Space Acquisitions: Challenges in Commercializing Technologies Developed under the Small Business Innovation Research Program
Published: 2010-11-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To be competitive in the global economy, the United States relies heavily on innovation through research and development (R&D). The Small Business Innovation Development Act of 1982 established the Small Business Innovation Research (SBIR) Program to stimulate technological innovation among small businesses. SBIR offers one avenue for introducing technological innovation in the Department of Defense (DOD) space sector. GAO was asked to assess (1) the extent to which DOD is utilizing the SBIR program to develop and transition space-related technologies; and (2) whether small businesses face challenges to participating in the space industrial base. To do this, GAO analyzed program documentation and DOD data on the SBIR program and interviewed key officials.
section_title: What GAO Found
paragraphs: DOD is working to commercialize space-related technologies under its SBIR program by transitioning these technologies into acquisition programs or the commercial sector, but has limited insight into the program's effectiveness. DOD has invested about 11 percent of its fiscal years 2005-2009 R&D funds through its SBIR program to address space-related technology needs. Also, DOD is soliciting more space-related research proposals from small businesses. For example, the number of space-related research requests submitted by the military services and DOD components has increased from less than 8 percent in 2005 to nearly 14 percent in 2009. Further, DOD has implemented a variety of programs and initiatives to increase the commercialization of SBIR technologies and has identified instances where it has transitioned space-related technologies into acquisition programs or the commercial sector. For example, a small business developed an aluminum ring that enables multiple payloads to attach to a single launch vehicle. However, DOD lacks complete commercialization data to determine the effectiveness of the program in transitioning space-related technologies into acquisition programs or the commercial sector. Of the nearly 500 space-related contracts awarded in fiscal years 2005 through 2009, DOD officials could not, for various reasons, identify the total number of technologies that transitioned into acquisition programs or the commercial sector. For example, there are inconsistencies in recording and defining commercialization. Further, there are challenges to executing the SBIR program that DOD officials acknowledge and are planning to address, such as the lack of overarching guidance for managing the DOD SBIR Program. Most stakeholders GAO spoke with in the space industrial base--DOD, prime contractors, and small-business officials--generally agreed that small businesses participating in the DOD SBIR program face difficulties transitioning their space-related technologies into acquisition programs or the commercial sector. Although GAO did not assess the validity of the concerns cited, stakeholders GAO spoke with identified challenges inherent to developing space technologies, challenges because of the SBIR program's administration, timing, and funding issues and other challenges related to participating in the DOD space acquisitions environment. For example, some small-business officials said that working in the space community is challenging because the technologies often require more expensive materials and testing than other technologies. They also mentioned that delayed contract awards and slow contract disbursements have caused financial hardships. Additionally, several small businesses cited concerns with safeguarding their intellectual property.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD consider collecting data on all SBIR technologies that transition into DOD acquisitions or the commercial sector and ensure these data are defined and recorded consistently; complete efforts to develop and issue SBIR program guidance; and review the challenges identified by stakeholders in this report to assess the extent to which there are improvements that could be made to address them. DOD partially concurred to collect data, and concurred to develop and issue guidance. DOD did not agree to review the challenges identified by stakeholders. GAO believes this recommendation remains valid.

section_title: Letter
paragraphs: To be competitive in the global economy, the United States relies heavily  on innovation through research and development (R&D). Recognizing the  potential of small businesses to be a source of significant innovation,  Congress enacted the Small Business Innovation Development Act of  1982. The act established the Small Business Innovation Research (SBIR)  Program to stimulate technological innovation, use small businesses to  meet federal R&D needs, foster and encourage participation by minority  and disadvantaged persons in technological innovation, and increase  private-sector commercialization of innovations derived from federal R&D.  The act provided for a three-phased program: Phase I to determine the  feasibility and scientific and technical merit of a proposed research idea;  Phase II to further develop the idea; and Phase III to continue research and  development, or commercialize the resulting product or process with no  further SBIR funding. Commercialization occurs when a Phase II product  or process transitions into a federal acquisition program or a commercial- sector product or service. Federal agencies that have budgets of at least  $100 million for research conducted by others, called extramural research,  are required to use 2.5 percent of these budgets to establish and operate an  SBIR program.
The Department of Defense’s (DOD) current space systems play an  increasingly important role in military operations; however, military space  acquisition programs over the past two decades have experienced  problems that have significantly increased costs and delayed schedules.  Moreover, the supplier base for space programs has consolidated to a  point where there are just a few prime contractors that compete for new  efforts. SBIR offers one avenue for introducing new ideas and  technological innovation in the DOD space sector. Other solutions that  have been proposed to help revitalize space acquisition include programs  such as DOD’s Operationally Responsive Space initiative, which focuses  on developing and launching smaller satellites in order to deliver  capability quicker, reduce technology challenges, and widen the field of  potential suppliers, as well as efforts focused on stabilizing requirements,  introducing incremental technology advancements to satellite  constellations, improving cost estimates, and strengthening program  management. There are also other types of programs within DOD that are  designed to increase small-business participation in major acquisitions.
DOD is seeking to stimulate ideas and innovation and gain access to  cutting-edge technology by offering opportunities to small businesses to  develop technological innovations. For space, this may be particularly  necessary since government space programs tend to introduce  technological advancements well before commercial space programs.  Additionally, DOD—in mission areas such as missile warning and space  surveillance—has requirements that do not exist in the commercial sector.  In these areas, DOD funds technology development and acquires specific  capabilities because they are not commercially available.
In this context, you requested that we determine (1) the extent to which  DOD is utilizing the SBIR program to develop and transition space-related  technologies to DOD acquisition programs or a commercial-sector product  or service; and (2) whether small businesses face challenges to  participating in the space industrial base.
To do this, we interviewed DOD officials from the Office of Small Business  Programs (OSBP) and military services and components, and analyzed  DOD data. We also interviewed 28 small businesses to obtain their  perspectives on whether challenges to participating in the space industrial  base exist. We identified the small businesses primarily through DOD’s  SBIR program Web site, a network of small aerospace companies in the  Los Angeles, California, area, and additional referrals by existing SBIR  companies. We did not verify the validity of the concerns or  recommendations cited by these officials and are not generalizing this  information to the entire space acquisition community or the DOD SBIR  program. We conducted this performance audit from August 2009 to  October 2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audits to  obtain sufficient appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. Additional details on our  objectives, scope and methodology are provided in appendix I.
subsections: section_title: Background
paragraphs: DOD received approximately $2.6 billion in funding for fiscal year 2009 to  research, develop, test, and evaluate (RDT&E) space systems. The Air  Force conducts the majority of the DOD space-related technology  development. DOD’s current portfolio of space systems comprises  satellites, ground-based systems, and associated terminals and receivers.  All of these systems are expected to play an increasingly important role in  military operations.
The bulk of major space system acquisitions in DOD’s space portfolio,  however, have experienced problems during the past two decades that  have delayed deployment and driven up cost. In our past work, we found  that satellite programs cost more than expected and took longer to  develop and launch than planned. We recently reported that estimated  costs for major space acquisition programs increased from initial  estimates of $11.4 billion to $22.4 billion for fiscal years 2008 through 2013,  and programs are facing potential capability gaps in areas such as  positioning, navigation, and timing; missile warning; communications; and  weather monitoring. Cost and schedule problems like these are commonly  tied to unstable requirements, weak investment practices, poorly executed  acquisition strategies, and immature technologies.
Our past work and studies on the defense industrial base indicate space  system acquisitions could benefit from a greater diversity of suppliers. A  2008 report for DOD states that over the past few decades, the space  industrial base has consolidated from over 50 suppliers in the early 1990s  to four prime contractors who now manage thousands of subcontractors  for DOD systems. According to a 2007 DOD study, the U.S. space industry  has had to adjust to declining demands in the areas of satellites and  launch, which has led to consolidation. We reported in 2008 that the  consolidation of numerous firms over two decades to a small number of  major space contractors has made it difficult for new suppliers to enter the  market.
Federal agencies with an annual extramural R&D budget of at least $100  million are required to establish and operate an SBIR program. The SBIR  program budget is computed as 2.5 percent of an individual agency’s  extramural R&D budget. Within DOD, each military service and DOD  component uses this percentage to determine its own SBIR budget. The  U.S. Small Business Administration (SBA) communicates federal SBIR  guidance through the SBIR Policy Directive and reports on the  implementation and operation of the SBIR program at 11 federal agencies.  DOD is the largest agency participating in the SBIR program, and DOD’s  fiscal year 2009 SBIR program budget was over $1.22 billion—more than  half of the entire fiscal year 2009 governmentwide SBIR program budget of  over $2 billion.
DOD’s Office of Small Business Programs (OSBP) oversees the DOD SBIR  program, develops DOD SBIR policy, annually collects reporting data from  each of the services and components, and oversees the topic-generation  and solicitation process. DOD generally relies on its military and defense  components to implement its SBIR program. The DOD SBIR program  comprises 12 services and components, of which the Air Force, Army,  Navy, Missile Defense Agency (MDA), and Defense Advanced Research  Projects Agency (DARPA) are the major services and components  contributing to the program (see fig. 1). The DOD SBIR program is  currently authorized through January 31, 2011.
The Small Business Innovation Development Act of 1982 required the SBA,  after consultation with certain agencies, to establish a policy directive for  the three-phase structure (see table 1) to include, among other things,  timing for receipt and review of proposals and funding guidelines.
The SBA recently raised the award limits for Phase I and Phase II  contracts, and the first DOD solicitation using the increased funding  limits for its SBIR program had a closing date for receipt of proposals of  June 2010. The SBA’s SBIR Policy Directive provides agencies the  discretion to make awards in amounts higher than the limits set forth in  the guidelines, and they must provide written explanation to the SBA for  these instances at the end of the year. Awards can be made to successful  applicants in the form of grants, contracts, or cooperative agreements.  DOD uses contracts to make awards.
Before Phase I of the award process, DOD develops research topics to  solicit R&D ideas that address critical technology needs of a DOD  program. Research topics are generated by DOD service and component  representatives—typically scientists and engineers—based on DOD  technology needs and are approved in a departmentwide review process.  The Director of Defense Research and Engineering, and a multiagency  integrated review team (IRT), review and approve the SBIR topics. DOD  announces SBIR project opportunities through three annual solicitations  for which small businesses can submit Phase I SBIR proposals to address  the research topics. Small businesses submit proposals electronically  through the DOD SBIR Electronic Submission Web site. DOD published  109 space-related topics throughout the 2009 fiscal year solicitation cycles.  After the solicitation’s closing date, proposals are evaluated, and source- selection and contract-award decisions are made. DOD invites small  businesses with promising technologies that have completed Phase I to  submit proposals for a Phase II contract. The Phase II award decision  considers, among other things, a proposal’s commercial potential.  Contracting officials and technical monitors are involved in the evaluation  and selection of SBIR proposals.
In Phase III, the SBIR technology is expected to transition into a DOD  acquisition program or into a commercial-sector product or service. We  have previously reported technologies in this phase of development  typically need to have customer “pull” into commercialization or entry  onto an acquisition program. However, SBIR technologies that  demonstrate significant potential for advancing capability or reducing cost  can be picked up by the commercial or government sector for further  development or use in an acquisition program in Phase II or III. In Phase  III, small businesses must find non-SBIR funding from acquisition  programs or private investors, or both, to produce or continue developing  their technology.
section_title: DOD Is Commercializing Space-Related SBIR Technologies but Lacks Complete Data on These Efforts
paragraphs: DOD is working to commercialize technologies under its space-related  SBIR program to deliver warfighter capabilities, but lacks complete data  on its commercialization efforts and therefore has limited insight into the  program’s effectiveness. DOD invests about 11 percent of its SBIR budget  in R&D and is soliciting more space-related research proposals from small  businesses. DOD has taken steps departmentwide and within individual  services and components to encourage the use of SBIR technologies and  to enhance activities and efforts that can increase the transition of those  technologies. DOD can document the results of its efforts with various  examples of space-related technologies it has transitioned for use by major  space-system acquisition programs. However, DOD currently lacks  complete data on the number of technologies commercialized and  therefore cannot determine the return on its space-related SBIR  investment. Further, there are challenges to executing the SBIR program  that DOD officials acknowledge the agency needs to address, such as the  lack of overarching guidance for the management of the DOD SBIR  Program.
section_title: DOD Is Using Its SBIR Program to Respond to Space Technology Needs
paragraphs: DOD is investing in R&D through its SBIR program to meet space-related  technology needs. Specifically, from 2005 through 2009, DOD invested  approximately 11 percent of its total SBIR budget on space-related Phase  I and II SBIR contract awards (see table 2).
DOD awarded 1,122 space-related Phase I SBIR awards and 501 space- related Phase II awards for fiscal years 2005-2009; both represent around  11 percent of total DOD Phase I and II SBIR awards for the same time  period. Of the roughly 500 Phase II space-related contracts, Air Force  officials could not identify how many received space-related Phase III  contracts. Table 3 identifies the number of Phase I and II contracts  awarded by DOD and those that were space-related for fiscal years 2005  through 2009.
The number of space-related Phase I research topics submitted by DOD  services and components has increased from less than 8 percent in 2005 to  nearly 14 percent in 2009 (see fig. 2). Topics are generated based on user  needs to fill technology gaps in DOD acquisition programs. According to  OSBP officials, DOD requires that at least 50 percent of SBIR topics are  endorsed by acquisition programs to increase the likelihood of  transitioning a technology into an acquisition program. Officials from the  Air Force’s Space and Missile Systems Center, which itself represents the  majority of DOD’s space-related technology development, said that almost  all of their topics are based on technology needs of space program offices.  DOD officials said the agency takes steps to clearly define program needs  throughout the topic-generation process so SBIR technologies are more  likely to align with DOD acquisition needs. We previously reported that  technologies are more apt to be successful in technology transition if they  are relevant, marketable, and gain product-line support from the  acquisition community.
section_title: DOD Has Implemented Efforts to Increase Commercialization
paragraphs: There are a variety of programs and initiatives within DOD designed to  increase the commercialization of SBIR technologies. Several are unique  to individual military services and agencies. Although these efforts are not  specific to space technology development, they are intended to accelerate  the commercialization of technologies through their transition into DOD  acquisition programs or commercial-sector products or services. DOD  officials described the following initiatives; however, we did not assess  their effectiveness.
Commercialization Pilot Program: The National Defense Authorization  Act for Fiscal Year 2006 authorized this program in 2006 under the  Secretary of Defense and the Secretary of each Military Department.  The  Act authorized the program to increase commercialization and accelerate  the fielding of capabilities by identifying and selecting projects that meet  high-priority requirements, and by formalizing collaboration among small  businesses, prime contractors, and DOD science and technology  acquisition communities.  But, according to DOD officials, it is too soon to  determine the results. DOD has provided support for the annual  conference on commercialization and issued memorandums to encourage  services and components to identify technologies with the greatest  potential, link science and technology with acquisition programs, and  leverage all available technology-development and transition tools and  mechanisms. The military services and DOD components have  implemented varying approaches to the program. The Air Force’s version  of the program emphasizes the involvement of DOD, prime contractors,  and small businesses and uses SBIR technology-transition plans to ensure  all parties sign an agreement to transition a technology. Air Force officials  believe their efforts under this program will increase technology  transition.
Missile Defense Agency (MDA) Technology Applications Program:  MDA implemented this program in 1986, which attempts to accelerate the  maturation and commercialization of small-business technologies by  leveraging the expertise of technology professionals and business experts.  This program is available to all SBIR contract awardees on a voluntary  basis, and assists small businesses in technology maturation and transition  for the life cycle of the technology. MDA uses non-SBIR funds to  administer this program.
Navy Transition Assistance Program: The Navy started this program  about 10 years ago to help small businesses understand and facilitate the  transition of their SBIR technologies. Under this program, consulting  services are offered to all small businesses with a Phase II award, free of  charge, by Dawnbreaker, an outside contractor that specializes in  acquisition support; market assessments and studies; and technology- readiness management. Dawnbreaker can provide consulting services with  small businesses for a 10-month period and provides information and tools  on technology transition, and helps small businesses develop marketing  tools. About 250 Phase II small businesses participate in this program, of  the 400 Phase II contracts awarded by the Navy annually.
Defense Advanced Research Projects Agency (DARPA) Transition  Support Pilot Program: DARPA developed a program to transition  innovative technologies to the most critical U.S. military end users as well  as within DARPA, civilian agencies, and in the private sector. DARPA  developed the program in collaboration with The Foundation for  Enterprise Development, a nonprofit organization that creates and  engages in research and education programs to inspire innovation and  entrepreneurship for solving problems of national and global importance.  DARPA offers the program to all small businesses with an active DARPA  SBIR Phase II contract. Small businesses that participate in the program  receive guidance and assistance from the Foundation for Enterprise  Development, in identifying and facilitating introductions to potential  collaborators, funding sources, and end users to expedite the transition of  promising technologies.
Army Technical Assistance Advocates: The Army initiated a network  to coordinate small businesses, research laboratories, and prime  contractors to increase Army SBIR technology transition and  commercialization success. The advocates provide technical assistance to  small businesses engaged in SBIR projects through a network of scientists  and engineers engaged in a wide range of technologies.
Air Force Commercialization Pilot Program Initiatives: These  initiatives include interactive technology interchange workshops, such as  “Industry Days,” that bring small businesses, prime contractors, and DOD  representatives together to discuss technology needs and partnering  opportunities. The partnering efforts are solidified by the signing of SBIR  technology-transition plans, or agreements between all of the interested  parties that state the terms for commercialization of a particular  technology. The Air Force also assigns transition agents to facilitate  collaboration and assist in technology transition. In our previous report,  we found that technology-transition agreements and product-line  relationship managers, with responsibilities similar to transition agents,  reflect best practices and are tools used by leading commercial companies  to aid in the transition of technologies to product development.
Other Initiatives: DOD established the Fast Track Program in fiscal year  1996 and the Phase II Enhancement Program in fiscal year 2000 to leverage  funds from outside investors and address funding gaps among SBIR  phases. Both programs are designed to encourage rapid transition of SBIR  R&D into commercialization and DOD acquisition programs. A small  business can apply to participate in the Fast Track Program during Phase  I, and the Enhancement Program in Phase II. Under the Fast Track  program, small businesses can potentially receive interim funding of  $30,000 to $50,000 in matching funds from non-SBIR sources to alleviate a  funding gap between Phase I and Phase II. Under the Enhancement  Program, a military service or DOD component can provide additional  Phase II funding that matches the investment funds the small business  obtains from non-SBIR sources. The Enhancement Program can extend an  existing Phase II contract for up to 1 year and match up to $500,000 of non- SBIR funds. DOD military services and DOD components can tailor the  implementation of these two programs to meet their own needs.
section_title: DOD Has Successfully Commercialized Some Space Technologies
paragraphs: DOD efforts have resulted in successful transitions that services and  components describe on a Web site that highlights successful transitions  to promote the SBIR program. Air Force officials described the  commercialization of some space-related technologies that range from  software training solutions to hardware that supports multiple payloads  aboard a single launch vehicle, and various DOD officials highlighted the  potential value of developing space-related technologies through the SBIR  program. The following examples are considered commercialization  success stories for technology transition.
Evolved Expendable Launch Vehicle Secondary Payload Adapter  (ESPA): The Air Force had a need for a low-cost launch capability to  launch smaller secondary satellites. To address this need, a small business,  through an SBIR contract, developed a standard adaptor to accommodate  several small satellites for the Evolved Expendable Launch Vehicles  (EELV) that will allow low-cost access to space for the small-satellite  community. The ESPA is an aluminum ring that attaches to a rocket and  has the capability to mount one primary satellite and up to six small  satellites, resulting in increased access to space by the small-satellite  community and decreased launch costs. The ESPA was successfully  demonstrated on Space Test Program-1 in March 2007. The Secretary of  the Air Force issued a policy in 2008 to make ESPA-hosted satellite  launches a routine operation starting no later than fiscal year 2012.
Standard Space Trainer (SST): DOD awarded a Phase III contract for  the SST in August 2008. The Air Force had a significant need for an  integrated simulation-based operator training and rehearsal capability for  satellite-system ground control, because future generations of military  satellites will be expected to use one common ground system to operate  multiple satellite constellations. The SST is a satellite-operator  instructional simulation that supports multiple satellite systems through  the use of a system similar to a video game console, increasing efficiencies  and potentially reducing training costs. The SST can be used to support  various types of training—independent qualification training, unit  qualification training, and crew training—and it supports instructional  simulations that mimic the behavior of common military satellites,  subsystems, space flight, orbital mechanics, and satellite operations.  Advantages of using the SST include flexible instructor control features,  increased instructor and student productivity, quick setup, and lower  training costs. For example, with this SBIR technology, an instructor can  monitor up to six students, provide targeted instruction to any student,  and alter the events during a scenario. In addition, according to officials  from the 533rd Training Squadron, the squadron that evaluated the SST,  required instructor manpower has been reduced significantly and student  evaluation productivity has increased dramatically as a result of the SST.
Low Shock Separation System (Lightband system): According to the  Air Force, vibration during the launch and satellite separation from the  rocket has caused government satellites to malfunction. Small satellites  are particularly susceptible to launch- and separation-related vibrations  because of the close proximity of sensors and instruments to the shock  source, necessitating a low-shock separation system. A small company  developed the Lightband system under SBIR contracts to provide a  capability that would reduce on-orbit failures. The Lightband system is the  first payload-separation system that generates significantly less vibration  during payload separation from the launch vehicle. According to the Air  Force, the Lightband system is 25 percent lighter, 50 percent smaller, 40  percent cheaper, and generates less than 5 percent of the vibration of  existing conventional separation systems, and it is estimated that this  SBIR technology could save spacecraft programs several million dollars in  life-cycle costs per spacecraft.
section_title: DOD Lacks Complete Data on Commercialization Efforts
paragraphs: According to DOD officials, DOD collects and maintains data on Phase I  and II of the SBIR contract process, but it does not have complete and  consistent data on Phase III. Various DOD officials stated that data are  hard to track and there are inconsistencies in recording and defining  commercialization. Further, DOD does not require the services and  components to track and report these data. As a result, DOD does not have  a complete picture of contract awards and does not know how effectively  it is commercializing SBIR technologies by transitioning them into a DOD  acquisition program or a commercial-sector product or service. Although a  2006 RAND study and a 2009 National Research Council study found that  DOD is to some extent achieving SBIR program goals, as stated in the  SBIR Policy Directive, the studies noted that DOD can not understand how  well the SBIR program is performing or if improvements are necessary  without complete commercialization data. Furthermore, we have  previously reported that complete, accurate, and timely government  contracting information is essential for tracking how public funds are  being spent governmentwide.
Of the roughly 500 Phase II space-related contracts awarded in fiscal year  2005 through 2009, DOD officials could not determine or specify the total  number of space-related Phase III contract awards. According to OSBP  officials, DOD does not require the services and components to track and  report Phase III award data, and DOD officials we spoke with explained  that it is hard to track the data because the two databases available for  tracking SBIR contract award data are limited in capturing all  commercialization activity. The databases were designed to track only  government and not commercial transactions. For example, the Federal  Procurement Data System–Next Generation database is used  departmentwide by contracting officials to track all DOD contract actions.  According to DOD officials, if a small business secures commercial-sector  funding for its Phase III SBIR project, that contract may not be captured in  this database because it only captures federal contract awards.  Subcontracts to prime contracts are not captured. Additionally, when  small businesses merge, change names, or are bought out by large  businesses, DOD contracting officials, who are responsible for entering  contract results in this database, lose sight of the transition of  technologies and are unable to input accurate information concerning the  outcome of SBIR projects. The Company Commercialization Report (CCR)  database, which is maintained by OSBP, contains historical contract  information for small business participating in the DOD SBIR program.  According to DOD officials, OSBP uses the commercialization database to  reconcile with data from the Federal Procurement Data System–Next  Generation database to prepare an annual report required by the SBA, but  the reporting of Phase III contract data by small businesses through the  commercialization database is voluntary and may not include all  commercialization actions. According to OSBP officials, DOD services and  components may be using different methods or approaches to quantify  their commercialization efforts.
In addition to the limitations with DOD databases and tracking  capabilities, we heard from several key DOD officials that the Phase III  data entered into the Federal Procurement Data System–Next Generation  database is not always entered consistently, and some services and  components have different definitions for Phase III. For example, some  SBIR contracting officials do not consistently include the SBIR contract- phase determination when they enter information into the database. We  previously reported that the definition of Phase III awards is not clearly  defined by the authorizing legislation and—as acknowledged by DOD  officials and a 2009 National Research Council study—agencies sometimes  differed on the meaning of “commercialization.” Also, as previously  noted, interpretation of SBIR policy can vary across DOD services and  components.
In our previous reports, while not specific to the SBIR program, we  highlighted long-standing data-collection and evaluation issues related to  the Federal Procurement Data System–Next Generation database. For  example, we previously reported on concerns regarding the timeliness,  accuracy, and ease of use of this federal database. Furthermore, although  we reported in 2009 that moving to electronic data submission improved  the accuracy and timeliness of data, we also reported that data in this  federal database remained inaccurate and that officials do not always  input required information into the database.
section_title: DOD Faces Challenges in Implementing the SBIR Program
paragraphs: DOD SBIR program officials acknowledge challenges in executing their  SBIR programs, including ongoing revisions to SBIR guidance and limited  resources. For example, DOD has issued SBIR program management  guidance to its services and components through more than 40  memorandums, including some supplemental e-mail guidance, over 17  years, rather than a comprehensive SBIR program manual or instruction  that encompasses all required policy and procedures. One Air Force  official said his office relied on a binder compiled with guidance his office  received over the years from DOD and did not know if it was complete. To  address this issue, OSBP recently established a working group to draft an  overarching DOD Directive that will delineate policy as well as  responsibilities and authorities under the SBIR program. The group will  work with contracting officials and program managers to determine the  best way to balance the need for standardization while maintaining  flexibility in executing the program. However, because the officials we  spoke with believe that any changes to the SBIR program, which is  currently authorized through January 31, 2011, could affect the content of  the DOD Directive, DOD officials suspended this effort until Congress  reauthorizes the program.
Military service and DOD component officials we interviewed stated they  have limited resources to manage the program because the SBIR Policy  Directive prohibits using SBIR funds to administer the program. For  example, Air Force officials noted that some systems engineers had to  split their time between SBIR responsibilities, including technical  oversight and other assigned responsibilities. Additionally, Army officials  said the Army’s Director of SBIR oversees over 600 SBIR contracts at any  given time, and they stated that SBIR resources—both funding and  personnel—are inadequate to manage the program. According to DOD,  OSBP are investigating methods to improve overall commercialization  results within the department, including the consideration of a policy for  more consistent resource allocations throughout the department.
To address these and other issues with managing the SBIR program, DOD  OSBP officials said they established an SBIR Improvement Working Group  in December 2008. The group drafted a report in December 2009 that  identified the top eight initiatives for the DOD SBIR program. According to  the DOD OSBP officials we interviewed, three of the eight initiatives have  already been accomplished: DOD has pursued legislative proposals to  allow a portion of SBIR funding for program management, reauthorized  the Commercialization Pilot Program so the services can continue to  utilize SBIR funds to implement the program, and clarified/improved  discretionary technical assistance rules. According to DOD officials, the  following initiatives are still in progress:    Develop and issue an overall DOD Directive for SBIR.    Establish a steering committee to work on improvements including  standardization of best practices.
Coordinate SBIR integration into acquisition strategies.    Evaluate quality of information in SBIR database.    Update the SBIR topic criteria and improve the review process.
section_title: Stakeholders Perceive That Small Businesses Face Challenges to Participating in the Space Industrial Base
paragraphs: Most stakeholders in the space industrial base that we spoke with—DOD,  prime contractors, and small businesses—generally agreed that small  businesses participating in the DOD SBIR program face difficulties  transitioning their space-related technologies into a DOD acquisition  program. Stakeholders we spoke with told us there are difficulties  inherent to the development of space technologies, challenges due to SBIR  program timing and funding parameters, and other challenges related to  participation in the DOD space acquisitions environment. All three groups  we interviewed offered suggestions for improving DOD’s SBIR program.  We did not verify validity of the concerns or recommendations cited by  these officials and are not generalizing this information to the entire space  acquisitions community or the DOD SBIR program; rather we present  common opinions and observations of only those individuals interviewed.
subsections: section_title: Difficulties Inherent in Developing Space Technologies
paragraphs: Stakeholders we spoke with in the space industrial base—DOD, prime  contractors, and small businesses—agreed that small businesses face  inherent challenges in developing space technologies. They agreed that  some small businesses have fewer in-house resources, limited DOD  contacts, and they find working in the space community unique and  challenging. Some of the difficulties they cited follow.
Harsh space environment: To meet DOD’s requirements to be flight- ready for the harsh space environment, technologies need more expensive  materials and testing in specialized facilities. For example, flight-ready  hardware for the space environment requires electronic components that  can withstand radiation from space-derived particles or nuclear  detonations. All three groups interviewed noted that small businesses  typically do not own the appropriate testing facilities, such as thermal  vacuum chambers, that are used for testing spacecraft or parts under a  simulated space environment and instead must rely on government,  university, or large-contractor testing facilities, which can be costly.  However, an official from one prime contractor said it offers a discount on  using its testing facilities to small businesses that subcontract with it  during Phase II of the SBIR program.
Sustaining operations through delays and cancellations: According  to a small-business official, DOD space and weapons acquisitions program  delays and cancellations can affect small businesses’ ability to stay in  business. Air Force officials agree that small companies can be at a greater  disadvantage than larger companies when space acquisition programs are  delayed or system development goals are far off into the future, because  some small companies that rely on a specific government contract may not  be able to stay in business if they have to wait too long to receive the  contract award. For example, Air Force officials stated that nine SBIR  contracts may have been canceled as a result of the cancellation of the  Transformational Satellite Communications System in fiscal year 2010.
Obtaining security clearances: Small business, DOD, and prime  contractor officials said small businesses’ participation in DOD space  acquisition programs may be inhibited by their lack of security clearances.  One small business said some small businesses are unable to learn enough  about potential projects that are deemed classified to submit a proposal,  because DOD provides limited information regarding project requirements  to those companies without security clearances. However, several small  businesses noted that because security clearances are costly, many are  unable to invest in security clearances without an assured contract award.  Moreover, one told us that the development time frames for SBIR  contracts are too short to apply for and receive top-secret clearances. In  addition, two of the three prime contractors we spoke with said that the  lack of a security clearance represents a major barrier for any small  business that aspires to participate in DOD space acquisition programs.    Forging relationships: Small businesses struggle to break through the  insular culture of space system acquisitions to develop working  relationships with DOD officials and prime contractors, according to all  three groups interviewed.
With DOD: According to small businesses we interviewed, it is  difficult to identify appropriate points of contact within DOD, and one  small business said that DOD consistently awards contracts to those  companies with whom it has previously worked, making it difficult for  new, small companies to develop similar relationships. Two small- business owners said access to the space acquisition community is  difficult because it is a cohesive network of space system developers.  Specifically, one of the small businesses noted that the domination of  the space industrial base by a few prime contractors prevents small- business participation because the prime contractors usually serve as  the lead integrators for space programs. Prime-contractor officials  acknowledged they have some of their own preferred suppliers. One  DOD official agreed that it is difficult for small businesses to forge new  relationships within the DOD space system acquisitions community  because it is difficult for DOD’s SBIR program officials to convince  program managers to consider SBIR technologies as potential  solutions for technology gaps as the solutions may not be the same as  those advocated by the prime contractors. In addition, he noted that  large prime contractors partner with many of the program managers  and advise them about acquisitions concerning new technologies—and  these prime contractors may see the SBIR program as a source of  competition.
With prime contractors: Officials from all the prime contractors we  spoke with generally agreed that small businesses face challenges in  working with prime contractors for several reasons. First, DOD does  not require prime contractors to work with small businesses to  commercialize their technologies. Two prime contractors suggested  that DOD could facilitate these working relationships by providing  incentives for larger contractors to work with SBIR companies.  Second, two of the three prime contractors interviewed indicated that  they would prefer to buy a small business with a promising technology,  rather than partner with the business in question, to maintain exclusive  rights to the technologies developed. Third, one prime contractor  noted that it prefers to use established subcontractors that have a  history of being reliable, are expected to be around in the future, and  are able to manufacture the volume of units requested. Despite the  challenges noted, all the prime contractors we spoke with have  developed initiatives for working with small businesses. For example,  one prime contractor established the position of a full-time SBIR  program manager in 2005 to provide information and guidance  regarding the government’s SBIR program to the entire small business  community, work with those leaders associated with research and  technology and technology integration regarding SBIR activities, and  release a bimonthly SBIR activity report.
Risk-averse space community: All three groups we interviewed said that  small businesses find it difficult to break into the DOD space system  acquisitions environment because the space community is risk averse— DOD officials see unproven companies as risky for expensive space  programs because any delays, problems with technologies, or other issues  have significant consequences. Various small businesses we spoke with  believe that program managers prefer to award space-related contracts to  large contractors, in whose quality, practices, and longevity they have  confidence. Air Force officials we spoke with agreed that most program  managers are risk averse to integrating technologies developed by small  businesses before they have been demonstrated for a space environment  because they are trying to meet cost, schedule, and performance goals. In  addition, an official claimed the ingrained belief that only large businesses  can handle the complexities of building major space systems, such as  satellites, constituted the largest obstacle faced by those officials  attempting to implement the SBIR program. Two prime contractors agreed  that the DOD space community is highly risk averse and consider small  business technologies risky investments—specifically, one noted that  technologies are perceived to be risky because of the uncertainty  associated with small businesses’ ability to remain in business over the  long development cycle of a space system.
section_title: Aspects of SBIR Program Administration, Timing, and Funding Impede Small Business Efforts
paragraphs: The three groups we interviewed—small businesses, DOD officials, and  prime contractors—described how SBIR program administration, timing,  and funding impede the efforts of small businesses developing space- related technologies to transition their technologies. The following reflects  the opinions of most of the interviewees.
Inexperienced contracting staff: Small-businesses and Air Force  officials we interviewed believe issues regarding SBIR contract awards  result from, in part, inexperienced contracting staff managing SBIR  contracts in DOD. Air Force officials we spoke with acknowledged that  the SBIR program is often used as a training ground for inexperienced  contracting staff because contract award size is relatively small and the  DOD’s SBIR program has a structured contract process in place. One  official noted that this practice can create problems for small companies,  because some of these inexperienced contracting officials may not  understand the intricacies of the SBIR program. Two small businesses we  spoke with indicated that they had experienced contract issuance delays  because inexperienced contracting staff managed their SBIR contracts.  Small businesses we spoke with said they experienced financial hardship  because they needed to retain employees or project teams while waiting  for contract awards. For example, one small business we spoke with noted  that it encountered a 9-month delay in the awarding of a contract after  receiving a notice of selection for a Phase II SBIR contract, and the delay  was almost devastating. Two small businesses suggested that DOD  expedite the contract-award process to limit the need for small businesses  to retain expensive technical staff prior to the start of any contract work.
Low funding limits: According to some small businesses and DOD  officials, low SBIR funding limits may hinder space technology  development because SBIR funding limits are not adequate to fulfill the  stringent level of testing required to qualify materials for space technology  development or to mature technologies to the degree required by DOD.  Prior to March 2010, when the SBA increased SBIR funding limits for  Phase I from $100,000 to $150,000 and for Phase II from $750,000 to  $1,000,000, funding limits had remained stagnant since 1992. For example,  one small-business official noted it was unrealistic to mature a technology  to the extent some space programs require within the SBIR funding limits.  Another small business said it had the opportunity to transition its  technology if it could effectively demonstrate the subsystem, but to do so,  it needed an advanced microcircuit that cost $750,000—as much as it  would receive for a typical Phase II contract award. DOD officials said a  small business typically needs additional funding to supplement its SBIR  Phase I and II contracts to be in a position to insert its technology into a  major space acquisition program. According to the SBA, DOD can award  SBIR contracts in amounts that are larger than the prescribed limits to  small businesses to help bridge the funding gap and mature their  technologies further, but DOD is required to report annually to the SBA  when it exceeds the funding limits. In addition, DOD implemented several  initiatives to stimulate additional investment in promising SBIR  technologies. For example, the Fast Track Program and Phase II  Enhancement funding utilizes matching funds from outside the SBIR  budget to help small businesses between phases of the SBIR program. One  DOD official suggested that DOD provide stable funding for space-related  SBIR technologies, because it is difficult to establish an effective  development plan for space acquisition programs when funding for space- related SBIR projects is unstable.
Contract award disbursement amount and timing: Two small- business officials said they experience financial hardships when contract  award disbursements are misaligned with initial costs incurred to develop  their technology. According to the small businesses we interviewed, if  disbursements do not adequately match the development needs of the  small business, the small business may need to use its own money for  hiring or delay development of the product until it receives the remainder  of the contract award. Further, they said the contract award disbursement  schedule and amounts vary across and within the DOD military services  and may not coincide with the development progress and test plans of the  small business. One small businesses we spoke with noted that a larger  contract award distribution allotment is particularly important at the  beginning of a contract, because it needs the funding to hire new staff and  begin development of the technology. Two small businesses suggested  DOD distribute SBIR funding up front, instead of in equal increments  throughout the contract period.
Synchronizing with the DOD acquisition timeline: According to small  businesses and DOD officials we interviewed, opportunities to transition  technologies are missed because the SBIR program timeline is not aligned  with the DOD acquisition timeline. DOD officials noted that opportunities  for the insertion of new technologies by means of on-ramps typically occur  when there is a new system acquisition or a system upgrade, but it may  take too long to develop an SBIR technology to address needs.  Furthermore, these opportunities are generally limited. Additionally,  inserting a technology at the right time can be difficult due to technology  freeze dates—the point at which no new technologies can be added—and  any SBIR technology in development would have to wait for the next  program upgrade.
section_title: Small Businesses Identified Other Challenges to Participating in the DOD Space System Acquisitions Environment
paragraphs: Small businesses participating in the SBIR program identified other  challenges they believe inhibit their ability to participate in DOD space  system and weapon acquisitions, such as the potential for the loss of  intellectual property and a lack of technology “pull” from DOD acquisition  programs. Some of these identified challenges follow.
Loss of proprietary information: Ten small businesses we interviewed  are reluctant to enter into partnerships with prime contractors out of  concern that they could lose their proprietary information through either  an infringement from prime contractors or a mishandling of proprietary  information by DOD program officials. The three prime contractors we  spoke with said they take intellectual property rights of small businesses  seriously, and they noted that specific procedures are in place to  safeguard intellectual property rights of small businesses, such as the  signing of nondisclosure agreements. A DOD official said that the fear of  losing proprietary information is a misperception on the part of small  businesses, because DOD services and components take steps to work  with and protect the small businesses’ intellectual property rights.  Additionally, the SBIR Policy Directive requires agencies to ensure SBIR  businesses’ proprietary information is protected. However, according to  five small businesses we interviewed, incidents have occurred in which  DOD officials appear to have shared proprietary information with prime  contractors. For example:    One small business we interviewed disclosed that DOD hired it to  teach several prime contractors how to recreate a specific infrared  technology it had developed so that the prime contractors could  evaluate the technology. Although the prime contractors signed  nondisclosure agreements that permitted them to use the technology  for evaluation but did not give them the right to sell the technology, the  small business said a DOD military service is currently procuring  systems from the prime contractors that incorporated the technology  they developed. The small business attempted to seek recourse against  the prime contractors but could not sustain the legal fees.
Another small business developed a system to enhance data, and  within 4 months of the successful use of the system in military  operations, the Air Force turned to a prime contractor to assess and  then expand upon the system to enable more users to access the  technology. The small business claims that the prime contractor would  not have been able to do this, however, without access to the small  business’ proprietary information; thus the small business believes that  the Air Force might have allowed the prime contractor to review  documents containing proprietary information during the prime  contractor’s initial assessment of the technology.
Limited technology “pull” from acquisition programs: The small  businesses we interviewed cited three reasons for the limited “pull”— identified need and support—for SBIR technologies: DOD segments may  solicit topics for SBIR technologies for which they have no validated  requirements, short tenure among DOD officials, and a lack of SBIR  knowledge and training for program managers.
According to three small businesses we interviewed, the research  ideas or SBIR topics are not created with a specific end-user or  acquisitions customer in mind, which can limit the likelihood of  insertion into DOD acquisition programs. One small business claimed  that the DOD research laboratories use SBIR as a “sandbox” to  research interesting ideas, reducing the benefits of the program to the  warfighter. DOD officials told us, however, that at least 50 percent of  SBIR topic solicitations must be endorsed by acquisition programs.
Four small businesses we spoke with noted that short tenures among  DOD officials involved in developing SBIR technologies inhibits the  ability of small businesses to transition their technology because those  with decision-making authority may leave—and the interest in a  technology with them. For example, one small business told us that a  DOD service agreed to sponsor its technology for Fast Track funding  but did not follow through because of a turnover in staff and a change  in priorities. Another small business claimed that an official interested  in its technology transferred, leaving it without a sponsor. According  to DOD officials we spoke with, the network for sharing SBIR  information is fractured and informal, and the short tenure of program  managers can affect the effectiveness of informal sharing networks,  making it is less likely small businesses will have the contacts needed  to keep apprised of SBIR topics and technologies worked on by other  DOD services and components. DOD officials suggested that DOD  increase coordination efforts across services and components to share  information on small-business technology development efforts. DOD  officials we spoke with agreed that short tenure for program office  officials affects small businesses trying to transition technologies into  programs of interest, but one DOD official noted that small businesses  also have a responsibility to market their product to various program  offices and should not depend solely on technology “pull” by a  program office or official. Several GAO reports have indicated that  short program-manager tenure has hampered technology system  acquisitions, and some of the reports noted the need to extend  program-manager tenure as a way of increasing stability and  accountability on acquisition programs.
Two small businesses we interviewed said that program managers,  who are charged with planning and developing future and current  acquisitions, do not understand the value of using an SBIR technology  and therefore are less likely to consider it for insertion into an  acquisition program. A DOD official we spoke with who is involved  with the SBIR program agreed that some program officials lack a  thorough understanding of the SBIR program, but he noted that DOD  is currently developing training modules to address this concern. Two  small businesses suggested that DOD increase program manager  attention to SBIR technologies and improve their knowledge of SBIR  policies and contract award process.
section_title: Conclusions
paragraphs: DOD is using the SBIR program to provide opportunities for small  businesses to participate in the space industrial base. Its investment  should be matched with efforts to get the most return. However, data  needed to track commercialization success are limited. DOD is taking  steps to increase the transition of SBIR technologies into DOD acquisition  programs or commercial-sector products or services, and is addressing  management challenges through the development of an overarching DOD  SBIR directive and standardizing best practices. Despite these efforts,  challenges remain as DOD strives to improve the program. Moreover,  there are perceived challenges for small businesses, rooted in the costs  associated with spacecraft development, the administration of the SBIR  program, as well as reluctance on the part of prime contractors and  program managers to work with new, unproven companies. While there  are steps DOD can take that would offer improvements in the short run,  additional improvements may require more insight and longer-term  solutions.
section_title: Recommendations for Executive Action
paragraphs: We recommend the Secretary of Defense take the following three actions:  In the near term, consider collecting data on all SBIR technologies that  transition into DOD acquisitions or commercial-sector products or  services, as well as ensuring that these data are defined and recorded  consistently. By collecting and analyzing these data, DOD would have a  better understanding of its return on investment for space-related and  other technologies developed under the SBIR program, and how public  funds are being spent.
Complete efforts to develop and issue SBIR program guidance to ensure  DOD military service and component-level SBIR officials are managing the  program in a manner intended to meet the full intent of the SBIR Policy  Directive.  In the long term, examine the challenges offered by small businesses,  government officials, and prime-contractor officials in this report and  assess the extent to which there are cost-effective improvements that  could be made to address them. In doing so, DOD may want to compare  and contrast SBIR efforts among all the military services.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of Defense and the  office of the Administrator of the Small Business Administration (SBA).  Written comments from DOD and SBA are included in this report as  appendixes II and III, respectively.
DOD partially concurred with our recommendation that DOD, in the near  term, should consider collecting data on all SBIR technologies that  transition into DOD acquisitions or commercial-sector products or  services, as well as ensure that these data are defined and recorded  consistently. DOD agreed that collecting commercialization data on SBIR  technologies is beneficial and that it has systems to collect these data;  however, DOD also noted it would not be cost-effective to collect data on  government and commercial/private awards at the prime and lower tier  levels because DOD does not have the resources nor the responsibility to  capture all public and private data for the DOD program.
For DOD to have a better understanding of its return on investment for  commercializing space-related and other technologies, it must strengthen  its evaluation of the SBIR program.  To do this, DOD needs more complete  data as well as data that are consistently defined and recorded, as we  recommended.   While DOD noted that it collects commercialization data  in two ways—by requiring that proposing firms report prior SBIR  commercialization and through the Federal Procurement Data System— the data being reported are not always recorded consistently.  Improving  data collection efforts in these areas would substantially improve DOD’s  insight into the SBIR program’s effectiveness.  Regarding the collection of  commercialization data for firms no longer participating in the DOD SBIR  program, we recommended that DOD consider collecting this information.   This consideration would involve identifying the cost to capture these data  and identifying the benefit gained from better understanding the  investment.  If DOD determines that the collection of this information is  cost prohibitive, DOD should not be expected to collect it.  However, it  would still behoove DOD to assess the extent to which collecting this data  would be cost prohibitive against the potential value the data could bring  to increasing small business participation in space.
In its comments, SBA noted that it is developing a commercialization data  collection system that will capture public and private commercialization  results for firms re-applying for awards under the SBIR program. We  believe that SBA’s efforts to improve data collection and management of  SBIR data should ease the burden on DOD resources and costs to collect  comprehensive data.  While the SBA’s new data system will provide  programwide data, SBA stated that it encourages agencies to explore  agency-specific approaches to collecting and measuring  commercialization results. DOD did not address how it will ensure that  commercialization data are defined and recorded consistently within the  department.  We continue to believe that inconsistencies in recording and  defining Phase III data among the military services and components will  not give DOD a good sense of what benefits industry and government are  deriving from the SBIR program.  Improvements in data collection would  provide DOD with substantive data for evaluating its SBIR investment.
DOD agreed with our recommendation that the department complete  efforts to develop and issue SBIR program guidance to ensure military  service and component-level SBIR officials are managing the program in a  manner intended to meet the full intent of the SBIR Policy Directive. In  response, DOD stated that it suspended efforts on finalizing a DOD SBIR  Directive because of multiple delays in SBIR program reauthorization and  that draft legislation being proposed will create major changes to the  program that will significantly affect the content of the DOD SBIR  Directive. We acknowledge that the SBIR Directive may be significantly  changed. DOD commented that it intends to finalize the DOD Directive  within 180 days of issuance of the updated SBIR Policy Directive.
DOD did not concur with our recommendation that DOD should, in the  long term, examine the challenges offered by small businesses,  government officials, and prime contractor officials in this report and  assess the extent to which there are cost-effective improvements that  could be made to address them. DOD noted that it does not concur that  the individual challenges in our report should be assessed on an individual  basis and that many of the cited challenges are issues facing the entire  small-business community. DOD further noted that it addresses the  challenges faced by SBIR program participants through an SBIR steering  committee, working groups, conferences, and training workshops.  We do  not believe that our report focuses on individual concerns or challenges  but rather examines broader challenges that DOD may want to address in  the future. We acknowledge DOD’s broad-scale efforts to address issues  facing the entire small-business community. However, given the fact that  most stakeholders in the space industrial base that we spoke with—DOD,  prime contractors, and small businesses—generally agreed that small  businesses participating in the DOD SBIR program face difficulties  transitioning their space-related technologies into DOD acquisition  programs, it would still be in DOD’s best interest to assess the extent to  which there are cost-effective improvements that could be made to  address these difficulties. While we acknowledge that some of the  transition challenges may be faced by the entire SBIR community, others,  like the high cost of testing technologies so they are flight-ready for the  harsh space environment and the high cost of obtaining security  clearances that enable small businesses to submit classified proposals,  may be more prominent to SBIR companies working in the space sector.  To assist DOD with addressing the difficulties that SBIR companies state  they are having in transitioning their space-related technologies, we  continue to believe that DOD could look to the individual military services  for ways to overcome these difficulties.
The SBA commented that it is interested in following up on the concerns  expressed by small businesses regarding the safety of intellectual property  when working with the SBIR or DOD acquisition programs.  The SBA  stated that it is currently working to clarify SBIR data rights in its SBIR  Policy Directive.  The SBA is also working with the various SBIR agencies  on ways to provide further guidance to contracting officers who are new  to the program and to prevent lengthy delays between selection of the  awardees and funding agreement awards.
DOD also provided technical comments that have been incorporated  where appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and other interested parties. The  report also is available at no charge on the GAO Web site at  http://www.gao.gov.
If you have any questions about this report, please contact me at (202) 512- 4841 or chaplainc@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are provided in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the extent to which the Department of Defense (DOD) is  utilizing the Small Business Innovation Research (SBIR) Program to  develop and transition space-related technologies, we reviewed DOD  acquisition policies, memorandums, and other guidance concerning the  SBIR Program. We analyzed data and interviewed officials from the Office  of the Under Secretary of Defense for Acquisition, Technology, and  Logistics (AT&L)—specifically the Office of Small Business Programs  (OSBP), Small Business Administration (SBA), Army, Navy, Air Force,  Space and Missile Systems Center (SMC), Air Force Research Lab (AFRL),  Defense Advanced Research Projects Agency (DARPA), and the Missile  Defense Agency (MDA). We reviewed SBA policies, and SBIR success  stories. We also assessed the extent to which DOD is delivering space- related warfighter capabilities through the SBIR Program, by analyzing  data and interviewing officials from the Army, Navy, and Air Force, and we  attended conferences to identify small-business development  opportunities and determine steps DOD is taking to involve small  businesses.
We analyzed data from OSBP for fiscal years 2000 through 2009 to  determine the investment DOD makes in space-related SBIR Phase I and II  awards each year. To identify the space-related portion of total SBIR  investment, OSBP officials provided data from the Federal Procurement  Data System–Next Generation (FPDS-NG). FPDS-NG contains detailed  information on contract actions and identifies, among other data, the  contract types used by federal agencies in procuring goods and services.
Though we have previously reported that governmentwide FPDS-NG data  are incomplete and lack internal controls, FPDS-NG is the official federal  contracting database, and is therefore one of the systems DOD uses to  track its SBIR contracts; the second system is the Company  Commercialization Report (CCR) database, a system in which the  reporting of Phase III contracts by small businesses is voluntary. DOD’s  OSBP reconciles the CCR database with the FPDS-NG for its own annual  reporting requirement to the SBA. An OSBP official pulled space-related  SBIR contract information from the FPDS-NG database after we asked for  the data for our review. However, a DOD OSBP official told us that the  FPDS-NG database was not designed to extract space-related contract  data from its database. Using a keyword search query, OSBP officials  separated out all DOD SBIR efforts containing reference to “space  platforms,” for fiscal years 2005 through 2009, which they explained were  the best data available for identifying DOD’s space-related SBIR contracts.  These are the data we used to determine DOD’s space-related topics,  proposals, and investments for fiscal years 2005 through 2009. We did not  test the reliability of these data.
To identify challenges small companies face to participating in the space  industrial base, we interviewed 28 small businesses to obtain their  perspectives on existing challenges. We identified the small businesses  primarily through DOD’s SBIR program Web site, a network of small  aerospace companies in the Los Angeles, California, area, and additional  referrals by existing SBIR companies. Half of the SBIR companies  represented in our sample are located in California, which is where most  DOD space work takes place, while the remaining SBIR companies in our  sample are located in Colorado, New Mexico, Ohio, Virginia, Connecticut,  Massachusetts, and Washington, D.C. We contacted companies across all  three Phases of the SBIR award process. Our findings, conclusions, and  recommendations are limited by the evidence we have cited. We were  unable to make generalizable statements about the target population  because we conducted a nonprobability sample of interviews. We also  interviewed various space and other program managers at the Army, Navy,  Air Force, DARPA, and MDA to determine their views on existing  challenges. Further, we interviewed representatives from three prime  contractors currently working on DOD space acquisition programs to  identify the challenges they believe exist to small businesses in  participating in DOD space and weapon acquisitions. We attempted to  assess the commercialization success of space-related technologies  through the SBIR Program at DOD, but DOD does not have complete and  consistent commercialization data. We also reviewed studies and reports  on the overall SBIR Program, DOD’s SBIR Program, and the defense space  industrial base.
We conducted our work from August 2009 to October 2010 in accordance  with generally accepted government accounting standards. Those  standards require that we plan and perform the audits to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, key contributors to this report  were Art Gallegos, Assistant Director; Maria Durant; Claire Buck; Amanda  Jones; Morgan Delaney-Ramaker; Arturo Holguin; Sylvia Schatz; and  Nathan Pope.