTR Program, all of
     the officials felt that the program was not competing for
     quality proposals with the SBIR Program or reducing the quality
     of the agencies' R&D in general in the first year of the
     program.  Furthermore, some officials noted potentially
     beneficial effects, such as greater collaboration between small
     businesses and research institutions in the SBIR Program.  The
     similarity of the two programs, however, raises three questions
     that are relevant in evaluating the need for the STTR Program: 
     (1) Is the technology originating primarily in the research
     institution as envisioned in the rationale for the program or is
     it originating in the small business?  (2) Is the mandatory
     collaboration between the small business and the research
     institution effective in transferring the technology to the
     marketplace?  (3) Can the SBIR Program accomplish the same
     objective without the collaboration required by the STTR
     Program?

  -- Since fiscal year 1990, approximately 6,500 companies have
     received STTR and/or SBIR awards from the five agencies that
     participate in both programs.  Of these companies, 383
     companies, or about 6 percent, have received a total of 10 or
     more STTR and/or SBIR awards.  While two companies have received
     over 300 STTR and/or SBIR awards each, agency officials reported
     that many other recent SBIR awardees had never received an award
     from their agencies.  However, all of the companies that have
     received 3 or more STTR awards have also received 5 or more SBIR
     awards.  Generally, the agencies have not collected information
     on the number of employees and the annual revenue of the
     companies that receive awards and have limited information on
     the commercialization resulting from these programs.  It is
     important to note, however, that it may be too early for
     companies that have received STTR awards to have achieved
     success in commercializing the results of the STTR work. 


--------------------
\1 Federal Research:  Preliminary Information on the Small Business
Technology Transfer Program (GAO/RCED-96-19, Jan.  24, 1996)


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

The objectives of the STTR Program are to (1) stimulate technological
innovation, (2) use small businesses to meet federal R&D needs, and
(3) increase the private sector's commercialization of innovation
derived from federal R&D.  The STTR Program is closely modeled on the
SBIR Program, which was established in 1982.  The two programs share
similar 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.  To be eligible for
an STTR or SBIR award, SBA's policy directives state that a small
business must employ 500 or fewer employees (including employees of
subsidiaries and affiliates). 

Five agencies--the Department of Defense (DOD); the National
Aeronautics and Space Administration (NASA); the Department of Health
and Human Services and, particularly, its National Institutes of
Health (NIH); the Department of Energy (DOE); and the National
Science Foundation (NSF)--participate in the STTR Program.  These
five agencies also participate in the SBIR Program.\2 Each agency
manages its own programs, while SBA plays a central administrative
role and issues policy directives and annual reports for each
program. 

In establishing the STTR Program, the legislation required each
agency with an external R&D budget in excess of $1 billion to set
aside not less than 0.05 percent of that budget in fiscal year 1994,
not less than 0.1 percent in fiscal year 1995, and not less than 0.15
percent in fiscal year 1996 for the STTR Program.  The percentage
remained at 0.15 when the program was extended through fiscal year
1997.  These agencies expended about $34 million in fiscal year 1995
and $62 million in fiscal year 1996 and plan to spend about $62
million again in fiscal year 1997. 

The legislation establishing the SBIR Program required each agency
with an external R&D budget in excess of $100 million to set aside a
certain percentage of this amount for the program.  The percentage
was increased incrementally until it reached 1.25 percent in 1986. 
The program's 1992 reauthorization legislation increased funding to
not less than 1.5 percent for fiscal years 1993 and 1994, not less
than 2 percent for fiscal years 1995 and 1996, and not less than 2.5
percent for fiscal year 1997 and thereafter.  Funding for fiscal year
1997 will be nearly $1 billion. 

STTR and SBIR funding is provided in two phases.  Phase I is intended
to determine the scientific and technical merit and feasibility of
ideas; it generally lasts about 1 year for STTR and 6 months for
SBIR.  Phase II further develops the proposed ideas and generally
lasts about 2 years.  The 1992 reauthorization set the general limits
for STTR awards at $100,000 and $500,000, respectively.  It also
directed SBA to set the general limits on the size of SBIR phase I
and II awards at $100,000 and $750,000, respectively, although awards
may be for less than these amounts.  A third phase for STTR and SBIR
projects, where appropriate, involves the continuation or commercial
application of the R&D without STTR or SBIR funds. 

Although the two programs have many points in common, they differ in
one important respect.  To be eligible for an STTR award, a small
business must collaborate with a nonprofit research institution such
as a university, a federally funded research and development center,
or other entity.  This collaboration is permitted under the SBIR
program but is not mandatory.  This special STTR requirement,
according to a 1992 House of Representatives report,\3 was to provide
a more effective mechanism for transferring new knowledge from
research institutions to industry. 


--------------------
\2 The other five SBIR agencies are the United States Department of
Agriculture, Department of Commerce, Department of Education,
Department of Transportation, and Environmental Protection Agency. 

\3 H.R.  Rep.  No.  554, 102d Cong., 2d Sess., pt.  1 (1992).  The
report accompanied H.R.  4400, a predecessor to the bill (S.  2941)
that was enacted. 


   AGENCIES' VIEWS DIFFERED ON THE
   EFFECT OF AND NEED FOR THE STTR
   PROGRAM
---------------------------------------------------------- Chapter 0:2

Agency officials expressed differing views on the effect of STTR on
SBIR and other agency R&D.  For example, SBA officials contended that
STTR was too small and too new a program to have any real effect on
SBIR or on the broader range of agency research at the time of our
report.  At the time of our review, the officials pointed out that
the program represented only 0.05 percent of each agency's external
R&D budget during its first year and that it was only 1 year old. 

In contrast to the view that STTR's effect was very limited, the
manager of the Army's STTR Program said that STTR was influencing
SBIR in a beneficial way.  In his opinion, STTR is becoming known
through national conferences and other means.  Furthermore, he said
that small businesses are realizing that they have more credibility
and chance of winning an award by collaborating with a university or
other research institution.  He believes that the STTR Program has
also led to more collaboration in SBIR.  In general, according to the
Program Manager, STTR is a promising program that may be as
successful as the SBIR Program. 

The similarity of the two programs, however, raises a broader issue
about the need for the STTR Program.  In the 1992 House report, the
Committee on Small Business provided two basic arguments in favor of
the program.  First, the report stated that the program addresses a
core problem in U.S.  economic competitiveness--the inability to
translate the nation's worldwide leadership in science and
engineering into technology and commercial applications that will
benefit the economy.  Second, the report stated that, although SBIR
has turned out to be remarkably effective at commercializing ideas in
the small business community, it is less effective at fostering the
commercialization of ideas that originate in universities, federal
laboratories, and nonprofit research institutions--a goal of STTR. 

The rationale for the STTR Program, which points to certain
weaknesses in SBIR and potential strengths in STTR, suggests three
questions that are relevant in evaluating the need for the program. 

First, is the technology originating in the research institution as
envisioned in the rationale for the program or is it originating in
the small business?  The technology may originate in the research
institution, the small business, or a combination of the two.  Under
the STTR Program, the assumption is that the research institution
will be the primary originator of the new concept.  However, data to
determine the extent to which research institutions are providing the
technologies were not available.  Neither SBA nor the agencies had
collected this information.  The relative roles of the research
institution and the small business as the source of the technology
bear directly on the need for the STTR Program.  If a high percentage
of the ideas are originating with small businesses rather than with
research institutions, this would raise questions about the need for
the program.  On the other hand, if a high percentage of ideas are
originating with research institutions, this would suggest that the
program was achieving the first step in moving ideas from research
institutions to small businesses. 

Second, if the program is effective in moving ideas from research
institutions to small businesses, then the next logical question is
whether their collaboration is effective in moving the ideas to the
marketplace.  This question can be approached from two directions: 
(1) short-term views of how well the collaboration is working in
general and (2) long-term data on actual commercialization. 
Information on how well the collaboration was working was not
available at the time of our report.  Information on actual
commercial outcomes will require a greater amount of time before it
can be obtained.  Generally, 5 to 9 years are needed to turn an
initial concept into a marketable product. 

Third, because one important difference between the two programs is
that the STTR Program makes a small business/research institution
collaboration mandatory, the following question arises:  Can the SBIR
Program accomplish the objective of transferring technology from
research institutions to the private sector without mandatory
collaboration?  The rationale for the STTR Program tends to assume
that such collaborations were relatively rare in the SBIR Program. 
However, NIH's Program Manager told us that, in an SBIR survey
undertaken by NIH several years ago, collaboration between small
businesses and universities was already evident in well over half of
NIH's SBIR projects.  By contrast, the manager of Army's programs
believed that STTR's impact will be greater in the Army than in
agencies such as NIH because the Army has had a lesser degree of
collaboration with universities and other research institutions in
the past.  Given the apparent variation from one agency to another
and the lack of current data, no definite conclusion can be drawn at
present concerning the need for STTR in forging new collaborations. 


   PROFILE DATA ON COMPANIES THAT
   HAVE RECEIVED MULTIPLE STTR
   AND/OR SBIR AWARDS
---------------------------------------------------------- Chapter 0:3

Since fiscal year 1990, 383 companies have received a total of 10 or
more STTR and/or SBIR awards from the five agencies that participate
in both of the award programs.  Two companies have received over 300
STTR and/or SBIR awards each, and another eight companies have
received over 100 awards each from both of the programs. 
Approximately one-third of the companies that have received STTR
awards have also received SBIR awards since fiscal year 1990.  In
addition, all of the companies that have received three or more STTR
awards have also received five or more SBIR awards. 

On the other hand, many companies have received only a few awards. 
For example, DOD reported that from 1983 through 1995, 61 percent of
its phase II SBIR awardees received only one phase II award from DOD,
and 92 percent of its phase II SBIR awardees received five or fewer
phase II awards from DOD.  NSF and DOE reported that almost 25
percent of recent SBIR awardees had never received an award from
these agencies before.  The Program Manager for the SBIR and STTR
programs at NASA reported that multiple awardees have been a small
proportion of the overall set of award winners. 

Generally, the agencies have not collected information on the number
of employees or the annual revenue of the companies that have
received STTR and/or SBIR awards.  However, in a survey of the
companies that have received DOD phase II SBIR awards prior to fiscal
year 1993, DOD obtained this information from some of the respondents
who received the most phase II awards.  Of the 29 companies
responding to a question on the company's size, the range was from as
few as 7 employees to over 500 employees.\4 Annual revenues also
varied for the 17 companies that reported their annual revenue for
1996.  Of these, 11 companies reported revenues of between $5 million
and $19.99 million.  Four companies reported annual revenues of over
$20 million, and the remainder reported revenues of under $5 million. 

Limited information is available on the commercialization success of
the companies that have received STTR and/or SBIR awards.  For one
thing, it may be too early for companies that have received STTR
awards to have achieved success in commercializing the results of the
STTR work because it can take many years for a research project to
achieve results.  However, various studies have reported mixed
results on the commercialization success of companies that have
received multiple SBIR awards.  In 1992, we reported that a
comparison of frequent winners--those receiving five or more SBIR
phase II awards--with less frequent winners showed that, in general,
frequent winners were achieving lower levels of total sales per
project.\5 In addition, frequent winners had obtained substantially
less additional developmental funding per project from the private
sector than companies with one to four awards.  A recent analysis by
DOD confirms our finding.  Specifically, survey results indicate that
companies that had received nine or more phase II awards were less
successful in commercializing the results of their research than
companies that had received fewer than five awards.  The reasons for
this remain unclear.  DOD has noted, however, that there are some
individual exceptions.  A few frequent award winners have been
successful in commercializing the results of their research. 

DOE, on the other hand, stated that there does not appear to be a
relationship between the number of DOE phase II SBIR awards received
by a company and the company's success in commercializing the results
of its research.  DOE's approach for evaluating commercialization
success is to query companies about the products that they have
developed.  DOE asks SBIR awardees which SBIR projects contributed to
the development of a particular product.  Using this measure of
commercialization success, DOE has found that companies that have
received more than ten phase II SBIR awards from DOE have received
approximately the same amount of phase III funding on the average as
companies that have received less than five awards.  NASA reported
that it has incomplete information on companies' commercialization
success but stated that available data indicate that
commercialization rates are about the same for multiple awardees as
they are for companies that have received fewer awards. 

This concludes my statement.  I would be happy to respond to any
questions that you or the Members of the Subcommittee may have. 

--------------------
\4 Three companies reported that they currently have over 500
employees; however, at the time they received phase II SBIR awards
from DOD, these companies had 500 or fewer employees. 

\5 Federal Research:  Small Business Innovation Research Shows
Success but Can Be Strengthened (GAO/RCED-92-37, March 30, 1992). 


*** End of document. ***