II
PROCEEDINGS



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SBIR Program Diversity and Assessment Challenges: Report of a Symposium II PROCEEDINGS

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SBIR Program Diversity and Assessment Challenges: Report of a Symposium Opening Remarks Charles W. Wessner National Research Council Charles Wessner welcomed the participants, formally opened the symposium, and introduced Jacques Gansler, who has accepted the task of chairing the Committee charged with the Study of the SBIR program.1 INTRODUCTION Jacques S. Gansler University of Maryland Dr. Gansler extended Dr. Wessner’s welcome and thanked the three groups of people who had gathered for the symposium: These were the members of the steering committee, who would serve for three years, beginning with this “kick-off” symposium; those who had agreed to do the actual research for the evaluation of the SBIR program; and the agency representatives, “who are going to be making the major contribution to this activity.” To all three groups, he expressed gratitude for their help and support in what he called a “participatory activity.” The study, he said “would not be a GAO look-at-the-problem” exercise, or an attempt to ferret out incompetent people or teams. The panel would try to discern where best practices exist and how they can be improved “in what I personally believe to already be a very successful and important program.” Obviously, he said, the study has the potential for a signifi- 1   The Committee membership is listed on pp. v-vii, as are the members of the Research Team.

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SBIR Program Diversity and Assessment Challenges: Report of a Symposium cant positive impact on the missions of the agencies as well as on the country. “I also personally believe the program can be improved, and that’s the purpose of this overall effort.” The goal of this first formal session, he said, was to launch the evaluation itself. Each of the agencies had been asked to give the steering committee a description of what they were doing to assess their SBIR programs: what kind of data they were gathering, what kind of evaluations they were already doing or planning, and what views they had on how their activities and how the overall effort could be enhanced. He said that the symposium would feature “full discussions of each of the five largest agency SBIR programs.” These five accounted for some 96 percent of the $1.6 billion program, so that it “makes sense to pick them,” he said. At the same time, he suggested, one would expect to find good ideas and best practices in the other SBIR agencies, and these would be incorporated into the study as well. Dr. Gansler then introduced Roscoe Bartlett, a member of the House of Representatives from the Sixth District of Maryland. SMALL BUSINESS AND THE SBIR PROGRAM Roscoe G. Bartlett U.S. House of Representatives Dr. Bartlett, who serves on the House Small Business Committee, said that he had been in the Congress for 10 years, having first run for public office at the age of 65. Before that, he had been a small-business person and was one of about three-dozen members of Congress who belong to the National Federation of Independent Businesses. He has a Ph.D. in science, holds 20 patents, and has worked for the federal government in several capacities. He said he wished the SBIR program had existed when he was involved in research and development and seeking patents for his inventions. An Introduction to SBIR Program Dr. Bartlett began with an overview of the SBIR concept, describing it as a three-phased program: Phase I, with lower dollar amounts and a shorter period, is a phase of exploration to see if there is a potential for commercialization. Phase II is designed to bring a project to the point when it would be ready for introduction to the commercial market. Once in Phase III, a company should be ready to go into the commercial market and become eligible for venture capital funding. The SBIR is a relatively new program, having been created in 1982, and 2002 was its twentieth anniversary. The goal of the program, he said, is to bring

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SBIR Program Diversity and Assessment Challenges: Report of a Symposium to the marketplace creativity and innovations from the small business community, particularly innovations that were at least partly the result of government contracting. He recalled that 19 of his 20 patents are military patents, awarded when he worked for the Navy, both as a physiologist at the School of Aviation Medicine in Pensacola, Florida, and later at the Johns Hopkins University applied physics laboratory, a “captive” Navy contractor. He said that growing up on a farm, where he had had to learn diverse mechanical and technical skills to succeed, he learned to see opportunities in problems and to solve them himself. In the same way, he saw opportunities for solving problems in human physiology when he worked for the Navy and won a series of patents in the area of life-support equipment. The Importance of SBIR to the Economy He emphasized the importance of small business to the U.S. economy. Small business employs just over 50 percent of all workers in the country, he said, and after the recession of the early 1990s, he was astonished at the role played by small businesses in pushing the economic rebound. “I had to have my staff look at these numbers to verify them,” he said, “because at first they were unbelievable.” He categorized America’s businesses according to size, with the largest group employing at least 5,000 people and the smallest employing zero to four employees. Within those categories, a few new jobs were created in the 5,000-plus group; in the progressively smaller groups of companies, no new jobs were created, until he reached the zero-to-four-employee category, where more than 90 percent of all of the new jobs were created. The smallest of small businesses were almost fully responsible for bringing the country out of recession. The country was again in a recession as he spoke, he said, and he expected that small businesses would once again lead the country out of it. Small business is important to the U.S. economy not only because it employs more than half of all U.S. workers, he said. In addition, the percentage of scientists and engineers working in small businesses exceeds that in large businesses. From this he inferred that the opportunities for creativity are greater in small businesses. He said that he had worked for eight years at IBM, which he called a “great employer who did as good a job as a big bureaucracy can do in providing an environment where you can be creative.” But he said that big organizations are inherently stifling by the very facts of their size and their bureaucracy. It is no accident, he said, that small companies create relatively more innovations and win more patents. He said that he works hard in Congress to ensure that small businesspeople have adequate opportunities to work with government. And he expressed gratification that government had now agreed that 35 percent of all contract dollars would go to small business. But he argued that 35 percent was still not enough, given that more than half of all employees work for small businesses. “I know

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SBIR Program Diversity and Assessment Challenges: Report of a Symposium that small businesses can’t build big airplanes and submarines and tanks, and so forth, but I suspect we could do better than we’re doing, and I think the interests of the government would be better served if we did.” The Importance of Intellectual Property Policy There was neither an SBIR nor an STTR2 program when he worked for the Navy, but the policy on intellectual property was more favorable to the inventor, he said. The inventor would receive all commercial rights to an invention, while the government retained what were called “march in shop rights.” That is, the inventor’s own agency—or any other agency of the government—could use the patent for any government purpose without paying royalties. The favorable point was that the inventor had the right to patent and market the invention. This is no longer true, however, largely because of Congress’ feeling that if public money is used to support research, any resulting innovations or patents rightly belong to the taxpayers. He offered an example from his own congressional district to illustrate the unfairness of this sentiment. A chemist working for the military had developed a cream to protect a person’s skin from chemical or biological agents. Such a protection is necessary, especially in a battlefield environment, because even the tightest-fitting protective suit has junctions between boot and pants, between head shroud and coat, and between gloves and arm. Minute amounts of toxic fluid could penetrate the suit through these junctions, and the cream prevented this from happening. In spite of the fact that this chemist was a small businessman as well as a military employee, he was refused the right to develop and market his invention. “I think there would be more such innovations, and that the taxpayers would be better served,” said Dr. Bartlett, “if the inventor today had many of the same opportunities that previous inventors have had to exploit the commercial opportunities of their own invention.” Trends in Women-owned Small Businesses He noted that the fastest-growing sector of small business today is women-owned small businesses. These have been increasing at twice the rate of male 2   The smaller STTR (Small Business Technology Transfer) program is focused on the academic and not-for-profit research community. STTR reserves a specific percentage of federal R&D funding for award to small business and nonprofit research institution partners. Small businesses must meet certain eligibility criteria to participate in the STTR Program.. They must be a for profit American-owned and independently operated firm. While the principal researcher need not be employed by small business, company size is limited to 500 employees. The nonprofit research institution must also meet certain eligibility criteria, although there is no size limit for nonprofit research institution. They must be located in the U.S., and must be a nonprofit college or university, domestic nonprofit research organization, or federally funded R&D center (FFRDC).

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SBIR Program Diversity and Assessment Challenges: Report of a Symposium owned small businesses. He said that, on the basis of his work on the Armed Services Committee, the House Science Committee, and as vice-chair of the Small Business Committee in the Congress, he felt he could state that women-owned small businesses are “better employers than male-owned small businesses, and they’re better corporate citizens.” One reason for that, he went on, is that “women are more compassionate and more empathetic than men, and so it doesn’t surprise me that they’re better employers and their companies are better corporate citizens. They also have a lower bankruptcy-failure rate than male-owned small businesses. The banking world hasn’t figured that out because women-owned small businesses still have a major problem with access to capital.” “Bundling” and Small Business He described a recent trend in government procurement toward “bundling,” which is to draw up one major contract for a suite of services that were formerly divided among a dozen, fifty, or a hundred small contracts. This practice is generally more convenient for the contracting officer, who then has to deal with only one contractor. Another incentive for bundling is that it may speed procurement cycles. He illustrated this practice by the example of the Navy and Marine Corps, the first organization to bundle “for a good reason rather than a bad reason.” The Navy and Marine Corps let a single performance contract for acquisition and management of all of their data. The reason they did so was to shorten their procurement cycle, which was so long that by the time they had bought the data-handling equipment they needed, it was nearly obsolete. If a procurement cycle was fourteen months long and the lifetime of data-handling equipment is eighteen months, the procuring agency has state-of-the-art equipment for only four months. “So what they are doing is buying performance,” he said. “The contractor they deal with can literally buy overnight something that the government needs a very long time to buy.” Dr. Bartlett said he understood the need to procure the latest equipment, but he expressed concern that small business might be excluded from such bundled bidding. When the Armed Services Committee explained this concern to the Navy and Marine Corps, their representatives, “to their great credit,” agreed. They withdrew the request for proposals and issued another, guaranteeing that 35 percent of the contract money would go to small businesses and 10 percent of the money would be direct-pay. The next organization to unbundle its contracts was the National Security Agency. This, “ground-breaker program,” which attracted considerable publicity, influenced many other agencies. The NSA, which relies on having the most up-to-date technology, had also been held back by the long procurement cycles in government. In response, the agency was about to depart from its previous custom of letting hundreds of contracts and to consolidate them into a single con-

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SBIR Program Diversity and Assessment Challenges: Report of a Symposium tract. Small-business representatives were very concerned when they heard this, and presented the agency with the same arguments and the same proposition they had expressed to the Navy and Marine Corps. The NSA was skeptical that it would be able to meet their goals while doing more for small businesses. However, Dr. Bartlett and his delegation argued that the Navy and Marine Corps had had success with an even more dispersed system. As a result, the NSA is now attempting to meet the goal of directing 35 percent of its contracting to small business and 10 percent to direct-pay. Evaluations are Essential He congratulated the NRC committee on holding its first meeting, and agreed that evaluations are essential to the health of programs. He said that the SBIR program has been successful in his opinion, but that “no matter how good a job you’re doing, if you look carefully you probably can find ways to do an even better job.” He encouraged the panel to focus on looking for opportunities to make a good program better. “This is particularly important for two reasons,” he said. “One is that we are now in a recession, and if small business performs now as it has in the past, it will provide most of the new jobs that will bring us out of this recession.” But he also cited a new challenge, “one that we have not faced for nearly 200 years.” That is, on September 11, 2001, a foreign entity had killed Americans on home soil in large numbers for the first time since the War of 1812. All the other wars we had fought, he said, were “over there,” with minimal physical impact on this country. We were now engaged in a war like none other we had ever fought, he said, and it appeared clear that the wars of the future would be very different from past wars. “We’re going to need new creativity, and new innovations, and it will be largely the small-business part of our private sector, I believe, that will be responsible for these new creativities.” He thanked the steering committee for inviting him to participate in the symposium, and for its “commitment to creativity.” He closed by saying he wished he could participate more fully, contributing his experience in science and innovation, but the pressures of the congressional election cycle left him little time for any activities beyond campaigning.