4.0 BARRIERS TO SMALL BUSINESS PARTICIPATION IN FEDERAL R & D PROGRA PROGRAMS

1) Government Experience in R & D

By and large the federal experience in R & D has been mission oriented, but toward objectives that lie outside the commercial economy. For example, large sums have been spent for defense and space programs. These fields require products and technology that lie at the cutting edge of the state-of-technology, with only a small cost restraint. Performance is all important.

In addition, the federal government has properly, and on the whole successfully, sponsored basic research. All in all the National Science Foundation has been able to identify and fund quite good scientific studies. But perhaps the methods, traditions, skills, and evaluation procedures for funding academic work are not adequate for undertaking practical and applied work. It may well be that RANN as a concept, although effective as a patron of basic research, will only undercut NSF's effectiveness in the ability to solve applied problems. Or it may be that the change in mission is so different that several years are required to bring RANN up to an effective level of support.

One can only applaud the rather belated recognition of the fact that it is quite honorable for the engineering student to work on relevant practical problems. For much too long the rather snobbish attitude that abstract work is superior to honest engineering has served only to weaken both science and technology.

2) Large Scale Projects

The federal government has what I believe is an almost incurable habit of undertaking large-scale projects. Given two equally valid technical responses to a national problem, it is my opinion that the technology that is larger in scale will invariably be preferred to the smaller more decentralized technology. For example, as solar energy development start ed again, one of the first concepts that received attention and evaluation was the "sattelite in the sky" concept as compared to home heating.

Large projects employ many people and thus leadership is recognized in terms of professional prestige. Thus, the individuals who guide programs prefer large to small projects.

There is an American attitude that larger is somehow inherently better, and although not stated, that small is unimportant or at least unsuccessful.

3) Sophisticated Equals Good

In technical circles the attitude that new technology must be complex and intricate to be of value often prevails. Technologists have not yet learned from the scientists

that the best, most elegant solutions are simple in both concept and execution. A contract monitor, after spending large sums of federal money, wants something that is complicated and appears worth the money--not a simple, straight forward workable

answer.

Much federally supported research ends up as a report. Paper is the product. A complete, first-rate report must have a lot of complicated formulas, or even better, pages of computer data that no one can really determine the accuracy of or quite exactly comprehend. In many cases, checking all the analyses would take the project monitor too long, and so it is much simpler to approve the report than to be sure.

4) Play It Safe

Civil service requires a kind of conformity. The motto is not only to mumble, but to keep your head down, cover your tail, and hide, duck, or slide--but above all, do not take a risk that may result in failure. A research contract is almost certain to appear successful. Work will be performed, experiments conducted, data recorded and a report drafted. But innovation and directed development are a very different matter; specific targets must be set and the work measured against goals. Failure is visible and likely.

Given these basic, but perhaps only slightly overstated, differences it is clear that the average federal contract or grant monitor will opt for the safer research op

tion.

This basic tendency to play it safe in a hazardous area frequently causes the proposal evaluator to depend upon recognized corporate or scientific names. If a large corporation or an established university is chosen to perform a project and does not rise to the level expected or desired, it is always easy to say that "if so and so couldn't do it, then it probably is not possible."

5) Industry Matching Funds

Clearly it is in the national interest to be sure that R & D results are utilized by industry, thus the idea of having industry match federal funds appears sound. The Office of Coal Research (now Fossil Energy Division of ERDA) required industry participation on a $1 dollar private to three dollars federal contribution, for demonstration. This would appear to be a very desirable and workable arrangement, but let me show how it works out in my case.

For home heating it is apparent that coal can be converted to gas and burned in conventional home furnaces or as an alternative, coal could be burned directly in the MCI domestic furnace. The national advantage in gasification is that the existing pipe line system can be used as well as existing domestic furnaces. The disadvantage is that the total energy delivered to the home is low. Only about 70% of the fuel value in

the coal is delivered as high BTU gas. When this synthetic gas is burned in a typical home furnace having a 65% efficiency, the total system efficiency is only 45.5%.

On the other hand, the laboratory results indicate that the MCI furnace burns coal directly at about 90% efficiency. In terms of energy use efficiency the MCI furnace appears attractive. Yet today we are building several multi-hundred million dollar pilot and demonstration gasification plants, but almost nothing on the MCI furnace. It is not that I'm opposed to gasification plants, but rather that we should get help for our furnace concept, because as a small firm the three for one matching funds is a barrier. Is it not possible to allow an exemption for small business, or count "sweat equity" in place of dollars for matching purposes?

Also, I believe the congress should closely review the concept of "private" matching money. The regulated utility industry charges their clients for R & D out of the rate base, and funds so collected are used as private matching dollars for federal funds. Therefore, I am placed in a position of contributing indirectly for my competitors' development and also paying, in my own dollars, for R & D matching funds. In areas where utility industries compete with small R & D businesses, should matching ratios be the same?

6) The Federal Procurement System

Over the years federal procurement procedrucs have been developed that in the main serve the public interest well. Government procurement is a rich accumulation of laws, regulations, rules, procedures and interpretations that are designed to promote competition and effectively purchase needed goods and services from the private sector. It is clearly important to protect the integrity of federal procurement to minimize corruption. However, since it has been found in the national interest to provide selected and limited advantages in R & D procurement, could not similar advantages be provided to small business?

For example, ERDA now uses Form AEC-481 (9-72) for contract Authorization. ERDA employees have been asked to routinely check the designation "Special Research Support Agreement (SRSA)" under item 8 for universities as well as cost reimbursement for all private firms. "Also, on this same form, item 9, property is automatically checked "ERDA" for private firms and "contractor-determined to be in the programmatic interest of the AEC" for universities.

Consideration should be given to providing special consideration for small R & D

firms.

7) Patent Rules

As I read the ERDA authorization bill, Section 14 pertains to "Energy-Related Inventions." As this section clearly intends to provide special help and consideration

to inventions that are energy related and submitted by individual inventors and small companies, it actually works out in practice that this section is used as a circular track to confuse individuals who submit ideas. I have personally seen letters from individuals submitted to the government that related to energy and were thus referred to ERDA. The response to the individual simply stated that the ERDA Act of 1974 designated the National Bureau of Standards as the government agency responsible for evaluation of ideas submitted by individual inventors and small companies without stating who to contact, but that the letter was being forwarded.

On the other hand, some letters refer the authors of ideas to Dr. F. Karl Willenbrock. I tested this out by calling Dr. Willenbrock and trying to interest him in my furnace. However, he said that he worked only to evaluate ideas submitted directly by a government agency after receipt from an individual.

In reading the law I was delighted that special provision was made for small firms and individual inventors, but in reality this section has been twisted from an incentive to a barrier by careful buck passing or sloppy procedure.

The current ERDA guide for proposal submission, etc. for "other than educational institutions" is an AEC document prepared in September, 1972 and states that if a proposal is accepted appropriate contract provisions respecting patent rights, copyrights, and technical data will be determined during negotiations. . ." It would appear that the small firm must be on guard to protect its prior patent rights. As for new patents developed under the contract the patent provisions may include license right s to the contractor, but shall be the property of the government.

These patent provisions may be appropriate for large firms but they appear unduly restrictive for smaller counterparts.

It is interesting to note that a similar booklet for educational institutions makes no mention of patents.

8) Conflict-Of-Interest

Federal statutes and rules pertaining to conflict-of-interest situations clearly appear to come down hardest on small firms that have a limited number of people. Consideration should be given to special provisions for small businesses that would protect the public interest, but in doing so not be as narrowly restrictive of the activities of small firms.

9) Communication Gaps

It is difficult for small R & D firm management to communicate with federal employees because each respective group possesses such different attitudes and value structures. They simply don't act, or even thing alike, even though they have a

common technical skill. Small R & D businessmen tend to be head-strong, exploratory, independent, and jealous of their ideas. Federal employees tend to be careful and cautious. These roles are consistent with the position they hold.

It always surprises me a bit to hear the words and tone of the conversations of a civil servant and compare them to the verbal communication of inventors I know. It appears that technologists associated with large firms have a great deal more in common with equivalent level government employees and thus find more things in common, including easy direct communication.

Based upon shared attidutes, values, and language it is only natural that RFP's, work statements, and sources sought by large firms and civil servants appear in a written style that is quite different than that used by the small R & D businessman. But it goes deeper. RFP's and work statements tend more and more to be written to encompass several related areas of research or development as a kind of package. These umbrella contracts require several divergent skills and do serve a useful purpose in providing for close comparison study and analysis of different matters. For example, a single study that attempts to compare different energy systems needs a team approach, but these contracts automatically exclude the participation of small R & D firms. With a little more concerted effort, assembling teams of small businesses to do the same job, would be entirely plausible. But this requires more time and work on the part of the contract officer and technical program manager.

Specifically, I have in mind the ERDA-NSF-NASA ECAS study. This particular study is funded by ERDA and NSF, is directed by NASA, and is a rather complete Energy Conversion Alternative Study. The program relies heavily upon large contractor performance. In my judgement, a similar team could be assembled from small businesses, but more effort would be required at the federal level. However, such an effort would be well worth time spent because to find that large firms tend to review large scale centralized technology rather more favorably than intermediate or small scall technology. It is exactly this kind of hidden, unexamined attitude and set of values that can mold technology when allowed to operate unchecked for long periods of time. Places must be made for all levels of technology and we must carefully maintain an even handed public policy position. Subtle effects operating over the last thirty years have shaped our present technology to a larger extent than even technologists realize.

In addition, the communication problem is made more difficult for the small R & D needs. Larger firms find it necessary and cost effective to hire representatives, even full staffs, to maintain contact with the numerous federal agencies. Small firms cannot possibly pay these expenses, and thus they deal with late, inadequate, and frequently useless information. The uneven flow of information from the federal establishment is a very serious problem that places an unfair burden upon the small business. New procedures must be found to overcome this barrier.