GAO-01-766R Small Business Technology Transfer Program

United States General Accounting Office

Washington, DC 20548

June 4, 2001

The Honorable Christopher S. Bond

Chairman

The Honorable John F. Kerry

Ranking Member

Committee on Small Business

United States Senate

The Honorable Sherwood L. Boehlert

Chairman

The Honorable Ralph M. Hall

Ranking Minority Member

Committee on Science

House of Representatives

Subject: Federal Research and Development: Contributions to and Results of the

Small Business Technology Transfer Program

Research and development (R&D) are major factors in the growth and progress of

industry and the national economy. However, basic research performed by the

nation’s research institutions—universities and colleges, federal laboratories, and

nonprofit research centers—may not be translated into marketable technologies.

Small businesses have a well-earned reputation for bringing new ideas to the

marketplace but often lack the resources to carry out extensive R&D. In an effort to

join the ideas and resources of the research institutions with the commercialization

experience of small businesses, the Congress authorized the Small Business

Technology Transfer (STTR) Pilot Program in1992 and reauthorized it in fiscal year

1997. The STTR program is scheduled to expire in September 2001.

Five agencies participate in the program, including the departments of Defense and

Energy, and Health and Human Services’ National Institutes of Health, the National

Aeronautics and Space Administration, and the National Science Foundation. Each

agency manages its own program, while the Small Business Administration plays a

central administrative role, issuing policy directives and annual reports for the

program. The 1992 act authorizes each agency having an external R&D budget in
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excess of $1 billion annually to set aside not less than 0.15 percent of that budget for

the Program. Since the first grants became available in 1994, the STTR program has

awarded approximately $300 million to small businesses and research institutions to

foster R&D.

The 1992 act established a three-phase structure for the STTR program. The first

phase, not to exceed 1 year, is designed to determine the scientific, technical, and

commercial merit and feasibility of a proposed idea. Upon successful completion of

phase I, the second phase, not to exceed 2 years, is designed to further develop the

idea. The statute established $100,000 and $500,000 as the general funding limits for

phases I and II, respectively. The third phase, in general, is expected to result in

commercialization or further continuation of R&D. However, no STTR funding is

allowed for phase III. Additional developmental funding for phase III can include

private-sector funds and federal, non-STTR funds.

The STTR Program is closely modeled on the Small Business Innovation Research

(SBIR) Program, which was established in 1982. The two programs share the same

goals and other basic features, including participation by many of the same agencies,

the use of a percentage of the external budget for funding, and a three-phase

approach. The key difference is that under the STTR program, a small business must

partner with a nonprofit research institution. While this partnership is permitted

under the SBIR program, it is not mandatory. This special STTR requirement reflects

the fact that STTR was envisioned primarily as a technology transfer program, in

which promising concepts originating in the nonprofit research community would

move toward commercialization with the assistance of small businesses.

In preparation for the review and potential reauthorization of the STTR program, you

asked us to address several issues. As agreed with your offices, we identified

participating companies’ views on (1) the contributions that the companies and the

research institutions made to the R&D, (2) the results of the R&D, and (3) options for

the future relationship between the STTR and SBIR programs.

In conducting our work, we surveyed all 166 companies that had received 201 Phase

II STTR awards in fiscal years 1995 through 1997, the first 3 years when such awards

were made. We chose the earliest recipients because studies by experts on

technology development concluded that 5 to 9 years are needed for a company to

progress from a concept to a commercial product. Our results are based on

responses for 102 projects. See enclosure I for a copy of the questionnaire and the

aggregate responses.

The following summarizes our findings:

• For the 102 partnerships that we reviewed, the companies reported that

both the companies and the research institutions contributed

significantly to the R&D. For example, the companies believed that both

parties contributed significantly to the knowledge and/or expertise essential to

the project. Furthermore, they generally believed that both parties contributed

significantly in constructing or testing prototypes and in providing special

equipment or facilities. However, the companies reported that, in aggregate, the

companies played a substantially greater role in originating the key ideas for the
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R&D; in their view, they originated or were primarily responsible for originating

the key ideas in 72 percent of the projects.

• The companies reported a variety of results, including sales of a

product, process, or service, the receipt of additional developmental

funding, patents granted, and discontinuation of projects. As of April

2001, the companies reported about $132 million in total sales and about $53

million in additional developmental funding. About two-thirds of the projects

with reported sales achieved their first sale in 1999 or 2000 and projected about

$900 million in additional sales by December 31, 2005. The companies also

reported receiving 41 patents for the core technologies associated with their

projects and the creation of 12 spin-off companies. Twenty-seven projects were

discontinued. When asked to identify those factors that had a great role in the

decision to discontinue the project, companies most frequently cited insufficient

additional funding for further technical development.

• The companies reported a preference for maintaining the current

separation of the STTR and SBIR programs. For 96 percent of the projects

in our survey, the companies had also won an award under the SBIR program. In

this context we asked them to choose between four options for the future of the

STTR program in relation to the SBIR program: (1) preserve its current separation

from the SBIR program, (2) subsume it under the SBIR program with a portion of

funds reserved for STTR-type partnerships, (3) subsume it under the SBIR

program with no funds reserved for STTR-type partnerships, and (4) eliminate it

entirely. For approximately 50 percent of their projects, the companies preferred

the current separation of the STTR program from the SBIR program. Thirty-three

percent favored the second option, 19 percent the third option, and only 1 percent

supported the program’s elimination.

Scope and Methodology

We surveyed 166 companies that had received 201 Phase II STTR awards in fiscal

years 1995 through 1997, the first 3 years when such awards were made. We did not

include Phase II recipients from 1998 or later because, in most cases, they have not

had sufficient time to demonstrate Phase III activity. We received questionnaire

responses for 126 of the 201 projects. However, due to technical difficulties, we were

not able to include the results from 24 of the questionnaires that we received. Thus,

our results are based on 102 of the 201 projects. We did not survey the research

partners of these companies. The questionnaire contained specific questions on the

contributions to and results of the R&D for these awards. In addition, it identified

companies that had received both STTR and SBIR awards. Participation in both

programs enabled companies to choose among various options for the future of the

STTR program in relation to the SBIR program. We conducted our review from July

2000 to June 2001 in accordance with generally accepted government auditing

standards.

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As arranged with your offices, unless you publicly announce its contents earlier, we

plan no further distribution of this letter until 30 days after the date of this letter. At

that time, we will send copies to the Honorable John D. Whitmore, Acting

Administrator, Small Business Administration, and the heads of the other federal

agencies participating in the Small Business Technology Transfer Program. We will

also make copies available to others on request. The report will also be available on

GAO’s home page at http://www.gao.gov.

If you have any questions about this letter or need additional information, please call

me on (202) 512-3841 or Robin Nazzaro on (202) 512-6246. Key contributors to this

report were Dennis Carroll, Vondalee Hunt, and Lynn Musser.

Jim Wells

Director, Natural Resources

 and Environment

Enclosure
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