U.S. GOVERNMENT PRINTING OFFICE

59–746 WASHINGTON : 1999

SMALL BUSINESS INNOVATION RESEARCH (SBIR)

PROGRAM OVERSIGHT AND REAUTHORIZATION

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT PROGRAMS

AND OVERSIGHT

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MAY 27, 1999

Serial No. 106–16

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

MICHAEL P. FORBES, New York

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT PROGRAMS AND OVERSIGHT

ROSCOE G. BARTLETT, Maryland, Chairman

MARY BONO, California

MICHAEL P. FORBES, New York

PATRICK J. TOOMEY, Pennsylvania

RICK HILL, Montana

DANNY K. DAVIS, Illinois

RUBEN HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

NELSON CROWTHER, Counsel

(III)

C O N T E N T S

Page

Hearing held on May 27, 1999 ............................................................................... 1

WITNESSES

Behar, Al, President, PICS, Inc. ............................................................................. 3

Armstrong, Judith A., CEO, ADA Technologies, Inc. ........................................... 4

Haynes, Jacqueline, Owner, Intelligent Automation, Inc. ................................... 6

Larson, Arvid, Co-Chair, American Association of Engineering Societies R&D

Task Force ............................................................................................................ 9

Busch, Chris W., SBIR Consultant ........................................................................ 24

Hill, Daniel O., Assistant Administrator for Technology, U.S. Small Business

Administration ..................................................................................................... 26

APPENDIX

Opening statements:

Bartlett, Hon. Roscoe ....................................................................................... 33

Prepared statements:

Behar, Al ........................................................................................................... 35

Armstrong, Judith A. ....................................................................................... 38

Haynes, Jacqueline ........................................................................................... 48

Larson, Arvid .................................................................................................... 55

Hill, Daniel O. ................................................................................................... 59

Busch, Chris W. ................................................................................................ 73

Additional material:

Statement of Robert M. Pap, President and CEO, Accurate Automation

Corporation .................................................................................................... 91

(1)

SMALL BUSINESS INNOVATION RESEARCH

(SBIR) PROGRAM OVERSIGHT AND REAUTHORIZATION

THURSDAY, MAY 27, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT PROGRAMS

AND OVERSIGHT,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Subcommittee met, pursuant to call, at 10:00 a.m., in room

2360, Rayburn House Office Building, Hon. Roscoe G. Bartlett

(chairman of the Subcommittee) presiding.

Chairman BARTLETT. Good morning. Let me call our Subcommittee hearing to order and then immediately announce that

we must recess. They have just called a vote. That was the bell

that you heard and the two lights that you see on the clock up

there. They have called a vote. So we will need to recess momentarily for the vote. It should take me about 10 or 12 minutes to get

to the vote and back again, if this is the only vote and if there are

no announcements there.

So we will stand in recess until this vote is ended.

[Recess.]

Chairman BARTLETT. Our Subcommittee will reconvene.

Good morning. Let me call the Subcommittee to order.

It is a pleasure to welcome you to this hearing of the Subcommittee on Government Programs and Oversight of the House

Small Business Committee. I would especially like to thank those

of you who have traveled some distance to participate in this hearing.

The hearing will examine the performance of the Small Business

Innovation Research, SBIR, program which was signed into law by

then President Ronald Reagan on July 2, 1982. It was most recently reauthorized in 1992 to extend through the end of fiscal year

2000.

While the SBIR program enjoys bipartisan support because it

has been successful, we have a responsibility to examine every government program for continued effectiveness and to consider ways

in which they can be improved. I always want to make sure that

the Federal government gets its money’s worth from Americans’

hard-earned tax dollars.

The SBIR program fosters innovative research and development

by small businesses and strengthens the country’s technology base.

The SBIR program has been credited with creating new jobs, inVerDate 29-OCT-99 14:43 Nov 10, 1999 Jkt 010199 PO 00001 Frm 00004 Fmt 6633 Sfmt 6633 E:\HEARINGS\59746 txed01 PsN: txed01
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creasing productivity and economic growth and helping combat inflation and stimulating exports. Small high-tech companies, as a

group, have shown an ability unequaled by large businesses to

produce new products, processes and technologies. The program

finds widespread support among members of both parties.

The hearing will provide program oversight and a basis for legislation reauthorizing the program. The Committee will examine recommendations for legislation and administrative changes that you

may offer during the hearing. Your views concerning the present

and future operation of this important program are most welcome.

Again, welcome to our participants and guests. I look forward to

hearing your comments on this most important program.

I am pleased that we are joined by Mr. Hill and would ask if he

has an opening statement.

[Mr. Bartlett’s statement may be found in the appendix.]

Mr. RICK HILL. No, I don’t have, Mr. Chairman.

Chairman BARTLETT. We will hold the record open for opening

statements from all the members of the Subcommittee who wish to

submit them. And I will stipulate before we begin that, without objection, all of your prepared remarks will be included in the record,

and we would encourage you to summarize your remarks. That

way, we will have adequate time for expanse during the question

and answer exchange.

I have read your testimony. I was particularly impressed that 50

percent of our witnesses are women. We have held several hearings

on women-owned small businesses, and I was surprised to learn

that women-owned small businesses are growing at twice the rate

of male-owned small businesses.

By the way, women-owned small businesses have a lower bankruptcy rate than male-owned small businesses. The bankers

haven’t figured that out yet, because women still have difficulty

with access to capital.

Women-owned small businesses are better employers. They are

more compassionate, more sympathetic. They are more focused on

their employees. That shouldn’t surprise us either. Men and women

are different. The military yet hasn’t figured that out, but men and

women are different.

And so I am very pleased that 50 percent of our participants

today are women. Because this is the fastest-growing part of our

economic community, particularly the fastest-growing part of our

small business community.

We are very pleased that you have been able to join us today.

Mr. Al Behar, is that how you pronounce your name?

Mr. BEHAR. Behar.

Chairman BARTLETT. President and CEO, Personal Improvement

Computer Systems Incorporated; Dr. Judy Armstrong, President

and CEO, ADA Technologies, Incorporated; Dr. Jacqueline Haynes,

Vice President/Owner, Intelligent Automation Incorporated; and

Dr. Arvid Larson, Co-chairman, AAES R&D Task Force.

We will proceed with the testimony in the order in which I welcomed our witnesses. Mr. Behar.

3

STATEMENT OF MR. AL BEHAR, PRESIDENT AND CEO,

PERSONAL IMPROVEMENT COMPUTER SYSTEMS, INC.

Mr. BEHAR. Mr. Chairman, thank you for the opportunity to tell

you our story and give you my input on the SBIR program. My testimony will focus on PICS’s unique approach to tackling tobacco addiction and other health problems related to diet and exercise that

face the United States and other industrial nations, the success

that PICS has enjoyed thanks to the SBIR program and recommendations for its potential improvements.

Before I get on with my testimony, I would like to express my

appreciation to the SBIR program and its administrators at every

level of the National Institutes of Health. In particular, I would

like to acknowledge the fine work of Mr. Sonny Kreitman who,

until his recent retirement, provided strong leadership to this program.

I also would like to compliment Mr. Kreitman’s successor, Ms. Jo

Anne Goodnight. I have had the pleasure of meeting with Ms.

Goodnight recently and am confident that she will do an excellent

job coordinating the SBIR program.

Finally, I would like to thank the NIH program officers and

grants management staff for their advice on the full spectrum of

issues that we have faced over the years.

As you well know, tobacco addiction is the leading cause of premature death worldwide. Yet in the U.S. and Canada alone over

50 million people smoke and about 10 million people chew tobacco.

Despite the vigorous anti-tobacco campaigns in both countries over

the last 10 years, these numbers have remained virtually unchanged.

The second leading cause of premature death in industrial nations is heart disease and strokes caused by combinations of obesity, elevated cholesterol, hypertension and diabetes, all of which

are diet and exercise related.

PICS’ unique approach to tackling these major health problems

has been the development of self-help programs that are implemented by hand-held computers. Today, our family of products help

hundreds of thousands of people battle tobacco addiction, lose

weight, control cholesterol and lower hypertension.

PICS has developed two computer platforms, LifeSign and

DietMate, which are used in a variety of products. LifeSign is a

credit-card-sized computer that is the basis for four products that

deal with the treatment of tobacco addiction: LifeSign for Adult

Smokers, LifeSign for Pregnant Women, LifeSign for Dippers and

Chewers, and most recently LifeSign for Teens and Young Adults.

Our DietMate program, family of products, in fact, is based on

a palm-size computer and comes in three versions: weight loss, cholesterol reduction, and high blood pressure treatment.

Because of the scope of the problems that we address our work

has enormous public health significance and enviable commercial

potential. In fact, the combination of self-help convenience and

hand-held portability coupled with the power of computers to personalize treatment yields uniquely efficacious products that are

popular with users and are easy to disseminate widely and quickly.

Clinical trials have shown that our LifeSign Stop Smoking program

matches the efficacy of drug treatments at a fraction of their cost

4

and without the risk of side effects. Not surprisingly, LifeSign and

DietMate has sold over a million units worldwide and have generated over $100 million in sales. To date, LifeSign has enjoyed

success in the U.S., Canada, Latin America, Australia, Japan and

numerous European countries.

PICS employs about 20 full-time people and several consultants

through outsourcing. We have been awarded three patents for our

LifeSign and DietMate technology.

The SBIR program has allowed PICS to engage in extensive

product development that normally would be reserved only for

large corporations. SBIR has helped us pioneer innovative approaches to major health problems which have earned us the respect of the scientific community, while allowing us to capitalize on

our rigorous research efforts by commercializing our product ideas.

Furthermore, the SBIR program has allowed us to maintain a degree of stability despite the many ups and downs experienced by

small businesses.

There is a great deal right with the SBIR program as currently

administered. However, there are always opportunities to improve

on a good thing.

Over the last few months we have been working diligently with

members of the NIH administrative staff in developing additional

recommendations aimed at streamlining the application process

and modernizing the review process. My more detailed recommendations are included in my written testimony.

Here I would like to highlight one key recommendation related to Phase I funding. The present $100,000 limit on Phase I, although adequate for many fine projects, falls short of what is needed to attempt to tackle some of the more complex health issues

that our society faces today, such as AIDS and cancer. In contrast,

I have found the $750,000 limit on Phase II sufficient. Therefore,

my recommendation is limited to increasing Phase I funding level

to $200,000.

In closing, I would like to thank you again for giving me the opportunity to express my opinion on the performance of the existing

SBIR program and offer my recommendations for potential improvements. Thank you.

Chairman BARTLETT. Thank you very much.

[Mr. Behar’s statement may be found in the appendix.]

Chairman BARTLETT. Dr. Armstrong.

STATEMENT OF MS. JUDY ARMSTRONG, PRESIDENT AND CEO,

ADA TECHNOLOGIES, INC.

Ms. ARMSTRONG. Chairman Bartlett, I want to thank you for the

invitation to testify today. I will read an excerpt of my written testimony.

My business, ADA, has been an active participant in the SBIR

program since its award—first award in 1985. Today, ADA is a

company of 35 scientists and engineers with annual sales of $4 million.

I would like to spend my time giving you some background information on ADA, looking at its activities in light of the four purposes of the SBIR program, including some general comments on

technology commercialization. Finally, based on my years of conVerDate 29-OCT-99 14:43 Nov 10, 1999 Jkt 010199 PO 00001 Frm 00007 Fmt 6633 Sfmt 6602 E:\HEARINGS\59746 txed01 PsN: txed01
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versations with others interested in the program, I have three recommendations I would like to offer.

From the first days ADA has searched hard to find the best researchers in the country for the areas in which we proposed to get

SBIR funding. We talked to universities, professors, other small

businesses and large businesses. Alliances with others have always

been a key to our success.

We learned to be profitable and to build infrastructure. We

learned how to use government funds for our own R&D projects,

giving us competitive advantage through ownership of a broader

scope of intellectual property.

We began to seek commercialization of innovative, proprietary

technology as a path to faster growth and more net income and

also as a means of adding value and providing benefits to our clients and the Nation.

ADA’s strategic focus today is to improve the lives of the world’s

populations through innovative technology. In the last 5 years,

ADA has produced two innovative technologies that we believe

achieve this goal. In 1996, ADA Environmental Solutions was

formed to help the Nation’s utilities comply with the Clean Air Act

Amendments while providing the Nation with the power it needs

on an efficient basis. ADA sold ADA Environmental Solutions in a

stock and cash deal valued at $8.3 million.

ADA technology innovation has also been the genesis for TekGear LLC of Jackson, Wyoming, now operating from Boulder, Colorado. Tek-Gear manufactures a datalogger, Trekker, which is being

sold today to allow high school students to conduct efficient, stateof-the-art laboratory and field experiments.

Among the technologies of the future from ADA are likely to be

more efficient demand-defrost control units for the millions of industrial refrigerators, software modules and games to improve

science learning by students of all ages, and cost-effective mercurycontrol technology that will enable utilities to comply with future

clean air amendments and requirements.

Relative to the four purposes of the SBIR program, to stimulate

innovation ADA has received nine patents and has one patent

pending. The commercialization of our technology ties closely to

these patents.

We use small business to meet Federal research and development needs. ADA has worked closely with several DOE departments to help them meet their R&D needs. With SBIR funding,

ADA has been able to pursue cost-effective techniques and to develop capabilities that will now assist the government with establishing reasonable environmental regulation. Early development of

these advanced technologies by ADA allows the EPA and other government agencies to formulate strategies for managing the environment that have substantially lower costs and future investment

needs while at the same time forming the basis for products that

will meet the needs of the private sector.

Purpose three, to foster and encourage participation by minority

and disadvantaged persons and women-owned businesses. ADA has

been woman-owned since its inception in 1985. I believe the SBIR

program has allowed me, a mathematician, to approach technology

innovation from a perspective that differs from that of the majority

6

of scientists and engineers. I rely heavily on instinct, intuition, people skills and relationships in going about my business, all recognized characteristics of women in leadership roles. The Phase III

commercialization activities needed for success come naturally to

me and allow me to coach members of my staff to see the importance of people and relationships in the technology process.

Purpose four, to increase private sector commercialization of innovations derived from Federal R&D. ADA’s R&D activities have

resulted in a return on investment to the Federal government of

over 320 percent from commercial activity. The government has invested $6.6 million in ADA through the SBIR program, and ADA

has returned over $21 million in matching funds from commercial

industry.

In closing, I have three recommendations that I would like to

make. The first one is that the SBIR program has proven its success and requires no legislative changes. This highly competitive

program works efficiently. I believe talented technologists with the

will and commitment can use the SBIR program as it exists to prototype new ideas and attract funding to complete a commercial

product. I do not believe the fundamentals of the program should

be changed.

Second, the program should be extended at least 10 years. The

SBIR program has been dramatically successful meeting the goals

set by Congress. I firmly believe this will continue.

I expect two additional things to happen in the next few years.

First, a new round of companies and technology champions will be

created using the ever-increasing skills of the next generation of

graduates from our universities and colleges. Second, a transition

in ownership and leadership will occur in the companies already

participating in the program. The next 10 years will see many of

those companies now meeting the purposes of the program formulating and implementing successful transitions to a new round of

leaders.

Third and last, a national mentoring program should be put in

place. We need to reach out and get more businesses involved in

the SBIR program to keep it highly competitive and successful. In

my written testimony I speak to this in my story about SBIR Colorado, an organization that was operational in Colorado for 6 years.

Mentoring entrepreneurs in areas that may not be collocated with

a university or Federal laboratory will help achieve this goal.

Again, I want to thank you for the opportunity to offer this testimony; and I will be happy to entertain any questions that you

have.

Chairman BARTLETT. Thank you very much.

[Ms. Armstrong’s statement may be found in the appendix.]

Chairman BARTLETT. Dr. Haynes.

STATEMENT OF DR. JACQUELINE HAYNES, VICE PRESIDENT/

OWNER, INTELLIGENT AUTOMATION, INC.

Dr. JACQUELINE HAYNES. Good morning, Mr. Chairman and

members of the Subcommittee. My name is Jacqueline Haynes. I

am the owner of Intelligent Automation Incorporated, a small business located nearby in Montgomery County, Maryland. It is an

7

honor for me to address the Committee to discuss reauthorization

of the SBIR program.

I founded IAI with my husband, Leonard Haynes, 13 years ago,

using an extra bedroom in our home as our office. You can imagine

the DCAA auditor’s surprise when he showed up there for our first

audit. We have grown now to an organization of nearly 50 technical

staff, housed in an office building in Rockville, Maryland. We attract first-class engineers, computer scientists and social scientists

from as far away as Taneytown and Frederick, Maryland, to the

north and Springfield, Virginia, to the south. We also have small

offices in Arizona and Connecticut; and we currently have subcontractors and consultants located in 11 other states.

From its beginning, my business has grown through the SBIR

program. Our government clients have found us to be quality partners in their R&D programs, and I believe that this quality accounts for the success we have experienced in winning Phase I and

Phase II awards from many government agencies. And now we are

experiencing success in transitioning many of the technologies originating from our SBIR work into the commercial sector by either

licensing our technology or selling related products and services to

and through large firms such as Motorola, Ford, American Airlines,

Nichols Research and to law enforcement agencies throughout the

U.S. and in many foreign countries.

The SBIR program has been an engine of growth for us, and we

have been very successful in achieving the goals of the SBIR program. We have grown from doing $160,000 in business our first

year to a projected $6 million this year. We are an SBIR success

story, but it doesn’t end there. We reinvest nearly all the profits

of our SBIR-related work into continued R&D and commercializing

the technologies that we see have potential. Government agencies,

taxpayers and the Nation’s economy in general get a lot for their

money from our work.

Our business goal is to realize our profits from commercialization. SBIR funding is the means and the beginning, but not the

end. Our first year, about 95 percent of our business came from the

SBIR program. Now, approximately half our business is external to

the SBIR program.

In nearly every case our commercial business is the direct result

of the technology we developed through the SBIR program. It is important to understand that many of the greatest success stories

stemming from the SBIR program would never have seen the light

of day had they been solely dependent on venture capital and other

funding sources. My experience is that venture capital will not

fund creativity or innovative ideas if they don’t lead directly to a

near-term product. Good science takes time, and development takes

many attempts, and financiers often don’t understand that. The

SBIR program is one of the few players accessible to small businesses in supporting high-risk innovation and creativity. Yet this

is what leads to the new products that fuel our Nation’s competitive edge.

I would like to highlight now some of the major technological developments of my company that were made possible by the SBIR

program, first in the area of forensics imaging technology.

8

Based on SBIR-funded research, we have become a world leader

in forensics imaging technology. Over half the crime labs in the

United States and several foreign countries have our ballistics

analysis system called RotoScan. This work began through a Phase

I SBIR with BMDO where we developed a new type of neural net

called a Fuzzy CMAC which turns out to be very useful for image

analysis. We teamed with a company that is now part of Nichols

Research to use this approach for automating matching of bullets

retrieved from crime scenes to a data base of known gun signatures

left on bullets. The resulting RotoScan is now one part of the FBI’s

Drugfire system. We have sold over 110 RotoScan units that are located in crime labs throughout the U.S. and in many more foreign

countries. Now with additional SBIR, non-SBIR and private commercial investment, we are developing a three-dimensional version

of RotoScan which will yield major improvements in the technology

and the role that it can play in forensic science.

Also coming from our RotoScan success we received a contract,

a non-SBIR contract, from the Drug Enforcement Agency and Nichols Research to build and design PillScan, which is a similar device

for the forensic analysis of illegal and counterfeit drugs.

We have also done work in hexapod precision devices. Using

Phase I and Phase II SBIR funding from NSF to design a new class

of high-speed, high-precision machine tools based on a hexapodconfigured device called the Stewart Platform, we then transferred

the technology we developed to Ingersoll Milling Machines who

took a variant of this machine to market.

We then extended our technology in hexapod systems to a new

class of exercise and physical therapy machines. NASA has awarded us a Phase I and Phase II SBIR to use this hexapod technology

for a new type of exercise equipment for astronauts on board the

international space station. Our initial demonstration to NASA

should take place within a few months, and we now are engaged

in discussions with prospective home and health club exercise

equipment manufacturers.

We also work in the area of Internet technology. Here we began

developing personalized methods of using hyper-media to optimize

learning outcomes. Our unique approach—this lead to our unique

approach for Internet search and navigation tools.

Following SBIR-funded research, we developed a set of proprietary web tools and methods that has led us to build special-purpose web sites for government and commercial clients. Our technology uses an innovation we call the COOL link that personalizes

each person’s navigation through the web and is especially useful

for web-based education and training applications.

We are developing web sites and associated Internet technology

for clients such as American Airlines and the Census Monitoring

Board. We are using the same technologies to develop web-based

intelligent transportation system training programs for a regional

consortium.

From these few examples you can see that the SBIR program has

been very instrumental to our technological developments, our

product development, our entry into the marketplace and our

growth as a company. I know of other companies like mine that

have benefited from this program; and these, in turn, benefit the

9

Nation with the result of their work. The program has already

proven to be successful in achieving its goals of promoting innovation and scientific development, encouraging entrepreneurship and

giving government agencies a high-quality return on their R&D

funds.

Would I recommend reauthorization of the SBIR program? Of

course. It is good for my company, it is good for the government

agencies that participate, and it is good for the Nation. The success

of the program to date speaks to its structural integrity so that significant changes to it are likely to be more damaging than helpful.

Would I like the amount of the overall program to be increased?

Certainly I would. Would I like individual contract amounts to be

increased? Certainly I would—especially for Phase I.

In closing, I would like to reiterate my strong support for the

program. Two decades ago you may recall that America was falling

behind the Japanese and European countries in a number of key

technologies. Our competitiveness was in jeopardy. It was during

this time period that the legislation initiating the SBIR program

was first passed. I have no doubt that the SBIR program has

played an important role in the resurgence of our Nation’s technological prowess. Overall, the SBIR program is one that works for

my firm and for many like it. My strongest suggestion is to reauthorize the program for the next 10 years of innovation in small

businesses in America.

Thank you.

Chairman BARTLETT. Thank you very much.

[Dr. Haynes’ statement may be found in the appendix.]

Chairman BARTLETT. Dr. Larson.

STATEMENT OF DR. ARVID LARSON, CO-CHAIRMAN, AAES R&D

TASK FORCE

Dr. LARSON. Good morning, Mr. Chairman and member of the

Subcommittee.

My name is Arv Larson, and I am also the owner of a small business, but I am here today representing the American Association

of Engineering Societies. As you know, the AAES is a federation of

engineering societies dedicated to advancing the knowledge, understanding and practice of engineering. Its member societies represent more than 1 million engineers who work and practice in the

United States. Many of these are employed by small businesses.

I want to personally thank you for the opportunity to testify

today in support of reauthorizing the SBIR program. I was quite

privileged to be able to present my views in favor of this legislative

initiative in 1982 when I testified during SBIR’s first authorization

hearing. In the intervening years, the SBIR program has found

success far beyond what we initially envisioned. I am very pleased

to see that those results of the efforts of the early SBIR advocates

have proven beneficial. SBIR is now a thriving program providing

essential assistance to small entrepreneurial companies. The demonstrated success of this program cannot be challenged.

Mr. Chairman, my personal experience with the SBIR program

is extensive. I have been involved with the high-technology small

business community in both California and Virginia, and I have

seen the value of this program in action. I got involved with the

10

start-up of an entrepreneurial high-tech company in Sunnyvale,

California. We were very fortunate in the 1980s to receive nearly

a dozen SBIR Phase I and Phase II awards. From these we developed many products. We grew from a handful of entrepreneurs to

an employment base of over 75 engineers and staff in a period of

about 5 years.

More recently, while I was a research professor at George Mason

University in nearby Fairfax, Virginia, I was also Director of the

Small Business Programs. I was involved with over 100 small business high-technology companies in the Washington, D.C., area,

many of these located in our small business incubator program.

I worked with many of these small businesses in their development of proposals to receive Federal agency support through the

SBIR program. I saw how critical the Phase I and Phase II awards

were to the continuation of their entrepreneurial spirit. The relatively small investments made by the Federal government

through these SBIR program awards were often the key factor in

attracting venture capital and achieving business success. Due primarily to these SBIR awards, several of these firms were able to

attain the necessary critical mass of a viable product base and

technical staff. The SBIR program allowed these firms to become

thriving tax-paying businesses within the national capital area.

You have two of them here at the table with me.

As you know, the SBIR program was originally enacted in 1982

to increase the participation of small high-technology businesses in

the Federal research enterprise. You also know, of course, that, historically speaking, small businesses have provided greater innovation than larger companies. Unfortunately, these entrepreneurial

businesses often did not have the resources to access the myriad

number of research grant agencies within the Federal government.

For more than 15 years, the SBIR program has successfully assisted these businesses through achieving the underlying goals of

the program.

Mr. Chairman, I am pleased to report to you that, based on my

personal experience and those of other small business entrepreneurs that I deal with, the SBIR program is consistently meeting the goals of the originators of this program. SBIR is contributing to technology innovation. Agencies are utilizing small business to meet many of their research needs. In addition, the fruits

of this Federal research investment are being brought into the

marketplace via small business.

The National Science Foundation has conducted studies of their

own SBIR grant program. They have determined that since the inception of the program their investment of $350 million has accounted for nearly $2.7 billion in direct sales and more than 10,000

jobs created. That is a seven to one return on investment. As a taxpayer, I am very pleased to have the Federal government get that

kind of return on investment.

Another special focus of the SBIR program has been to provide

greater outreach to minority-owned small high-technology businesses, and I think also sitting here at the witness table are examples of that. Approximately 10 percent of all SBIR awards have

consistently gone to minority-owned companies. It is clear that minority-owned businesses are actively participating in the program

11

and thus have unparalleled access to the Federal research establishment.

Technology transferred from Federal research into the marketplace under this program has been and continues to be effective.

Ensuring that the fruits of Federal research are realized is vital to

our economic well-being. The Small Business Administration estimates that over 30 percent of Phase II projects result in viable

commercialized products or services.

I think the bottom line here, Mr. Chairman, that is that SBIR

is indeed a successful Federal program. I know that you and your

colleagues are as supportive of this program as I am. I look forward

to seeing the SBIR continue to foster innovative technologies that

will make the quality of life of all Americans better. Most importantly, SBIR will continue to strengthen our economy by providing

critically necessary innovation to allow us to compete in the competitive world marketplace and also provide high-technology employment opportunities to all of our citizens.

Thank you, Mr. Chairman. I would be happy to answer any questions.

[Dr. Larson’s statement may be found in the appendix.]

Chairman BARTLETT. Thank you all very much.

Let me now yield to Mr. Hill for any comments or questions that

he may have.

Mr. RICK HILL. Well, thank you, Mr. Chairman; and I want to

thank all the members of the panel for your testimony. It is very

valuable.

Let me say from the outset I am a strong, enthusiastic supporter

of this program. You will probably sense that in the questions.

One of the questions I have, however, is whether or not we have

got in place sufficient tools to make sure that a sufficient proportion of awards are going into rural areas.

I represent a rural State, as you all know; and we are trying to

build some infrastructure into the State of Montana to create the

benefits and opportunities that come from technology and the

transfer of technology. So I would just start—is it Behar?

Mr. BEHAR. Behar.

Mr. RICK HILL. Good guess, huh—and then just go across the

panel. Is the outreach program enough? Is it sufficiently funded

and are there other things that we should do, is my question.

Mr. BEHAR. Well, speaking from rural northern Virginia, I am

not the right person to answer your question. I would commend

any efforts to spread the SBIR program throughout the country. I

don’t believe that there is a monopoly on good ideas. But I confess,

Mr. Hill, that I am not much of an expert on the topic, so I will

yield to my colleagues.

Ms. ARMSTRONG. I have actually spent a fair amount of effort in

mentoring other companies in the State of Colorado; and Colorado

is perhaps an advantaged State because we have a lot of Federal

activity there, a legacy of the Eisenhower presidency, so we are

predisposed to success.

But I will tell you that the mentoring has been very successful

at getting others involved. In my written testimony I talked about

the level of effort that went in, and it was a group of volunteers,

and we did it all with only $10,000. I would tell you that there are

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mentoring things that could be done with a nationally funded program. I would also comment there is no better time to embark on

such an effort with the Internet and the ability to communicate at

long distance and virtually be beside each other.

Tek-Gear was placed in Jackson, Wyoming, because the lead

technologist on Tek-Gear who productized it lived there; and the effort was to have Tek-Gear run out of Jackson. The impediment to

doing that was Federal Express and the ability to get turnaround

on a one-day basis in Jackson, Wyoming. So there are limits to

what you can do in remote areas, but there is no reason that R&D

can’t be carried on in those areas. And mentoring and using the

support of people who know how to use the program and are willing to share that expertise with those individuals would be one way

to make it happen.

Mr. RICK HILL. I made note in your testimony about the issue

of mentoring. Obviously, you are talking about other companies as

well as university people.

Ms. ARMSTRONG. Absolutely.

Mr. RICK HILL. Do you think there should be some reference to

that in the reauthorization and, if so—I mean, obviously, you are

recommending some appropriation for that purpose. You think that

would be an important part of helping us move towards more success in rural areas for SBIR?

Ms. ARMSTRONG. I absolutely think that would be critical, and I

think it is a very right time for those dollars to make a significant

difference.

Mr. RICK HILL. Thank you, Doctor.

Dr. Haynes.

Dr. JACQUELINE HAYNES. Well, my suggestions—well, first one

comment that I have is that, to look at the impact of the SBIR program, you have to look down a level from the first-tier awards of

Phase I and Phase II that are made to companies like mine. I mentioned that we have subcontractors and consultants in 11 other

States. Over the course of our 13 years in business, I don’t think

we have had a subcontractor or consultant in Alaska or Hawaii,

but I think we probably have in almost every other State, including

Montana; and I think that is an important feature of small businesses and their need to network and partner with a whole lot of

expertise in areas that is outside that of their own immediate staff.

Secondly, I think that a mentoring program is a superb opportunity for SBIR companies like mine who have been successful to

work with other companies, with other individuals who are even

considering starting companies to kind of bring them into this way

of doing business.

For very small companies there is a financial burden to them

that they can’t really afford to do without some appropriation for

that that covers at least the direct expense part of that kind of program.

And the third thing that I would suggest is that there is—a lot

of the difficulty, a lot of the impediment to a start-up business in

becoming a Federal contractor is just knowing how to go about

doing that. If you are in a rural area, it is maybe not so easy to

call up your local DCAA audit office that is only a few miles away

and tell them that you would like to come over because you don’t

13

know if what you are doing is the right way to do it or not, and

you would like some help to make sure that it is, and if you are

in a rural area perhaps it is not so easy to do that.

But using the Internet you could build a lot of infrastructure that

would make a lot of that kind of support help available nationwide

to anyone who wanted to participate, who wanted to find out what

does an acceptable time sheet look like, what do I need to do for

some of these other kinds of things.

Mr. RICK HILL. Are you familiar with the outreach program that

we—I think the change we made I think in the last Congress and

we funded? Should the mentoring program in your judgment be

made part of that or should it be—the genesis of that coming from

the agencies that are contracting for research? Where do you think

the genesis for that should come?

Dr. JACQUELINE HAYNES. I think it should come from the agencies themselves. My experience is that some of the focus on the

kind of university and universities mentoring small businesses isn’t

always real successful. They don’t—the academics don’t always

kind of get it, what it is like to be in the marketplace.

Mr. RICK HILL. Thank you.

Dr. Larson.

Dr. LARSON. Well, I have to say that most of my personal experience comes from the rural areas of Santa Clara County, California,

and Fairfax, Virginia. But I have also had the opportunity to participate in the small business community of the national level, and

I know that most States have some form of a program to outreach

to the small business community in various ways, often through

the State university systems and incubators and various other endeavors at the local or State level.

Outreach by the agencies is possible. I think what my colleagues

have said on the panel is true—there are many impediments. The

further away you get from large metropolitan areas and large State

universities, the more difficult it is to deal with this. But I think

mentoring programs do exist.

I participated in a number of small business conference days

around the country speaking on the SBIR and other opportunities

such as the advanced technology programs with the Department of

Commerce, which has a similar sort of outreach problem. There are

many States and many congressional offices that have sponsored

these outreach programs and special activities.

I would like to say I also agree it should be done at the agency

level. I think each program and each agency is sufficiently different

that the special needs of the agency for specific research that they

need should be accommodated.

Mr. RICK HILL. Thank you. Thank you all very much.

Thank you, Mr. Chairman.

Chairman BARTLETT. Thank you very much.

This hearing is very meaningful to me personally. I didn’t hold

a prior political office. I didn’t even run for this office until I was

65 years old. So I obviously had a prior life. I have a Ph.D. in

science. I have 20 patents. I started and ran a small business. And

where was SBIR when I needed them back in the 1960s? It would

have been very helpful.

14

The first question I had—and one of the nice things about letting

others go first is that you have fewer questions to ask. The first

general question I had to ask was about national mentoring as

mentioned by Dr. Armstrong. And we have some rural areas in our

district, three counties in Appalachia, that desperately need more

input of this kind of capital. Since small business is more creative

than large business, since most of our patents come from small

businesses, clearly it is in our national security and in our national

economic interest to encourage the kinds of programs that SBIR

fosters. And so my first general question was going to be, how can

we get the word out?

I suspect that there are many, many entrepreneurs that don’t

even know that this program exists and don’t know that there is

this opportunity, and I think that that is a double loss. It is a loss

to all of those entrepreneurs who can more quickly develop their

businesses if they knew of this source of funding, and it is a major

loss to our country because we are now denied the products and

services that could be more quickly available or maybe they

wouldn’t be available at all to us without this source of capital. And

how can we get this word out more broadly?

You know, I don’t know if there has been any surveys about how

many small businesses in the technical areas even know that this

program exists. I would suspect that it is not a big percentage that

even know the program exists. How do we get the word out?

You mentioned the agency should be involved. They are very

comfortable working with the people they contract with already. It

is tough to get these people to add new contractors because they

are comfortable with the people they are working with. What role

could the Small Business Administration play in this?

Ms. ARMSTRONG. I would comment that two things that created

success in Colorado when we have held events and they have been

sponsored by various entities, Representative Skaggs sponsored

some, SBA has sponsored some, those people that are most well attended—there are two groups to which people are attracted. One

of those groups is other winners. They love to hear success stories.

So we need to get some mobility in terms of getting those stories

out to everyone. Because if you hear someone who has done it, it

makes it—it invigorates you to try even harder or exposes you to

something you haven’t heard of before. The two videotapes we created were disseminated widely in Colorado, and I think made a difference in the participation level throughout the state.

The second group of people that are very attractive speakers are

people from the venture capital or the monied community. People

will always go to see someone like that speak in an effort to think,

well, if I just had this money, I could get it here. So they are another group to involve in an outreach effort because they represent

another source of capital, and perhaps they could be brought in to

help with the process of getting the message out.

And I would also comment that big business doesn’t get it quite

yet, and they could have a role to play in an outreach function as

well if we can have them be better informed.

Chairman BARTLETT. Of course, our legislation requires that a

certain percentage of this money go to this program, and much of

15

that money goes through big business and to subcontractors. So

there is an incentive there.

Mr. Behar.

Mr. BEHAR. Mr. Chairman, I would like to second some of the

thoughts that have been aired by my colleagues here and add to

them. I am aware that the SBIR program has gone now on a ‘‘road

show,’’ if I may say, providing sessions about the SBIR program

and encouraging people to come to those. I would encourage NIH

to expand the ‘‘road show’’ as widely as possible and, of course, in

rural areas where we would like to see more energy going to.

The other one is probably the most obvious one, the Internet. I

mean, we are all converts to the Internet. Every time I seek out

government information I am, quite frankly, very impressed by the

abundance of information on government programs on the Internet,

and there is similarly high-quality information about the SBIR program.

However, I think it can be spiced up by some of the ideas that

Judith suggested earlier about success stories and have maybe

some of us be involved in adding to these Internet sites so as to

give us an opportunity to talk in the entrepreneur’s language. I

think the Internet is almost an ideal tool to bridge that gap of

knowledge and of geography.

I wanted to make a point here to Mr. Hill’s earlier question that

is somewhat relevant to this issue. Last Friday, my top-notch computer guy closed the door, and my heart sank. You know, any entrepreneur is aware of the feeling when you are very dependent on

a person what happens on a Friday when they close the door. And,

indeed, he told me that he and his wife had decided to move out

to a rural area. So I must confess that upon hearing this thing and

his commitment to stick with the company and its missions and

only to want to have a change of venue, I was so very grateful.

And, in fact, it is our contribution, if you want, to spicing up the

rural areas with the seeds of entrepreneurship.

There are two words to my morals. One is that we can spread

the knowledge along the line of mentoring, as was said before, but

the reality right now is that it is really not sinking in fast enough.

Second, that the Internet has created a new world, one where, you

know, virtual businesses can exist, where geography is not that important, and that we need to both foster it and use it in order to

deal with issues like the one you brought up, gaps of information,

gaps of geography, et cetera.

Chairman BARTLETT. Dr. Haynes.

Dr. JACQUELINE HAYNES. In speaking to some other small businesses who don’t participate in the SBIR program, one of the

things that I have come across frequently is their misunderstanding of a key feature of the SBIR program. They have said that

they don’t participate because they don’t want the government to

own the technology that they develop, and they don’t understand

that one of the key features of the SBIR program is that the rights

to the technology remain with the company that develops it.

And I think that a better information campaign along with better—information campaign about the program in general should be

very specific about that point and should—I think that there is

16

some element of the small business community that is not participating in this program for the wrong reason.

Chairman BARTLETT. Is that information not obvious on the web

site?

Dr. JACQUELINE HAYNES. It appears obvious to me, but when you

talk to people who perhaps have not gotten that piece of information, have not looked at the web site, have heard about it, maybe

they haven’t heard specifically about the SBIR program but their

understanding is if you do any business with the government, the

government owns everything. And they don’t understand that this

program is different, is very different in that respect.

Chairman BARTLETT. Historically, for government programs—

and I worked in the past on a lot of government programs in a lot

of different venues—the government did everything. Nineteen of

my 20 patents are government patents. But they had the wisdom

then to at least give the inventor commercial rights. The government kept what is called shop rights. They could use the invention

for any government purpose, not just the agency that helped you

patent it, but any other government agency could use it. But in the

commercial world the inventor had the commercial rights.

Now if that hadn’t been the case, I wouldn’t have had one Federal patent because I would have had zero incentive to do that.

And, you know, nobody other than the inventor is going to take the

initiative to get the thing patented. My supervisor didn’t know

enough about it or have an interest or anything to get the thing

patented. So this really was a very farsighted position on the part

of the government that I worked in. I worked with the Defense Department, and 19 of my 20 patents are Navy patents.

But there is this general perception that if you work for the government you don’t have any rights. They take them all. So this is

important. I guess we need to underscore that and put asterisks

around it so that it is highlighted.

Dr. Larson.

Dr. LARSON. Well, Mr. Chairman, I would like to second the remarks of all my colleagues here.

In response to your question on how we can improve the outreach and the information transfer, I think the present programs

that exist within a number of entities who are involved in this program on the Federal side, the State side, and the academic side,

are very effective. I think there are a portion of people who will not

participate in government programs—who don’t want to hear how

this program works—but I haven’t really run into many of those.

Once they understand the program, the information available is

pretty effective.

I think this information is available readily working through the

various government agencies that have SBIR programs, and with

the road shows that the SBA, many State governments, many

State universities and, as I said earlier, the congressional offices

have. I work with my own Congressman, Jim Moran, in his outreach to the small business community in northern Virginia, and

we really have large crowds.

They do like to hear success stories. They do like to hear how to

do it. They want practical information. They don’t want to spend

a lot of time learning about another government program. But this

17

is kind of a win-win situation. Most people when they do learn

about SBIR are quite pleased with the way it can be used to the

benefit of everyone.

Chairman BARTLETT. My particular interest, like Mr. Hill’s, is

rural areas. The second largest county geographically in Maryland

is Garrett County. It has 28,000 people, and we have double digit

unemployment. And there are a number of entrepreneurs there.

And I am just not sure that in the more urban areas and suburban

areas the communication lines are a whole lot more effective than

in the rural areas that Mr. Hill and I represent. He is the only representative from Montana. That is a big district. My district is the

biggest one in Maryland, but it is very small compared to his district.

Yes, Dr. Larson.

Dr. LARSON. Well, Mr. Chairman, I am sure you work with the

University of Maryland and their outreach program. I know they

concentrate more on Baltimore and the urban Washington-area

counties than possibly on rural Maryland.

Chairman BARTLETT. Well, we have Frostburg, which is a part

of the university system, Frostburg State University. They do a

good job. And we would like to see how the job can be done better.

Dr. LARSON. My experience in Virginia is with the Center of Innovative Technology. At the State level our administration has provided outreach to southwest Virginia, which is equally in Appalachia and has the same demographic characteristics as your counties. And I think it is fairly effective. They have a ‘‘bridge’’ program, as it is called, that tries to couple the high-tech community

in northern Virginia into southwest Virginia and build up partnerships with entrepreneurs in both areas. It seems to work.

I think it varies from State to State, but every State I know of

has some sort of outreach program.

Chairman BARTLETT. Mr. Hill, do you have a comment or question?

Mr. RICK HILL. I never hesitate to swap stories when we talk

about the size of my district. I have some counties there are larger

than the State of Maryland with fewer than a thousand people in

them. We are struggling just to make sure that they have access

to the Internet. So there are some interesting challenges.

If I could ask just one additional question, Mr. Chairman, one of

the things I noticed working with companies that have had SBIR

contracts, I think, Dr. Haynes, you talked about your company as

a think-tank company. You created a company with that purpose.

One of the things we seem to have some difficult is getting the

technology licensed into a successful entity in our State. We want

the spin-off jobs as well, potential. And the question I would ask

would be two things.

One, is there any barrier that exists now in the way agencies

award these projects that create some sort of a barrier to commercialization or in any way? And if we could identify that. And then

the next, are there any elements of this that would create a barrier

to access to venture capital, would be the other question that I

would ask. And then I guess the next question is, is it realistic to

expect that the people who are contracting, doing SBIR projects,

18

really do want to run commercial entities or really are they more

interested in just doing research?

If it would be possible for any one of you to address those three

questions.

Dr. JACQUELINE HAYNES. Let me start. Just in answer to your

question—let me start with your last question first.

Mr. RICK HILL. All right. Any order.

Dr. JACQUELINE HAYNES. I think a company, an entrepreneurial

company wants to have the commercial opportunities that the technology that they develop affords, if for no other reason than strictly

for financial reasons. There are far greater profits than there are

in the maybe 6.5 or 7 percent that maybe you can squeeze out of

governmental R&D contract. So there is certainly a strong financial

incentive for doing that.

On the other hand, when you have a company with a group of

people whose primary culture is science, research, engineering, theory, those kinds of things, they don’t—those people don’t suddenly

complete a project and become businessmen and women. They do

what they do.

So what you need is a company that can then grow to accommodate the commercial side of your business while you maintain this

robust R&D environment. And having both of those things going on

simultaneously in the business—in the size business that our company is evolving into now is a very exciting thing, very challenging.

Because the concerns of R&D and science and the concerns of entrepreneurship and business, commercialization are related but not

the same.

That is one of the reasons that part of our approach has been to

team with big companies that do the marketing, that—I mean,

their expertise, where their forte is, is not in the R&D. It is on the

commercial side. And those partnerships have been very successful

for us maintaining kind of our core business for what we are good

at doing, partnering with other people who are really good at what

they are doing, and all of us benefiting from that kind of expertise.

That is kind of how it has worked out best for us, I guess.

He talked about access to venture capital. I think the program

as it is provides—does not provide a disincentive to venture capitalists when venture capitalists understand what the program is. And

there again, just as an example, one of our products in the educational area we took to a major educational publisher in New

York, and we talked to them about it. And their first reaction was,

we don’t do anything with the government. We don’t have any relationship with the Federal government. We don’t want to have any

relationship with the Federal government. We are not interested in

a project that involves anything to do with the Federal government.

They clearly didn’t understand the nature of the program, that

Federal government doesn’t have their hands in the product. They

were kind enough to support their research and wise enough to

support their research, but the product is a spin-off from that and

independent. It is very difficult to convince people of that at times.

Mr. RICK HILL. Thank you. Thank you, Mr. Chairman, also for

indulging me on another question. Thank you very much.

Chairman BARTLETT. Thank you very much. Hearings like this

are a pleasure. Frequently our hearings are looking at programs

19

that have major problems. There have been two GAO reviews of

this program. Both of them have been very positive reviews.

I wanted to turn for just a moment to your recommendations,

which is a prime reason for our hearings. I have jotted down the

recommendations as I read your testimony and as you talked.

Dr. Behar recommended that we increase the funding for Phase

I; and that was also repeated by Dr. Haynes, that we could probably use more funding in Phase I. Now one of you noted that in

some of the particularly complicated high-tech areas that more

funding was needed, but it wasn’t true across the board. We may

need help in crafting language—what we don’t want to do is set up

a program where everybody automatically gets $175,000 for Phase

I. We would like the award to be commensurate with the challenge.

So we may need help in doing that. The $750,000 for Phase II is

adequate. Nobody questioned that.

The 2.5 percent, the overall amount of money in the program, at

least one of you mentioned you would like to see more money. I

would like to see as much money as can be profitably used. I

worked for big business, I worked for IBM, I worked for the government, I worked for universities, and I will tell you, you get more

mileage for your dollar in universities. That is because you have

slave labor there. Those of us who have Ph.D.s understand that.

The next, small business, I think you get better payoff on your

dollar invested than you do in big business. So I have no problem

in supporting increasing, if it could be profitably used, the 2.5 percent. I just think that the Federal government—and the taxpayer,

ultimately, because it is the taxpayer’s money will get better mileage for that. All of you who made recommendations suggested that

we extend it for another 10 years, and that if it ain’t broke, don’t

fix it.

Dr. Armstrong said that we didn’t need any changes in the program, and I think that changing just for the sake of change could

be counterproductive. I think it was Dr. Larson who mentioned

that it could be counterproductive doing that.

Dr. Behar, you market an aid to help people stop smoking.

Mr. BEHAR. That is correct, sir.

Chairman BARTLETT. I wonder how often you have thought about

some of the inconsistencies in our society. The taxpayers help you

develop the technology for that device through an SBIR contract.

Those same taxpayers through government programs support the

growth of tobacco. And that those same taxpayers, through their

elected representatives, permit the tobacco industry to advertise,

enticing more and more of our young people to begin smoking. I

know that the more people who smoke, the bigger your business

grows; but I suspect that you wish that you had fewer demands for

your product. How do we, as a society, deal with this?

Mr. BEHAR. Well, Mr. Chairman, this irony is one that I have

lived with for the last 16 years. Coming from the beautiful State

of Virginia, one that is known for a great deal of things including

the lowest tax on cigarettes of any State and a State that has committed minimal funds for tobacco control, I am especially or acutely

aware of this big contradiction.

As to the solutions, let me first allay any fears that we are going

out of business. As I indicated in my testimony, when I got first

20

in the business in 1994 there were 50 million people who smoked

and there are still 50 million people now. I recently read a research

that unless something really dramatically happens—and nobody

anticipates it—it is expected to be so until the year 2030. So I don’t

think any of our shareholders have got to be very fearful of our

business going away.

The flip side of this is what do we do as a society to control this.

The reality is this: About 6,000 kids attempt smoking each and

every day; 3,000 of them get hooked; and about 1,000 of them, as

we know, are likely to die from a smoking-related disease. This is

what is fueling the problem.

Now, unless we find the means of dealing with this issue, we will

forever have this 50 million problem to deal with; and I am very

pleased that one of the SBIR-funded grants has produced a product

which is a program that is designed especially for kids.

One of the issues that pertain to smoking and kids is that, unlike

the world of adults, where there is a plethora of products—I mean

the nicotine gums and patches and what have you. There is nothing like that for kids. In fact those products are not allowed to be

used by kids. And so, consequently, when kids try to quit—and it

is a myth that they don’t. Most of us adults think that kids think

that they will live forever, and they don’t try to quit. The fact is

that about 70 percent of them try to quit and try to quit repeatedly. And when they do so, they quit smoking cold turkey. Cold

turkey didn’t work for adults, and it is not going to work for kids.

So the answer lies here in redoubling our efforts in finding effective means to deal with prevention and to deal with cessation, and

I am very proud of fact that my company is engaged in both of

them.

Mr. Chairman, I can speak in great lengths about this topic, but

I would not like to monopolize this issue here, and will yield to my

colleagues.

Chairman BARTLETT. Well, thank you very much.

I carry a copy of the Constitution. I am very much aware of the

enormous safeguards that are assured us in the amendments, particularly the first 10 amendments, the Bill of Rights. But I would

tell you our forefathers never envisioned that you would have unbridled expression of those rights. You cannot yell ‘‘fire, fire’’ in a

crowded theater. You ought to be able to do that under the first

amendment right of free speech. But everybody understands that

you can’t yell ‘‘fire, fire’’ in a crowded theater if there isn’t any fire

because people may get hurt in their rush to the door.

Let me use that same logic, if I can’t yell ‘‘fire, fire’’ in a crowded

theater because I may get hurt trying to get out, then you can’t advertise cigarettes to my children because they are going to get hurt

if they smoke cigarettes. Now, I don’t think that is censorship. I

think that is sanity. But we are not there yet. Thank you very

much.

Dr. Armstrong, you mentioned that in your testimony, written

testimony, that you do some work with power stack scrubbers. Is

this physical equipment or software equipment?

Ms. ARMSTRONG. ADA is a very hands-on company, and we work

with full-scale equipment in power plants around the country constantly testing and prototyping technology on slipstreams from

21

those power plants. So we have hundreds of thousands of dollars

worth of equipment that we ship around the United States that do

testing. So we have people and we have equipment deployed in

many locations. The technology that we spun out was a flue gas

conditioning technology where we injected a spray into the stack to

change the properties of the stack gas. So it is real, physical, handon technology.

Chairman BARTLETT. You change the properties so that they are

more easily scrubbed?

Ms. ARMSTRONG. We changed the physical property of the ash so

it is more easily collected by the APC collection devices.

Chairman BARTLETT. That is what I mean by scrubbing. The device that you held in your hand, the Trekker, is that how you pronounce it? The Trekker device, this does what?

Ms. ARMSTRONG. It is a datalogger for high school science. It is

very simple to use. It will get students accustomed to using instrumentation to do science, as opposed to using a pencil and paper

and writing things down. It can connect to a computer MacIntosh

or PC, and they can learn to use spreadsheets to look at the quality

of the data. So it is really an education tool to teach students in

the high school, and we are moving it toward the middle school, the

skills that they need to have for the next generation of jobs.

Chairman BARTLETT. You mentioned also that you were developing science games.

Ms. ARMSTRONG. Um-hmm.

Chairman BARTLETT. That might compete with the violent games

that are being sold to our young people.

Ms. ARMSTRONG. That is very true. We have some funding from

NIH, and we are developing—and this is the entrepreneurship

piece—we have people who are developing those for educational

purposes, for the life sciences, to be used in the schools. The particular individuals doing it have developed successfully commercial

games. So at night they are taking what we are doing for NIH and

they are working to see if they can convert it into a commercial

game which will be to their personal benefit.

Chairman BARTLETT. I wish you all the luck with that.

The industry that tells us that all the filth and violence that they

immerse our kids in doesn’t affect the kids. It is the same industry

that tells the people who advertise on them that the public is really

going to be moved and changed by their advertising.

Now they can’t have it both ways. Either the advertising does no

good at all or, if it does what they claim it does for the people who

pay them for advertising, then our kids are affected by the filth

and violence that they see. So, you know, good luck with those

games.

Ms. ARMSTRONG. Thank you very much.

I will comment, my son graduated from Columbine High School,

so I appreciate your comments.

Chairman BARTLETT. That was my first comment when asked by

a reporter, did I have any thoughts of that? Yes, were you surprised? Our kids are immersed in a sea of filth and violence and

what those two boys acted out is what all of our kids see a dozen

times a day on television and movies and in their video games.

22

You know, the Bible says, by beholding you become changed. And

if our industry didn’t believe that, they wouldn’t be able to sell advertising. If they didn’t believe that the listeners by beholding their

advertising are going to be changed in their buying habits, they

wouldn’t be able to sell any advertising, would they?

You know, as I said before, this isn’t censorship, this is sanity;

and I don’t know how we get there because we aren’t there yet.

Dr. Haynes, I noted that you noted that you have employees from

Taneytown and Frederick. Our people have a good work ethic. I am

sure that they are some of your better employees.

Dr. JACQUELINE HAYNES. They definitely are.

Chairman BARTLETT. I was intrigued by your impulse radio that

doesn’t need the frequencies which are becoming crowded. And we

have a necessary intrusion of government into this industry because we have to share limited air waves. Just very briefly, how

does impulse radio work?

Dr. JACQUELINE HAYNES. Well, that is not part of my area of

technical expertise, but my husband is here, and that is part of his

technical area of expertise. So perhaps he can answer that question.

Chairman BARTLETT. I would be pleased.

Dr. LEONARD HAYNES. Thank you, Mr. Chairman.

Impulse radio was developed by a company called Time Domain

Corporation in Huntsville, Alabama. They have a number of patents. There has been a number of interests in other companies that

have started working in that area. Lawrence Livermore Laboratory

has also done work in that area. We became tied up with Time Domain Corporation via the SBIR program where we had proposed to

use that technology in some projects for the Army and the Air

Force. Those projects have gone along extremely well.

Now, to answer your specific question, most radio trans—all

radio transmission to date has been waves. We all hear radio

waves. A radio wave is a continuous thing.

Impulse radio no longer uses waves, it just uses impulses. It is

a pulse and then a little later a pulse and then, later than that,

a pulse. And if you create these pulses in the right way, they can

transmit information. So you are no longer transmitting waves, you

are just transmitting impulses.

If you say, well, what frequency is being transmitted, the best

answer, without going into a lot of technical detail, is all frequencies simultaneously are being transmitted. And if you say,

well, how did that work? Again, without going into great detail, because we can now build clocks, electronic clocks that are so very

accurate down to picoseconds, 10 to the minus 12 seconds, you can

now find these pulses in what is generally just noise.

The technology is quite outstanding in its potential. For example,

a typical cell phone like I have here has about a half hour of transmit time; and it is because when it is on and transmitting there

is continuous energy being transmitted, continuous waves. A cell

phone made of impulse radio would have a typical transmit time

of 500 hours. Why? Because it transmits this short pulse, and then

it doesn’t transmit anything for a long time. Then it transmits another pulse. By a long time, we mean a few microseconds that between pulses that are a nanosecond wide.

23

Chairman BARTLETT. It is like a strobe as compared to an ordinary floodlight.

Dr. LEONARD HAYNES. You can think of it that way, yeah. If you

had a strobe light sending out flashes and you sent them out in a

sequence and if you knew exactly when to look for the strobe, even

if it was a bright sunny day, if you knew exactly when to look, you

would be able to distinguish the strobes.

And there is a very touchy issue with the FAA and the FCC who

are denying the request to be able to produce these kind of radios

because, in theory, they transmit at all frequencies. So the first

question is, well, do they disturb anyone else? The answer is no.

In fact, we have done tests where we take a hair dryer and the energy out of the hair dryer is 20 times the energy out of these

pulses. But yet the FCC says, well, the hair dryer is accidentally

transmitting this radiation, your radios are intentionally transmitting them, so we are not going to authorize you. And that doesn’t

really make sense.

Next criticism is, well, if there were thousands of these radios,

maybe it would start interfering with things. Well, if you say—

Time Domain did an experiment where they put their transmitter

right in the same box as a GPS receiver, which is about the most

sensitive electronics, they operate at very low signal-to-noise ratios.

And it didn’t hurt the GPS receiver at all even though the transmitter, this impulse transmitter, was right in the same box. So,

anyway, over the next few years we will see—you can’t deny

progress. You can’t have laws that are contradictory to the realities

of physics and the need for more spectrum, and there will be more

concern over this.

I have just finished a proposal to the National Science Foundation to look at the basic mathematics of this. Because even the current mathematics are not adequate to deal with impulse radio.

What is the furia transform of a pulse? Well, it is all frequencies.

But the furia transform says they last for minus infinity to plus infinity in time.

Now we know that is not true. A pulse now, not going to still see

the effect of it a week from now. I mean, it doesn’t even make

sense. But yet that is the way—the traditional ways to deal with

radios and frequencies and things like that mathematics is based

on that.

Anyway, that is—I hope that is not too much of an answer.

Chairman BARTLETT. No, no, it is not too much. I come from a

science background, and I appreciate it.

We have a number of lights on the board. We will find out what

they mean. Because my beeper hasn’t gone off. It means we are in

recess.

Nature has been exploiting a similar capability of this for a long

time. A bat, for instance, in a forest of a million twittering leaves

can single out, with its echo ranging, a single insect and hone in

on it to catch it. And a porpoise, by echo location in the water, can

differentiate between a fake ham and a real ham simply by feeling

it with this echo ranging. So these are all pulse kinds of things

that nature has been exploiting, and this is an exciting new technology that we will watch with interest.

24

Dr. Larson, I noted with much interest that you were here at the

beginning, you testified, in 1982 when the program started; and I

think in your written testimony you said that it has exceeded your

fondest expectations.

Dr. LARSON. Yes. I worked with Roland Tibbetts from the National Science Foundation and Congressman Bedell and Senator

Rudman in the early 1980s to help create this program.

Chairman BARTLETT. You also mentioned NSF reviews of their

program which showed 11 successful returns. Have other agencies

done similar reviews? Or do we have only the GAO reports as an

overall assessment of these?

Dr. LARSON. The various GAO reports do look at it agency by

agency. I am not aware of other agencies that have done this, although they certainly may exist.

Chairman BARTLETT. Well, I want to thank all of you very much

for your testimony and your contribution, and we are just happy

that this hearing can focus on positive things, that we only need

to do a few things to improve the program, that we didn’t have any

major glitches that we have to correct. Let me thank this panel and

ask the next panel if they will take their places at the table. Thank

you very much.

We will welcome our second panel, Dr. Busch from Montana and

Mr. Daniel Hill, Assistant Administrator, Small Business Administration. We will have a chance with this panel to focus in more detail on some of the concerns that were raised in our first panel that

is about how do we involve more rural America in this program.

Welcome and thank you for coming to our hearing.

We will hear now from Dr. Busch.

STATEMENT OF MR. CHRIS W. BUSCH, RONAN, MONTANA

Mr. BUSCH. Thank you, Mr. Chairman. Thank you for the opportunity to testify at this hearing about the SBIR program. I have

strong convictions about its merits based on my experience with it

as a small business person and currently as an agent of SBIR outreach in the northern Rocky Mountain States, primarily Montana

and Wyoming.

My SBIR outreach work aims to help small businesses with all

aspects of the SBIR competition process. The SBIR program is

highly competitive, and I believe this is a key factor in the success

of the program. We must protect this characteristic as we go forward.

Rural States have a special need for the technology-based businesses enabled by the SBIR program. These businesses provide for

future economic growth, offer high-quality job opportunities for

young people and university graduates and help retain intellectual

resources within these States. Indeed, this process is already working in Montana and Wyoming and other rural States through SBIR

program awards.

Historically, rural State small businesses have not fared well in

the SBIR competition process. I believe we need to do a better job

of promoting the SBIR program in these States. It continues to surprise me how many high-quality candidate businesses we find who

have not yet heard about the SBIR program opportunity. Effective

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SBIR outreach will engage these businesses and break down real

barriers to SBIR competition in rural States.

During the past 3 years, I have participated in an aggressive and

exciting SBIR outreach program in Wyoming called the Wyoming

SBIR Initiative. Our activities include workshops, one on one monitoring, written communications, networking opportunities and a socalled Phase 0 program to help enable successful competition.

We are very pleased and proud of the results obtained with the

Wyoming SBIR Initiative. The number of annual Phase I awards

has increased from three in 1995 to five in 1997 to 11 so far in calendar year 1999. We believe this is conclusive evidence that effective SBIR outreach does work. But there is much more work to be

done in Wyoming, and our outreach work must continue. A similar

program is getting under way in Montana, where we will focus our

energies on a highly effective SBIR outreach program.

The SBA Office of Technology, under the leadership of Dan Hill,

presently is implementing an SBIR outreach program for States

that underperform in the SBIR competition. I believe it is very important that the SBA outreach program be continued and that the

funding for it be increased.

Federal SBIR agency personnel are vital partners in effective

SBIR outreach. Examples of key activities include participation in

SBIR conferences and workshops, site visits to SBIR winner facilities and commercialization assistance.

We must ensure that Federal agency representatives have necessary resources to adequately support effective SBIR outreach.

At the National Science Foundation, the EPSCoR program office

provides funding for high-quality SBIR proposals from EPSCoR

States that fall below the so-called pay line that the NSF SBIR program provides. In this way, high-quality proposals from these

States are funded that otherwise would not be. This gives small

businesses from these States a second chance to win and helps

them over the initial barrier of capturing their first SBIR award.

I suggest that other agency SBIR programs consider an initiative

similar to this.

I would like to offer five recommendations for your consideration.

First, give highest priority to reauthorization in this session of

Congress of the SBIR program essentially as it exists.

Second, continue and expand the SBA SBIR outreach program.

I believe it is very important to keep this program competitive to

ensure that effective SBIR outreach is provided as a result.

Third, allocate a portion of the SBIR program funds at each of

the 10 participating agencies for SBIR outreach and assistance. A

major part of these resources should be used in underperforming

States, including rural States.

Fourth, I encourage that the mechanism used by NSF to fund

the high-quality proposal from underperforming States be considered by other agencies.

And, finally, I think it important to establish a uniform and consistent method for agencies to calculate their extramural budget in

determining their SBIR allocations.

Thank you very much.

[Mr. Busch’s statement may be found in the appendix.]

Chairman BARTLETT. Thank you very much.

26

Mr. Hill.

STATEMENT OF MR. DANIEL HILL, ASSISTANT ADMINISTRATOR, OFFICE OF TECHNOLOGY, SMALL BUSINESS ADMINISTRATION

Mr. DANIEL HILL. Thank you, Mr. Chairman. It is a pleasure and

an honor to appear again before you on this very valuable program.

I am happy to be here, and good morning. And it is good to see

Congressman Hill again. We were just in Montana together recently on an SBIR outreach program.

Thank you for inviting me to appear before you today to discuss

the U.S. Small Businesses Administration’s Small Business Innovation Research program, otherwise knows as SBIR. My name is

Daniel Hill, and I am the Assistant Administrator for the Office of

Technology at the SBA.

The SBIR program was created in 1982 with the following objectives in mind: to strengthen the role of the small, innovative firms

in federally funded research and development and to utilize Federal research and development as a base for technological innovation to meet agency needs and to contribute to the growth and the

strength of the Nation’s economy.

Recent data from the National Science Foundation provide evidence that the small business role in innovation and the economy

is likely to increase in the future. As we know, our economy is increasingly knowledge-based, where future competitiveness is determined by the quality of the human resource base of technically

trained and skilled personnel. NSF data show that the human resource base, the technical intellectual capital needed for future innovation, appears to be moving from large business to small business.

A recent NSF study concludes, and I quote, ‘‘the employment of

full-time equivalent research and development scientists and engineers rose almost twice as fast between 1995 and 1996 at small

companies as at larger ones, 18 percent versus 10 percent, according to a 1997 national survey of R&D-performing firms.’’ End of

quote.

This data show the trend continuing from 1997 to 1998 with a

14 percent increase for small firms and only a 6 percent change for

larger firms.

Another NSF study shows that as many recent college graduates

with degrees in science or engineering are entering small firms as

are entering large firms and that this amount far exceeds the number going into other institutions such as universities, non-profits,

or government. These data show that the SBIR program helps the

Federal procurement process focus on a sector of the economy with

a growing innovation capacity.

The 10 Federal agencies in the SBIR program have very different

research and development needs. Some seek the development of

new products or processes to meet their program needs. Others

focus more on building the research and science base in specific

fields. The SBIR program has resulted in high-quality research and

development for these agencies. The flexibility in the program design has enabled agencies to manage their programs to effectively

meet their mission objectives.

27

Most evaluations of the SBIR program to date have focused on

the success of participating firms in commercializing the results of

their R&D. For example, a 1992 study by the General Accounting

Office found that the program is showing success in Phase III—

commercialization activity—and that SBIR expenditures of $956

million over the period 1984 to 1987 had generated $471 million in

sales of new commercial products and $646 million in additional

development funding as of July, 1991.

Studies by the Department of Defense and the SBA, using the

same methodology as the GAO and applying it to all SBIR agencies, found that the average Phase II SBIR project over the period

1984 to 1993—funded at an average of about $500,000—had generated $955,000 in sales and attracted about $625,000 in additional, non-SBIR funding as of 1998.

A Harvard University study found that SBIR awardees grew significantly faster—whether measured by sales or employment—than

a matched set of firms over a 10-year period. This study found this

to be true in geographical areas that had existing considerable venture capital activity.

These analysts are quick to point out that any commercial success attributed to these projects adds value to the economy over

and above the research they performed for the agency.

By making R&D funds available to small innovative firms, the

SBIR program takes advantage of an underutilized economic and

social resource—the small, flexible, innovative firm. Such a firm is

willing to take the risk needed to transform a new idea into an innovation and to take that idea from the drawing board to the marketplace.

Studies and anecdotal evidence tell us that small firms have a

number of advantages over large firms when it comes to innovations, such as greater flexibility, closer contact with customers and

potential end-users, and a greater willingness to engage in highrisk R&D projects. These qualities have made small firms the leaders in industrial innovation, producing more innovations per employee and per dollar spent on R&D than larger firms. In fact,

large corporations in innovation-intensive industries try to achieve

some of the advantages of small firm organization through new

business models using semi-autonomous research and business

units.

Further evidence of the advantage of small innovative firms is

the important role being played by small start-up businesses in the

development of emerging high-tech industries such as biotechnology and information technologies.

But the many advantages and efficiencies of small innovative

firms are not fully realized in our economy because of the obstacles

they naturally face in raising capital.

Capital markets do not have the information needed to make sufficient investments in the high quality but risky small firm products that could lead to significant and socially beneficial innovations. The SBIR program funds those types of projects by providing

high-risk patient capital that is not otherwise available in the market.

The impact of the SBIR program goes well beyond the outcomes

of new product innovation and firm growth. At a recent symposium

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conducted by the National Academy of Sciences Board on Science,

Technology and Economic Policy, a team of researchers reported

their findings from extensive case studies of SBIR recipients. At

the day-long conference, the researchers reported finding a number

of examples of start-up firms that said they would not have started

their company at all if it had not been for the SBIR program. In

one study it was reported that fully half of the firms surveyed said

the existence of the SBIR program influenced their decision to start

the company.

In addition, a study has found that SBIR start-up firms have had

the effect of encouraging colleagues to seek funding to start other

firms. One-third of the firms in one case study said their SBIR experience had encouraged their colleagues to form their own innovation-oriented firms.

There are other indirect benefits of the SBIR program to the recipient firms. These indirect benefits include increasing staff skills,

retaining or hiring valuable researchers, increasing the credibility

and financial stability of the firm, enabling new collaborative arrangements with others and influencing other R&D activities of the

firm.

In summary, the SBIR program is working; and it is working

well. It is achieving its congressionally mandated goals.

I would like to, for the record, also state that a large part of the

SBIR’s program success is clearly due to the skill, dedication and

ingenuity of the program managers and the other Federal and

State officials administering the program. It has been my pleasure

to work with these officials. They are some of the best and brightest officials working in the government.

Many of them are here today; and, with your indulgence, Mr.

Chairman, I would like to recognize them publicly and thank them

on behalf of the administration. We have with us today—if they

would just stand and remain standing until I finish—Jon Baron

from the Department of Defense, who happens to be accompanied

and supported by his Mom today; Joanne Goodnight from the National Institutes of Health; Teresa Perez from the Department of

Defense; Carl Ray from NASA; Bob Norwood from NASA; Dr.

Charles Cleveland from the Department of Agriculture; Dr. Kesh

Narayanan from the National Science Foundation; Ritchie Coryell

from the National Science Foundation. And we are very fortunate.

We have two alumni: Sonny Kreitman, formerly with NIH; and

Carl Nelson, formerly with DOD.

Mr. Chairman, these are the very best career civil servants you

find in the government; and they are the ones who make this program work. Thank you all very much.

An important aspect of the program is its unique and flexible design. It enables each agency to fill its diverse set of needs and, at

the same time, reach a broad range of small businesses.

Credit must finally, however, go to the small businesses themselves who have performed so well in this program. We heard from

just four of the many, many successful small businesses; and we

heard of their risk-taking, their innovative approach, their ability

and creativity. They are the true stars of this program and to them

goes the real credit for the program. It enables the Federal government to keep pace with transformations in the economy while supVerDate 29-OCT-99 14:43 Nov 10, 1999 Jkt 010199 PO 00001 Frm 00031 Fmt 6633 Sfmt 6602 E:\HEARINGS\59746 txed01 PsN: txed01
29

porting a dynamic and innovative small business sector that will

be the foundation of the economy in the 21st century. We support,

as the administration supports, the continuation of this successful

program.

Thank you for inviting me to discuss the program with you, and

I will be happy to answer any questions you might have.

Chairman BARTLETT. Thank you very much for your testimony.

[Mr. Hill’s statement may be found in the appendix.]

Chairman BARTLETT. The previous bells were going into recess

and the present bells I think are coming back into session on the

floor. So we can continue with our hearing.

Mr. Hill, let me turn to you for our questions and comments.

Mr. RICK HILL. Thank you, Mr. Chairman; and it is nice to see

you again, Mr. Hill, Dr. Busch, and all those program directors. I

think almost all of those, if not all of those folks, were in Montana

just about 10 days ago or so I think; and it is good to see you here.

I don’t have a lot of questions for you, but let me just compliment

you on the work that you did there and the work that you are

doing, particularly you Dr. Busch, in Montana.

In your testimony, Dr. Busch, you made the comment about the

highly competitive nature of the program in keeping that as an element of the program. I presume what you are saying there is that

you don’t want to modify the program to have mandatory set-asides

for this purpose or the other purpose. I mean, this is quality

science and that is what we want to accomplish.

Mr. BUSCH. Yes, having been a small business person, as you

were, Congressman Hill, I love the competitive environment. I

think it is really a key cornerstone of the SBIR program, that it

has been so highly competitive over the years. I think the numbers

are roughly one in eight, on average, that is proposals accepted for

award. That is very competitive.

Only the highest-quality proposals are funded, and there are

many high-quality proposals that go unfunded. So I think it is really essential to keep that element in the program.

I think there has been a lot of discussion about mentoring and

outreach today. The whole purpose of that, as I see it, is to try to

level the playing field a bit for those who have some barriers not

present elsewhere so that they, too, can have an equal shot at this

competitive process.

Mr. RICK HILL. With respect to mentoring, do you have some specific recommendation there that we might do in the reauthorization

process to urge that along or do you have——

Mr. BUSCH. Well, I think the program, Congressman Hill, that

you, along with Senator Burns, helped push through last year as

part of the SBA authorization bill that I referred to earlier, and

that Dan Hill is now implementing at SBA is just an excellent

model.

Mr. RICK HILL. That is enough? I said, is that enough? That is

enough? No. That is a question.

Mr. BUSCH. I think it is a very good program. It is very lean, if

you talk to the State folks who are very anxious to compete if the

program. I do think the funds need to be increased.

I want to emphasize that that program should stay competitive.

Too many programs have gone noncompetitive, and their effectiveVerDate 29-OCT-99 14:43 Nov 10, 1999 Jkt 010199 PO 00001 Frm 00032 Fmt 6633 Sfmt 6602 E:\HEARINGS\59746 txed01 PsN: txed01
30

ness goes down with it. So I think that program should be very effective.

As I mentioned, the agencies have to be key partners in this outreach process. So that led to my recommendation that consideration for resources be provided to them that they can join with the

States in this outreach activity.

Some of the earlier witnesses suggested that the agency should

have primary responsibility for outreach. While I think they are a

key element, I think it would be a mistake not to have the States

take the lead in the SBIR outreach and buy into it through a

match requirement as is implemented in the current SBA SBIR

outreach program. The States have to want this, and they have to

pull this outreach wagon. Pushing it from the Federal side alone,

I am convinced, will not work.

Mr. RICK HILL. Mr. Hill, do the agencies just meet or do they

currently exceed the targeted levels, the percentage targeted levels?

Mr. DANIEL HILL. Let me preface this, when the SBIR program

was created in 1982, Senator Rudman in the report language urged

the agencies not to work to the rule. In other words, when the percentage was enacted back then it was very low and when it is increased, his fear was that research and development work that had

already gone on in small business would then decline and they

would only do up to the mark set under the SBIR program. And,

in fact, that is what has happened. They do work to the mark, and

they do make their intended budget marks as far as they report it

to us.

There is an ongoing debate and, as I have reported before and

the GAO has reported, as the various agencies develop their SBIR

funding limits or ceilings each year it turns out that each agency

does it a little differently. We have had many concerns about that

over the years at the SBA; and we have, working with the GAO

and with this Committee, tried to resolve those issues.

It is still an outstanding issue. Agencies are still, despite our best

efforts, calculating their budget in different ways and different

fashions. We have sent letters to the Chief Financial Officers at

each agency. We have asked for guidance from the GAO and the

committees. But this is still an outstanding issue.

Mr. RICK HILL. Is that something we ought to address in reauthorization here in the Congress?

Mr. DANIEL HILL. I am not sure it needs to be addressed by legislation, although it is beginning to appear that way. We have been

struggling with this for a number of years now. And we want you

to know, clearly, we don’t want more money than we are supposed

to have. I mean, we clearly would love to have 25 percent, not 2.5

percent. But, clearly, there needs to be a level playing field across

the agency lines.

Mr. RICK HILL. And does that also make the argument for that

Congress should perhaps consider increasing that percentage?

Mr. DANIEL HILL. At this point, I am not in a position representing the administration to urge you to do that. But there are

a lot of considerations that would fall into that thinking, yes.

Mr. RICK HILL. The other recommendations—increasing the level

for Phase I, do you think that—do you agree with the recommendations?

31

Mr. DANIEL HILL. Well, I would like to study that.

Currently, the agencies have the ability to do that on a case-bycase basis. I am aware of only one agency that is currently doing

that. I would be interested in looking at that. I agree with Chris

and what we heard on the earlier panel. The program ain’t broke.

Let’s not try and fix it.

There are a number of authorities vested in the SBA through the

issuance of our policy directives that gives me the latitude to investigate and rule on issues such as this, and I have favorably reviewed and approved requests to exceed the limits. I have also reviewed favorably requests when you are doing a Phase I at one

agency; you don’t need to repeat it at a different agency to stay in

the program.

So my view right now is, although I have heard today from the

witnesses, there is not a clamor or demand out there that has come

to me on this. I am certainly willing to look at it if demand seems

to rise. But, currently, we are handling it on a case-by-case basis;

and, in most cases, I am approving those requests.

Mr. RICK HILL. Thank you very much,

Mr. Hill.

I have some more questions, but I guess we have to go to the

floor. Is that correct?

Chairman BARTLETT. We will have to go to the floor in a few

minutes, and when we run out of time here we may submit additional questions to you to be answered for the record for both panels.

You mentioned Dr. Busch, that more funding was needed. Is that

just for the outreach rather than the whole program?

Mr. BUSCH. Yes, that is what I intended to convey.

Chairman BARTLETT. It is more funds for outreach.

You also mentioned something—I noted in your prepared testimony and you also mentioned it in your oral testimony—that we

needed to have some uniformity in calculating extramural budgets.

Do you think that some of the agencies are using calculations that

underestimate the amount of monies that this 2.5 percent are applied to?

Mr. BUSCH. I think it is quite generally accepted that many

agencies would like to reduce the SBIR set-aside if there was a way

to do so. And I think—I don’t have any hard evidence, but I believe

it is true that there are some actions which had the net result of

reducing the SBIR’s set-aside in some agencies.

Chairman BARTLETT. Is there something that we need to do in

reauthorization that would assure uniformity in computing the extramural budgets?

Mr. BUSCH. I am really not qualified to give an intelligent answer to that, Mr. Chairman. The April, 1998, GAO report spoke to

this issue; and Dan Hill is much more on top of that than I am.

I would defer to Mr. Hill.

Chairman BARTLETT. But if legislatively there is something we

could do there, it is probably something we ought to look at, in

your view.

Mr. BUSCH. If that is required, I would very much like to see it.

32

Chairman BARTLETT. Mr. Hill is shaking his head in assent, also.

So that is one thing we will ask the staff to look at in potential

changes in reauthorization.

Mr. Hill, you mentioned research goals, companies’ research

goals. Are you talking about basic research or are you talking

about the research in R&D?

Mr. DANIEL HILL. For small businesses, most of the work is in

applied R&D, not in basic research.

Chairman BARTLETT. So the research you are referring to is the

research in R&D.

As you know, our country, as a major industrialized country,

commits a smaller percentage of its GDP to basic research and to

R&D than any of our economic competitors. This ultimately will be

very hurtful in terms of economic competitiveness. If you don’t do

the basic research, you don’t have the R&D. If you don’t have the

R&D, you don’t have the products. My question is, could we help

in a small way to correct this deficiency in our country by increasing this percentage from 2.5? Because I think, almost by definition,

all of this money is going for R&D, is that not correct?

Mr. DANIEL HILL. There is a limit in the authorizing legislation

on the amount of basic research that may be performed by small

businesses under the SBIR, and we are not allowed to exceed that

limit. But certainly a rising tide would raise all boats.

I would like for the record to say that the SBA—in years past,

there has been this huge debate: Do we fund universities more? Do

we fund small businesses more? Do we fund big businesses more?

Our view at the SBA is that basic research and R&D research is

so important and critical to the economic development and sustained growth that we ought to be looking at all of them. And instead of arguing over who gets what piece of the pie we feel very

strongly that pie needs to be bigger. I couldn’t agree with you more.

Chairman BARTLETT. Essentially all of the money in the SBIR

program would go under the heading of R&D.

Mr. DANIEL HILL. No. There is a small percentage of it that is

allowed for basic research.

Chairman BARTLETT. Okay. But it all goes for basic research and

R&D, but most of it R&D.

Mr. DANIEL HILL. Yes.

Chairman BARTLETT. So if we were to increase the percentage,

that would then put more money in research and R&D, which we

really need to do. Because I think you understand and most of the

people in this area understand that, unless we do that, we will

have increasing future problems in economic competitiveness. Ultimately, it becomes a national security issue. Because unless we are

doing more basic research and more R&D, we will not continue to

have the world’s foremost military. So there are lots of reasons to

put more money in this area.

Mr. DANIEL HILL. Yes, sir.

Chairman BARTLETT. Mr. Hill, have you additional questions?

I want to thank both panels very much for your contribution; and

the Committee will be in adjournment.

[Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]

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