funds and will reach a maximum of 1.25 percent for civilian agencies within four years and for DOD within 5 years.

The participating agencies are Agriculture, Defense, Education, Energy, Health and Human Services, Interior, Transportation, EPA, NASA, National Science Foundation, and Nuclear Regulatory Commission.

The law directed that the program be a competitive three-phase program process. In phase I, of course, the majority of awards will be in the area of $50,000 and will determine as far as possible the scientific and technical merit and feasibility of ideas.

Under phase II, the results of phase I projects are evaluated and those with the most potential will be funded to further develop the proposed idea for an additional 1 or 2 years. The majority of phase II awards will be funded for $500,000 or less.

Phase III is the keystone of the program and it brings into play the private sector investment and support to bring innovation into the marketplace. No further SBIR funds will be involved, but if the Federal agency has continued interest in the innovation, funding agreements may proceed under normal acquisition programs.

I would like to skip on, if I may, to the concluding paragraph, starting on page 6.

During fiscal year 1983 the SBA published six presolicitation announcements. Approximately 340,000 copies were disseminated throughout the country. The presolicitation announcements are of considerable assistance to the public in that they present the basic solicitation information for all the SBIR agencies in a succinct and understandable manner. During fiscal year 1984 they will be published quarterly.

The SBA recognized from the outset that a major effort had to be made in public information and outreach. The legislation was a profound change in the Federal agencies and the small business arena for research and development. To meet this need, we settled on several parallel courses of action which included participation in conferences and seminars; developing and coordinating news releases; television and radio interviews; development and dissemination of a program pamphlet; contact and interaction with small business associations, and minority and disadvantaged outreach programs.

We have completed our first annual report to the Congress. We feel the report is an accurate and fair representation of the activities of the first year of the program. The annual report goes into specific details in the area of implementation actions, acquisition data, and technical aspects of the program. In addition, we have made comments concerning current and potential areas of concern. Some highlights of interest are, first of all, that $44 million was expended in awards; 7,714 proposals were received; 760 awards were made; 13.6 percent of the awards went to minority and disadvantaged concerns; 614 research topics were presented by the agencies; 40 States were represented in the awards.

Mr. Chairman, I would like to close by restating our pleasure with the first year of the program.

This concludes my prepared statement. I will be pleased to answer any questions.

[The prepared statement of Mr. Sanders follows:]

STATEMENT OF HON. JAMES C. SANDERS, ADMINISTRATOR, SMALL BUSINESS

ADMINISTRATION

Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before you today to present the SBA's views concerning the inaugural year of implementation of the Small Business Innovation Development Act of 1982. I will be assisted here today by Mr. Donald R. Templeman, Assistant Administrator for the Office of Innovation, Research and Technology, and Mr. Richard Shane, Director of Research Acquisition Policy. These two gentlemen are the two principal managers of the SBA's Small Business Innovation Research program efforts.

I would like to begin by commending you, Senator Rudman, and Chairman Weicker for your leadership in steering the authorizing legislation through the Senate, and for your continuing interest in the program's success.

The SBIR program is a significant element of President Reagan's program to stimulate technological advancement through small, and minority and disadvantaged concerns and to increase 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 results. Problems that arose were immediately addressed and resolved. The participating agencies have for the most part approached the SBIR program with a spirit of cooperation and support. I feel that I can safely predict that fiscal year 1984 will be an even more successful year for the SBIR program, small businesses and the participating agencies.

I would like to briefly present an overview of SBA's policy and approach to the Small Business Innovation Development Act of 1982. The details of the first year are presented in our Annual Report to Congress, which the Committee has in its possession.

THE TWO MAJOR PROGRAMS

The law set into being two separate and distinct programs to be implemented during Fiscal Year 1983. The primary program is the Small Business Innovation Research (SBIR) program and the second program is the Research and Research and Development Acquisition Goaling Program.

Under the SBIR program each agency with an extramural budget for research or research and development in excess of $100 million for Fiscal Year 1982, or any fiscal year thereafter shall establish an SBIR program. Program funding is from the agency's current extramural funds and will reach a maximum of 1.25 percent for civilian agencies within four years and for the Department of Defense within five years. It is estimated that the 1.25 percent will translate to $500 million dollars in Fiscal Year 1987.

The participating SBIR agencies are: Department of Agriculture, Department of Defense, Department of Education, Department of Energy, Department of Health and Human Services, Department of Interior, Department of Transportation, Environmental Protection Agency, National Aeronautics and Space Administration, National Science Foundation and Nuclear Regulatory Commission.

The law directed that the program be a competitive three phase program process. In phase I the majority of awards will be $50,000 and will determine as far as possible the scientific and technical merit and feasibility of ideas. Under Phase II the results of Phase I projects are evaluated and those with the most potential will be funded to further develop the proposed idea for an additional one or two years. The majority of Phase II awards will be funded for $500,000 or less. Phase III is the keynote of the program and brings into play private sector investment and support to bring the innovation into the marketplace. No further SBIR funds will be involved, but if the Federal agency has continued interest in the innovation, funding agreements may proceed under normal acquisition programs.

The Research and Research and Development (R&R&D) Goaling Program requires agencies with an R&R&D budget in excess of $20 million for any fiscal year to establish small business goals for R&R&D funding agreements. The goal to be set annually cannot be less than an agency's achievement during the past fiscal year. In addition to the previously stated 11 SBIR agencies seven additional agencies are included: Department of Commerce, Department of Justice, Department of Housing and Urban Development, Smithsonian Institution, Tennessee Valley Authority and the Veterans Administration.

IMPLEMENTATION ACTIONS

Mr. Chairman, I would like to discuss next the actions that SBA has taken to implement the SBIR program. The law directed that the Small Business Administration, after consultation with the Administrator of the Office of Federal Procurement Policy, the Director of the Office of Science and Technology Policy, and the Intergovernmental Affairs Division of the Office of Management and Budget, publish and disseminate to the participating agencies a Policy Directive for the general conduct of the program within 120 days. This directive was published on time on November 19, 1982, and an updated version was issued on August 1, 1983.

To facilitate the dissemination of information about the program, SBA developed a mailing list of qualified and interested small business concerns. This list was developed through an SBIR program pamphlet which, in addition to general program information, provided a tear-off mail-in card for application to the SBIR mailing list. The Fiscal Year 1983 list grew to over 40,000. In order to purge and improve the mailing list the SBA contracted with a small business to have the system computerized. As of this date we still receive an average of 450 inquiries a week.

During Fiscal Year 1983 the SBA published six pre-solicitation announcements. Approximately 340,000 copies were disseminated throughout the country. The presolicitation announcements are of considerable assistance to the public in that they present the basic solicitation information for all the SBIR agencies in a succinct and understandable manner. During Fiscal Year 1984 they will be published quarterly.

PUBLIC INFORMATION AND OUTREACH

The SBA recognized from the outset that a major effort had to be made in public information and outreach. The legislation was a profound change in the Federal agencies and the small business arena for research and development. To meet this need we settled on several parallel courses of action which included participation in conferences and seminars, developing and coordinating news releases, television and radio interviews, development and dissemination of a program pamphlet, contact and interaction with small business associations and minority and disadvantaged outreach programs.

SBA'S ANNUAL REPORT

We have completed our first annual report to the Congress. We feel the report is an accurate and fair representation of the activities of the first year of the program. The annual report goes into specific details in the area of implementation actions, acquisition data and technical aspects of the program. In addition, we have made comments concerning current and potential areas of concern.

Some highlights of interest are: $44 million was expended in awards, 8,814 proposals were received, 760 awards were made, 13.6 percent of the awards went to minority and disadvantaged concerns, 614 research topics were presented by the agencies, and 40 states received awards.

Mr. Chairman, I would like to close by restating our pleasure with the first year of the program.

This concludes my prepared statement. I shall be happy to answer any questions the Subcommittee may have.

Hon. WARREN RUDMAN,

U.S. SMALL BUSINESS ADMINISTRATION,
Washington, D.C., March 1, 1984.

Chairman, Subcommittee on Innovation and Technology, Committee on Small Business, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN. Your subcommittee's hearings on implementation of the Small Business Innovation Development Act of 1982, P.L. 97-219, reflect the importance of this program to the small business community.

SBA Administrator Sanders's statement and report amply demonstrate the SBA commitment to a very successful program. The Office of Advocacy has continued to pursue information which clearly illustrates the sound economic and small business policy behind the SBIR program.

1. Overview of small business participation in the Federal R&D process

As you may know, the Federal Government purchased almost $147 billion worth of goods and services through prime contract actions over $10,000 during fiscal year 1982. Small business firms accounted for $21.7 billion of this amount, or 14.7 percent of total awards.

A significant part of total Federal contract expenditures is research and development. Federal R&D contracts over $10,000 accounted for $19.5 billion, or 13.3 percent, of the $147 billion in total FY 1982 contract awards. Total Federal R&D expenditures in fiscal year 1982 were nearly $40 billion, including government-conducted R&D and grants. This is nearly half of total national (public and private) R&D expenditures. The Federal government is thus clearly a critical player in the innovation process in the United States.

The Federal agencies which the largest fiscal year 1982 R&D contract budgets were the Defense Department ($14.5 billion), NASA ($2.9 billion) and the Department of Energy ($1.4 billion). Unfortunately, the small business share of total Federal R&D dollars was only 4.8 percent during fiscal year 1982, which is considerably less than the 14.7 percent small business share of awards in all categories (which includes supplies, equipment, services and construction). The low 4.8 percent figure dramatizes the importance of the SBIR programs now in operation at the top eleven Federal R&D agencies.

2. Summary of advocacy research projects in the innovation field

The Office of Advocacy's research program complements the SBIR program and its attendant goal of directing more R&D dollars to small businesses. The SBIR program was based on certain assumptions about the ability of small business to develop innovative products and processes. Past and current research sponsored by the Office of Advocacy supports these assumptions. We appreciate this opportunity to inform the Committee of two current Advocacy-sponsored research projects that demonstrate the relationship between small business and innovation. We will, of course, forward these studies to the Committee when they are completed.

The SBIR program is based on the assumption that small businesses are especially efficient and prolific innovators. If this were not the case, there would be no reason to make special efforts to involve small business in Federal R&D activities. Current Office of Advocacy research confirms earlier findings that small firms (less than 500 employees) are 2.5 times as innovative per employee as large firms. The findings of the Advocacy researcher, the Futures Group, were based on approximately 8,000 innovations published in 1982 trade journals. In addition, the study concludes that small firm innovations are just as likely to result in new products or major improvements to existing products as are those of larger businesses. This study will be available in final form in approximately 60 days.

The SBIR program addresses both the importance of Federal agency utilization of small firm innovative capability and the challenge faced by a small firm in bringing the innovation from the idea phase to the commercialization phase. Current Advocacy research is focusing on the difficulty small firms have in profiting from their innovations. University of Connecticut researchers, supported by Advocacy, are documenting that small firms do not do nearly as well as large firms in reaping the benefits to the firm of an innovation compared to the overall value of the innovation to the marketplace. In assisting a small firm to get to the marketing phase, the SBIR program fills an important development “gap.'

The small business community has an important stake in a successful SBIR program. The Office of Advocacy will continue to make every effort to ensure that the strong support for this program by policymakers and small business continues to be merited.

I will be happy to supply any additional information or assistance to the Commit

tee.

Very truly yours,

Senator RUDMAN. Thank you very much.

FRANK S. SWAIN, Chief Counsel for Advocacy.

I just want to make one comment, and that is that we are very fortunate to have you and the people with you put in place at the time that this has become law because you have truly gone after this with a vengance to make sure that people across the country understand what we are trying to do.

I am particularly struck by the fact-I know that I participated in one here in Washington, I just could not believe the number of people. According to your report here on page 5 you believe the attendance of the public seminars exceeded 8,000 people.

Mr. SANDERS. That is right.

Senator RUDMAN. You are planning that again this year.

Mr. SANDERS. We are planning to continue our outreach program, Senator.

Senator RUDMAN. That is a very important activity because one of the problems you always have with something as new as this is that there are people who just do not get the word.

Mr. SANDERS. That is right. It is not as if everybody is ready at hand with a new light bulb to present to the world. It does take a lot of networking. It takes changes in attitudes whenever you introduce a new program.

But I can assure you, Senator, that this administration will do all it can to support legislation to improve the program and certainly administratively to make it work better, it is new and we do have to overcome a few problems.

Senator RUDMAN. Again, I know you have scheduling problems, we delayed you a bit this morning. Thank you very much for your statement-the entire statement will be in the record-for your help, and we look forward to a similar hearing next year when we probably will have even greater results to look forward.

Thank you.

Mr. SANDERS. Thank you, sir.

Senator RUDMAN. Our next witnesses will be a panel. We have Mr. Milton Stewart of the Small Business High Technology Institute. He is accompanied by Dr. Chris Busch, president of Spectron Development Labs of Costa Mesa, Calif., and Mr. Donald Myers, the director, Center for Technology Development in Rolla, Mo., and Mr. Roger G. Little, president of Spire Corp. in Bedford, Mass.

Milt of course you are an old friend of this bill and you have been preaching this for long before I even heard about it. We are very glad to have you here. You were of great help to all of us who believe in the program and getting it enacted legislatively, and we are delighted to have you back for this first oversight hearing.

We, of course, have time problems. So, to the extent you want to summarize, your comments. As I said, I will have very few questions for most of the witnesses this morning. We are here to essentially put together a record.

This is a record of what has happened this year and we are very interested in your collective testimony. So, you may proceed as you wish.

STATEMENT OF MILTON D. STEWART, PRESIDENT, SMALL BUSINESS HIGH TECHNOLOGY INSTITUTE, WASHINGTON, D.C., ACCOMPANIED BY DR. CHRIS W. BUSCH, PRESIDENT, SPECTRON DEVELOPMENT LABORATORIES, INC.; DONALD D. MYERS, DIRECTOR, CENTER FOR TECHNOLOGY DEVELOPMENT; AND ROGER G. LITTLE, PRESIDENT, SPIRE CORP., BEDFORD, MASS. Mr. STEWART. Mr. Chairman, to conserve the committee's time, with your permission I would like to offer for the record my own statement, the statements of these gentlemen, and an article from a British journal about this program which I will refer to briefly in a minute.

Senator RUDMAN. All of those items will be incorporated in the hearing record.