Introduction the employer of 500 or fewer employees (including employees of subsidiaries and affiliates) the primary source of employment for the project's principal investigator at the time of award and during the period when the research is conducted, and at least 51 percent owned by U.S. citizens or lawfully admitted permanent resident aliens. The SBIR legislation requires agencies to evaluate and fund SBIR proposals in a three-phase process. Proposals compete for SBIR funding in two phases. Phase I provides funds to test the proposal's scientific and technical merit and its feasibility. After completion of Phase I, the highest rated proposals are selected for Phase II, which provides funds for further development of the proposed ideas. Phase III consists of either nonfederal funding or federal, non-SBIR, funding for commercial applications of the research conducted under the SBIR programs. According to SBA directives, most Phase I awards should be for $50,000 or less and cover a 6-month work period, while most Phase II awards should be for no more than $500,000 and cover up to 2 years of work. In addition to the $1 billion provided for fiscal years 1983-87, as shown in table 1.1, SBA has estimated that agencies awarded $350 million for fiscal year 1988 SBIR projects, for a total of about $1.35 billion through fiscal year 1988. Table 1.1 shows the number of SBIR awards that have been made and funding levels through fiscal year 1987, the last year for which detailed data are available. Source: SBA, Office of Innovation, Research, and Technology 1983-87 Annual Reports. aSBIR legislation (P.L. 97-219) established a gradual phase-in period, so the percentage of funds set aside for SBIR increased until fiscal year 1987, when all agencies were required to set aside 1.25 percent of their extramural R&D obligations. Introduction Agencies Conducting Since 1983, the following 12 agencies have conducted SBIR programs: Department of Agriculture (USDA) Department of Commerce (Commerce)1 Department of Defense (DOD) Department of Education (DOED) Department of Energy (DOE) Department of Health and Human Services (HHS) Department of the Interior (Interior)2 Department of Transportation (DOT) Environmental Protection Agency (EPA) National Aeronautics and Space Administration (NASA) Nuclear Regulatory Commission (NRC) Each agency has a small SBIR administrative unit that is responsible for The SBIR legislation requires that each agency allocate at least 1.25 percent of its external R&D obligations for SBIR projects when its total external obligations exceed $100 million.3 Because agencies differ widely in the size of their external research budgets, their SBIR obligations differ greatly. DOD has by far the largest SBIR program, with fiscal year 1987 obligations of about $194 million. In contrast, the SBIR programs at USDA, Commerce, DOED, DOT, EPA, and NRC each received less than $4 million in 1987. As figure 1.1 shows, 5 agencies were responsible for 96 percent of all 1987 SBIR awards. Appendix I contains additional information on fiscal year 1987 awards by each agency. 1Commerce began SBIR activities in fiscal year 1985. 2Interior withdrew from SBIR activities after fiscal year 1985 because of budget reductions. Figure 1.1: SBIR Funding by Agency GAO's Prior Reports and Legal Opinion Source: Small Business Innovation Development Act: Fifth Year Results, SBA (June 1988). Between October 1985 and July 1987 we issued four reports on SBIR programs concerning compliance with funding requirements, selection and funding procedures, the characteristics and opinions of participating firms, and other issues. In addition, we issued a legal opinion in 1988 in which we concluded that federal agencies were not precluded from voluntary participation in SBIR. In an October 25, 1985, report entitled Implementing the Small Business Innovation Development Act―The First 2 years (GAO/RCED-86-13), we assessed the extent to which agencies established, funded and monitored SBIR program activities. We found that in fiscal years 1983 and 1984, 11 out of the 12 federal agencies that met the criteria for creating SBIR programs had established such programs. During fiscal year 1985, all 12 eligible agencies had carried out SBIR activities. We concluded that the agencies, for the most part, were complying with the act's funding Introduction requirements but that most were not fully adhering to the act's reporting requirements concerning the reporting of small business participation goals. Our March 21, 1986, report entitled Research and Development: A Profile of Selected Firms Awarded Small Business Innovation Research Funds (GAO/RCED-86-113FS) provided information on 19 small firms participating in the SBIR program and discussed the availability of venture capital funds for commercializing results developed with SBIR awards in response to a congressional request for information. Our report, Federal Research: Effectiveness of Small Business Innovation Research Program Procedures (GAO/RCED-87-63, June 2, 1987), evaluated federal agencies' procedures for making SBIR selections and awards. We found that federal agencies with SBIR activities had established evaluation and selection procedures that reasonably ensured that awards were based on technical merit. However, less than one half of the participating agencies had awarded their SBIR Phase I contracts and grants within 6 months of receiving the proposal, a goal established by SBA guidelines. In addition, we could not determine the length of time needed to make Phase II awards at many agencies because of limitations in agency data. Federal Research: Small Business Innovation Research Participants Give Program High Marks (GAO/RCED-87-161BR, July 27, 1987) contains information on the characteristics of SBIR recipient firms, the reported effects of the program on firms' operations and products, and the firms' perceptions of the administration of the program. On March 15, 1988, we issued a legal opinion (B-230594.2), at the request of the Chairman of the House Committee on Small Business, on whether the NRC could maintain an SBIR program if its extramural R&D budget dropped below $100 million. We concluded that federal agencies are not precluded from voluntary participation in SBIR, even when their external R&D budget is below $100 million. NRC subsequently decided to continue its SBIR program on a voluntary basis during fiscal year 1988. This report was prepared in response to Public Law 99-443, which reauthorized SBIR programs until 1993. The law directs GAO to report on the effectiveness of Phase I and Phase II of the SBIR program, including the extent to which the goals of the SBIR program are being met, Introduction the quality of the research supported by the SBIR program compared with that traditionally supported by the affected agencies, and the judgments of the heads of departments and agencies as to the effect of SBIR legislation on research programs. Public Law 99-443 requires GAO to report on SBIR Phase III activities by December 31, 1991. Accordingly, this report includes only preliminary information on this aspect of SBIR activities. To obtain information on the SBIR program goals of stimulating technological innovation and increasing private sector commercialization and to obtain information on current project status, we selected 1,406 SBIR projects that had been conducted in fiscal years 1983 through 1985, according to a stratified sampling plan described in appendix V. We mailed the firms that conducted these projects a questionnaire asking for information about the firms' experiences with the SBIR program and the characteristics of the firm at which the project took place. We adjusted the analysis of responses to reflect the stratification of the project sample, as described in appendix V. The questionnaire, summary of responses, response rate, and selected sampling errors are included in appendix II. To obtain information on the goals of stimulating technological innovation and meeting federal R&D needs, as well as the quality of SBIR research projects in comparison with other research supported by R&D agencies, we mailed two types of questionnaires to 530 project officers who had administered SBIR projects in DOD, DOE, HHS, NASA, and NSFagencies that together administer 96 percent of all SBIR funds. All project officers received one questionnaire asking for resporses concerning the SBIR program in general, as well as one or more questionnaires concerning individual SBIR projects that they had been responsible for. The questionnaire concerning individual SBIR projects asked the project officers to compare the SBIR project with non-SBIR research for which they were responsible. To measure research quality, we asked project officers to compare specific SBIR projects with other research that they were responsible for according to factors that we identified as potentially relevant to research quality by consulting science policy experts, reviewing published material, and pretesting questionnaires. To obtain information concerning incomplete or unclear responses, we followed up with telephone calls to selected respondents to all three questionnaires. The questionnaire concerning the SBIR program in general, together with a summary of responses and response rate, is included in appendix III. The questionnaire about individual SBIR projects, with responses and |