Testimony 

Before the Subcommittee on 

Environment, Technology, and Standards, 

Committee on Science, House of 

Representatives

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 3:00 p.m. EDT 

Tuesday, June 28, 2005 FEDERAL RESEARCH

Observations on the Small 

Business Innovation 

Research Program 

Statement for the Record of Anu K. Mittal, Director 

Natural Resources and Environment Team 

GAO-05-861T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-861T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Anu K. Mittal, 

(202) 512-3841, mittala@gao.gov. 

Highlights of GAO-05-861T, a statement 

for the record to the Subcommittee on 

Environment, Technology and Standards, 

Committee on Science, House of 

Representatives 

June 28, 2005

FEDERAL RESEARCH

Observations on the Small Business 

Innovation Research Program 

Between July 1985 and June 1999, GAO reviewed, reported, and testified on 

the SBIR program many times at the request of the Congress. While GAO’s 

work focused on many different aspects of the program, it generally found 

that SBIR is achieving its goals to enhance the role of small businesses in 

federal R&D, stimulate commercialization of research results, and support 

the participation of small businesses owned by women and/or disadvantaged 

persons. Participating agencies and companies that GAO surveyed during 

the course of its reviews generally rated the program highly. 

GAO also identified areas of weaknesses and made recommendations that, if 

addressed, could strengthen the program further. Some of these concerns 

related to (1) duplicate funding for similar, or even identical, research 

projects by more than one agency, (2) inconsistent interpretations of 

extramural research budgets by participating agencies, (3) geographical 

concentration of awards in a small number of states, and (4) lack of 

clarification on the emphasis that agencies should give to a company’s 

commercialization record when assessing its proposals. Most of GAO’s 

recommendations for program improvement have been either fully or 

partially addressed by the Congress in various reauthorizations of the 

program or by the agencies themselves. 

One issue that continues to remain somewhat unresolved after almost two 

decades of program implementation is how to assess the performance of the 

SBIR program. As the program has matured, the Congress has emphasized 

the potential for commercialization as an important criterion in awarding 

funds and the commercialization of a product as a measure of success for 

the program. However, in 1999, GAO reported that the program’s other goals 

also remain important to the agencies. By itself, according to some program 

managers, limited commercialization may not signal “failure” because a 

company may have achieved other goals, such as innovation or 

responsiveness to an agency’s research needs. GAO identified a variety of 

reasons why assessing the performance of the SBIR program has remained a 

challenge. First, because the authorizing legislation and the Small Business 

Administration’s (SBA) policy directives do not define the role of the 

company’s commercialization record in determining commercial potential 

and the relative importance of the program’s goals, different approaches 

have emerged in agencies’ evaluations of proposals. Second, GAO found 

that it has been difficult to find practical ways to define and measure the 

SBIR program’s goals in order to evaluate proposals. For example, the 

authorizing legislation lacks a clear definition of “commercialization,” and 

agencies sometimes differed on its meaning. Finally, GAO reported that as 

the emphasis on commercialization had grown, so had concerns that 

noncommercial successes may not be adequately recognized. For example, 

program managers identified various projects that met special military or 

medical equipment needs but that had limited sales potential. 

Since it was established in 1982, 

GAO has consistently reported on 

the success of the Small Business 

Innovation Research (SBIR) 

program in benefiting small, 

innovative companies, 

strengthening their role in federal 

research and development (R&D), 

and helping federal agencies 

achieve their R&D goals. However, 

through these reviews GAO has 

also identified areas where action 

by participating agencies or the 

Congress could build on the 

program’s successes and improve 

its operations. This statement for 

the record summarizes the 

program’s successes and 

improvements over time, as well as 

the continuing challenge of 

assessing the long term results of 

the program. 
Page 1 GAO-05-861T 

Mr. Chairman and Members of the Subcommittee: 

We are pleased to have the opportunity to comment on the Small Business 

Innovation Research (SBIR) program. Since the program’s inception, we 

have consistently reported on its success in benefiting small, innovative 

companies, strengthening their role in federal research and development 

(R&D), and helping federal agencies achieve their R&D goals. However, 

through these reviews we have also identified areas where action by 

participating agencies or the Congress could build on the program’s 

successes and improve its operations. Over the life of the program these 

recommendations have largely been implemented. This statement will 

discuss the program’s successes as well as the continuing challenge of 

assessing the long term results of the SBIR program. 

As a competitor in the global economy, the United States relies heavily on 

innovation through research and development. The potential of small 

businesses to be sources of significant innovation led the Congress to 

increase government funding for R&D projects with commercial potential 

that are conducted by small high-technology companies. In this context, 

the Small Business Innovation Development Act of 1982 established the 

SBIR program to stimulate mission-related technological innovation, use 

small businesses to meet federal R&D needs, foster participation by 

minority and disadvantaged persons in technological innovation, and 

increase private sector commercialization of innovations derived from 

federal R&D.1

 The act provided for a three-phased program: phase I to 

determine the feasibility and scientific and technical merit of a proposed 

research idea; phase II to further develop the idea, taking into account its 

commercial potential; and phase III to commercialize the resulting product 

or process with no further SBIR funding. 

The original program was reauthorized in 1986, extending the program’s 

expiration date from 1988 to 1993.2

 In 1992, it was reauthorized by the 

Small Business Research and Development Enhancement Act to expand 

and improve the program, to emphasize its goal of increasing private 

sector commercialization, to increase participation by small businesses, 

and to improve the government’s dissemination of program-related 

information.3

 In addition, the act increased funding for phase-I and phase-

 1

Pub.L. No. 97-219 (1982). 

2

Pub.L. No. 99-443 (1986). 

3

Pub.L. No. 102-564 (1992). 
Page 2 GAO-05-861T 

II proposals to $100,000 and $750,000, respectively, with adjustments once 

every 5 years for inflation and changes in the program. The program was 

again reauthorized in 2000 by the Consolidated Appropriations Act of 

2001,4

 which directed the Small Business Administration (SBA) and 

participating agencies to, among other things, expand the scope of 

publicly available information on specific grants and to annually report on 

their SBIR programs. In addition, the act requires award recipients to 

provide information to help SBA evaluate the program. The SBIR program 

is currently scheduled to expire on September 30, 2008. 

Current law requires every federal department with an R&D budget of 

$100 million or more to establish and operate a SBIR program funded by a 

set percentage of that agency’s extramural R&D budget—originally 1.25 

percent and now 2.5 percent. In addition, agencies with R&D spending 

above $20 million are directed to establish goals for financing small 

business R&D projects at levels higher than the previous year. As of fiscal 

year 2004, 12 federal agencies participated in the SBIR program, including 

the departments of Agriculture, Commerce, Defense (DOD), Education, 

Energy, Health and Human Services (HHS), Homeland Security, Housing 

and Urban Development, and Transportation; the Environmental 

Protection Agency; the National Aeronautics and Space Administration 

(NASA); and the National Science Foundation (NSF). Each agency 

manages its own program, while SBA plays a central administrative role, 

such as issuing policy directives and annual reports for the program. 

Awards from three agencies—DOD, National Institutes of Health, and 

NASA—account for the majority of SBIR funds. From its inception in 

fiscal year 1983 through fiscal year 2003, federal agencies have awarded 

over $15 billion for more than 76,000 projects. 

Between July 1985 and June 1999, we reviewed, reported, and testified on 

the SBIR program many times at the request of the Congress. While our 

work focused on many different aspects of the program, we generally 

found that SBIR is achieving its goals to enhance the role of small 

businesses in federal R&D, stimulate commercialization of research 

results, and support the participation of small businesses owned by 

women and/or disadvantaged persons. Participating agencies and 

companies that we surveyed during the course of our reviews generally 

 4

Pub. L. No. 106-554 (2000). 

SBIR Program Has 

Generally Met Its 

Goals 
Page 3 GAO-05-861T 

rated the program highly. Specific examples of program success that we 

identified include the following: 

• High-quality research. Throughout the life of the program, awards have 

been based on technical merit and are generally of good quality. For 

example, in 1989 we reported that according to agency officials, more than 

three-quarters of the research conducted with SBIR funding was as good 

as or better than other agency-funded research. Agency officials also rated 

the research as more likely than other research they oversaw to result in 

the invention and commercialization of new products. When we again 

looked at the quality of research proposals in 1995, we found that while it 

was too early to make a conclusive judgment about the long-term quality 

of the research, the quality of proposals remained good, according to 

agency officials. 

• Widespread competition. The SBIR program successfully attracts many 

qualified companies, has had a high level of competition, and consistently 

has had a high number of first-time participants. Specifically, we reported 

that the number of proposals that agencies received each year had been 

increasing. In addition, as we reported in 1998, agencies rarely received 

only a single proposal in response to a solicitation, indicating a sustained 

level of competition for the awards. We also found that the agencies 

deemed many more proposals worthy of awards than they were able to 

fund. For example, the Air Force deemed 1,174 proposals worthy of 

awards in fiscal year 1993 but funded only 470. Moreover, from fiscal years 

1993 through 1997, one third of the companies that received awards were 

first-time participants. This suggests that the program attracts hundreds of 

new companies annually. 

• Effective outreach. SBIR agencies consistently reach out to foster 

participation by women-owned or socially and economically 

disadvantaged small businesses. For example, we found that DOD’s SBIR 

managers participated in a number of regional small business conferences 

and workshops that are specifically designed to foster increased 

participation by women-owned and socially and economically 

disadvantaged small businesses. 

• Successful commercialization. SBIR successfully fosters 

commercialization of research results. At various points in the life of the 

program we have reported that SBIR has been successful in increasing 

private sector commercialization of innovations. For example, past GAO 

and DOD surveys of companies that received SBIR Phase II funding have 

determined that approximately 35 percent of the projects resulted in the 

sales of products or services, and approximately 45 percent of the projects 
Page 4 GAO-05-861T 

received additional developmental funding. We have also reported that 

agencies were using various techniques to foster commercialization. For 

example, in an attempt to get those companies with the greatest potential 

for commercial success to the marketplace sooner, DOD instituted a Fast 

Track Program, whereby companies that are able to attract outside 

commitments/capital for their research during phase I are given higher 

priority in receiving a phase II award. 

• Helping to serve mission needs. SBIR has helped serve agencies’ missions 

and R&D needs. Agencies differ in the emphasis they place on funding 

research to support their mission and to support more generalized 

research. Specifically, we found that DOD links its projects more closely 

to its mission. In comparison, other agencies emphasize research that will 

be commercialized by the private sector. Many of the projects DOD funded 

have specialized military applications while NIH projects have access to 

the biomedical market in the private sector. Moreover, we found that SBIR 

promotes research on the critical technologies identified in lists developed 

by DOD and/or the National Critical Technologies Panel. Generally 

agencies reviewed these listings of critical technologies to develop 

research topics or conducted research that fell within one of the two lists. 

We have also identified areas of weaknesses and made recommendations 

that, if addressed, could strengthen the program further. Many of our 

recommendations for program improvement have been either fully or 

partially addressed by the Congress in various reauthorizations of the 

program or by the agencies themselves. For example, 

• Duplicate funding. In 1995, we identified duplicate funding for similar, or 

even identical, research projects by more than one agency. A few 

companies received funding for the same proposals two, three, and even 

five times before agencies became aware of the duplication. Contributing 

factors included the fraudulent evasion of disclosure by companies 

applying for awards, the lack of a consistent definition for key terms such 

as “similar research,” and the lack of interagency sharing of data on 

awards. In response to our recommendations, SBA strengthened the 

language agencies use in their application packages to clearly warn 

applicants about the illegality of entering into multiple agreements for 

essentially the same effort and developed Internet capabilities to access 

SBIR data for all of the agencies. In SBA’s view, the stronger language 

regarding the illegality of seeking funding for similar or identical projects 

addresses the need to develop consistent definitions to help agencies 

determine when projects are “similar.” 

Improvements Made 

to the SBIR Program 

Over Time 
Page 5 GAO-05-861T 

• Inconsistent interpretations of extramural research budgets. In 1998, we 

found that while agency officials adhered to SBIR’s program and statutory 

funding requirements, they used differing interpretations of how to 

calculate their “extramural research budgets.” As a result some agencies 

were inappropriately including or excluding some types of expenses. To 

address our recommendation that SBA provide additional guidance on 

how participating agencies were to calculate their extramural research 

budgets, the Congress in 2000 required that the agencies report annually to 

SBA on the methods used to calculate their extramural research budgets. 

• Geographical concentration of awards. In 1999, in response to 

congressional concerns about the geographical concentration of SBIR 

awards, we reported that companies in a small number of states, 

especially California and Massachusetts, have submitted the most 

proposals and won the majority of awards. The distribution of awards 

generally followed the pattern of distribution of non-SBIR expenditures for 

R&D, venture capital investments, and academic research funds. We 

reported that some agencies had undertaken efforts to broaden the 

geographic distribution of awards and that the program implemented by 

the National Science Foundation had been particularly effective. Although 

we did not make any recommendations on how to improve the program’s 

outreach to states receiving fewer awards, in the 2000 reauthorization of 

the program, Congress established the Federal and State Technology 

Partnership Program to help strengthen the technological competitiveness 

of small businesses, especially in those states that receive fewer SBIR 

grants. 

• Clarification on commercialization and other SBIR goals. Finally, in 

response to our continuing concern that clarification was needed on the 

relative emphasis that agencies should give to a company’s 

commercialization record and SBIR’s other goals when evaluating 

proposals, in 2000 the Congress required companies applying for a second 

phase award to include a commercialization plan with their SBIR 

proposals. This requirement partially addressed our concern. Moreover, in 

the spring of 2001, SBA initiated efforts to respond to our recommendation 

to develop standard criteria for measuring commercial and other 

outcomes of the SBIR program, such as uniform measures of sales and 

developmental funding, and incorporate these criteria into its Tech-Net 

database. Specifically, SBA began implementing a reporting system to 

measure the program’s commercialization success. In fiscal year 2002, 

SBA further enhanced the reporting system to include commercialization 

results that would help establish an initial baseline rate of 

commercialization. In addition, small business firms participating in the 
Page 6 GAO-05-861T 

SBIR program are required to provide information annually on sales and 

investments associated with their SBIR projects. 

One issue that continues to remain somewhat unresolved after almost two 

decades of program implementation is how to assess the performance of 

the SBIR program. As the program has matured, the Congress has 

emphasized the potential for commercialization as an important criterion 

in awarding funds and the commercialization of a product as a measure of 

success for the program. However, in 1999, we reported that the program’s 

other goals also remain important to the agencies. By itself, according to 

some program managers, limited commercialization may not signal 

“failure” because a company may have achieved other goals, such as 

innovation or responsiveness to an agency’s research needs. We identified 

a variety of reasons why assessing the performance of the SBIR program 

has remained a challenge. 

• First, because the authorizing legislation and SBA’s policy directives do 

not define the role of the company’s commercialization record in 

determining commercial potential and the relative importance of the 

program’s goals, different approaches have emerged in agencies’ 

evaluations of proposals. As a result, the relative weight that should be 

given to the program’s goals when evaluating proposals remains unclear. 

Innovation and responsiveness to an agency’s needs, for example, may 

compete with the achievement of commercialization. In the view of many 

program managers, innovation involves a willingness to undertake R&D 

with a higher element of risk and a greater chance that it may not lead to a 

commercial product; responsiveness to an agency’s needs involves R&D 

that may be aimed at special niches with limited commercial potential. 

Striking the right balance between achieving commercial sales and 

encouraging new, unproven technologies is, according to the program 

managers, one of the key ingredients in the program’s overall success. 

• Second, we found that it has been difficult to find practical ways to define 

and measure the SBIR program’s goals in order to evaluate proposals. For 

example, the authorizing legislation lacks a clear definition of 

“commercialization,” and agencies sometimes differed on its meaning. This 

absence of a definition makes it more difficult to determine when a 

frequent winner is “failing” to achieve a sufficient level of 

commercialization and how to include this information in an agency’s 

review of the company’s proposal. Similarly, efforts to define and measure 

technological innovation, which was one of the program’s original goals, 

have posed a challenge. Although definitions vary, there is widespread 

Assessing the 

Performance of the 

SBIR Program 

Remains a Challenge 
Page 7 GAO-05-861T 

agreement that technological innovation is a complex process, particularly 

in the development of sophisticated modern technologies. 

• Finally, we reported that as the emphasis on commercialization had 

grown, so had concerns that noncommercial successes may not be 

adequately recognized. For example, program managers identified various 

projects that met special military or medical equipment needs but that had 

limited sales potential. These projects would be helpful in reducing the 

agency’s expenditures and meeting the mission of the agency but may not 

be appropriately captured in typical measurements of commercialization. 

In general, we found that program managers valued both noncommercial 

and commercial successes and feared that the former might be ignored in 

emphasizing the latter. 

To help evaluate the performance of the program, in the 2000 

reauthorization of SBIR, Congress required SBA to develop a database that 

would help the agency collect and maintain in common format necessary 

program output and outcome information. The database is to include the 

following information on all phase II awards: (1) revenue from the sale of 

new products or services resulting from the SBIR funded research, (2) 

additional investment from any non-SBIR source for further research and 

development, and (3) any other description of outputs and outcomes of 

the awards. In addition, the database is to include general information for 

all applicants not receiving an award including an abstract of the project. 

In conclusion, Mr. Chairman, our work has shown that, overall, the SBIR 

program has been successful in meeting its goals and that the Congress 

and the agencies have implemented actions to strengthen the program 

over time. However, an assessment of the program’s results remains a 

challenge because of the lack of clarity on how much emphasis the 

program should place on commercialization versus other goals. 

For further information, please contact Anu Mittal at (202) 512-3841 or 

mittala@gao.gov. 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER