to suffer a hiatus in funding between Phase I and Phase II. A system was devised and implemented that allows Phase I contractors who feel that `. they are ready to submit their Phase II proposal while their Phase I contract is still in effect, to do so. We committed ourselves to review Phase II proposals received by January 27, 1984, in time to maintain continuity of funding for those selected. We received 60 such "early" Phase II proposal submissions. It should be noted that the absolute deadline for Phase II proposal submittals is June 30, 1984, and that the probability of getting an award does not depend on when, prior to the deadline, the proposal was submitted.

COORDINATION WITHIN THE AGENCY

In order to assure compliance, efficacy and program success, the DOE SBIR program policies and procedures were coordinated with various DOE organizational elements. I am pleased to report that, overall, the SBIR program has received excellent support from participating Departmental elements, even though the need to review a great number of proposals within a very short time period often placed a heavy burden on both technical staffs and administrative personnel.

To effect intra-departmental coordination, a DOE SBIR Advisory Panel was established. Chaired by the SBIR Program Manager, it consists of one representative each from the four participating DOE technical directorates, the Office of General Counsel, the Office of the Controller, the Procurement Directorate Policy Staff, Headquarters Procurement Operations, the Office of Small and Disadvantaged Business Utilization and the Office of Minority

Economic Impact. The SBIR Advisory Panel meets at least once a quarter; it gives advice to the SBIR Program Manager, and its members provide liaison with their respective Departmental elements. Finally, in performing its functions, the SBIR program is assisted by support personnel within the Office of Energy Research.

OUTREACH ACTIVITIES

We have undertaken significant effort to make the high technology small business community aware of the DOE SBIR program. In addition to publicizing the solicitations, over the last 15 months DOE personnel discussed the SBIR program at 20 meetings throughout the country. While most of these meetings were targeted at the small business community, we also made presentations at meetings of professional associations such as the American Chemical Society and the American Physical Society. Special effort is made to bring the program to the attention of potential proposers in minority-owned small business firms. This is done, for example, by mailing the solicitations to scientists and engineers who are members of black and hispanic professional associations.

SOME LESSONS LEARNED

Our first year's experience indicates that there exist enough well qualified, highly competent small business firms to justify the expenditure of SBIR funds. The quality of the Phase I proposals funded was excellent, often outstanding, and comparable to that of proposals supported by the DOE outside of the SBIR program.

The avalanche of proposals submitted in response to our first solicitation represents a problem. The requirement on DOE personnel to review, in a short period of time, over 1,700 proposals is very sizeable. Even more importantly, the demand on the time of well over 1,000 active researchers to evaluate the proposals in the second-step technical review is enormous. Last, but not least, the cost to the small business community of preparing the 1,700 proposals is significant. Thus, no one benefits from a situation where the number of proposals exceeds the number of expected awards by a factor of seventeen. It is our estimate that, of the 1,700 proposals received, no more than 500 were truly serious contenders. Accordingly, our message to the small business community is this: If you have an outstanding idea which is responsive to one of the topics described in the solicitation, by all means send us your proposal we very much need good proposals; however, if your idea is not of a caliber comparable with any of those we funded last year, or if the match with the technical topic is not very close, you can save yourself considerable effort by not submitting. In order to acquaint potential proposers with the quality of last year's responses selected for award, we have prepared a book of abstracts and included a copy with each solicitation mailed this year. We hope that eventually a process of "selfscreening" will develop, resulting in fewer unsuccessful proposals.

The SBIR program at the DOE is now in its second year of operation but the technical work by the participating small businesses has just begun. The final success of the program will be only as impressive as the success stories of projects funded. We hope there will be many.

Mr. Chairman, that concludes my testimony. I would be happy to answer any questions you might have.

Senator RUDMAN. Thank you very much, Dr. Kane, that is excellent testimony.

We will now move on to Dr. Raub. I want to point out that NIH put more money into this program than they were actually required to by law which, I think, is further indication of their dedication to trying to help us make this program work.

If you would like to proceed and summarize, I appreciate any statement you have to make. The entire statement will be placed in the record.

STATEMENT OF DR. WILLIAM F. RAUB, DEPUTY DIRECTOR FOR EXTRAMURAL RESEARCH AND TRAINING, NATIONAL INSTITUTES OF HEALTH

Dr. RAUB. Thank you, Mr. Chairman. I will highlight only some of the points from my prepared statement.

I am accompanied this morning by two of the key individuals who have made our program work, Mr. Richard Clinkscales from the Office of Small and Disadvantaged Business Utilization within the Office of Secretary Heckler, and Ms. Lily Engstrom of my staff at the NIH.

As you know, Secretary Heckler was an active supporter of the Small Business Innovation Development Act during the 97th Congress and is pleased to have us make this report to you today.

The thrust of our report is simple: The program is off to a good start. In fiscal year 1983, we issued 139 awards in the amount of $7.3 million, exceeding by $664,000 the set-aside mandate.

Perhaps equally important is the fact that all major organizational components with research programs within the Department took part. În fact, the SBIR program has had broader participation within the Department than any other initiative in recent years. Specifically, this includes the Public Health Service, the Health Care Financing Administration, the Social Security Administration, the Office of Human Development Services, and the Office of the Assistant Secretary for Planning and Evaluation.

Of this group, the Public Health Service represents 97 percent of the SBIR activity; within it, the NIH is the lead agency, accounting alone for 92 percent of the Department's activity. The other components of the Public Health Service are the Alcohol, Drug Abuse and Mental Health Administration, the Health Resources and Services Administration, Food and Drug Administration, Centers for Disease Control, National Center for Health Services Research, and the Office of Adolescent Pregnancy programs.

One of the major objectives within the Public Health Service following enactment of the legislation was to inform the small business community about the SBIR program. To this end, we undertook a number of special efforts. There were announcements through the Small Business Administration, the Commerce Business Daily, and Science Magazine; and 24,000 fliers were sent directly to small businesses with research orientation. There was a special conference at the NIH, attended by approximately 450 individuals representing over 300 small companies. The Public Health Service issued 10,000 solicitations, and there were with 1,200 solicitations from the other parts of the Department.

In implementing the program, we selected the grant mechanism as the means of support. In this regard, we are similar to the National Science Foundation and the Department of Agriculture, but different from the Department of Defense and the National Aeronautics and Space Administration.

Our choice of the grant is based on two reasons, one is philosophical and one is practical. First, we wanted an approach that would attract a wide range of research ideas from the small business community, and it has been our experience over four decades that the grant instrument is the means of choice for fostering this kind of initiatives.

Second, as a practical matter, we had to implement the program within our traditional budget structure, and it has been traditionally the position of the Appropriations Committees, as well as the executive branch, that NIH use grants to fund the vast majority of its research projects.

Moving to the review of SBIR applications, I will focus specifically on the NIH and the Alcohol, Drug Abuse, and Mental Health Administration in that these components have the most complex review process.

Grant applications to these two organizations, including those submitted under the SBIR program, must undergo a two-step peer review process that is legislatively mandated. The first step is carried out by study sections, groups of non-Federal experts in the relevant subject matter areas. These groups evaluate the applications for technical merit.

The recommendations of these groups go to a second body of consultants called the. National Advisory Councils or Boards. These groups include lay persons as well as members of the scientific community and, by law, it is the Council or Board recommendation for approval that establishes the legal eligibility for an award.

Of course, the recommendation for approval does not mean automatic funding; funding decisions are based on the ratings resulting from the technical evaluation, judgments about the relevance to mission needs, and the availability of funds.

Once this two-tiered review process is complete, the applicant is notified in writing of the outcome, along with a detailed summary of the strengths and weaknesses as perceived by the peer review

ers.

There are two major policy decisions in our review: First, the use of special study sections, organized and convened expressly for the SBIR review, rather than our standing chartered groups and, second, the inclusion of scientists and technical experts from the small business community on these review bodies.

Both of these departures from our normal practice, we believe, enabled us to preserve the widely acknowledged strength of our peer review process while still tailoring it to the special characteristics of SBIR applications. There is a detailed rationale for this in the prepared statement. The statement also includes a summary of the review results-both numeric and scientific-which I will not read now.

Looking to the future, there are three items that are noteworthy. One is that we are establishing a cadre of health science administrators on our staff who will specialize in managing the review of