Appendix B

Major Changes to the SBIR and STTR Programs Resulting from the 2011 SBIR Reauthorization Act, P.L. 112-81, December 2011

1. The SBIR program received an increased share of federal agencies’ extramural budgets:¹

1. Congress increased the SBIR/STTR share from 2.5 percent to 2.6 percent in FY 2012 and by 0.1 percent per year thereafter through FY 2017, when the share would be 3.2 percent.

2. STTR’s share of the overall combined program was increased:²

1. It is to grow from 0.25 percent to 0.3 percent in FY 2011, 0.35 percent in FY 2012 and 2013, 0.40 percent in FY 2014 and 2015, and 0.45 percent in 2016 and thereafter.

3. Award levels were increased:³

1. The existing limit of $100,000 for Phase I SBIR and STTR awards was increased to $150,000.
2. The existing limit of $750,000 for Phase II SBIR and STTR awards was increased to $1,000,000.
3. These limits were also for the first time indexed to inflation.

___________________

¹ U.S. Congress, P.L. 112-81, Sec. 5102 (a)(1)(a).

² Sec. 5102(b).

³ Sec. 5103.

4. Agency flexibility to issue larger awards was curtailed:⁴

1. Awards may no longer exceed 150 percent of guidelines (i.e., $1.5 million for Phase II) without a specific waiver from the SBA Administrator.
2. The waiver can apply only to a specific topic, not to the agency as a whole. The agency must meet specific criteria and must show in its application that these criteria have been met before a waiver can be issued.
3. For every award under a waiver, agencies must maintain additional information about the recipient, including the extent to which they are owned or funded by venture capital or hedge fund investors.

5. Agencies are permitted to utilize awards from other agencies:⁵

1. Agencies gained the ability to adopt Phase I awards from other agencies for Phase II funding; however, senior agency staff must certify that this is appropriate.
2. Similarly, the legislation now permits between-phase crossovers between SBIR and STTR.

6. Phase II invitations were eliminated for SBIR:⁶

1. The requirement that a company be invited by the agency before it could propose work for Phase II is now eliminated.

7. Pilot programs to skip Phase I were established:⁷

1. The legislation allows NIH, DoD, and the Department of Education to undertake pilot programs in this area. Discussions with agency staff indicate that for now DoD does not expect to utilize this new flexibility.

8. For SBIR. limited participation by previously excluded firms with majority venture capital or hedge fund ownership is now permitted (although subsidiaries of large operational companies are still excluded):⁸

___________________

⁴ Sec. 5103.

⁵ Sec. 5104.

⁶ Sec. 5105.

⁷ Sec. 5106.

⁸ Sec. 5107.

1. NIH, NSF, and DoE are permitted to award up to 25 percent of their program funding to such companies.
2. Other agencies are limited to 15 percent.
3. For each award to such an entity, the Agency or component head must certify that this award is in the public interest based on criteria laid out in Sec. 5107(A)(dd)(2).
4. Access to venture capital or hedge fund support may not be used as an award selection criterion by agencies.
5. Special “affiliation” rules are provided for venture capital- and hedge fund-owned companies:
   1. Portfolio companies partially owned by venture firms or hedge funds are not deemed to be “affiliated” for purposes of determining whether an applicant meets size limitations, unless they are wholly owned or the owning company has a majority of board seats on the portfolio company.

9. Explicit procurement preference were given for SBIR and STTR projects:⁹

1. The legislation states that agencies and prime contractors (emphasis added) must give preference to SBIR and STTR projects where practicable. However, there are no explicit targets included in the legislation.

10. Sequential Phase II awards were permitted:¹⁰

1. The legislation now explicitly permits agencies to award one additional Phase II award after the first Phase II has been completed.
2. The language implies that the provision of more than one sequential Phase II is prohibited.

11. Commercialization support was expanded:¹¹

1. Agencies are permitted to spend up to $5,000 per year per award on support for commercialization activities.
2. Individual firms can now request up to $5,000 per year in addition to their SBIR or STTR award (emphasis added) to pay for commercialization activities from agency-approved vendors.

___________________

⁹ Sec. 5108.

¹⁰ Sec. 5111.

¹¹ Sec. 5121.

12. The commercialization readiness pilot at DoD was converted to a permanent program—the Commercialization Readiness Program (CRP). Details include in particular the following:¹²

1. An SBIR Phase III insertion plan is now required for all DoD acquisition programs with a value of $100 million or more.
2. SBIR/STTR Phase III reporting is now required from the prime contractor for all such contracts.
3. The Secretary of Defense (SecDef) is now required to set goals for the inclusion of SBIR/STTR Phase II projects in programs of record and fielded systems and must report on related plans and outcomes to the SBA Administrator.
4. The legislation explicitly requires the SecDef to develop incentives toward this purpose and to report on the incentives and their implementation.

13. CRP may be expanded to other agencies:¹³

1. Other agencies may spend up to 10 percent of their SBIR-STTR program funds on commercialization programs.
2. CRP awards may be up to three times the maximum size of Phase II awards.
3. CRP authority expires after FY 2017.

14. Phase 0 pilot partnership program at NIH was enabled:¹⁴

1. NIH is permitted to use $5 million to establish a Phase 0 pilot program.
2. The funding must go to universities or other research institutions that participate in the NIH STTR program.
3. These institutions must then use the funding for Phase 0 projects for individual researchers.

15. Data collection and reporting were enhanced:¹⁵

1. Overall, the legislation calls for substantially increased data collection for individual recipients and for much more detailed reporting from agencies to SBA and to Congress.
2. Specific areas for improved reporting include:

___________________

¹² Sec. 5122.

¹³ Sec. 5123.

¹⁴ Sec. 5127.

¹⁵ Especially Sec. 5132, Sec. 5133, Sec. 5138, and Sec. 5161, but specific requirements are found throughout the legislation.

3. 1. Participation of (and outreach toward) woman- and minority-owned firms and the participation of woman and minority principal investigators;
   2. Phase III take-up (from both agencies and prime contractors);
   3. Participation of venture capital- and hedge fund-owned firms;
   4. Appeals and noncompliance actions taken by SBA;
   5. Sharing of data between agencies electronically;
   6. Extra-large awards;
   7. SBIR and STTR project outcomes (from participants);
   8. University connections (especially for STTR projects);
   9. Relations with the FAST state-level programs;
   10. Use of administrative funding for SBIR;
   11. Development of program effectiveness metrics at each agency; and
   12. SBIR activities related to Executive Order 1339 in support of manufacturing.
4. SBA is charged with developing a unified database to cover all SBIR and STTR awards at all agencies, as well as company information and certifications.¹⁶

16. Funding was provided for a pilot program to cover administrative, oversight, and contract processing costs:¹⁷

1. Agencies are limited to spending 3 percent of their SBIR/STTR funding on this pilot.
2. The pilot is initially designated to last for 3 fiscal years following enactment.
3. Part of the funding must be spent on outreach in low-award states.

17. Minimum commercialization rates for participating companies are required:¹⁸

1. Agencies must establish appropriate commercialization metrics and benchmarks for participating companies, for both Phase I and Phase II (subject to SBA Administrator approval).
2. Failure to meet those benchmarks must result in 1-year exclusion for that company from the agency’s SBIR and STTR programs.

___________________

¹⁶ Sec. 5135.

¹⁷ Sec. 5141.

¹⁸ Sec. 5165.