Big Government, Small Business: A Guide to the SBIR and STTR Programs - UNeTech Institute

Part 2: Productive Beyond Anybody’s Expectation

In this series, Jace Gatzemeyer discusses the history, legacy, goals, successes, and shortcomings of the SBIR and STTR programs. Dr. Gatzemeyer is UNeTech’s Grant Writer, and one aspect of his job involves creating strong SBIR/STTR proposals for small businesses in the incubator. This second installment follows the progress of the nascent SBIR program and the founding of the STTR program.

With the passage of the Small Business Innovation Development Act in 1982, the U.S. government took a big gamble on small businesses. This legislation launched the Small Business Innovation Research (SBIR) program across ten federal agencies, shifting hundreds of millions of research and development dollars from large corporations and universities to small innovative companies. From 1982 until 1992, each agency with a research budget in excess of $100 million was required to set aside a certain percentage of that money (0.2 percent in 1983 and increasing to 1.25 percent over the next six years) as three-phase awards for innovative R&D at American small businesses.

As its 1992 sunset approached, the SBIR program seemed poised for reauthorization, with strong political popularity and support in the small business community. Before SBIR, as Democratic Representatives George Brown Jr. and Jim Turner put it, “Federal procurement officials functioned within a conservative system and were unwilling or unable to risk increasing awards to untested small businesses.” Indeed, a 1991 study by the Government Accounting Office concluded that “the public investment in small business innovation, through the SBIR Program, has been productive beyond anybody’s expectation.” By 1992, small businesses had begun to be recognized as powerful catalysts of technological innovation and economic growth, with small high-tech companies increasingly leading the way in emerging fields like software and biotechnology. Within this climate, SBIR was increasingly seen the government’s primary tool for supporting small business-fueled growth.

In spite of its successes, however, there were concerns. Some critics pointed out that while the SBIR program appeared to facilitate technology creation, it didn’t effectively address technology commercialization. Finding that “U.S. technological performance is challenged less in the creation of new technologies than in their commercialization and adoption,” a report from the National Academies of Sciences, Engineering, and Medicine recommended emphasizing the commercial potential as a criterion for awarding SBIR contracts and grants.

The Small Business Research and Development Enhancement Act of 1992 reauthorized the SBIR program until the year 2000 and doubled the amount of R&D money agencies were required to set aside for the SBIR program, from 1.25% to 2.5%. To address worries about commercialization, the law expanded SBIR’s purposes to “emphasize the program’s goal of increasing private sector commercialization developed through federal research and development and to improve the federal government’s dissemination of information concerning the small business innovation, particularly with regard to woman-owned business concerns and by socially and economically disadvantaged small business concerns.”

But Congress didn’t just reauthorize and expand SBIR in 1992, it also added an entirely new companion program, the Small Business Technology Transfer (STTR) program. With the passage of the Small Business Technology Transfer Act, an STTR pilot program was established to encourage commercialization of university and federal laboratory R&D by small companies. The massive success of the Baye-Dole Act (1980), which enabled universities and small businesses to retain the rights to (and thereby profit from) intellectual property generated from federal funding, had shown legislators the significant economic benefits of facilitating R&D collaboration between small firms and scientists employed with nonprofit research institutions, such as public universities, hospitals, and federal research laboratories. The STTR program was designed with this goal in mind, to promote and incentivize engagement between small businesses and research institutions.

Whereas the SBIR program allowed collaboration with a non-profit research institution, the new STTR program required it. Under SBIR, a research institution could complete up to 33% of the total effort in Phase I, and up to 50% in Phase II. Under STTR, however, the research institution was required to perform at least 30% of the work and the small business at least 40%, leaving the last 30% to be performed by either, or additional parties. Furthermore, unlike SBIR, the Principal Investigator (PI) on an STTR grant did not have to be employed primarily at the recipient small business; rather, the PI was allowed to remain primarily employed at his or her research institution during the period of the grant. The new STTR program was also much smaller than SBIR. Only federal agencies with an extramural R&D budget in excess of $1 billion were required to create an STTR program, and these agencies were asked to devote only .15% of their respective R&D budgets for the program.

With the Small Business Research and Development Act expanding the existing SBIR program and adding a new STTR program, small business innovation research and development had reached a new pinnacle in 1992. But what lay on the horizon? Questions of accountability loomed. Congress would soon begin to wonder how SBIR and STTR might be effectively measured and assessed. And, of course, the programs would face another reauthorization debate in the year 2000. We’ll cover all this and more in the next installment, in which we’ll take a look at attempts to hold the SBIR/STTR accountable and at the Small Business Reauthorization Act of 2000.