Effective Partnering: A Report to Congress on Federal Technology Partnerships 1

OFFICE OF TECHNOLOGY POLICY

EFFECTIVE PARTNERING:

A REPORT TO CONGRESS ON

FEDERAL TECHNOLOGY PARTNERSHIPS

Richard J. Brody, Ph.D.

Project Director

U.S. Department of Commerce

Office of Technology Policy

April 1996
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TABLE OF CONTENTS

PAGE

FOREWORD ............................................................................................. 5

CHAPTER 1: EXECUTIVE SUMMARY ......................................................... 7

U.S. Technology Policy After World War II ........................................7

Impact of Foreign Competition.............................................................8

Changing Environment for Defense R&D ..........................................8

Rise of Local and State Partnership Programs ...................................9

Rise of Federal Partnership Programs .................................................9

Findings ..................................................................................................12

Recommendations ................................................................................14

CHAPTER 2: FEDERAL TECHNOLOGY POLICY, 1950–1980 ..................... 17

Dual Thrusts: Basic Research and Mission R&D..............................17

Commercial Impacts from Basic Research, Mission Research,

and Procurements ...........................................................................18

The Rise of Global Competition and Its Implications for

Federal Technology Policy ............................................................20

CHAPTER 3: TECHNOLOGY PARTNERSHIPS AND THE EMERGENCE

OF A NEW PARADIGM FOR ECONOMIC GROWTH AND

COMPETITION, 1980–1995 ............................................................. 23

The Role of States and Private Sector Groups ..................................23

Federal Technology Legislation: Leveraging Mission R&D ...........25

Federal Technology Legislation: Direct Competitiveness

Programs ..........................................................................................30

Federal Technology Legislation: Dual-Use Partnerships for

Defense .............................................................................................32

The New Paradigm for Improved U.S. Competitiveness ...............33

CHAPTER 4: FINDINGS .......................................................................... 37

Partnership Programs and U.S. Competitiveness ...........................37

Partnerships and Government Mission R&D ..................................39

Support for Federal Programs ............................................................40

Partnership Programs, Public Policy, and the Business

Climate for Innovation ..................................................................45

Measuring Success ................................................................................47

A New Paradigm ..................................................................................56

CHAPTER 5: RECOMMENDATIONS ......................................................... 65

Make Partnership Opportunities More Accessible and Easier

to Identify ........................................................................................65

EFFECTIVE PARTNERING: A REPORT TO CONGRESS

ON FEDERAL TECHNOLOGY PARTNERSHIPS
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Be a Better Partner: Improve Speed, Flexibility, and

Predictability ...................................................................................69

Help Small Businesses Secure Necessary Business and

Financial Advice from State Programs and Private

Sector Sources .................................................................................73

Further Increase the Private Sector Role in Project

Definition and Selection ................................................................73

Shift to Commercial Financial Management Practices ...................74

Continue Developing an Integrated System of Measuring

Program Results..............................................................................76
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FOREWORD

During the past 15 years, successive Congresses and Presidents have

introduced a range of policies and programs designed to increase

the effectiveness of government mission research and development and

enhance U.S. technology-based economic growth. These policies and

programs include the following:

n Licensing of federal patents;

n Cooperative research and development agreements;

n The Small Business Innovation Research program;

n The Advanced Technology Program; and

n The Manufacturing Extension Partnership.

Taken as a whole, these policies and programs represent a gradual

evolution from the historic model—in which government is the principal

customer for federally supported technology—to inclusion of a new

paradigm appropriate to this era of dynamic commercial markets and

global competition. In this paradigm, government is a partner with the

private sector in developing and deploying new commercial technologies

that fulfill mission objectives and enhance U.S. industry’s market

strength.

Extensive consultation with the private sector confirms that these partnership policies and programs, in combination with incentives for capital

formation and regulatory reforms that reduce risk, are important in

stimulating technological innovation and improving U.S. competitiveness.

This report analyzes this historic transition and describes best practices of

the new paradigm across the range of programs. It also offers recommendations for further improving the effectiveness of present and future

public-private partnerships.

Graham R. Mitchell

Assistant Secretary of Commerce for Technology Policy
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CHAPTER 1: EXECUTIVE SUMMARY

Since 1980, successive Congresses and Presidents have established a set

of policies and programs designed to improve the effectiveness of

government mission research and enhance U.S. technology-based economic growth. These efforts began with mechanisms designed to maximize the commercial impact of federal investments in research and

development. Over time, however, the policy focus shifted to include

new programs that seek to enhance directly the competitiveness of U.S.

industry. This shift represents a fundamental change in the philosophy

underlying U.S. technology policy.

We began, in the years following World War II, with informal processes

of technology diffusion, based on the assumption that technologies

developed in the course of federal missions would more or less automatically find use in the private sector. In the early 1980s, in an effort to

meet mission objectives more cost-effectively and to leverage more fully

the economic impact of mission Research & Development (R&D), the

government introduced new programs, based on a model of actively

encouraging commercialization of valuable federal technologies. The

newest technology partnerships, introduced in the late 1980s, are based

on a new paradigm in which the government is a partner with the private sector in developing and deploying new technologies in a global

economy.

This report analyzes this historic transition, explores the effectiveness of

federal technology partnership programs in meeting their goals, and

offers recommendations for further improving the effectiveness of

public-private technology partnerships.

A comprehensive review of all federal technology partnership programs

is beyond the scope of this report. Rather, the report focuses on the

history and development of several key mechanisms for public-private

R&D partnerships.

U.S. Technology Policy After World War II

Throughout much of the post–World War II period, the U.S. government

added significantly to the world’s science and technology base through a

two-part strategy of supporting basic scientific research and pursuing the

science and technology missions of federal agencies and departments.

Fueled by the cold war and the space race, federal R&D spending rose

dramatically. By 1964, U.S. government R&D investments exceeded the

The newest technology

partnerships are based on

a new paradigm in which

the government is a

partner with the private

sector in developing

and deploying new

technologies in a

global economy.
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civilian, defense, and industrial R&D investments of all other developed

countries combined.

U.S.–based corporations, by virtue of their global commercial dominance

in technology-based industries, benefited especially from the enormous

amount of federally sponsored basic research and mission R&D. The

American economy benefited from federal R&D through an informal

process referred to as “spin-off,” in which the results of federally funded

research were diffused and applied in the private sector.

U.S. industry continues to reap the commercial benefits of these investments in federal R&D. The present technical and competitive strength of

the U.S. aerospace, information, computing, and biotechnology industries is due to a significant degree to sustained government support for

science and technology research over several postwar decades.

Impact of Foreign Competition

During the 1970s and 1980s, however, many foreign competitors increased their technical capabilities and challenged U.S. commercial

dominance in both foreign and domestic markets, which led to enormous U.S. job losses and economic dislocation. In this new environment,

the U.S. economy benefited less from traditional processes of publicprivate technology development and diffusion.

There were at least three reasons for this phenomenon. First, as the

technical sophistication of our major competitors grew, they too were

able to appropriate the output of U.S. government basic and mission

research, which reduced the relative impact of these public investments

on American economic competitiveness. Second, traditional mechanisms

of technology transfer, development, and diffusion took too long in an

era of accelerating private sector product development. And third, as

foreign R&D increased, U.S. government R&D represented a declining

world share. For all these reasons, U.S.–based corporations and the U.S.

economy benefited less than they had previously from federally supported basic research and from technologies resulting from government

mission investments.

Changing Environment for Defense R&D

During the 1970s and 1980s, the federal government’s traditional approach to R&D also became less effective in meeting government’s own

needs. Postwar military R&D and procurement had spawned technologies such as computers, semiconductors, and jet engines. However,

U.S. industry continues

to reap the commercial

benefits of these

investments in federal

R&D. The present

technical and competitive

strength of the U.S.

aerospace, information,

computing, and

biotechnology industries

is due to a significant

degree to sustained

government support for

science and technology

research.
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because of expanding military specifications and the crush of an increasingly cumbersome federal procurement system, more and more commercial firms walled off their defense production or refused to do business

with the Department of Defense (DoD) altogether. As a result, DoD came

to rely on an increasingly isolated defense industrial base.

This segregation of defense and commercial firms occurred at a time

when the defense industry was gradually losing its unchallenged position of technological leadership. The new technologies most critical to

America’s military advantage—software, computers, semiconductors,

telecommunications, advanced materials, and manufacturing technologies—were increasingly being driven by fast-growing commercial demand, not by military demand. To preserve U.S. military superiority,

DoD had to find a way to exploit the advanced technologies and efficient

production capabilities of commercial industry.

Rise of Local and State Partnership Programs

Faced with economic decline and job losses, some state and local governments, together with numerous private sector and academic organizations, began to build diverse partnerships and programs to promote

economic growth and job creation. Over time, these programs increasingly focused on the economic potential of technology. In the 1960s,

some governments promoted technology-based economic growth

through mechanisms such as North Carolina’s Research Triangle complex. Ohio’s Thomas Edison Program and Pennsylvania’s Ben Franklin

Partnership Program were introduced in the 1980s. Through these programs and others, states created networks of technical training and

academic programs, fostered new businesses through “incubators,”

supported new technologies through grants, and diffused information

about manufacturing technologies through extension programs. States

also integrated federal laboratories, universities, industry consortia, and

test centers into state economic development strategies. These new

partnerships and programs brought together sources of new technology,

insights about new markets, and the funding and management needed to

bring success in those markets.

Rise of Federal Partnership Programs

By 1980, there was widespread concern about the effectiveness of government mission research and declining U.S. technology-based competitiveness. These concerns were the impetus for new approaches to federal

technology policy in the 1980s and 1990s.

Partnerships and

programs brought

together sources of new

technology, insights

about new markets,

and the funding and

management needed to

bring success in those

markets.
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The initial federal technology legislation of the 1980s was responsive to

the same concerns about competitiveness that drove state programs. The

new legislation was also motivated by the belief that traditional federal

policies—investment in basic and mission research without direct regard

for commercial impact and with reliance on informal mechanisms of

spinning off technologies to the private sector—were not maximizing the

commercial potential of the results of federally sponsored research.

Many public and private sector officials believed that federal laboratories

and agencies had developed many technologies and processes that had

commercial value but were languishing on the shelf, which reduced the

value of these technologies for achieving agency mission goals.

In addition, through this and subsequent legislation, policymakers began

to address the ways in which increased emphasis on commercializing

federal technologies and the establishment of R&D partnerships with the

private sector could improve the efficiency of mission-related research.

This new approach to R&D partnerships had particular application in

the defense sector, where R&D critical to national security was being

driven increasingly by commercial market forces. In this environment,

partnerships could help both civilian and military agencies better meet

technology needs by exploiting commercial technologies and markets to

meet the government’s own needs.

In the 1980s, legislation and executive orders granted firms and universities irreversible and exclusive patent rights to federally developed

technologies, promoted small business involvement in technology

development and diffusion, and coordinated technology policies across

agencies, among other provisions. Licensing of federal patents and

public-private technology partnerships offered agencies a way to accomplish their mission objectives more efficiently. In addition, through these

laws and policies, Congress and successive presidents sought to leverage

fully the value to society of tax dollars invested in mission-related R&D.

While these policies were an improvement, they did not maximize the

government’s potential for fostering technology-based economic growth.

Merely encouraging the commercialization of government mission R&D

did not fully meet the needs of the private sector in responding to global

competition.

In the late 1980s and early 1990s, Congress created two programs designed to enhance U.S. competitiveness directly—the Advanced Technology Program (ATP) and the Manufacturing Extension Partnership (MEP),

described below. These initiatives are private sector–led technology

development and deployment programs to speed technology diffusion

Legislation and executive

orders granted firms and

universities irreversible

and exclusive patent

rights to federally

developed technologies,

promoted small business

involvement in

technology development

and diffusion, and

coordinated technology

policies across agencies.
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and develop longer term, high-risk technologies that will provide widespread benefits to the U.S. economy but that would not otherwise be

developed in a competitive time frame, if at all. These direct competitiveness programs are governed by a new paradigm for public-private

technology partnerships in which the government and private sector are

partners in developing and deploying new technologies. For example, in

ATP, the private sector joins in cost-shared partnerships with the government to improve American technological competitiveness.

The federal government now administers the following partnership

policies and programs to increase the effectiveness of mission research

and promote technology-based economic growth and U.S. competitiveness:

n Licensing of federal patents;

n Cooperative research and development agreements (CRADAs);

n The Small Business Innovation Research program (SBIR);

n The Advanced Technology Program (ATP); and

n The Manufacturing Extension Partnership (MEP).

Licensing and SBIR are active spin-off programs designed to leverage the

commercial impact of federal R&D investments. CRADAs join the government and industry in mutually beneficial joint civilian research. An

additional program, Technology Reinvestment Project (TRP), launched to

make defense products cheaper to buy, supported defense efforts through

the development of dual-use technologies that exploit the rapid rate of

innovation and the market-driven efficiencies of commercial industry.

ATP and MEP are direct competitiveness programs in which the government and private sector work jointly to raise the level of technology used

by U.S. firms and to develop cutting-edge technologies and processes.

Through these two programs, the federal government facilitates the

development of promising yet unproved technologies that would not

otherwise be developed in a competitive time frame, if at all.

Although these programs represent only a small fraction of the federal

R&D budget, they leverage money in the public and private sectors,

causing an economic impact far larger than that suggested by the program budgets alone. Moreover, they are the only mechanisms focused

specifically on providing a bridge between the federal R&D investment

and the efforts of the private sector to remain globally competitive. These

Through these programs,

the federal government

facilitates the development of promising yet

unproved technologies

that would not otherwise

be developed in a

competitive time frame,

if at all.
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relatively small investments in federal partnerships play a central role in

increasing the efficiency of government mission research and safeguarding the country’s prosperity.

Findings

This study, conducted with the support of an interagency working group,

began with a series of roundtable discussions with private sector and

academic participants in federal technology programs. The study suggests the following:

Technology partnerships play an important role in fostering

U.S. competitiveness.

Although the primary responsibility for maintaining U.S. competitiveness lies with the private sector, public R&D investments have long had

a large impact on the private sector’s ability to innovate and market new

technologies. The past several decades of experience with public-private

technology development and diffusion policies have taught us that

federal technology programs contribute to U.S. competitiveness by

n maximizing the commercial impact and value to society of public

investments in government-funded basic research and missionrelated R&D, and

n working in partnership with the private sector to develop highrisk enabling technologies and speed their diffusion.

Technology partnerships enhance the effectiveness of government

mission-related R&D.

With the explosive growth of cutting-edge R&D performed by commercial firms, U.S. agencies can no longer depend solely on internal mechanisms for meeting government mission requirements. By joining

strategically with the private sector, U.S. agencies gain access to and

leverage advanced commercial technologies, private sector production

efficiencies, and larger markets, enabling the government to fulfill its

mission requirements more effectively and at a lower cost.

The U.S. private sector strongly supports federal technology partnership

programs.

Private sector support is broad-based. Both large and small companies

and a wide range of industries support an array of federal programs.

Private sector partners perceive partnership programs to be a small but

Both large and small

companies and a wide

range of industries

support an array of

federal programs.
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critical part of the U.S. science and technology infrastructure. This support has been clearly documented through surveys, academic studies,

roundtable discussions with private sector representatives, and private

sector appeals for expansion of these programs.

Federal technology partnerships are part of a larger set of private sector

priorities for stimulating innovation and competitiveness.

In addition to leveraging federal R&D and catalyzing long-term, highrisk research, the U.S. private sector has called for other government

actions to improve the business climate, especially through reform of

federal tax and regulatory policies. The goal of these technology policy–

related proposals is to reduce the high costs and technical risks that can

impede innovation, through changes in federal regulations and product

liability laws, new incentives for capital formation, and other initiatives.

The Clinton administration strongly supports policy measures to make

the business climate more conducive to innovation, provided these

changes balance other important policy goals, including environmental

protection, public health and safety, and the interests of consumers,

manufacturers, and sellers, and respect the important role of the states

in the federal system.

Technology partnership programs benefit the U.S. economy

in a variety of ways.

Some benefits of these partnerships accrue immediately in terms of

profits, jobs, and new products, while others (such as catalyzing important long-term R&D areas) may require years to develop. Moreover, some

benefits are easily measured while others, such as the promotion of

business and R&D synergies, are more difficult to quantify. The active

spin-off and defense dual-use programs offer significant benefits, in

increasing the efficiency of government mission research and contributing to U.S. commercial growth. In contrast, ATP and MEP focus exclusively on and have the greatest potential for promoting technological

innovation, economic growth, and U.S. competitiveness. Interim data for

all types of programs are quite positive, showing significant short-term

impacts for active spin-off programs and demonstrating that defense

dual-use and direct technology programs are fulfilling their milestones

and remain on track for long-term success. While the measurement of

program results presents a difficult challenge, the administration has

emphasized the need for greater accountability in the operation of these

programs and is designing new systems to measure program inputs and

outputs.

The Clinton

administration strongly

supports policy measures

to make the business

climate more conducive

to innovation, provided

these changes balance

other important policy

goals.
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Government agencies are adopting a new paradigm for technology

partnerships.

Government agencies are experimenting with and adopting a new model

of public-private partnership in which the private sector is recognized as

the government’s partner in cost-shared technology development and

diffusion programs. This paradigm enables agencies to fulfill their

missions more effectively and enhances the impact of federal R&D

partnerships on the U.S. economy. Direct competitiveness programs, such

as ATP and MEP and the defense dual-use TRP program, which were

designed according to the principles of the new paradigm, are drawing

strength and support through their interactions with the private sector.

In addition, new paradigm principles of service and improved accountability have improved the operations of the older programs that enhance

the efficiency and commercial impact of government mission R&D.

Recommendations

Although individual federal agencies have already made significant

progress in improving the effectiveness of programs and incorporating

many features of the new paradigm, an opportunity exists to learn from

the best practices across all agencies. To the extent permitted by agency

missions, the agencies should take the following actions:

Make partnership opportunities more accessible and easier to identify.

n Disseminate information on federal research projects, expertise,

and intellectual property through both public and private means.

n Serve as a catalyst to promote matching of new technologies developed in programs with sources of capital and other support.

n Increase public-private exchanges of scientific and technical

personnel.

n Use participation in and support of industry consortia and other

umbrella organizations as a means of ensuring broad private sector access to partnership opportunities.

Ensure effective protection of intellectual property.

n Use panels of industry representatives to help identify the commercial potential of agency research and inventions as early as

possible.
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n Use procedural options under the patent laws to secure additional time to collect private sector advice and ensure that

appropriate protection is sought.

Be a better partner: improve speed, flexibility, and predictability.

Make administration of partnership agreements more responsive to industry

needs.

n Use whatever form of funding agreement provides the agency

with maximum flexibility to adopt commercial practices in structuring the agreement.

n Direct agencies to use, where available, “other transactions” or

comparable authority permitting the greatest possible flexibility

in the terms of collaborative research agreements.

n Increase the speed with which the agencies fund partnerships

once they are agreed to.

n Where appropriate, use the “exceptional circumstances” authority of the Bayh-Dole Act to permit industry to own or control the

rights to inventions resulting from federal funding, including

inventions of subcontractors.

Make partnership agreements easier to negotiate.

n Use state and local economic development organizations,

industry associations, and other intermediary organizations

as partners, providing an umbrella under which individual

businesses can perform collaborative research.

Make partnership agreements more predictable.

n Seek public-private agreement on the basic principles for partnership agreements.

n Build on these principles to give uniform agreement terms,

where possible, and to make negotiations faster and outcomes

more predictable.

n In the case of CRADAs, agree to give private sector partners the

option of an exclusive license to inventions developed by federal

agency employees in connection with the partnership.
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Help small businesses secure necessary business and financial advice

from state programs and private sector sources.

n Work with state and federal agencies to increase the support

available to small businesses and others who need to improve

their competence in the commercialization of new technologies.

Further increase the private sector role in project definition and selection.

n Seek private sector views on the portions of the mission research

agenda with greatest commercial potential.

n Use this continuing source of guidance as a basis for selecting

technology areas in which partnership opportunities will be

offered under the partnership programs.

Shift to commercial financial management practices.

n Wherever possible, eliminate Federal Acquisitions Regulations

Part 31 accounting requirements for private sector participants in

research partnerships in favor of commercial practices.

n Review accounting procedures in all other programs with the

objective of minimizing special standards imposed on private

sector participants and following commercial practices more

closely.

Continue developing systems to measure program results.

n Work in collaboration with other agencies and with interested

private sector parties to identify appropriate measures of effectiveness for the types of research partnerships in which the

agency participates.

n Ask the National Science and Technology Council or other appropriate organization to lead an interagency effort to coordinate

agency measurement systems into a comprehensive measurement system for all federal partnership efforts.
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CHAPTER 2: FEDERAL TECHNOLOGY POLICY, 1950–1980

Dual Thrusts: Basic Research and Mission R&D

During the two decades following World War II, federal science and

technology policy had two strategic thrusts. The first was support

for basic science: research without immediate practical application, but

which expands our understanding of the basic principles of nature. The

funding provided by the National Science Foundation (NSF) to scientists

and universities is a good example of such support.

The second strategic thrust was the support of science and technology to

fill public needs as articulated by Congress and carried out by U.S.

government agencies and departments. Often called “mission research”

because it was performed to further the various agency missions, this

research, both basic and applied, focused on producing knowledge,

products, or services of direct use to the agency funding it. The development of advanced weapons technologies for the Department of Defense

(DoD) and tools used by the National Weather Service are two examples

of mission research.

Magnifying and often intertwined with basic and mission research were

the procurement activities of the federal government. With its large

purchasing ability and often cutting-edge needs, the federal government

could play the role of the valued “first customer” in buying new technology. By procuring these products, the federal government supported the

development of technologies that were at first expensive but would

ultimately provide important products and services at affordable prices.

As illustrated in figure 1, government research and development (R&D)

funding patterns have changed to reflect emphasis on different missions.

Until 1960, the government’s primary objective for R&D was defense.

The space budget expanded rapidly in the 1960s but declined significantly in the 1970s. Energy R&D peaked in the late 1970s, and health

R&D has grown steadily throughout the era to approximately one-third

of total civilian R&D today. Moreover, although defense and civilian

investments were roughly equal between 1965 and 1980, defense expenditures accelerated rapidly in the 1980s: in 1993, military R&D accounted

for approximately 59 percent of total R&D investments.

With its large purchasing

ability and often cuttingedge needs, the federal

government could play

the role of the valued

“first customer” in

buying new technology.

By procuring these

products, the federal

government supported

the development of

technologies that were at

first expensive but would

ultimately provide

important products and

services at affordable

prices.
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Figure 1. Federal R&D Funding for

Defense and Civilian Functions, 1940–1994

Commercial Impacts from Basic Research, Mission Research,

and Procurements

Federal investments in basic and mission research advanced the state of

knowledge in science as well as the missions of agencies and departments. These investments also contributed to U.S. competitiveness

during the postwar decades through an informal spin-off process in

which the results of federally funded research found uses in the private

sector. Federal research flowed to the private sector along many paths,

including published reports of research results, private sector performance of federally funded research, communications between federally

funded and commercially oriented researchers, commercial hiring of

persons formerly engaged in federally funded research, and government

procurement of advanced equipment that met the technical requirements

of DoD, the National Aeronautics and Space Administration (NASA), and

the Department of Energy.
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During the postwar period, private firms used federal technologies to

create new industries. For example, federal R&D programs, particularly

those in defense, supported important advances in fundamental knowledge of computer architecture, software languages, and design that

found applications in both the civilian and defense sectors of the emerging industry (see box 1). In the aerospace industry, defense-related research supported the development and refinement of jet engines,

aluminum airframes, civilian airliners such as the Boeing 707, and

communications satellites.

There were three primary reasons for the significant commercial impact

of federal R&D investments during this period. First, defense research

and development (and federal R&D generally) set the direction for world

research by virtue of its large size and cutting-edge nature. In 1964, U.S.

defense R&D alone was two-thirds as large as all government and industrial research and development, both civilian and military, performed by

Germany, France, the United Kingdom, Italy, Sweden, and Japan combined. When the U.S. government’s civilian R&D is added to that of

defense, federal R&D investments exceeded those of all other developed

countries (see figure 2).

Box 1. Technology Diffusion in Action

The field of semiconductors is an example of the significant commercial

impact of government-sponsored R&D. The U.S. government played a

primary role as the first customer for the semiconductor industry. The willingness and ability of the government—especially DoD and NASA—to

become the first major customer for these new integrated circuit (IC) products allowed the U.S. semiconductor industry to improve production capabilities and equipment and reduce manufacturing costs. In fact, the federal

government was the only customer for U.S.-made ICs until 1964. While this

early support was born of agency mission research and procurement—

primarily NASA’s efforts to put a man on the moon—it ultimately led to

the development of today’s commercial semiconductor industry.

The software industry is another example. From the earliest years of the

postwar era, private industry has been responsible for a great deal of innovation in software; but in the 1960s, industrial software innovation drew on

research and manpower supported by federal government funds. Defenserelated spending on software was aimed at creating a foundation for software R&D, training, and technology development. Of the 45 major

advances in computer software that originated in the United States between 1950 and 1980, 18 were funded by the federal government. These

advances later provided important benefits to the commercial software

industry.

During the postwar

period, private firms used

federal technologies to

create new industries.

For example, federal

R&D programs

supported important

advances in fundamental

knowledge of computers.
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Figure 2. Total U.S. R&D Dominates Total

Foreign R&D, 1961–1970 (1987 Dollars)

Second, lacking strong competitors, U.S. firms dominated domestic and

world markets and were therefore ideally positioned to capitalize on the

fruits of federal R&D. Although foreign firms had access to the same

knowledge about federal research, through articles in scientific journals,

conferences, and the like, most foreign companies were rebuilding after

World War II and were unable to match the investments of U.S. firms in

technology development, deployment, and manufacturing. Moreover,

U.S. firms also benefited from contracts for the development of defense

products that had both military and civilian uses. Under these circumstances, opportunities to commercialize mission R&D went to U.S.–based

firms, giving them an added competitive advantage.

Third, the development times, diffusion process, and product life cycles

in federal civilian mission research were comparable to the development

times and product life cycles in commercial R&D, which facilitated

diffusion of new technologies to the private sector and made it easier to

transfer technologies from the public to the private sector.

The Rise of Global Competition and Its Implications

for Federal Technology Policy

The relative size and impact of U.S. government R&D investments

diminished in the 1970s (see figure 3). While U.S. research funding, and

the federal dollars that constituted its single largest component, actually

U.S. firms dominated

domestic and world

markets and were ideally

positioned to capitalize

on the fruits of federal

R&D.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 21

OFFICE OF TECHNOLOGY POLICY

Figure 3. Foreign R&D Surpasses U.S. R&D

(1987 Dollars)

increased in constant dollars, an explosion of civilian research throughout the world resulted in the United States having a smaller share of the

worldwide research effort in the 1990s than it had in the 1960s. Almost all

of this foreign R&D was conducted in the private sector to create commercial products. Not only did the increased technological sophistication

of foreign rivals begin to erode the competitive advantage enjoyed by

U.S. firms, but their sophistication also allowed them to make use of the

results of federally funded basic research, which were available to the

entire world. When a new idea was described in a scientific journal or at

a conference, it enhanced technology development globally, not just in

the United States.

The commercial impact of federal R&D investments during this period

was also diminished by another aspect of the new competitive environment: the gradual shortening of product development times. In the

post–World War II years, both federal research and procurement and

commercial R&D were characterized by fairly long development cycles.

However, in the past few decades, commercial product development

times have shrunk. By the 1980s, federal and private sector cycles had

widely diverged, and the technology transfer process itself added time.

The results of agency mission research were not reaching the commercial

sector fast enough to have as large an impact on product development as

they had before.
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During the 1970s and 1980s, the federal government’s traditional approach to R&D also became less effective in meeting government’s own

needs. Postwar military R&D and procurement had spawned technologies such as computers, semiconductors, and jet engines. However,

because of expanding military specifications and the crush of an increasingly cumbersome federal procurement system, more and more commercial firms walled off their defense production or refused to do business

with DoD altogether. As a result, DoD came to rely on an increasingly

isolated defense industrial base.

This segregation of defense and commercial firms occurred at a time

when the defense industry was gradually losing its unchallenged position of technological leadership. The new technologies most critical to

America’s military advantage—software, computers, semiconductors,

telecommunications, advanced materials, and manufacturing technologies—were increasingly being driven by fast-growing commercial demand, not by military demand. To preserve U.S. military superiority,

DoD had to find a way to exploit the advanced technologies and efficient

production capabilities of commercial industry.

By 1980, there was widespread concern about the effectiveness of government mission research and declining U.S. technology-based competitiveness. These concerns were the impetus for new approaches to federal

technology policy in the 1980s and 1990s, based on the conviction that

America needed new government mechanisms and processes to enhance

mission research and help improve U.S. competitiveness. The history

and current status of these policies is the subject of the remainder of this

report.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 23

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CHAPTER 3: TECHNOLOGY PARTNERSHIPS AND THE

EMERGENCE OF A NEW PARADIGM FOR ECONOMIC

GROWTH AND COMPETITION, 1980–1995

Since 1980, the federal government has developed more active policies

and a new paradigm for the development and deployment of technology. Initially, the government developed programs to increase the efficiency and more fully leverage the commercial impact of mission

research and development (R&D). Over time, however, Congress and the

executive branch created new programs, based on a new paradigm in

which the government and private sector are partners in developing and

deploying new technologies. While these programs represent only a

small fraction of America’s total investment in R&D, they leverage

money in the public and private sectors, causing an economic impact

far larger than that suggested by the program budgets alone.

The Role of States and Private Sector Groups

Federal technology partnerships grew in tandem with efforts at the state

level to promote technological innovation through public-private partnerships. In fact, some of the first and most successful public sector

efforts were undertaken at the state and local levels. The U.S. industrial

downturn that resulted from the rise of global competition had a major

impact on many local economies and quickly captured the attention of

state governments. States whose economies were most dependent on

manufacturing suffered the greatest declines in employment, wages, and

tax revenues. Many states quickly perceived the importance of technology to their economies and began to develop new approaches to technology development and diffusion as part of their broader economic

development policies.

For example, North Carolina’s Research Triangle complex, formed in the

late 1960s in partnership with the state’s major universities, brought in

billions of dollars in new investment and created thousands of jobs.

Partly as a result of this success, North Carolina has an unemployment

rate 2 percent below the national average. A more common use of technology as an element of economic development strategy is reflected in

Ohio’s Thomas Edison Program and Pennsylvania’s Ben Franklin Partnership Program, both founded in 1983. To encourage research and

development projects, these programs offer financing, technical assistance, and access to valuable assets such as supercomputers. Table 1 lists

the states that spend the most to fund science and technology (S&T)

programs, overall and per capita.

While these programs

represent only a small

fraction of America’s

total investment in

R&D, they leverage

money in the public and

private sectors, causing

an economic impact

far larger than that

suggested by the program

budgets alone.

Some of the first and

most successful public

sector efforts were

undertaken at the state

and local levels.
24 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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Table 1. Top 15 States in Science and Technology Program

Spending (Overall and per Capita), FY94

Per Capita

State Overall Spending State Spending

North Carolina $37.5 million Alaska $15.45

Pennsylvania 34.1 million Connecticut 8.37

Texas 30.0 million Nebraska 5.69

Georgia 29.9 million North Carolina 5.65

Connecticut 27.5 million Delaware 5.39

Ohio 27.5 million South Dakota 5.32

New York 22.9 million Georgia 4.61

New Jersey 20.3 million Kansas 4.48

Michigan 14.1 million Hawaii 4.16

Maryland 12.7 million Montana 3.72

Florida 12.6 million Pennsylvania 2.87

Kansas 11.1 million North Dakota 2.79

Virginia 10.4 million Maryland 2.65

Nebraska 9.0 million New Jersey 2.63

Alaska 8.5 million Ohio 2.53

Source: Chris Coburn, editor, Partnerships: A Compendium of State and Federal

Cooperative Technology Programs, Columbus: Battelle Press, 1995.

State programs sought to harness both local and federal resources with

great creativity. States networked their training and academic programs

into centers of excellence. They fostered new businesses by creating

incubators and supported new technologies through grants. They diffused information about manufacturing technologies through extension

programs and integrated existing technology resources such as federal

laboratories, universities, industry consortia, and test centers into state

economic development programs. These partnerships with economic

development programs were particularly effective in reaching small

business communities, providing a link between those businesses and

the sources of new technology. The depth and breadth of state experience

with these programs illustrates state support for public-private partnerships to enhance technology-based economic growth.

The success of these state programs provided important lessons on

government technology policy. State and local projects demonstrated that

new networks of partnerships and programs could supplement traditional methods of technology development and deployment. More

important, these partnerships brought together sources of new technol-
Effective Partnering: A Report to Congress on Federal Technology Partnerships 25

OFFICE OF TECHNOLOGY POLICY

ogy, insights about new markets, and the funding and management

needed to bring success in global markets.

Federal Technology Legislation: Leveraging Mission R&D

The evolution of federal civilian technology policy has been a gradual

process (see figure 4). As discussed above, in the first decades following

the war, the federal government pursued a de facto technology policy of

support for basic and mission research. This policy assumed that technologies developed by the government in the course of conducting basic

and mission-related research would lead—as needed and more or less

automatically—to commercial products and services. Federal research

did not seek direct commercial impact and little attention was paid to

changes in industry and in the world that were undermining the ability

of U.S.–based firms to use federally developed technologies competitively. Consequently, despite some success in the 1960s and early 1970s,

this spin-off model of innovation became less and less effective in meeting the technology demands of the commercial marketplace. The model

also discounted the potential of employing or learning from commercial

technologies and research methods to improve the effectiveness of government mission research.

By the late 1970s, there was dissatisfaction with federal policies on

patenting the scientific and technical knowledge resulting from mission

research. Many private and public officials believed that the federal

Figure 4. Evolution of Technology Partnerships, 1980–1995

These partnerships

brought together sources

of new technology,

insights about new

markets, and the funding

and management needed

to bring success in global

markets.
26 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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laboratories possessed valuable scientific and technical knowledge

created in the pursuit of agency missions that could be quickly commercialized, benefiting both the agencies and the general economy. However, businesses wanted exclusive licenses to federal technology to

protect their investments in commercialization, and many agencies

granted only nonexclusive licenses. This arrangement discouraged

technology diffusion to the private sector and jointly beneficial R&D

projects.

The lack of a uniform policy among agencies for ownership of inventions

was another major difficulty. The private sector faced a complex maze of

patent policies that were often inconsistent from agency to agency, and

sometimes even within the same agency. In 1980, at least 24 different

patent policies were in effect in the federal agencies. The lack of a uniform federal patent policy presented a formidable barrier to publicprivate cooperation and was a particularly large obstacle to small

businesses and universities, which lacked the legal staffs necessary to

wend their way through the patent negotiation maze.

In 1980, Congress began a new era in federal technology policy with the

enactment of legislation to bolster the commercial impact of federal R&D

investments by more actively spinning off federal technologies to the

private sector. Since then, several laws have addressed obstacles to

increasing government R&D efficiency and commercializing federal

technology (see box 2). In the process, a new paradigm for public-private

technology partnerships has emerged.

The first piece of federal legislation designed to leverage the economic

impact of federal R&D spending was the Stevenson-Wydler Technology

Innovation Act of 1980 (Stevenson-Wydler). Stevenson-Wydler granted

broad authority to the Department of Commerce “to enhance technological innovation for commercial and public purposes . . . including a strong

national policy supporting domestic technology transfer and utilization

of the science and technology resources of the federal government.” In

addition to leveraging the economic impact of federal R&D investments,

Stevenson-Wydler directed the federal government to conduct a wide

range of research and cooperative activities to assess and improve

American technological competitiveness.

Based on the premise that federal laboratories contained commercially

valuable technology that would make U.S. firms more competitive,

Stevenson-Wydler required each federal laboratory to establish an office

to identify and transfer commercially viable technologies to the private

sector. These Offices of Research and Technology Applications (ORTAs)

In 1980, Congress began

a new era in federal

technology policy with

the enactment of

legislation to bolster the

commercial impact of

federal R&D investments. Since then,

several laws have

addressed obstacles to

increasing government

R&D efficiency and

commercializing federal

technology. In the

process, a new paradigm

for public-private

technology partnerships

has emerged.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 27

OFFICE OF TECHNOLOGY POLICY

would assess the commercial potential of R&D under way at each laboratory and disseminate information on federally owned or originated

technologies, products, processes, and services.

The University and Small Business Patent Procedure Act of 1980

(known as Bayh-Dole, after its sponsors, Senators Birch Bayh [D-IN]

and Bob Dole [R-KS]) was passed to reform government patent policy.

Of the 28,000 federal patents sitting on the shelf at that time, fewer than

5 percent had been licensed. Another group of federal patents—those

the federal government had permitted single companies to hold—had

achieved a much higher rate of licensing (from 25 to 30 percent). The dual

purpose of Bayh-Dole was to allow some federal contractors to patent

their federally funded inventions and to allow federal agencies to grant

exclusive licenses to their technology in order to make it more attractive

to businesses. Preference in agency licensing was given to small businesses and universities, and the law required as well that products sold

in the United States embodying the invention be manufactured substantially in the United States. Universities, which perform a large portion of

federal research, have been particularly successful in licensing inventions

pursuant to this authority. In the years since passage of the Bayh-Dole

Act, research collaborations between universities and industry have

Box 2. Major Federal Technology Legislation, 1980–1992

n Stevenson-Wydler Technology Innovation Act of 1980 (P.L. 96-480)

n University and Small Business Patent Procedure Act of 1980

(P.L. 96-517)

n Small Business Innovation Development Act of 1982 (P.L. 97-219)

n National Cooperative Research Act of 1984 (P.L. 98-462)

n Japanese Technical Literature Act of 1986 (P.L. 99-382)

n Federal Technology Transfer Act of 1986 (P.L. 99-502)

n Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418)

n National Institute of Standards and Technology Authorization Act for

FY 1989 (P.L. 100-519)

n National Competitiveness Technology Transfer Act of 1989

(P.L. 101-189)

n Defense Conversion, Reinvestment and Transition Assistance Act of

1992 (P.L. 101-510)

n Small Business Technology Transfer Act of 1992 (P.L. 102-564)
28 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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increased substantially, and university research plays an important role

in the development of new technologies in many sectors.

Stevenson-Wydler and Bayh-Dole were the result of the belief that federal laboratories hold valuable technological assets and that those assets

should be used not only for pursuing an agency’s mission but also to

improve the competitive position of U.S. firms. This recognition of the

government’s role in competitiveness and its responsibility to help U.S.

firms with user-friendly programs was a first step into the new paradigm

of federal-private partnerships. As Senator Dole stated during floor

debate on the bill, “The almost adversarial relationship that now exists

between business and government must be replaced by a true and

genuine partnership in which the government will act as impresario in

bringing industry and universities together with new fields of knowledge and their practical implementation.”

A second step into the new paradigm of public-private partnership was

taken with the Small Business Innovation Development Act of 1982,

the law that created the Small Business Innovation Research program

(SBIR). Studies had concluded that small businesses in the United States

were the engine of economic growth, but they received only a very small

share of federal R&D funds. Congress hoped to ensure that more federal

R&D funds went to small businesses by putting the SBIR program in

place in government agencies and large federal laboratories.

Under SBIR, now reauthorized until the year 2000, each government

agency and federal laboratory with more than $100 million in extramural

research funds is required to set aside a percentage of those funds to be

awarded competitively to small businesses. The percentage was initially

set at 0.2 percent in 1983 and rose incrementally to 2 percent by 1995. In

1997 the rate is scheduled to rise to 2.5 percent.

SBIR is a three-phase program administered independently by each of

the 11 participating agencies. Agencies invite eligible small businesses to

propose innovative ideas that meet the specific research and development needs of the federal government. SBIR proposals are competitively

selected and accepted only in response to specific solicitations of the

participating agencies.

Phase I of the program provides funding to evaluate the scientific and

technical merit and feasibility of an idea. Under Phase II, projects with

the most potential are funded to further develop the proposed idea for

one or two years. During Phase III the innovation is brought to market

through private sector investment and support. Phase III is to be con-
Effective Partnering: A Report to Congress on Federal Technology Partnerships 29

OFFICE OF TECHNOLOGY POLICY

ducted with non-SBIR and usually non-federal funds. When appropriate,

Phase III may involve follow-on production contracts with a federal

agency.

Total annual awards of $693 million were allocated through SBIR in 1994;

awards are anticipated to increase to $1 billion by 1997. While these

awards are substantial, they place no additional burden on taxpayers, as

they merely set aside a portion of agencies’ R&D budgets appropriated

to meet mission requirements. The benefits of the awards, however, have

been substantial, as evidenced by the thousands of small firms that SBIR

has enabled to undertake research projects, create new and innovative

technologies, and sell competitive products to the world.

Although still closely tied to agency missions, SBIR was a further step in

the development of the new public-private paradigm. While Bayh-Dole

and Stevenson-Wydler both sought to maximize the value of past R&D

investments, SBIR was designed to encourage the agencies to make

investments in mission research with the objective of enhancing U.S.

commercial competitiveness.

The Federal Technology Transfer Act of 1986 authorized cooperative

research and development agreements (CRADAs) between federal

laboratories and private firms, consortia, and state governments. This

was the last major piece of legislation designed to leverage the economic

impact of federal investments in mission R&D. CRADAs allow federal

and private sector scientists and technologists to work closely together in

developing a technology for government mission and commercial uses.

A later amendment, the National Competitiveness Technology Transfer

Act of 1989, expanded the definition of “federal laboratory” to include

government-owned, contractor-operated facilities (GOCOs). Since most

of the GOCOs are under Department of Energy (DOE) management and

have tremendous capabilities, this change allowed DOE to greatly increase its cooperative work with the private sector.

CRADAs built in part on the experience of the National Aeronautics and

Space Administration (NASA). The Space Act of 1958 authorized NASA

to enter into and perform contracts, leases, cooperative agreements, and

other transactions with the private sector when appropriate or necessary

to agency work. Accordingly, since its inception, NASA has been

partnering with industry for the development of new technologies with

both commercial and mission applications. NASA currently enters into

three major types of partnerships with industry: (1) unfunded cooperation and/or assistance; (2) public support involving the use of NASA

funds; and (3) cost-sharing of goods or services for direct government

The benefits of the

awards have been

substantial, as evidenced

by the thousands of small

firms that SBIR has

enabled to undertake

research projects, create

new and innovative

technologies, and sell

competitive products to

the world.
30 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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benefit. NASA has used these flexible partnership agreements to focus on

collaborative opportunities that enhance U.S. technological competitiveness by stimulating knowledge transfer, innovation, and understanding;

leveraging U.S. R&D efforts and resources; and increasing the commercialization of NASA technology.

The development of CRADAs in the 1980s represented a further expansion of the use of federal research to bolster competitiveness. While SBIR

authorized the use of some mission research funds for commercially

promising projects by small businesses, CRADAs made more of the

resources of the federal laboratories available to all U.S. firms. Although

national security concerns prevent the opening of all federal S&T resources to private industry, CRADAs significantly expanded private

sector access.

Federal Technology Legislation: Direct Competitiveness

Programs

Thus, Congress created mechanisms for making research more efficient

while maximizing the economic value to society of government funds

already invested in pursuit of agency missions. However, throughout the

1980s, Congress and the executive branch remained concerned over the

continuing erosion of U.S. technological and manufacturing prowess.

By late in the decade it had become evident that the country’s ability to

commercialize new technology often fell short of competitive and market

demands.

The U.S. private sector has been underinvesting in critical long-run R&D,

in part because investments of this type often do not make good business

sense for any individual company for several reasons:

n Appropriability. The generic nature of much necessary R&D

makes it difficult for companies, especially those of small or

moderate size with narrow product portfolios, to capture the

benefits necessary to justify their investment. In the case of fastgrowing knowledge-based technologies that have huge R&D

investment requirements but relatively low production costs,

it is particularly difficult for an individual company to protect

its intellectual property rights.

n Risk. U.S. investors focus on high short-term returns and are

reluctant to support longer term research programs with uncertain outcomes. In an environment in which R&D projects must

compete for capital with shorter term, lower risk nontechnology
Effective Partnering: A Report to Congress on Federal Technology Partnerships 31

OFFICE OF TECHNOLOGY POLICY

ventures, the perceived downside risks of failure are often too

great to support the necessary R&D investment, despite large

expected benefits from the technology development.

n Expense. The systems integration and financial requirements of

technology development are often beyond the resources of a

single company or even a single industry.

In the Omnibus Trade and Competitiveness Act of 1988, Congress

enacted two programs to help correct the national problem of underinvestment in important technologies. Separating themselves completely

from mission research, the Advanced Technology Program (ATP) and the

Manufacturing Extension Partnership (MEP) were designed solely to

improve the competitive position of U.S. firms. The MEP does this by

providing small manufacturers access to newer technologies, production

methods, and manufacturing expertise. The ATP does this via shared

funding to accelerate the development of high-risk enabling technologies.

ATP, the first program created by this law, is designed to act as a catalyst

in the development of high-risk technologies that have broad application

and the potential for large economic impact. A technology may be

underfunded because the appropriable returns are too uncertain for

private investors, the technical risk is too large, or the time to develop

the technology is too long. ATP overcomes these obstacles by co-funding

firms to develop technologies. ATP funding may not be used as a substitute for research investments that would otherwise be made by U.S.

firms, nor is funding to be used to develop proprietary products. The

purpose of the program is to encourage work on research that is in the

country’s long-term interest but that, for various reasons, the private

sector is unable to support.

The second program, MEP, assists small and medium-sized manufacturers—who represent about 95 percent of all U.S. manufacturing establishments. This program is a nationwide network of affiliated, locally based

manufacturing extension centers.

MEP was motivated by the recognition that most U.S. manufacturers are

slow to adopt new technologies and approaches. To increase the speed

with which manufacturers, especially small and medium-sized firms,

adopt new technologies, a manufacturing extension network consisting

of 60 centers in 42 states and Puerto Rico was established to provide a

range of hands-on technical assistance to companies. These centers help

manufacturers assess their current technology needs and competitive

position, identify necessary changes in company operations, and define
32 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

and implement company-specific technology and business projects. The

centers emphasize the use of appropriate technologies and rely on

outreach by field agents to offer on-site advice and assistance.

ATP and MEP have gone farthest of any of the new partnership programs in exploring the dimensions of the new public-private paradigm.

The purpose of these programs is to address directly, not as an offshoot

of another federal mission, the technological challenges facing the U.S.

private sector. Substantial private sector input is allowed. The mission of

these programs is competitiveness.

Federal Technology Legislation: Dual-Use Partnerships

for Defense

In 1990, Congress established a mechanism—the dual-use technology

partnership—to enable the Department of Defense (DoD) to exploit

advanced commercial technologies to meet military needs. The Defense

Conversion, Reinvestment, and Transition Assistance Act of 1992 and

the resulting Technology Reinvestment Project (TRP) significantly expanded this approach. Unlike ATP and MEP, TRP’s mission was not

increased industrial competitiveness or economic growth, although the

program contributed to both of those goals indirectly. Rather, TRP illustrated the application of partnership principles—cost-sharing, meritbased awards, and exclusive licensing—to achieve the federal

government’s own mission objectives.1

TRP partnerships allowed DoD to leverage the potential advantages of

advanced commercial technologies—performance and affordability—to

meet defense needs. DoD’s aim was twofold: first, to speed the development of an emerging commercial technology so that a self-sustaining

market develops sooner rather than later; and, second, to ensure that the

technology develops in such a way as to simultaneously meet commercial needs and military requirements, e.g., for technological robustness or

interoperability.

For example, one TRP partnership is presently blazing the trail in

multichip module (MCM) technology. By replacing separate components

with a single module, MCMs allow electronic systems to achieve faster

performance, greater reliability, lower power consumption, and lower

production costs. The military needs MCMs for activities ranging from

1 Second to None: Preserving America’s Military Advantage Through Dual-Use

Technology, National Economic Council, National Security Council, and Office

of Science and Technology Policy (February 1995).

ATP and MEP have gone

farthest of any of the new

partnership programs in

exploring the dimensions

of the new public-private

paradigm.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 33

OFFICE OF TECHNOLOGY POLICY

precision guidance of advanced weaponry to real-time signal processing

for intelligence applications. On the commercial side, MCMs open the

door to a vast range of new and improved products, including global

positioning systems, real-time engine controllers for automobiles, and

digital signal processors for speech and images in telecommunications.

A high-performance dual-use manufacturing base for MCMs can provide

the foundation for U.S. military and commercial leadership in information technology well into the twenty-first century.

In some areas, dual-use partnerships help develop commercial applications for advanced military technologies as a way to lower the cost to

DoD. To illustrate, a few years ago, DoD pursued microwave monolithic

integrated circuit (MIMIC) technology as a strictly military development,

but the high cost prohibited widespread use of the devices. MIMICs are

advanced gallium arsenide semiconductors used for military radar. DoD

now encourages MIMIC contractors to pursue commercial applications—

in collision-avoidance systems for automobiles, satellite communications, and air traffic control signal processing. The payoff to defense

is the world’s best radar at a lower cost by leveraging commercial

production.

DoD recently restructured TRP to increase the involvement of the military services and thereby encourage more rapid insertion of dual-use

technologies into defense weapon systems. The new program is called

the Dual-Use Application Program.

The TRP mechanism is yet another aspect of a new approach to technology partnership programs. This mechanism combined elements of the

earlier public-private partnerships (such as exclusive licensing) with

elements of the later federal partnerships (ATP-style cost-sharing).

Where licensing and CRADAs aim to maximize the benefit to society

of mission research and ATP and MEP focus solely on long-term U.S.

competitiveness, TRP attempted to pursue an agency mission, the mission of DoD, via the market mechanism.

The New Paradigm for Improved U.S. Competitiveness

By the late 1980s, a new paradigm of technology policy had developed.

In contrast to the enhanced spin-off programs—enhancements that made

it easier for the private sector to commercialize the results of mission

R&D—the government developed new public-private partnerships to

develop and deploy advanced technologies. As described above, these

new programs (which account for only a small fraction of federal investments in technology) incorporate features that reflect increased influence

These new programs

incorporate features that

reflect increased influence

from the private sector

over project selection,

management, and

intellectual property

ownership.
34 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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from the private sector over project selection, management, and intellectual property ownership. Along with increased input, private sector

partners also absorb a greater share of the costs, in some cases paying

over half of the project cost.

The new paradigm has several advantages for both government and the

private sector (see figure 5). By treating the private sector as a partner in

federal programs, government agencies can better incorporate feedback

and focus programs. Moreover, the private-sector-as-partner approach

allows the government to measure whether the programs are ultimately

meeting their goals: increasing research efficiencies and effectiveness and

developing and deploying new technologies. Finally, rather than relying

on “technology-push” by the federal government, these programs use

“market-pull” to promote innovation, increasing the probability that the

targeted technologies will be successfully commercialized.

Key elements of the new paradigm include the following:

n Maximizing the return on federal and private sector R&D investment. Government should evaluate technology partnerships

for their economic as well as technical merit, partnering with the

private sector in areas of mutual technology needs. By focusing

on projects with a high potential for economic growth, job creation, and improvements in the quality of life for Americans,

Figure 5. The New Paradigm: Federal

Technology Partnerships
Effective Partnering: A Report to Congress on Federal Technology Partnerships 35

OFFICE OF TECHNOLOGY POLICY

government can fulfill its responsibility to maximize societal

good, and industry can maximize its return on investment.

n Making government a better partner with the private sector.

Government should improve the speed, flexibility, and predictability of its programs. Faster, more flexible, and reliable

programs will be better able to respond to technology development opportunities as they arise.

n Increasing the private sector role in project definition, selection, and management. Economic growth and jobs result from

commercialization of R&D, which is the role of the private sector.

Therefore, private sector needs must be met to the greatest extent

possible when establishing research directions and selecting

projects.

n Conducting programs on a cost-shared basis. Cost-sharing in

public-private programs is critical, because it heightens the private sector partner’s stake in the project, encouraging selection of

projects with the best commercialization potential and promoting

strong private-sector commitment to success. Cost-sharing ensures that the private sector partner has bought into the program.

n Limiting the length of participation. New paradigm programs

should continue to limit project life to a short term (one to three

years). Projects that cannot generate full private sector support

by the end of this period fail, freeing government resources for

use in other, more promising areas.

By focusing on projects

with a high potential

for economic growth,

job creation, and

improvements in

the quality of life for

Americans, government

can fulfill its

responsibility to

maximize societal good,

and industry can

maximize its return

on investment.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 37

OFFICE OF TECHNOLOGY POLICY

CHAPTER 4: FINDINGS

I

n the preparation of this report, the Office of Technology Policy (OTP)

collected information from agencies, industry, and academia concerning the experience and lessons learned from federal technology partnership programs. This process provided broadly useful insights into the

evolution and current operation of these programs. From this information, OTP has drawn findings, presented below, about the effectiveness of

the partnerships in accomplishing their goals. OTP has also formulated

recommendations for further refinement of federal technology partnerships. These recommendations are presented in chapter 5.

Partnership Programs and U.S. Competitiveness

Government plays an important role in fostering competitiveness and

technology-based economic growth. Although the primary responsibility

for maintaining U.S. competitiveness lies with the private sector, public

research and development (R&D) investments have long had a large

impact on the private sector’s ability to innovate and market new technologies. The past several decades of experience with public-private

technology diffusion policies have taught us that federal technology

programs contribute to U.S. competitiveness by

n maximizing the commercial impact and value to society of tax

dollars invested in basic research and government missionrelated R&D, and

n encouraging the government to work in partnership with the

private sector to develop high-risk enabling technologies and

speed their diffusion.2

Leveraging Mission R&D

In the course of pursuing mission-related R&D, the federal government

generates new technologies and processes that offer both public and

commercial applications. In order to maximize the economic benefit to

society of the tax dollars invested in mission R&D, the government

should ensure that the resulting technologies are effectively diffused to

the private sector.

2 The Competitiveness Policy Council recently published a report documenting

and endorsing the federal role in promoting technology-based economic

competitiveness. See: Robert M. White, U.S. Technology Policy: The Federal

Government’s Role, Competitiveness Policy Council, September 1995.

Government plays an

important role in

fostering competitiveness

and technology-based

economic growth.
38 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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Maximizing the commercial impact of government mission research has

been a major element of U.S. technology policy through the informal

mechanisms of technology diffusion of the first postwar decades to the

more active spin-off legislation of the 1980s. Licensing programs, cooperative research and development agreements (CRADAs), and, at least in

part, the Small Business Innovation Research program (SBIR) are predicated on the idea that the government must maximize the economic

impact of public sector R&D. Prudent public policy continues to dictate

that the government take steps to ensure that technologies developed

from mission-related R&D enhance America’s economic growth and

competitiveness to the greatest extent possible.3

Direct Competitiveness

Leveraging is not enough. Leveraging enhances the commercial impact

of federal mission-related R&D, but it does not maximize the international competitiveness of U.S. firms because the nature of the marketplace, investment, and research itself have changed fundamentally over

the past 50 years.

American companies enjoyed huge advantages in R&D and international

trade in the first postwar decades, as described above. Now U.S. firms

operate in a highly competitive global marketplace with increasingly

capable foreign firms. The brutal competitiveness of a global economy

has produced changes in the character of individual and corporate

investment that have adversely affected U.S.–based R&D. Intense global

competition requires a focus on providing competitive products with

short lifetimes and generally lower profit margins. Rather than investing

in a broad technology pool, as they did in the past, American firms are

now devoting 90 percent or an even higher proportion of their available

investment resources to shorter term product development and process

improvement. Investments in broad-based R&D with long (sometimes

15-year) timelines no longer make good business sense for individual

companies: the appropriable returns are too generic, distant, and uncertain; the technical risk is too large; and/or the time to develop the technology is too long to generate sufficient returns on investment. This

3

 It is important to note that this strategy can work in both directions,

enhancing the value of R&D performed by both government agencies and

private firms. In studies of private sector interaction with federal laboratories,

U.S. businesses cite leveraging corporate R&D among the most important

payoffs from their work with federal laboratories. Firms have been especially

complimentary of National Institute of Standards and Technology activities,

citing the agency’s combination of consultation services, laboratory visits,

information dissemination activities, and highly trained personnel for

establishing special relationships with the private sector.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 39

OFFICE OF TECHNOLOGY POLICY

hampers the ability of firms to perform the high-risk advanced research

that sustains the long-term competitiveness of individual companies,

creates high-wage jobs, and strengthens the nation’s pool of knowledge

for future innovation.

Foreign governments have been addressing this problem through the

establishment of public-private R&D partnerships. European countries

and Japan have established major cooperative efforts between government and business to develop and deploy advanced technology to raise

their manufacturing productivity and improve the quality of their products while reducing costs and shortening the time to market. Until very

recently, U.S.–based firms did not have access to these types of resources.

Finally, the way that research integrates into the economy has changed

in some areas. While in the past it may have been possible to distinguish

clearly between “basic” and “applied” research, the purpose behind

the research no longer provides as useful a distinction. For example,

while research undertaken to better understand cellular biology may

be classified as basic, the same research undertaken with the purpose

of developing a treatment for leukemia can be classified as applied or

developmental. To the extent that we make distinctions in classifying

research, it may be better in some contexts to use a time frame: research

having short-term or long-term payoff potential. Or it may be useful to

classify R&D as precompetitive or generic versus commercial product

and process research. These distinctions may better reflect the current

realities of R&D.

In 1988, Congress created two programs to promote U.S. competitiveness

directly and counter the challenges to U.S. technological and manufacturing power: the Advanced Technology Program (ATP) and the Manufacturing Extension Partnership (MEP). These programs are as essential

in 1995 as they were in 1988: the realities of the new global marketplace,

foreign firms’ access to public-private R&D partnerships, and the changing nature of research mandate a federal role in directly promoting

technology development and deployment.

Partnerships and Government Mission R&D

Technology partnerships enhance the effectiveness of government

mission-related R&D. Strategic collaboration with commercial firms

enables federal agencies to meet mission R&D objectives more efficiently.

The realities of the new

global marketplace,

foreign firms’ access to

public-private R&D

partnerships, and the

changing nature of

research mandate a

federal role in directly

promoting technology

development and

deployment.
40 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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With the explosive growth of cutting-edge R&D performed by commercial firms, U.S. agencies can no longer depend solely on internal mechanisms for meeting government mission requirements. In several sectors

(most notably defense) commercial markets are driving technologies that

are critical to mission objectives. To gain access to these essential technologies, government agencies must increasingly join with private firms

in joint development projects.

Even where government R&D is at the cutting edge, development of

government-unique applications can be prohibitively expensive. In these

cases, government agencies must join with private firms to develop

wider commercial markets that make development of the technology

affordable. Finally, in areas in which government agencies and private

firms have complementary competencies and interests, joint development and deployment of technologies can generate synergies that advance the state of knowledge for both parties.

The recent Technology Reinvestment Project (TRP) mechanism is a good

example of this relationship. By joining with the private sector to develop

dual-use technologies for the military, this program enabled the Department of Defense (DoD) to tap critical expertise in the private sector and

develop essential military technologies in a cost-effective manner. Older

technology partnerships provide similar benefits. For example, CRADAs

at both civilian and defense agencies are a prime vehicle for mutually

beneficial research.

Thus, by joining strategically with the private sector, U.S. agencies gain

access to and leverage advanced commercial technologies, private sector

efficiencies and expertise, and larger markets, enabling the government

to fulfill its mission requirements more effectively.

Support for Federal Programs

U.S. business strongly supports federal technology partnership programs. Private sector support is broad-based, covering a wide range of

industries and an array of federal programs. While some private sector

groups and firms have made recommendations for improvements in

program design and administration, the private sector has clearly articulated its enthusiasm for the programs and the public policies on which

they are based through surveys, academic studies, roundtable discussions with industry, and private sector appeals for expansion of these

programs.

Technology partnerships

enhance the effectiveness

of government missionrelated R&D.

U.S. business strongly

supports federal

technology partnership

programs.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 41

OFFICE OF TECHNOLOGY POLICY

Private sector support for federal technology programs is motivated by a

widely shared perception of these programs as a small but critical part of

the nation’s science and technology infrastructure. It is also important to

note that federal partnership programs are supported by the private

sector’s best experts in the development and deployment of technology,

many of whom are not beneficiaries of the programs. These individuals,

companies, and organizations support federal partnership programs

because, as experts in the R&D field, they recognize the importance of

federal programs for enhancing U.S. technological competitiveness.

This underlying consensus among U.S. businesses has been reflected

in a history of bipartisan support for these federal programs in both the

legislative and executive branches. Over the past decade and a half,

through successive Congresses and presidents, both political parties

have designed, enacted, implemented, and promoted technology partnership programs.

Private Sector Support

Surveys of R&D managers in large research-intensive companies and

smaller technology-oriented companies reveal strong support for federal

partnership programs (see tables 2 and 3). The Industrial Research

Institute (IRI) is an association of over 260 large research-intensive companies, employing over half a million scientists and engineers in R&D

activities and accounting for over 80 percent of industrially performed

R&D in the United States. In 1994, IRI conducted a survey of its members, asking them to rate the value of federal technology partnership

programs. The survey showed strong support for technology development programs such as ATP and TRP. Almost two-thirds of the companies surveyed rated these two programs of “high” value, and another 28

percent rated them of at least “medium” value. Over 90 percent of those

surveyed rated research consortia and CRADAs of high or medium

value. Over half the IRI respondents rated SBIR as a high-value program,

with an additional 29 percent rating this small business-oriented program of at least medium value. This last response is particularly significant, because IRI does not include small businesses, and thus it is highly

unlikely that any members benefit directly from the SBIR program.

In fall 1994, Semiconductor Equipment and Materials International

(SEMI), a 1,400-member association of generally small companies producing equipment and materials for semiconductor manufacturers,

conducted a survey of its members. The SEMI results were similar to

those of IRI. Moreover, the SEMI study showed particularly strong

support among firms that had participated in these programs. Among

This underlying

consensus among U.S.

businesses has been

reflected in a history of

bipartisan support for

these federal programs in

both the legislative and

executive branches.
42 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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Even unsuccessful

program applicants speak

enthusiastically about

technology partnerships.

Applicants have praised

TRP and ATP for

bringing together

disparate groups to

pursue common

technology development

opportunities through

the establishment of

horizontal consortia,

vertical product-supplier

relationships, and

linkages between large

and small companies.

4

 In both the IRI and SEMI surveys, the results regarding MEP were ambiguous

because of low levels of experience with this relatively new program. None of

the SEMI respondents reported having had experience with MEP centers, and

it is unlikely that the large member firms of IRI use MEP services.

5

 Barry Bozeman and Maria Papadakis, Industry Perspectives on Commercial

Interactions with Federal Laboratories: Does the Cooperative Technology Paradigm

Really Work? Executive Summary, Report to the National Science Foundation,

Research on Science and Technology Program, January 1995.

those with experience in the programs in question, 100 percent rated ATP,

consortia, and SBIR of high value. Among firms with experience in TRP

and licensing programs, 80 percent gave them a high rating. And although a lower percentage of CRADA participants—69 percent—gave

the program a high rating, this response still represents a high rate of

satisfaction.4

The results of academic research and roundtable discussions demonstrate

the depth of private sector support for technology partnerships, regardless of whether companies participate in the programs or benefit from a

public-private partnership. For example, a study of private sector perspectives on commercial interactions with federal laboratories found a

very high degree of satisfaction among industrial partners, with 89

percent of the respondents agreeing that the interaction was a good use

of company resources.5

 Even in cases in which the costs exceeded the

benefits of cooperation, many partners still expressed high levels of

consumer satisfaction.

Even unsuccessful program applicants speak enthusiastically about

technology partnerships. For example, applicants have praised TRP and

ATP for bringing together disparate groups to pursue common technol-

“How do industry technology managers rate the value of these programs?”

Program % “High” % “Medium” % “Low”

ATP, TRP 63 28 9

SBIR 56 29 15

Consortia 43 54 3

CRADAs 33 59 8

Source: Industrial Research Institute

Table 2. Results of Industrial Research Institute Survey
Effective Partnering: A Report to Congress on Federal Technology Partnerships 43

OFFICE OF TECHNOLOGY POLICY

ogy development opportunities through the establishment of horizontal

consortia, vertical product-supplier relationships, and linkages between

large and small companies. As a participant in an OTP roundtable with

chief executive officers and chief technical officers noted, “These partnerships were some of the most beneficial aspects of federally funded consortia, and of the TRP and ATP, even if the partners didn’t win awards.”

These roundtable groups recommended that the federal government

further encourage the development of industry-to-industry partnerships.

According to another participant, “Trying to make a bridge from innovation to production has been very difficult. Having access to resources—

state, federal, etc.—could be a tremendous help. A network—large and

small companies—could be a next step.”

The high quality of the applications to participate in federal partnerships

further demonstrates the tremendous level of private sector support for

technology partnership programs, as well as the abundance of highquality R&D projects that the private sector is failing to finance. For

example, in its first competition, TRP received 2,800 proposals for its

technology development, deployment, and training programs from all

50 states. Fewer than 10 percent of the applicants were selected, yet the

number of proposals judged “highly meritorious” was so great that

Congress authorized the use of fiscal year (FY) 1994 money to fund

additional, meritorious FY 1993 proposals.

Table 3. Results of SEMI Survey

Program or High Evaluation

Program or High Medium Low Mechanism by Those

Mechanism Evaluation Evaluation Evaluation Experience with Experience

ATP 67% 20% 13% 29% 100%

Consortia 66 17 17 32 100

SBIR 59 13 28 24 100

CRADAs 53 30 17 38 69

Licensing 50 34 16 18 80

TRP 38 45 17 16 80

MEP 33 30 37 0 N.A.

Source: Semiconductor Equipment and Materials International
44 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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In addition to expressing enthusiasm about technology partnerships,

many U.S. businesses and their trade associations have called for increased federal support for civilian R&D activities, including expansion

of industrial extension programs, federal partnerships with the private

sector, and technology diffusion activities. The National Association of

Manufacturers (NAM) recently offered vigorous support for publicprivate partnerships in NAM Policy on R&D Budget Cuts (1995): “[B]oth

industry and government can benefit from rapid development and

deployment of new technologies by accessing expertise and capabilities

that neither could cost-effectively duplicate alone. . . . [P]artnerships

should be encouraged, not discouraged.”

These sentiments reflect a widely shared private sector vision of

government’s role in encouraging economic growth through technology

partnership programs. Common perceptions of the role of federal programs include leveraging both federal and private R&D investments,

disseminating federal knowledge and expertise to boost the competitiveness of U.S. companies, and supporting high-risk, high-payoff research

that is too expensive or too long term for individual firms to pursue.

The survey results demonstrate independently that the private sector is

particularly supportive of partnerships in areas with high technical risk,

where industry efforts are highly fragmented, and where it is difficult

for individual firms to isolate and profit from the benefits of high-risk

research.

Bipartisan Support

Private sector consensus about the government’s role in technology

policy has been further reflected in bipartisan public sector support for

federal programs. Bipartisan support for the current federal technology

partnership programs dates from the first two pieces of legislation in

1980—the Stevenson-Wydler Technology Innovation Act and the BayhDole University and Small Business Patent Procedure Act—and has

continued through successive laws expanding and enhancing the effectiveness of public-private technology partnerships.

Technology partnership programs have been strongly supported by

successive Republican and Democratic administrations. All of the major

technology legislation of the past 15 years was enacted by Democrat- or

Republican-controlled Congresses and signed by Republican presidents.

In 1985, the President’s Commission on Industrial Competitiveness

concluded in its report to President Reagan,

Technology partnership

programs have been

strongly supported by

successive Republican

and Democratic

administrations.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 45

OFFICE OF TECHNOLOGY POLICY

Technological innovation, fueled by research and development,

is a major force for improving the Nation’s productivity, industrial

competitiveness, and economic growth. It should be U.S. policy to

strengthen our science and technology base and its application toward

enhancing the technological capabilities of U.S. industry . . . . [Every]

responsible approach should be pursued toward advancing R&D

relevant to industrial processes and production, and to bringing

them to bear on the improvement of U.S. manufacturing.

Partnership Programs, Public Policy, and the Business Climate

for Innovation

Although federal technology partnerships are important to private

industry, they are just one of several policy instruments that can significantly affect private sector innovation and competitiveness. Research

conducted by OTP indicates that the private sector also would like the

government to consider reforms in product liability laws, certain tax

programs that affect capital formation, standard-setting regulations, and

other regulatory policies that broadly shape the business climate for

innovation. Careful policy reform in these areas may reduce the costs or

uncertainties associated with investment in new technologies, thereby

encouraging private firms to pursue a broader array of technological

opportunities.

Firms invest in new technologies based on a complicated calculus that

seeks to balance costs, risks, and potential rewards. In general, as figure 6

illustrates, the private sector manages risk by severely limiting investFigure 6. Changing the Costs and Risks Associated

with New Technologies

Uncertainty

Commitment ($)

Exploratory

Commercialization
46 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

ment when the outcome is highly uncertain. All firms have different

tolerances, but as economists have long noted, private industry in the

aggregate often fails to invest in economically and socially desirable

technologies because of the perceived costs and risks to individual firms.

Technology policy seeks to alter the private calculus of risk and reward in

ways that move particular investment decisions under the curve in figure

6 within the bounds of acceptable cost and uncertainty. Some types of

technology policy can accomplish this objective directly by providing

matching funds, encouraging consortia and other cooperative business

alliances, or facilitating the widespread diffusion of federal R&D. The

partnerships discussed in this report all are designed to directly catalyze

private sector investments in new technologies.

OTP has been working to enhance the business climate for innovation by

eliciting ideas and proposals from the private sector and advocating

appropriate policy changes. In 1994, OTP surveyed a wide range of

industry representatives regarding areas in which policy reform could

substantially improve their ability to invest in new technologies. Through

this inquiry, we learned that business climate issues can significantly

affect industrial innovation in general, and that individual sectors respond to particular policies in very different ways. For instance, representatives of the aerospace and biotechnology industries are particularly

sensitive to capital formation issues and consequently advocate tax

reforms that they believe will lower the cost of capital for R&D investments. Pharmaceutical companies emphasize product liability reform, as

litigation costs have skyrocketed and substantially raised the investment

uncertainty associated with new product technologies. Other industries

advocate regulatory reform in areas particularly salient to their investment strategies: chemical firms, for example, advocate reforms in environmental regulation, while telecommunications enterprises expect

industry-specific regulatory reforms to have an enormous impact on

innovation and competitiveness in their industry.

The business climate policy concerns revealed by OTP’s research are

summarized in table 4. OTP advocates a full exploration of these proposals to determine whether changes are appropriate given other policy

concerns, whether these reforms would stimulate innovation and raise

competitiveness, how these changes would be structured, and how they

would otherwise affect the economy. The Clinton administration strongly

supports policy measures to make the business climate more conducive

to innovation, providing that these changes balance other important

policy goals, including environmental protection, public health and
Effective Partnering: A Report to Congress on Federal Technology Partnerships 47

OFFICE OF TECHNOLOGY POLICY

safety, and the interests of consumers, manufacturers, and sellers; and

respect the important role of the states in the federal system.

Measuring Success

Federal technology partnership programs benefit the U.S. economy

in a variety of ways, and the Clinton administration has undertaken an

unprecedented effort to quantify these benefits. Despite the difficulties

of quantifying the diverse set of outputs from private or governmentsponsored R&D projects, the administration has succeeded in documenting economic benefits from partnerships and has developed systems of

measurement that represent a new level of accountability for these

federal programs.

Quantifying Program Results

Previous systems for measuring program success did not adequately

document the most critical information about the results of federal

partnership programs. As a result, it was often not possible to measure

the economic impact of these programs.

Table 4. Business Climate for Innovation:

Policy Concerns by Sector

Business Climate

 Policy Arena Concerned Industries

Tax incentives for capital Aerospace, air transport, electronics,

formation biotechnology, chemical, information

processing, machine tools, robotics

Product liability reform Aerospace, air transport, electronics,

construction, machine tools,

pharmaceuticals

Regulatory reform Air transport, chemical, medical

equipment, machine tools,

pharmaceuticals, telecommunications

Standards Air transport, chemical, medical

equipment, machine tools,

pharmaceuticals

Procurement reform Aerospace, electronics, construction,

semiconductors

Strengthened intellectual Information processing,

property pharmaceuticals

Federal technology

partnership programs

benefit the U.S. economy

in a variety of ways.
48 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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In addition, the diverse nature of the outputs of any R&D project has

made it difficult to measure the results of partnerships. The private

sector has long grappled with the difficulties of measuring the outputs

of R&D operations. The problems inherent in developing a system of

measurements for private sector R&D—the diversity of outputs, changes

over time, intangibles, etc.—have also affected efforts to measure the

outputs of public-private R&D partnerships. For example, some benefits

that accrue to the participating firms, their employees, and customers (in

terms of profits, jobs, and new products) are readily quantifiable. However, other benefits may require years to develop. The development of

new technologies and production processes sometimes occurs quickly

and can be directly measured, but resulting changes in corporate (and

industry) employment and profitability require a greater time to develop

and a more sophisticated measurement system. Moreover, although some

benefits are easily measurable, other benefits that lead to technical advances (such as the creation of business synergies or the facilitation of

peer review) are less quantifiable. But they can be crucial in fostering

innovation.

The licensing of federally funded inventions by universities under the

provisions of the Bayh-Dole Act is an example of these difficulties. While

some inventions produced licensing revenues immediately, 10 or more

years of experience were required before the effort was truly successful in

bringing forth new technologies and processes and in catalyzing new

business activity.

As a result of the historical weakness of measurement systems for the

partnership programs and the difficulty of quantifying results, varying

amounts of information are available concerning the “outputs” of the

older technology programs. Nevertheless, the administration has developed significant interim data demonstrating program successes in the

older programs that leverage the economic impact of mission R&D

(patent licensing, SBIR, and CRADAs). And ATP, MEP, and TRP, which

have included measurement systems as an integral part of their operations, are meeting their milestones and remain on track for long-term

success.

While the measurement of program results continues to present a difficult challenge, the Clinton administration has emphasized the need for

greater accountability in the operation of these programs. In its first

statement on technology policy, the administration stated, “[E]very

federal technology program, including those of long-standing, will be

regularly evaluated against pre-established criteria to determine if they

should remain part of a national program.” Since that statement, the
Effective Partnering: A Report to Congress on Federal Technology Partnerships 49

OFFICE OF TECHNOLOGY POLICY

administration has worked hard to develop rigorous and comprehensive

measurements for all federal technology partnership programs.

Interim Measures of Success

Preliminary output data for patent licensing and SBIR indicate some

success, but these data also demonstrate the limitations of programs

designed to maximize the potential for commercializing the results of

government mission R&D. For example, since federal laboratories were

given authority to license their technologies exclusively in 1986, the

numbers of exclusive and nonexclusive licenses negotiated by federal

laboratories and universities and the fees and royalties received from

these laboratories have grown. Based on 1994 statistics from the Public

Health Service and information compiled by the Association of University Technology Managers, the National Institutes of Health (NIH) ranks

fourth, when grouped with universities, in royalty income generated and

second in the number of licenses generating royalties.6

 However, the

laboratories in general have been less successful in licensing than the

universities, with about one-third the number of licenses that universities

have generated. In addition, the growth in federal laboratory licensing

has occurred primarily in nonexclusive licenses, which is counter to the

Bayh-Dole Act’s assumption that exclusive licenses were needed to

encourage the private sector to commercialize federal technology.

SBIR historical data (see figure 7) show that 27 percent of the projects

result in product sales to the private sector or a government agency

within six years of the Phase II award. Sales to the government represent

approximately 50 percent of total sales. Success rates vary widely by

agency, with the Department of Health and Human Services (DHHS)

having the highest percentage of SBIR projects in which a product has

been sold as well as the greatest amount of product sales reported by

SBIR companies. The varying rates of commercialization and sales

among agencies appear to be the result of two factors: (1) the degree of

alignment between the agency’s mission research agenda and private

sector interests, and (2) how the agency manages its SBIR program. The

success of the DHHS program in generating high sales appears to be a

result of the high degree of alignment between the research objectives of

NIH and the pharmaceutical, biotechnology, and other health care sectors. High rates of commercialization at the National Science Foundation

(NSF) and the Department of Energy (DOE) appear to result from their

6

 NIH reported $19.7 million in royalty income in FY 1994. This figure would

rank NIH fourth among universities, based on figures published by the

Association of University Technology Managers, Inc., in The Chronicle of Higher

Education (January 26, 1996, p. A.24).
50 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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emphasis on the commercialization potential of projects they fund and

the help they provide for the companies in learning how to finance and

market their products.

Currently, the most reliable indicators of the economic impact of

CRADAs and other cooperative agreements are academic studies of

laboratory interactions with the private sector. The results show strong

private sector support for CRADAs (see figure 8) and evidence of positive effects on participating companies, particularly in product development. In a broad sample of private sector partners reporting measurable

benefits from an interaction with a federal laboratory, a survey by

Bozeman and Papadakis7

 found a 3 to 1 return on private sector investment. There is little evidence, as yet, on job creation related to CRADAs.

Among the newer programs, ATP has met its interim goals. In 21 competitions since 1990, ATP received 2,180 applications and made 280 awards

in 40 states and the District of Columbia. The government has invested

$970 million, and industry has invested over $1 billion (see box 3).

in Commercial Products Figure 7. SBIR Results in Commercial Products

7

 Barry Bozeman and Maria Papadakis, Industry Perspectives on Commercial

Interactions with Federal Laboratories: Does the Cooperative Technology Paradigm

Really Work? Executive Summary, Report to the National Science Foundation,

Research on Science and Technology Program, January 1995.

The National Institute

of Standards and

Technology (NIST)

reports that ATP

grantees have

successfully accelerated

development of new

technologies, enhanced

their technical

capabilities, and reduced

the projected time to

market ATP-supported

technologies.
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OFFICE OF TECHNOLOGY POLICY

The National Institute of Standards and Technology (NIST) reports that

ATP grantees have successfully accelerated development of new technologies, enhanced their technical capabilities, and reduced the projected

time to market ATP-supported technologies. In a survey of 1993

awardees, over half reported that the ATP had already accelerated R&D

by one to three years. Respondents reported that most of the research—

between 69 and 89 percent of the projects—would not have been pursued

at all without ATP funding. Survey results also indicate that ATP has

succeeded in increasing industry’s R&D investment. There has also been

Figure 8. Increase in Number of Active CRADAs, 1987–1994*

Box 3. ATP Competitions, 1990–1995

Number of applications .............................................................2,180

Number of awards .........................................................................280

Single applicants ............................................................................ 178

Joint ventures.................................................................................. 102

Total participants ........................................................................... 729

Small businesses ............................................................................ 259

Total funds requested .................................................$4,667 million

Total funds committed ............................................... $1,982 million

ATP share ........................................................................ $970 million

Industry share .............................................................$1,012 million
52 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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early progress toward commercializing some ATP technologies: more

than half of 1991 awardees have taken steps to commercialize products

based on ATP-related technologies. And ATP firms are expanding and

projecting future growth based on ATP-supported technologies.8

Because of its focus on shorter term technology deployment issues

(rather than technology development), NIST’s MEP is already having a

significant impact. Like ATP, MEP was first funded as a pilot program.

Since then, states, universities, and local economic development organizations have created centers for assisting their manufacturing firms,

some co-funded by the federal government as manufacturing technology

centers. Data are available from a few centers indicating the effects of the

program (see table 5).9

Moreover, a recent General Accounting Office (GAO) study on manufacturing extension programs in general (not just the NIST MEP) reported

very high levels of private sector satisfaction with federal, state, and

university programs (see figure 9).10 Almost three-fourths of the companies surveyed said that these programs had made a positive contribution

to overall business performance—helping businesses work smarter,

faster, and better. Among companies that made financial investments

based on what they learned at the centers, 86 percent reported a positive

result. Even among companies that made no investments, over half

reported a positive impact (see figure 10).

Qualitative Indicators of Success

In addition to the economic benefits discussed in the preceding paragraphs, these programs have equally important but less tangible benefits

for the private sector—benefits that are recognized and supported by

U.S. business. As noted earlier, private sector surveys show strong general support for the partnerships, with a strong preference shown for

programs with industry input into project selection (such as ATP), even

though private sector participants must pay at least half of the costs.

8 NIST, Business Reporting System. June 30, 1995, First Anniversary Report,

preliminary data. See also Dr. Bonnie Silber, Survey of Advanced Technology

Program, 1990–1992 Awardees: Company Opinion About the ATP and Its Early

Effects, Silber and Associates, 1996.

9 NIST, Delivering Results: A Progress Report from the National Institute of

Standards and Technology, 1995.

10 United States GAO, Manufacturing Extension Programs: Manufacturer’s Views of

Services, Briefing Report, 1995.

Among companies

that made financial

investments based on

what they learned at

the centers, 86 percent

reported a positive

result. Even among

companies that made

no investments, over

half reported a positive

impact.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 53

OFFICE OF TECHNOLOGY POLICY

Table 5. Effect of Manufacturing Extension Program

Assistance on Sample Client Firms

Business Category Effect of MEP Assistance

Annual sales 49% increase

Exports 29% increase

Employment 15% increase

Sales per employee 17% increase

Payroll 17% increase

Average annual salary 4% increase

Manufacturing lead time 20% improvement

Scrap rates 28% reduction

Inventory turnover 43% increase

Computer usage 56% increase

Source: National Institute of Standards and Technology

R&D catalyst. In roundtable discussions with private sector representatives, the participants offered strong support for these programs because

they removed barriers to public-private collaboration and, equally

important, to collaboration between firms. Participants noted that the

resulting pooling of expertise and resources enabled firms to master

technological challenges that would have been beyond their individual

technical and financial abilities. Participants said that newer technology

The resulting pooling of

expertise and resources

enabled firms to master

technological challenges

that would have been

beyond their individual

technical and financial

abilities. Figure 9. Client Views of Overall Impact of Federal, State,

and University Manufacturing Extension Programs
54 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

partnerships provide a valuable service by bringing together firms that

otherwise may not have made contact and fostering the creation of

business and research synergies. For example, the National Coalition

for Advanced Manufacturing (NACFAM) reports that the TRP process

spawned a large number of new partnerships “in various combinations

between large business, small business, state government, local government, technology centers, universities, community colleges, and associations.” Companies report that the new partnerships and the synergies

that result just from applying for federal programs are immensely valuable in and of themselves, whether or not the firms receive funding

under the partnership programs.

Peer Review. Companies report that the peer review that is part of the

application process is also of high value in developing new technologies,

even if the company’s application is not successful. And both participating and nonparticipating companies report that the review process often

provides a technical “stamp of approval” that helps them raise capital in

the private marketplace—one of the most formidable obstacles to technology development.

Figure 10. Company Investment and Impact of Manufacturing Extension Programs

Companies report that

the new partnerships and

the synergies that result

just from applying for

federal programs are

immensely valuable in

and of themselves,

whether or not the firms

receive funding under

the partnership

programs.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 55

OFFICE OF TECHNOLOGY POLICY

Technical consultation. Older programs that promote the commercialization of government mission R&D also provide important nonquantifiable

benefits. A study of private sector participants in cooperative projects

with federal laboratories concluded, “Perhaps the most significant result

of the survey is that companies tend to interact with federal laboratories

for reasons that have far more to do with long-term, less tangible payoffs

than with expectations of business opportunities or technology commercialization.” Companies reported that their major incentive for working

with federal laboratories was access to technical resources. Firms also

noted that informal types of interaction were the most frequent and

effective and that the prime benefits of contracting and cooperating with

federal laboratories were leveraging R&D, gaining access to federal

expertise and facilities, and developing business opportunities—in that

order. The study warned, “There is a danger that too much emphasis will

be placed on evidence of tangible economic payoffs (CRADAs, licenses)

as measures of success, with insufficient recognition of the value to

companies of access to state-of-the-art knowledge and equipment.”

Thus, through these less quantifiable benefits, federal technology partnerships are also meeting their goals for improving U.S. competitiveness

by fostering the development and deployment of new technologies.

Measuring the success of federal partnerships by long-term economic

impact alone would unfairly discount the true value of the programs for

the U.S. economy and in raising America’s global competitiveness.

Developing a Federal Measurement System

In the past, monitoring focused on inputs: collecting information about

the amount of funds spent, the number of agreements entered into by the

agencies, the number of potential partners contacted, and related information. The focus of the Clinton administration with respect to these

programs is on outcomes, which typically fall into two categories. The

first is the more immediate effects of the partnership on its private sector

partners. The second, longer term focus is the effect of the program on

the economy in general. Short-term outcome measures might include

partner satisfaction, invention disclosures, patent applications, new

products and processes, changes in scrap rates, and changes in the ratio

of sales per employee. Longer term measurements attempt to establish

the programs’ connection to and impact on economic growth. These

efforts generally examine job creation, return on investment, productivity,

and other broad measures.
56 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

Efforts to develop a systematic approach to measurement are under

way throughout the executive branch. These initiatives focus on several

different aspects of the challenge, ranging from the measurement of

economic impacts of basic research to efforts to develop systems for

measuring the outcomes of specific programs such as ATP and MEP.

In addition, a subgroup of the Interagency Working Group on Federal

Technology Transfer, led by OTP, has been working to develop a measurement system for both inputs and outcomes of federal laboratory

collaborations with the private sector.

This subgroup has achieved its first objective of developing a set of

common definitions for agency input data elements. The Office of Management and Budget has adopted these common definitions as a part of

its system for tracking federal cooperative research. The second objective

of the working group is to recommend methodologies for measuring

outcomes—the economic impact of technology collaborations between

federal laboratories and the private sector. The group is currently reviewing existing measurement methodologies and will recommend appropriate methodologies to the agencies for their use.

To address the critical need for reliable and comparable data concerning

both inputs and outcomes of these programs, the administration will

continue to work toward a system of measurement that is both comprehensive and systematic across the partnership programs. This effort

must involve private sector representatives as well as academic and

other subject matter experts. Such a system is a critical part of the

administration’s commitment to fostering economic growth by encouraging the development and deployment of new technologies.

A New Paradigm

Government agencies are adopting a new paradigm for technology

partnerships. They are experimenting with and adopting a new model of

public-private partnership, in which the private sector is recognized as

the government’s partner in cost-shared technology programs. These

partnerships have enhanced the effectiveness of federal efforts to meet

government mission objectives and promote technology diffusion and

American competitiveness. Newer direct competitiveness and defense

dual-use programs, which were designed solely according to the principles of the new paradigm, are drawing strength and support through

their interactions with the private sector. In addition, new paradigm

principles of service and accountability have improved the operations of

the older programs that enhance the efficiency and commercial impact of

Newer direct

competitiveness and

defense dual-use

programs are drawing

strength and support

through their

interactions with the

private sector. New

paradigm principles of

service and

accountability have

improved the operations

of the older programs

that enhance the

efficiency and commercial

impact of government

mission R&D. Changes

in the broad spectrum of

federal technology

programs reflect the new

paradigm in action.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 57

OFFICE OF TECHNOLOGY POLICY

government mission R&D. Changes in the broad spectrum of federal

technology programs reflect the new paradigm in action.

The New Paradigm in Action—Programmatic Change

Maximizing Return on Investment

In their administration of both older and newer programs, agencies are

more effectively maximizing the return on federal and private R&D

investment (see table 6).

Commercialization potential. Some agencies now place greater emphasis on choosing SBIR projects with commercialization potential and are

taking steps to increase the probability that firms take resulting products

to market. The Navy requires a commercialization plan from a Phase II

winner before it will release the last 20 percent of the award. NSF evaluates all of its SBIR projects based on commitments for follow-on funding;

as a result, NSF’s commercialization data show one of the highest rates of

private sales and average sales per project.

Nonfinancial assistance. Agencies are providing valuable nonfinancial

assistance to small firms. Since 1989, DOE has trained its SBIR Phase II

winners in business practices, product marketing, and raising capital.

DOE’s early results indicate that 43 percent of the companies trained in

1991 had received follow-on funding as of July 1994. In a similar vein,

DoD and NSF have sponsored major conferences to help SBIR companies

market their products. Two such conferences have so far been held. The

Small Business Administration provides a “matching” service, bringing

together venture capitalists and SBIR winners. ATP and MEP also offer

this type of assistance, having discovered that private sector partners

often need this kind of support as much as they need technology-related

assistance.

Intellectual property rights. The government’s newer technology programs are designed to maximize the return on R&D investment by

strengthening the private sector’s intellectual property rights. To maximize the commercial effectiveness of partnerships, private sector partners need both clear title and freedom from potential conflicts in product

pricing and royalties. In the older programs, the federal government

retains title to the intellectual property and licenses the firm to use the

invention in exchange for a royalty. Most licenses are nonexclusive, and

the agency retains the right to license other entities as well as rights to

monitor the commercialization efforts of the licensee. In ATP, however,

firms own any resulting intellectual property outright and do not need a

federal license to use the technology. The intellectual property environAgencies are providing

valuable nonfinancial

assistance to small firms.

The government’s newer

technology programs are

designed to maximize

the return on R&D

investment by

strengthening the private

sector’s intellectual

property rights.
58 Effective Partnering: A Report to Congress on Federal Technology Partnerships

Table 6. Federal Partnership Programs—Key Features

Project selectionbasis

Industry chooses fromavailable patents.Patents are generatedby the agencies in thecourse of their missionresearch. Interestedfirms generally learnof the invention onlyafter the patent hasbeen applied for.

Nongovernmentpartners are free topropose a researchcollaboration in anyarea within the scopeof the laboratory’sresearch mission. Thelaboratory director,subject to varyingdegrees of review byagency headquarters,may decide whetherto enter into such apartnership.

Government choosesmission topics onwhich it will considerproposals; applicantsthen propose specificprojects. However, thelaw authorizesconsideration ofcommercial potentialby the agencies inselecting projects.

All research areas areopen to industryproposals involvinghigh-risk enablingtechnology. Selectionof proposals forfunding is made byNational Institute ofStandards andTechnology on thebasis of extensive peerreview of technicaland economic issues.Private sectorconsultants conducteconomic evaluations.

Operating as anextension service, MEPcenters provide help toall small and mediumsized manufacturerswho seek it. A greatvariety of supportservices are providedto requesting firms.Generally acceptedaccounting principlesare used by the parties

The CRADA is aunique instrument notsubject to procurementregulations nor to therules for grants orother types ofcooperative agreements. However,project controlsconsistent with theagreement’s statementof work will be used.

The licensee agrees tobe responsible fordevelopment ofcommercial applications. The governmentgenerally has littleinvolvement in thecommercializationprocess. However,royalty incomereceived by the agencywill be monitored.

Intellectualpropertydisposition

Industry generallysecures a license, theterms of which arenegotiated with thelicensing agency. Theterms are generallycomparable tocommercial licenses(e.g., exclusive,nonexclusive, or otherforms). However, thegovernment retainstitle, a license forgovernment use, andmarch-in rights in theevent the licensee failsto abide by itscommercializationpledge.

The disposition ofintellectual property isnegotiated by theparties to eachagreement. Alaboratory may agreeto license or assigninventions generatedby the collaborativework. Licenses arenegotiated inaccordance with thegeneral guidelines foragency licensingalready discussed.

The small businesscontractor keeps titleto any inventionsarising from the work.The funding agencyretains a license forgovernment use andmarch-in rights, as inthe case for most othergovernment-fundedinventions.

Intellectual propertyresulting fromgovernment funding isto be held by for-profitparticipants in theproject.

MEP extensionservices are unlikely toproduce intellectualproperty. Whatevertechnical data areproduced by theseservices are retained bythe client company.ManufacturingExtension Partnership(MEP)

Advanced TechnologyProgram (ATP)

Small BusinessInnovation ResearchProgram (SBIR)

Cooperative Researchand Development

Licensing Agreement (CRADA)

Project controlaccounting

Generally acceptedaccounting principlesare used by the parties.

Accounting rules mayvary depending on thetype of fundingagreement used by theagency.
59 Effective Partnering: A Report to Congress on Federal Technology Partnerships

Governmentfinancialassistance

Agencies must fundthe expenses ofpatenting andlicensing efforts fromtheir budgets.Royalties aresometimes used tocover some of thesecosts, but they are notsignificant in mostagencies, and fundingconstraints thereforelimit patenting andlicensing activities.

Laboratories maycontribute human andphysical resources tothe collaborativeproject but may notdirectly contribute anyfunds. As a generalmatter, the laboratorycontributes no morethan 50 percent of thetotal costs of thecollaboration.

The funding agencypays the costs of theproject, up to $100,000for Phase I projectsand up to $750,000 forPhase II projects.

Nonfinancialsupport

Technical support fromthe licensing agency orlaboratory may beavailable.

Technical collaborationis the heart of theagreement.

Generally none (exceptfor Department ofEnergy).

Speed andflexibility

Negotiations arecomparable to privatesector negotiations,but governmentprocedures, includingpublication requirements relating toexclusive licenses,can cause delays inthe completion ofthe negotiations.

Negotiations of theterms of a CRADA canbe time consuming.Agencies and theirlaboratories havedeveloped various“model” CRADAs tomake negotiationssimpler.

Government specifiesthe tasks, deliverables,and schedules in mostagencies. The degree offlexibility in theseareas varies fromagency to agency.

Licensing

Cooperative Researchand DevelopmentAgreement (CRADA)

Small BusinessInnovation ResearchProgram (SBIR)

Agency awardscooperativeagreements withrequired cost-sharing.Agency providesvalue-added projectoversight and technicalsupport.

The flexibility of thefunding agreementsused by NationalInstitute of Standardsand Technologyprovide it with a highdegree of flexibility inmeeting the legitimateneeds of its industrycustomers.Advanced TechnologyProgram (ATP)

The entire programconsists of nonfinancial assistanceservices for smalland medium-sizedmanufacturers.The entire programconsists of nonfinancial assistanceservices for smalland medium-sizedmanufacturers.

Reimbursement forservices is sought bythe centers on a slidingscale set by eachcenter.ManufacturingExtension Partnership(MEP)
60 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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ment of ATP was further improved when Congress eliminated a rule that

required ATP participants to pay royalties to the federal government for

product sales resulting from technology developed in whole or in part

with ATP funding. This requirement ignored the often tenuous and illdefined link between ATP-funded technology and an eventual product.

In a related example, NIH had imposed a so-called “reasonable pricing”

clause in its exclusive licenses and CRADAs. This clause applied to all

products later sold that incorporated the technology exclusively licensed

from NIH. The refusal of many companies to engage in research projects

with NIH and the agency’s determination that the clause was detrimental

to its research program without providing an offsetting benefit to the

public led NIH to remove this clause from its model agreements in 1995.

Making Government a Better Partner

Government agencies have improved the speed, flexibility, and predictability of their technology partnership programs. These improvements

and others make the partnerships more useful to the private sector

without compromising government mission R&D objectives. In the past,

the monitoring and control mechanisms used in these programs added to

the risk and cost of partnering with the federal government. The imposition of excessive proposal, reporting, and accounting requirements

deterred firms that do not customarily do business with the federal

government from participation and added overhead costs for those firms

that chose to participate. Many innovative improvements have been

made by the agencies in these areas with the objective of lowering the

risks and costs for private parties.

For example, the DOE SBIR program has eliminated the time gap between Phase I and Phase II by allowing firms to apply for early funding.

This innovation, which enables small firms to retain key personnel on

research projects, has been highly praised by firms participating in the

SBIR program. In CRADAs, DOE has decreased its approval time by half

since 1993 and expects to continue to reduce processing time through

innovative use of model CRADAs and umbrella agreements with intermediaries. These mechanisms will allow the agency to initiate projects

with a minimum of negotiation and paperwork. In FY95 NIH also significantly decreased its CRADA approval time, from a median of 69 days

to 28 days.

TRP also reduced application and negotiation times for its agreements.

In the first TRP competition in 1993, many firms found the time from

proposal submission to completion of negotiations to be excessive.

Government agencies

have improved the

speed, flexibility, and

predictability of their

technology partnership

programs.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 61

OFFICE OF TECHNOLOGY POLICY

A House Armed Services Committee survey of the winners showed an

average of nine months from proposal due date to first receipt of funds,

often too long for a firm to meet a brief market window. In response, TRP

changed its requirements to allow firms to submit one-page white papers

describing their proposed projects. TRP committed to reviewing the

white papers and providing feedback on the potential of the project

before the due date for full proposals. By using this opportunity, firms

could test the waters without committing resources to a full proposal.

In some programs, especially the newer ones, agencies have simplified

the management and control systems they use to monitor the project. For

example, some agencies now use grants instead of contracts subject to

the Federal Acquisition Regulations to disburse money for their SBIR

programs. NSF has switched to a grants-only system; DOE uses a modified grant that incorporates deliverables and other requirements; and

DoD uses the standard procurement contract to fund its SBIR recipients.

In the newer TRP program, agencies require quarterly accounting reports

on the progress of projects they co-fund, but they allow firms to use

commercial accounting principles rather than federal accounting standards in making those reports.

Some innovations pioneered by state and local economic development

groups make it easier for firms to apply for federal programs. Fully

30 states offer financial or technical assistance to SBIR applicants and

winners. Financial assistance may be bridge grants or loans, commercialization grants or loans, or proposal preparation grants or loans. Technical

assistance includes outreach and education, proposal review, proposal

writing, and literature and topic searches.

Enhancing the Private Sector’s Role

In addition to maximizing the effectiveness of federal and private R&D

investment and becoming better, more flexible partners, federal agencies

have increased the private sector’s role in project definition and selection. In their government mission-related R&D activities, agencies now

place more emphasis on choosing projects with commercial potential. In

general, the degree of private sector involvement in project definition

and selection increases in the newer programs. For example, in many

patent licensing programs, the technology has already been developed to

the point where a patent is secured before industry interest is solicited. In

the SBIR program, however, agencies propose research topics within the

scope of their mission and then allow small businesses to propose specific research within these fields. Projects are selected on the basis of both

mission benefit and commercial potential.

Some innovations

pioneered by state

and local economic

development groups

make it easier for firms

to apply for federal

programs.

Agencies have simplified

the management and

control systems they use

to monitor the project.
62 Effective Partnering: A Report to Congress on Federal Technology Partnerships

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In contrast, the core concept of ATP is to involve the private sector in

defining, selecting, and managing projects for public-private partnerships. Under ATP, firms propose projects in general and focused competitions, and proposals are selected on the basis of intensive peer review of

both the technical and business aspects of the proposal.

Private Sector Support for the New Paradigm

Private sector analysts have noted and applauded these changes. A study

by the Economic Strategy Institute found that two-thirds of the industrial

managers it surveyed saw improvements in management initiative and

flexibility of federal programs.11

The private sector is especially enthusiastic about the newest technology

programs that fully reflect the new paradigm by giving the private sector

a strong role in selecting, managing, and financing projects. Survey data,

such as the IRI and SEMI studies, reveal high levels of support for ATP—

the highest levels of support for any federal technology program. In

particular, ATP has been praised for its flexibility and responsiveness. In

a report on the progress of ATP, NIST quoted the vice president of a small

company to demonstrate how this type of flexibility is critical:

The personnel within the ATP have been the most responsive of any

government organization that I have dealt with over the years. This is

extremely critical. The commercial markets in technology-related fields

move very fast, and a needless delay can kill a promising technology or

leave it to be taken over by foreign competition.

In addition, the private sector has applauded these programs for their

effective use of interagency coordination. According to NACFAM,

[TRP incorporates an] unprecedented level of cooperation among six

federal technology agencies, demonstrating that they can effectively pool

their efforts on behalf of public-private partnership projects. . . . TRP has

broken down several artificial barriers to pooling national resources on a

pragmatic basis to address specific problems. This culture change is a

major plus by itself.12

11 Michael Irish, ed., Technology Exchange: A Guide to Successful Cooperative R&D

Partnerships, Washington, DC: Economic Strategy Institute, 1995; Michael Irish,

Joint Efforts Crucial to Tech Base, Aviation Week and Space Technology 143:6,

p. 66.

12 National Coalition for Advanced Manufacturing, NACFAM Analysis of the

Technology Reinvestment Project (TRP), Washington, DC, 1994.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 63

OFFICE OF TECHNOLOGY POLICY

American business also supports the new paradigm because it recognizes

the primary importance of the marketplace in driving technology research. In his study of private sector interactions with federal laboratories, J. David Roessner found preference for private sector–initiated,

market-pull cooperative activities rather than government-initiated,

technology-push programs.

Cost-sharing is an integral part of the newest technology programs. Both

ATP and TRP require funding matches from all successful applicants,

and the private sector also provides co-funding through consortia and

CRADAs. In total, the private sector has invested $3 billion in co-financing for technology partnerships with the U.S. government. The potential

pool of private sector funds is much larger. For example, each of the 2,800

proposals that TRP received in its first competition required a 50 percent

funding match by the private sector applicant. This represented $8.5

billion in private sector funds in response to an offer of $472 million 1993

federal matching funds.

As noted earlier, at roundtables with industry, private sector representatives repeatedly expressed their preference for cost-shared partnerships

over purely government-financed projects. Private sector firms and

organizations prefer cost-sharing for the same reasons that make it an

effective tool for government: cost-sharing encourages effective participation and influence for each of the participants, better ensuring that the

partnership meets the goals of both the private and public sector participants.

American business

also supports the new

paradigm because it

recognizes the primary

importance of the

marketplace in driving

technology research.

Cost-sharing encourages

effective participation

and influence for each of

the participants, better

ensuring that the

partnership meets the

goals of both the private

and public sector

participants.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 65

OFFICE OF TECHNOLOGY POLICY

CHAPTER 5: RECOMMENDATIONS

Although federal agencies have made significant progress in improv

ing the effectiveness of their technology partnership programs, there

is room for improvement. Agencies should increase efforts to improve the

commercial potential of federal technologies and increase the private

sector’s role in project definition, selection, and day-to-day management

to ensure that technology partnerships are as effective as possible in

meeting both public and private sector needs. And agencies should

continue to make government a better partner—working quickly with

new technologies, adjusting to changing conditions, and planning longterm relationships with the private sector.

Accordingly, the Office of Technology Policy makes the following recommendations for further improvement of federal technology partnership

programs:

Make Partnership Opportunities More Accessible

and Easier to Identify

Firms report difficulty finding appropriate partnership opportunities in

the enhanced spin-off programs. They have difficulty finding which

agencies (and which personnel within an agency) are performing research in areas of interest to them. They also find it difficult to locate

intellectual property of potential interest to them. Firms that have not

previously worked with the federal government (either in procurements

or cooperative research) as well as small and medium-sized businesses

appear to be at a special disadvantage in identifying such opportunities.

Disseminate Information

The decentralization of agency partnership efforts, which is so important

to achieving speed and flexibility, has made it more difficult to meet this

challenge. Because of the broad scope of the federal research effort and

the decentralized nature of its management, comprehensive information

concerning agency research agendas, staff expertise, and inventions

available for licensing is not centrally available. The National Technology

Transfer Center (NTTC), the Federal Laboratory Consortium (FLC), and

the National Technical Information Service (NTIS) attempt to address this

challenge. NTIS provides access to a broad array of information concerning agency research, and NTTC and FLC provide expert guidance and

assistance to businesses seeking to identify relevant federal resources. In

addition, some private firms have attempted to fill the void by providing

lists of federal patents and collaborative research activities in easily
66 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

accessible databases and reports. The positive response to these services

from the private sector indicates that the information is valuable and

needs to be provided even more broadly.

Match New Technologies with Sources of Capital and Other Support

As this report demonstrates, the development of new technologies is

only the beginning of a complex commercialization process in which

both capital and business acumen are required to achieve the goal of new

products and services. While the federal government cannot be the

source of the capital or the business expertise, it can be a catalyst enabling technology developers to find them. Almost all of the programs

reviewed here have begun to address this need.

The Small Business Innovation Research (SBIR) program has made the

most comprehensive effort to address this challenge. An ad hoc system

of support is provided by both federal and state agencies to small businesses seeking to develop the business skills needed to bring their technologies to market. The Department of Defense (DoD) and the National

Science Foundation (NSF) draw on private sector experts to provide

business training conferences to program participants. The Department

of Energy (DOE) operates an impressive commercialization assistance

program that provides a spectrum of training and support to participants. The Small Business Administration (SBA) maintains a database of

SBIR winners and of potential capital sources and provides matching

services on request. Various state agencies provide support to local

program participants, ranging from training to seed capital.

The Advanced Technology Program (ATP), agency cooperative research

and development agreements (CRADA) programs, and Technology

Reinvestment Project (TRP) have, to varying degrees, all attempted to

provide technically competent firms access to private sector funding and

other commercialization resources. In addition, as noted above, both

public and private sector organizations have begun to assemble information concerning various facets of these programs. With this common

purpose, consideration should be given to consolidating or coordinating

these activities across programs and agencies.

For example, information concerning partnership projects in all of these

programs might be consolidated in a central information bank, enabling

potential investors to identify the full range of projects in their areas of

interest. The same information bank might also identify investors interested in particular technologies, enabling program participants to identify potential funding sources. As noted, SBA has put together

An ad hoc system of

support is provided by

both federal and state

agencies to small

businesses seeking to

develop the business

skills needed to bring

their technologies to

market.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 67

OFFICE OF TECHNOLOGY POLICY

information of this nature for the SBIR program, and other state and

federal agencies have similar compilations. What has been lacking is

a determined effort to consolidate the information and improve its

accessibility.

This consolidation and coordination need not take the form of a new

program but could be constructed as a coordination of existing efforts

comparable to that suggested earlier for general partnership information.

One or more National Science and Technology Council (NSTC) committees could coordinate the efforts in partnership with state governments,

which have played an important role in this area. Recent experience with

the National Electronics Manufacturing Initiative project, initiated within

NSTC in partnership with industry, indicates that such projects can

be undertaken and are likely to be productive for both industry and

government.

Promote Professional Interactions

One of the best ways to make these partnership opportunities better

known and more accessible is to encourage greater contact among personnel in federal research agencies and industry. Such contacts can occur

through fellowship programs, work details, procurement contracts,

professional seminars, or joint research ventures. Many federal laboratories—especially defense-oriented laboratories—have worked at armslength from the private sector. Although national security concerns will

always limit interaction, there is room to reduce the cultural and geographic isolation of federal laboratories through a more active personnel

exchange effort with the private sector. Personnel exchanges are an

excellent and effective method of promoting collaborative activity,

although such programs are likely to be used only by larger private

sector firms. Sandia National Laboratories has initiated a novel program,

the New Ventures Initiative, which might serve as a model for other

agency research organizations. The program permits Sandia personnel to

take entrepreneurial leave to encourage the transfer of new technologies

to industry. As of January 1996, fourteen Sandia scientists had been

granted unpaid leave under the new policy to help 12 companies apply

lab-developed innovations.

Leverage Increased Interagency Coordination of Research

Increasing interagency coordination is another way to improve dissemination of information about technology partnership opportunities. As

the executive branch, through NSTC, increases its efforts to coordinate

research at the agency and interagency level, an information base will be

created that will be of great value to industry. In particular, the work of
68 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

the Civilian Industrial Technology Committee of NSTC is likely to produce information concerning federal agency research on topics with

commercial potential that is not readily available from other sources.

Information resulting from these interagency efforts should be provided

to the public and private sector organizations already attempting to

improve private sector access to federal research so they can deliver it to

industry customers.

Use Consortia and Other Umbrella Organizations

The private sector has increased its use of research consortia as a means

of addressing issues of common interest to different firms. These consortia may be horizontal in nature, including an array of firms in a single

sector, or they may represent a vertical chain of suppliers, manufacturers,

and customers of a particular product line. In addition, broader groupings of companies may be represented by various types of umbrella

organizations, ranging from broad associations of companies interested

in particular research issues to quasi-governmental organizations seeking to promote economic development in a specific locale. By partnering

with such organizations, agencies can multiply the impact of their efforts, offering several firms equal opportunities to participate in research.

Ensure Effective Protection of Intellectual Property

Private sector representatives have expressed concerns about the patents

obtained by the federal laboratories. They questioned what was being

patented and the scope of some of the patents. The representatives

recommended that the laboratories work more closely with industry to

determine which inventions should be patented and in which countries

to ensure that the patents interest industry. The private sector could

advise the laboratories on which embodiment or commercial application

of the invention should be included in the patent application. However,

expanding the scope of the invention may require an agency to do

further research to provide support for additional embodiments or

applications.

Obtaining and maintaining patents is costly, and agencies must be very

selective in what they patent. To minimize their patent expenses, laboratories can postpone some of their costs while they are looking for

licensees to pay most, if not all, of the patent expenses. For example,

laboratories can use the Patent Cooperation Treaty, which can give them

up to 30 additional months for filing both foreign and U.S. applications.

In addition, U.S. law was recently changed to permit the filing of provisional patent applications at one-fifth the cost of a conventional patent

Broader groupings of

companies may be

represented by various

types of umbrella

organizations. By

partnering with such

organizations, agencies

can multiply the impact

of their efforts, offering

several firms equal

opportunities to

participate in research.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 69

OFFICE OF TECHNOLOGY POLICY

application while preserving the date of invention. Since the provisional

application expires after one year, the laboratories would have an additional year to file a conventional application while looking for licensees.

Be a Better Partner: Improve Speed, Flexibility, and Predictability

Make Administration of Agreements More Responsive

to Private Sector Needs

The private sector continues to be concerned about the speed with which

partnership agreements are carried out and the flexibility with which

they are administered. The goal of the negotiations of the partnership

agreement should be to enable the parties to reach agreement on mutually beneficial terms in the least possible time while spending the least

possible resources. Agencies have available to them a variety of funding

instruments, and they should select the instrument most appropriate for

the achievement of each goal. Possible funding instruments include

contracts, grants, cooperative agreements, and a more general authority

possessed by some agencies referred to as “other transactions” authority.

Contracts are the traditional means of federal procurement and are

governed by the Federal Acquisitions Regulations (FAR). FAR imposes

very specific rules on administering agencies and contractors, including

competitive bidding processes and special accounting requirements. The

contractual mechanism, while giving the government significant control

over its purchases, is a very inflexible mechanism when used in collaborative research programs.

Grants are a more flexible mechanism for funding and require a lesser

degree of administrative control by the federal government. Grants are,

in essence, awards to third parties to support projects the agency wishes

to support. Once a grant is offered, the administering agency retains less

control over the direction of the project than in the case of a procurement,

and there may be few requirements for deliverables, reporting, or accounting. Cooperative agreements also allow a greater degree of flexibility than contracts under FAR.

Finally, some agencies have available a fourth category of authority, the

“other transactions” authority. This category falls outside the rules for

contracts, grants, and cooperative agreements and consequently permits

the agencies a greater degree of discretion concerning the terms to which

they agree. It is an especially appropriate basis for research collaborations

with private sector firms, because it permits agencies to follow standard
70 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

commercial practices and to adapt to the individual circumstances of

each partnership. For example, an agency could more readily agree to

changes in schedules and deliverables during the research process.

Agencies using such authority would also find it easier to permit the use

of commercial accounting principles as a contract management device,

eliminating a major burden to private sector participants in these programs. The other transactions authority is available to and has been

frequently used by both the National Aeronautics and Space Agency

(NASA) and the Advanced Research Projects Agency (ARPA) to secure

additional administrative flexibility in their collaborative research agreements with industry. Other agencies should be directed to determine

whether they have a legal basis for such flexible authority. Where such

authority exists, they should be directed to use it as a means of structuring research partnership agreements. If they do not have it, they should

seek appropriate additional statutory authority to permit entry into such

agreements.

Another private sector concern relating to agency responsiveness has

been delay in providing funding once an agreement has been reached.

Industry partners frequently assemble special personnel and equipment

to carry out the agreement and must produce commercially meaningful

results within a short period of time. For that reason, delays in receiving

funding can have extremely serious repercussions. Several agencies have

taken innovative steps to address this issue. For example, DOE has

reduced gaps in funding SBIR projects through a novel early application

process for Phase II projects. It accepts applications for Phase II awards

from Phase I awardees even before their Phase I work is completed. As a

result, many Phase II winners are able to begin their work immediately

after completing Phase I.

Companies have also expressed concern about the need for control of

intellectual property arising from partnerships with the government.

Companies providing substantial funds to such a project may wish to

own or control all rights in inventions arising from the work, including

those made by subcontractors. Under existing laws and regulations,

however, it is generally only the inventing company that can claim title

to an invention resulting from federally funded research. It is possible for

a funding agency to determine that “exceptional circumstances” require

a different disposition of rights (e.g., all rights going to the private sector

partners and not the subcontractor generating the invention), but this

authority has been used only rarely. To address industry concerns in this

area, the Department of Commerce could provide regulatory criteria for

the appropriate exercise of the exceptional circumstances authority by the

“Other transactions”

authority falls outside

the rules for contracts,

grants, and cooperative

agreements and

consequently permits

the agencies a greater

degree of discretion

concerning the terms

to which they agree.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 71

OFFICE OF TECHNOLOGY POLICY

funding agencies, making it easier to control the dispersion of intellectual

property in appropriate circumstances.

Make Partnership Agreements Easier to Negotiate

One promising approach to the problem of simplifying the negotiation of

agreements involves the use of intermediary organizations when federal

agencies and their laboratories deal with the business community. These

organizations, by their nature, may provide a better interface for potential private sector partners than the research agencies and their laboratories and may also provide other types of support (e.g., business

counseling and financial support) that the agencies and laboratories

do not provide.

A variety of organizations may participate in such efforts. State and local

economic development organizations may enter into CRADAs with

laboratories, providing an umbrella under which their constituent businesses may establish research projects. The businesses are relieved of the

need to negotiate an individual agreement and the state organization can

help its constituents find relevant laboratory resources.

One example of such an agreement involves the Oak Ridge National

Laboratories (ORNL), which negotiated a CRADA in 1994 with the state

of Tennessee to provide manufacturing assistance to Tennessee manufacturers. The state’s CRADA with ORNL allows small and medium-sized

firms with manufacturing problems to tap the laboratory’s impressive

resources. In another example, “master” CRADAs were signed in December 1993 between DOE’s national laboratories and Army’s laboratories

on one hand and the Big Three auto manufacturers on the other, as part

of the Partnership for a New Generation of Vehicles (PNGV). These

CRADAs will provide a framework for firms to work with the laboratories on PNGV projects, with each new project resulting in an approved

joint work statement under the CRADA “shell.” In this way the administrative costs of the work will be reduced and uniform terms and conditions will be applicable to all phases of the project.

CRADAs between laboratories and industry consortia may also provide

a useful way of dealing with the complexities of consortia members’

research objectives. A consortium may plan a long-term project with a

federal laboratory or group of laboratories under such a CRADA, allowing its individual member firms to bring their work under that CRADA

and avoid the costs and delays of negotiating separate agreements. The

laboratories and industry have already shown a great deal of ingenuity in

Intermediary

organizations may

provide a better interface

for potential private

sector partners than the

research agencies and

their laboratories and

may also provide other

types of support (e.g.,

business counseling and

financial support) that

the agencies and

laboratories do not

provide.
72 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

using the flexible CRADA authority to minimize administrative burdens

for private sector partners, and, with further effort, additional successes

are likely to emerge.

Make Partnership Agreements More Predictable

The private sector has also expressed concern about various approaches

to the terms of partnership agreements among agencies and laboratories.

The fundamental purpose of these agreements is to enhance private firm

access to federal scientific and technical resources for the benefit of the

U.S. economy. However, the negotiation of agreements sometimes becomes delayed by collateral legal issues relating to the terms of the

agreement. Private sector partners, especially small and medium-sized

businesses, find negotiation of agreements with federal agencies and

laboratories to be both time-consuming and costly in legal, administrative, management, and technical resources.

While it is desirable to increase the predictability of the terms of these

agreements, this should not be accomplished by sacrificing the discretion

needed to make them responsive to the partners’ needs. One approach to

this challenge is to seek agreement on the basic principles to be embodied

in the agreements without imposing on the parties any “boilerplate”

contract terms. The negotiations could take place in a number of fora

(e.g., under the NSTC umbrella) and should involve a broad crosssection of both industry and agency representatives. Once such principles are agreed to in each of the areas addressed by the agreements,

both agencies and private partners will have a template for their negotiations that will make negotiations faster and outcomes more predictable.

Using such an approach, differences between agreements in a particular

program would reflect different work objectives rather than different

legal interpretations of the programs, and the parties would be free to

focus on the real purpose of the agreements—collaborative research.

One specific area in which greater certainty should be provided to

private sector partners relates to the intellectual property rights transferred in connection with CRADAs. Two bills were recently introduced

in the House of Representatives and the Senate that would amend the

Federal Technology Transfer Act to give private partners in CRADAs

ownership of their own inventions and an option for an exclusive license

to inventions made by the federal laboratory employees.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 73

OFFICE OF TECHNOLOGY POLICY

Help Small Businesses Secure Necessary Business and Financial

Advice from State Programs and Private Sector Sources

Many of the most successful partnerships under these programs have

involved small businesses with a strong research capability. Unfortunately, many such firms have lacked the skills in market analysis, management, finance, and manufacturing necessary to commercialize the

results of their research.

At present, a variety of federal and state agencies provide an ad-hoc

system of support to small businesses seeking to develop the business

skills needed to bring their technologies to market. In their SBIR programs, DoD and NSF draw on private sector experts to provide business

training conferences for small business participants. DOE operates a

commercialization assistance program directly focused on these needs,

and SBA provides a matching service, bringing together venture capitalists and SBIR winners. A stronger, more comprehensive effort to help

small businesses find the resources to improve their commercial competence could increase their ability to commercialize their technologies.

Further Increase the Private Sector Role in Project Definition

and Selection

Although many of the partnership programs discussed here are closely

tied to government mission research agendas, there is flexibility in

several areas to give the private sector a larger role in defining the scope

of the public-private partnership. A larger role for the private sector in

this respect is not inconsistent with either the integrity of the agency’s

mission research or the concept of leveraging the economic impact of

government mission R&D. What is needed is a willingness on the part of

the agencies to solicit private sector views as to what portion of their

mission research agenda is of interest. This information can then be used

to select potential topics for these partnerships.

The consequences of failing to give the private sector such a role are

reflected in recent research with partners of the federal laboratories.

Research by J. David Roessner and Anne Wise indicates that intellectual

property licensing has been one of the least successful and least popular

approaches to public-private partnerships.13 The private sector prefers

approaches that involve market-pull rather than technology-push. The

effectiveness of licensing is also limited by the “over-the-transom”

The private sector prefers

approaches that involve

market-pull rather than

technology-push.

13 David Roessner and Ann Wise, Patterns of Industry Interaction with Federal

Laboratories, 1993.
74 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

character of the transactions. Private firms generally become aware of

licensing opportunities only after the agency has defined the invention

and begun efforts to secure intellectual property protection.

A similar situation occurs in the process for defining the areas for

partnering in the SBIR program. The research topics on which an agency

will consider an SBIR proposal are defined by the agency according to its

mission-related needs but often without any structured effort to consider

the commercial potential of or private sector interest in these topics.

While most agencies consider commercial potential at a later point, when

they are selecting proposals for funding, the failure to consider private

sector interests in the initial framing of the research topics on which

proposals are solicited is likely to result in the exclusion of some technical areas that are within the agency mission and have commercial relevance. Once again, the point is not to take the agency beyond its

legitimate research mission but to ensure that, within the scope of that

mission, the agency considers the private sector’s interests in defining

the areas in which it will solicit funding proposals.

To address this challenge, federal agencies need to find ways to involve

the private sector in reviewing the commercial potential of their government mission work on an ongoing basis. This interchange could take

place in several ways. To the extent that federal laboratories are involved,

many have created industry advisory boards that are familiar with and

can provide comments concerning the nature of the work carried out at

the laboratory. These advisory groups might be asked to provide more

specific advice concerning the areas in which a laboratory should pursue

intellectual property protection for its work, with the objective of licensing technology to the private sector. They might also help an agency to

develop an inventory of the most commercially attractive aspects of a

laboratory’s research portfolio. More generally, the issue might be addressed through the efforts of NSTC, which is working with the private

sector in several areas to identify and manage federal research efforts

having significant commercial potential.

Shift to Commercial Financial Management Practices

One of the principal headaches for private sector partners in these programs is the often perceived need to use federal cost accounting principles. Shifting from commercial methods of ensuring the proper use of

funds to the use of government cost principles is both expensive and

confusing for participants. Requiring the use of principles designed for

Advisory groups might

be asked to provide

more specific advice

concerning the areas in

which a laboratory

should pursue

intellectual property

protection for its work,

with the objective of

licensing technology to

the private sector.
Effective Partnering: A Report to Congress on Federal Technology Partnerships 75

OFFICE OF TECHNOLOGY POLICY

monitoring government cost-based contracts and grants in the context of

technology partnerships gives rise to potential disputes concerning the

minutiae of projects and shifts the parties’ attention and resources away

from the research that was the reason for the partnership arrangement. In

fact, private sector representatives participating in Office of Technology

Policy outreach efforts ranked government administrative requirements—for proposals, accounting, audit, and reporting—as one of the

top three barriers to involvement in federal technology partnerships.

Similar results have been obtained in other surveys of industry.

As agencies recognize the unique character of these partnerships, they

should use whatever flexibility is available to them to move toward

commercial financial management practices. More recent programs have

specifically addressed this issue. TRP, for example, permits nontraditional private sector partners to use their existing commercial financial

management and project tracking systems. In addition, as noted earlier,

other transactions authority, where available, enables agencies to collaborate better with their industrial partners by shifting to the use of commercial practices.

Even under more traditional forms of agreements such as contracts and

grants, however, it should be possible for the agencies to provide some

relief to private sector partners on this point. The original ATP legislation

(the Omnibus Trade and Competitiveness Act of 1988) required ATP

funding recipients to account for their expenditures of both internal and

federal funds in their projects using Office of Management and Budget

Circular A-122 (Cost Principles for Non-Profit Organizations) or FAR Part

31 (Contract Cost Principles and Procedures). Participants in the program, however, have questioned the need for these requirements, pointing out that FAR requirements force them to set up cost tracking systems

for their firms that are at variance with their standard commercial systems. ATP has recognized the legitimacy of these concerns and is in the

process of shifting, where appropriate, from principles designed for costbased arrangements toward the use of commercial practices better suited

to partnership arrangements.

The experience of ATP and the other partnership programs with their

private sector partners indicates that corporate fraud or misuse of funds

is extremely unusual. In fact, ATP has encountered no such problems to

date. Therefore, extensive costing requirements under partnerships may

provide little value to the government and add large burdens to private

sector participants. The federal cost principles are a product of the

government-as-customer perspective embodied in federal procurement

ATP is in the process

of shifting, where

appropriate, from

principles designed for

cost-based arrangements

toward the use of

commercial practices

better suited to

partnership

arrangements.
76 Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

The executive branch is

taking steps to improve

the management and

coordination of the

research conducted by its

agencies and to assess the

value of that research.

rather than of the partnership concepts embodied in these programs.

Financial management and reporting practices should be tailored, as

appropriate, to the different goals of the government procurement/

contracting process and federal–private sector technology partnerships.

Continue Developing an Integrated System of Measuring

Program Results

Both the administration and Congress have emphasized the need for

greater accountability in the operation of government programs. The

administration should continue to develop systems to measure program

outputs, including the immediate effects of the agency action on private

sector partners, as well as information concerning the longer term and

broader economic effects of the activities.

To address the critical need for reliable and comparable data concerning

both inputs and outputs of federal programs, a comprehensive system of

measurement needs to be developed by the agencies, led by NSTC or

another appropriate organization. The executive branch is taking steps to

improve the management and coordination of the research conducted by

its agencies and to assess the value of that research. An important part of

any comprehensive assessment system is an effort to determine the

commercial impact of the research. Such assessments are complicated

and demanding and require the cooperation of private sector partners as

well as a range of economic expertise that may not reside within the

research organizations.

To ensure the effectiveness of any such system, both private sector representatives and academic experts must be involved in its development

and implementation. Efforts are already under way in individual programs and individual research agencies to create local measurement

systems. A broader effort must be built on these initiatives that spans the

various types of partnerships described in this report and provides the

basis for assessment of their effectiveness in promoting technological

competitiveness and economic growth.