ager to be in the business of picking commercial winners. We believe that given the importance of stating commercial applications and also the phase III aspect in the program, the proposal pressure does provide a good indicator of where commercial benefits lie in the program.

Accordingly, to the extent compatible with the agency R&D objectives and the quality of proposals, agencies should be encouraged to make SBIR awards in areas where the greatest spinoff commercialization of federally funded R&D is likely. Allocation of funds by SBIR program managers to solicitation topics only after the proper evaluation process is completed encourages the proper balance between agency objectives and proposal pressure. Pooling of funds in SBIR offices should accordingly be adopted by all agencies.

Of course, there will never be a perfect match between solicitation-and-review timetables and the schedules of firms interested in participating in Federal R&D. Lack of information about SBIR programs, workloads, or even limited cash flow may prohibit a company from preparing a proposal for a specific submission date.

Many agencies do work with multiple solicitation-and-review cycles in R&D programs, and we believe that multiple cycles should be implemented in this program, particularly in the larger agencies-NIH, DOD, and so on.

Another area that we do have some concern in is the fact that as the program grows, there will be dramatic increases in the numbers of solicitations issued and the proposals processed. What that means is that workloads on SBIR and other agency R&D program managers will increase.

One way of handling the increased workload is to move to a multiple solicitation cycle which would enable the work flow to be spread out more evenly across the year.

However, it is also important to remember, in light of the battles that we have had with the bureaucracy in the past, that adequate funding for administration itself is something that we should keep in mind. Even though opponents may lose on the overall funding for the program, the whole question of adequate funds for administration provides another way for starving the program and making it operate inefficiently and contrary to the best interests of small firms.

We believe that among its strategies for insuring effective management of SBIR programs, the SBA should, on a case-by-case basis, enable agencies to utilize a small portion of SBIR funds for administrative functions directly relevant to accomplishing the legislation's intent, when that is necessary for the benefit of the small firms.

I have lots of what you might call "boiler plate" in here that talks about the fine things in this program and the major contribution that it is making to reducing the concentration of Federal R&D. I am sure you are very familiar with that concentration and the problems associated with it. But, in the interest of time, I will stop now.

Thank you, Mr. Chairman.

[The prepared statement of Dr. Speser follows:]

NIET

The NATIONAL INSTITUTE

For ENTRERENEURIAL TECHNOLOGY

Philip Speser, J.D., Ph.D.

Executive Director

THE SBIR PROGRAMS ARE WORKING ALTHOUGH SOME ADMINISTRATIVE CHANGES WOULD
IMPROVE THEIR OPERATION

Mr. Chairman. Members of the Subcommittee, as an active participant in the
campaign to enact this legislation, no testimony I have ever presented
gives me as much pleasure as today's. The key point I wish to make is
simple. P.L. 97-219, The Small Business Innovation Development Act, is
accomplishing its intended objectives. Federal agencies have found that the
program stimulates a wealth of new ideas and projects. They are uniformly
impressed with the overall quality of the proposals emerging from small
high technology firms. Indeed, agencies have found that they are receiving
more good proposals than they can fund. Large firms and venture capitalists
have become active participants in the program as "sponsors" for small
firms entering SBIR competitions and sources of Phase III funding.
Universities have discovered that the 33% subcontracting rule opens up new
sources of income for their faculty and students.

Despite SBA and agency outreach efforts, and the speeches and publications
by groups such as ourselves. many small firms are not yet aware of the
opportunities that SBIR presents. Equally important, many potential
entrepreneurial researchers in universities, government labs, and industry
are unaware of the program. As contractors for FEDERAL HIGH TECH ́84, the
National Science Foundation/ Small Business Administration Interagency
Conference for Small Firms on Federal R&D, my firm (Foresight Science &
Technology Incorporated) frequently hears researchers say, "If I had only
known about this program earlier, I would have had time to submit a
proposal.

Outreach is important if P.L. 97-219 is to accomplish its potential for
broadening participation in Federal R&D by small firms. The excessive
concentration of Federal R&D -- both by performer and by geographic
location is legendary. Yet concentration of Federal R&D funding is not
in the best of our Government or our economy. Concentrated Federal funding
skews public and private sector investment in R&D away from the innovative
products and processes being developed in small high-tech firms,

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restricting the formation and growth of these firms.

The importance of Federal R&D funds in the formation and growth of small high-tech firms is well documented. This importance merely reflects one function of Federal R&D funds in the economy at large. As the National Science Board notes in Science Indicators, 1982:

"The effects of Government support of industrial R&D have been extensively studied. Its most general and persuasive effect seems to be that in the aggregate it stimulates private R&D spending. The reason seems to be that Government-financed R&D creates promising opportunities for additional private R&D investment in industry."

The interest SBIR programs have attracted is encouraging as these programs are a crucial force behind a new flexibility emerging in our national R&D system. SBIR programs teach that good ideas and products can be developed anywhere and by organizations of any size. With the aid of the leverage provided by SBIR funds, large companies and universities are increasingly aware of the benefits flowing from partnerships with smaller firms.

SBIR programs provide important encouragement for the trend towards flexibility in a number of ways. For example, SBIR programs provide an excellent way for large Federal R&D prime contractors to diversify into commercial markets. Farsighted companies such as GTE, IBM, and Hughes Aircraft are pioneering "sponsorship" of smaller firms in Federal SBIR programs. Not to be left behind, numerous universities are also establishing new partnerships with small firms. Outreach and consulting programs for small high-tech firms, stimulated by the 33% consulting provision of the SBIR programs. are increasingly commonplace. As we move into the outyears of P.L. 97-219, the increased funding the law mandates will further encourage the formation of new partnerships between individuals and organizations active in our nation's science and technology efforts. (For a more extensive discussion of the impact of SBIR programs on the concentration of R&D see the attached commentary from LASER FOCUS/ELECTRO-OPTICS.)

As information on SBIR program opportunities is disseminated, SBIR programs will mitigate the concentration of Federal R&D and encourage the formation of new partnerships within the nation's R&D system. SBA efforts play a vital role in information dissemination. Efforts by R&D agencies are also essential. During 1983, the agencies distributed 96,100 SBIR solicitations, according to information we collected during a phone survey of SBIR program managers. In addition. on behalf of FEDERAL HIGH TECH ́84 we distributed 110,000 brochures -- each of which contained information on SBIR and on each agency's R&D interests. As a result of such dissemination efforts, we can expect interest in the SBIR programs in particular and small high-tech firms in general to grow as information is disseminated. Accordingly, it is imparative that adequate funding be authorized and appropriated for SBA and agency outreach efforts.

Because the SBIR programs are working, legislative modification of P.L. 97219 is inadvisable at this time. However, there is some administrative fine-tuning which would increase the efficiency of the program. We believe that these changes could be implemented by SBA. I want to emphasize that we view these adjustments as minor.

Three adjustments would be beneficial for small firms: reduced funding lags

between Phase I and Phase II work, greater agency sensitivity to proposal pressure in the allocation of awards between topics, and more frequent solicitations.

Small firms frequently suffer from cash flow shortages. Any funding gap between Phases I and II acts as a disincentive for firms considering submitting SBIR propsals.

The gap can be minimized if agencies begun Phase II evaluations prior to the end of Phase I. The Department of Defense solicitation explicitly states that Phase II submissions can be made any time after Phase I progress makes it possible for the awardee to provide sufficient information for evaluating the project ́s promise if continued into Phase II. Similar language should be in all other solicitations and appropriate procedures implemented for timely proposal review.

Certain research and technological problems have attracted the interest of many small firms. For example, a recent OTA report, Commercial Biotechnology: An International Analysis noted that over 100 new firms had been started in the US in the last several years to commercialize innovations in biotechnology. The report stated that financing and tax incentives for firms were one of the most important factors stimulating international competitiveness in that industry.

One major objective of P.L. 97-219 is to encourage commercial spin-off benefits from Federally-funded R&D. At the same time, it is inappropriate for SBIR or other Federal R&D program managers to be in the business of "picking" commercial winners. By encouraging explicit statements of commercial importance on Phase I and by requiring the use of follow-on funding as a tie-breaking mechanism on Phase II, SBIR programs encourage commercialization while ensuring the Federal funds are spent on projects of interest to the agencies while private funds are spent on commercialization.

As small firms must consider commercial potential as part of the SBIR proposal process, proposal pressure is an excellent indicator of areas with significant commercial spin-off potential. Given at least equivalent levels of agency interest and sufficient numbers of quality proposals, it is important that topics of little small business interest are not over-funded while topics of more extensive interest are inadequately funded.

Allocation of SBIR funds to solicitiation topics prior to the receipt and evaluation of proposals, makes it difficult to balance the need to focus R&D on agency interests with the importance of considering proposal pressure when making awards. To the extent compatible with agency R&D objectives. agencies should be encouraged to make SBIR awards in areas where the greatest spin-off commercialization of Federally-funded R&D is likely. Allocation of funds by SBIR program managers to solicitiation topics only after the proposal evaluation process is completed encourages the establishment of the proper balance between agency objectives and proposal pressure. Such "pooling" of funds should be adopted by all agencies.

There will never be a perfect match between solicitation-and-review timetables and the schedules of firms interested in competing for Federal R&D. Lack of information about the SBIR programs, work loads, or even limited cash flow may prohibit a company from preparing a proposal for a

specific submission date. For other R&D programs, many agencies have addressed such problems by implementing multiple solicitation-and-review cycles each year. Multiple cycles would provide small firms a better opportunity to enter into SBIR competitions and should be encouraged.

Managing the SBIR programs is a large task. Across the Federal Government last year, 8796 proposals were received. 723 awards were made, for a Government-wide proposal pressure of over 12 to 1.

These number of proposals received and awards made will soar as the funding for the programs grows. Such growth will be a sign of even greater vigor in our nation's small high-technology business sector. Yet, the increases in solcitations issued and proposals processed will increase workloads on SBIR and other agency R&D program managers.

Workload pressures can be minimized if solicitation and review schedules for SBIR programs take into consideration the levels and times at which slack resources exist within agencies. For example, by encouraging the larger agencies to issue multiple SBIR solicitations each year, workloads can be more evenly distributed throughout the year.

Despite new enthusiasm for SBIR programs within the agencies, some of our early bureaucratic opponents have not yet reconciled themselves to the existance of SBIR programs. The budget battles in Defense. NASA, and Transportation are reminders of the importance of monitoring the operation of the set-aside in all the agencies.

While the set-aside was mandated by Congress, the source of administrative funds was not specified in the legislation. Adequate funding for program administration is vital. We must make sure that bureaucratic opposition does not damage an SBIR by undue restriction of administrative funds. Among its strategies for ensuring that effective management of SBIR programs benefits participating small firms, on a case-by-case basis, SBA should enable agencies to utilize a small portion of SBIR funds for administrative functions directly relevant to accomplishing the legislation's intent.

We can all be proud of what P.L. 97-219 is accomplishing. The Federal Government's SBIR programs demonstrate that relatively modest programs can make vital contributions to the development of the technology our country and the world needs. For example, "New Efficient Feedforward Adaptive Signal Processing Algorithm and Its Real-Time Microcomputer Confirguration" at the National Science Foundation could lead to new fetal heart monitors and other equipment which cancel a strong interferring signal and background noise in order to analyze a weaker signal. "Six-Component Robotic-Torque Sensors" at the National Aeronautics and Space Administration could provide new, lightweight ultrasonic sensors for spaceand land-based robotic systems requiring sensitivity to loading forces and torques.

The SBIR programs are working. Although some administrative fine-tuning would enhance program operation, outside of oversight, we do not see any need for Congressional action at this time.

The National Institute for Entrepreneurial Technology is a pro bono publicum group dedicated to the rapid development of socially responsible science and technology.