SMALL BUSINESS INNOVATION DEVELOPMENT ACT, PUBLIC LAW 97-219 THURSDAY, MARCH 1, 1984 U.S. SENATE, SUBCOMMITTEE ON INNOVATION AND TECHNOLOGY, COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to notice, at 10:25 a.m., in room SR 428A, Russell Senate Office Building, Hon. Warren B. Rudman (chairman of the subcommittee) presiding. Present: Senators Rudman and Baucus. Staff present: Robert J. Dotchin, staff director; Alan L. Chvotkin, minority chief counsel; Lee Mercer, legal counsel to Senator Rudman; Tom Sadler, legislative assistant to Senator Baucus; John McNamara, professional staff member; and Dorothy C. Olson, hearing clerk. Senator RUDMAN. The committee will be in order. I apologize to all of you for the delay; we had a last minute scheduling of the Secretary of State on the entire Central American-Middle Eastern problems and, of course, being a member of that subcommittee I had to be there and left early to get over here. I am going to simply state that we are here this morning to hear our witnesses; you did not come to hear me. So, I have a lengthy statement regarding this legislation which we are looking at this morning. I am going to ask for that to be incorporated in the record and it is there for any of you who want to look at the historical perspective of what we are talking about today. What we are going to be talking about is Public Law 97-219, the Small Business Innovation Development Act which is now, I guess, just about a year into operation, a little bit more than that. [The prepared statement of Senator Rudman follows:] (1) STATEMENT BY SENATOR WARREN B. RUDMAN OVERSIGHT HEARING ON P.L. 219, THE SMALL BUSINESS INNOVATION DEVELOPMENT ACT Subcommittee on Innovation and Technology On July 22, 1982, President Reagan signed P.L. 97-219, the Small Business Innovation Development Act. That day was a rewarding one for those of us in government and the private sector who had worked so hard to make the legislation a reality. As most of you know, the Small Business Innovation Development Act was designed to address some very real problems: 1. The loss by the United States of its world leadership position in the fields of innovation and technology advancement; 2. The need to stimulate the job production capabilities of the private sector; and 3. The need to insure the greatest return for federal R&D investment at a time of mounting federal deficits. In looking for answers to these problems, the term "small business" kept coming up over and over again. In addressing the first problem, a 1977 OMB study concluded that "[o]ur country will lose significant high technology capabilities in the absence of a concerted effort to increase small business research and development awards." In 1979, the Commerce Department's Advisory Committee on Industrial Innovation found that "[g]overnment policies and regulations that treat large and small firms equally are, in fact, discriminatory against small firms." Thus, a special program was indicated, one which would help us regain our leadership in the world of high technology capability and which would also target a segment of the economy which has traditionally been a leader in producing innovations and technological breakthroughs. The second problem would also involve small business in its solution. A 1979 Massachusetts Institute of Technology report on the job generating process concluded that small businesses with less than 21 employees created 66 percent of all new jobs in the private sector between 1969 and 1976. Firms with 250 or fewer employees produced 90 percent of the 6.8 million jobs created from 1965 to 1976. That study was based on a sample of 5.6 million businesses, representing 80 percent of all private sector employment. Thus, a program targeting innovation and small business, if properly structured, would have the effect of creating much needed new employment opportunities in the 80's. The final structure was patterned after the highly successful Small Business Innovation Research Program carried on by the National Science Foundation since 1977. The program encourages technology transfer to the private sector in its awards process. The results can be astounding. In 1977, the National Science Foundation invested some $5 million in its SBIR recipients. By 1982, successful firms within that group had succeeded in attracting in excess of $40 million in follow-on, private capital investemnt. 8 to 1 leverage factor is impressive standing alone; when you consider that very few federal programs have any positive leverage factor, we believed we had found a winning proposal. An Finally, those of us in government were then, as are we now, very much aware of federal budget problems. The need to continue our investment in research and development was clear; however, the need to hold down government spending was equally clear. One solution to the problem would naturally be to realize a greater return for each dollar invested. The National Science Foundation told us that small businesses are far more cost effective than larger companies and universities when engaging in research, producing up to 24 times more innovations per research and development dollar than their larger counterparts. To those of us who had addressed the three problems, the answer was inescapable. The SBIR program should be mandated both with respect to its authorizaiton and appropriation, at least for a limited period. Public Law 97-219 was the result. With that background, we are here today to hold the first comprehensive oversight hearing on the SBIR program. Prior to this hearing, and in preparation for it, staff members have met with the program directors of all the agencies involved in the program: the Departments of Agriculture, Defense, Education, Energy, Health and Human Services, the Interior, and Transportation; the Environmental Protection Agency; the National Aeronautics and Space Administration; the National Science Foundation; and the Nuclear Regulatory Commission. In addition, certain agencies have responded to written questions prepared by Committee staff. Today we will hear from representatives from the SBA, three of the agencies, private sector concerns, both for profit and not for profit, which have been established to both educate and assist the private sector in its participation in the SBIR program, and from some award winners themselves. The purpose is to give the Committee an understanding of the operation of the program over its first year, both from a government and private sector perspective, and to identify problems or areas of concern that may need to be addressed either now or in the future. Our first witness will be James C. Sanders, Administrator of the Small Business Administration. Senator RUDMAN. For our first witnesses this morning we are delighted to have the Administrator of the Small Business Administration who has been so helpful to us, a good friend of the committee, Jim Sanders. If you would like to proceed? STATEMENT OF HON. JAMES C. SANDERS, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, ACCOMPANIED BY DONALD R. TEMPLEMAN, ASSOCIATE ADMINISTRATOR, OFFICE OF INNOVATION, RESEARCH AND TECHNOLOGY; AND RICHARD J. SHANE, DIRECTOR, OFFICE OF RESEARCH ACQUISITION POLICY Mr. SANDERS. Thank you, Senator. Senator RUDMAN. Your entire statement will be incorporated in the record, and to the extent that you want to summarize it, go right ahead. Mr. SANDERS. I realize the pressure of time, Senator, and in spite of being a strong defender of the small business segment, I think you have your priorities right this morning. I will try to delete some of the material that is less important. I do appreciate the opportunity to appear before you today to present our views concerning the inaugural year of the SBIR. I am going to be assisted today by Donald Templeman, the Assistant Administrator for the Office of Innovation, Research and Technology, and Richard J. Shane on my left, Director of Research Acquisition Policy. These two gentlemen are the principal managers of the SBA's small business innovation research program effort. I would like to begin by commending you, Senator Rudman, and Chairman Weicker for your leadership in steering the authorizing legislation of this program through the Senate and for your continuing interest in this program's success. The SBIR program is a significant element of President Reagan's program to stimulate technological advancement through small businesses, including small minority, disadvantaged concerns, and to increase the private sector commercialization of innovations derived from Federal research and development. At the outset, I would like to state that on balance I am very pleased with the first fiscal year's result. Problems that arose were immediately addressed, period. I am not going to include that statement that says, "and resolved." They are largely resolved and some are not. The participating agencies have for the most part approached the problem, the SBIR program, with the spirit of cooperation and support. I feel that I can safely predict that fiscal year 1984 will be even a more successful year for the SBIR program, small businesses, and the participating agencies. I would like to briefly present an overview of the SBA's policy and approach to the SBIR program and the act of 1982. The details of the first year are presented in our annual report to Congress, which the committee has in its possession. Under the SBIR program, each agency with an extramural budget for research and development in excess of $100 million for fiscal year 1982 and any fiscal year thereafter shall establish an SBIR program. Funding is from the Agency's current extramural |