The Small Business Innovation Development Act of 1982 provided for a three-phase program. Phase I is intended to determine the scientific and technical merit and feasibility of a proposed research idea. Work in phase II further develops the idea, taking into consideration such things as the commercialization potential. Phase III generally involves the use of nonfederal funds for the commercial application of a technology or non-SBIR federal funds for continued R&D under government contracts. The Small Business Research and Development Enhancement Act of 1992 reauthorized the SBIR program through fiscal year 2000. The act emphasized the program’s goal of increasing private sector commercialization and provided for incremental increases in SBIR funding up to not less than 2.5 percent of agencies’ extramural R&D budgets by fiscal year 1997. Moreover, the act directed SBA to modify its policy directive to reflect an increase in funding for eligible small businesses, that is, businesses with 500 or fewer employees. This increased funding from $50,000 to $100,000 for phase I and from $500,000 to $750,000 for phase II, with adjustments once every 5 years for inflation and changes in the program. The agencies’ SBIR officials reported that they have adhered to the act’s requirement of not using SBIR funds to pay for the administrative costs of the program, such as salaries and support services used in processing awards. However, they added that the funding restriction has limited their ability to provide some needed administrative support. The program officials also believe that they are adhering to the statutory requirement to fund the program at 2.5 percent of agencies’ extramural research budget. Some of the officials expressed concern because they believe that agencies are using different interpretations of the “extramural budget” definition. This may lead to incorrect calculations of their extramural research budgets. For example, according to DOD’s SBIR program manager, all eight of DOD’s participating military departments and defense agencies that make up the SBIR program have differing views on what each considers an extramural activity and on the appropriate method for tracking extramural R&D obligations. As a result, the program and budget staff have not always agreed on the dollar amount designated as the extramural budget. Of the five agencies we reviewed, only two have recently audited their extramural R&D budgets. Both NSF and NASA conducted audits of their extramural R&D budgets in fiscal year 1997. DOD, DOE, and NIH have not conducted any audits of their extramural R&D budgets nor do they plan to conduct any audits in the near future. NSF’s audit, which was performed by its Inspector General, concluded that NSF was overestimating the size of its extramural R&D budget by including unallowable costs, such as education, training, and overhead. NSF estimated that these unallowable costs totaled over $100 million. The Inspector General’s audit report concluded that by excluding these “unallowables,” NSF will have reduced the funds available for the SBIR program by approximately $13 million over a 5-year period. Likewise, NASA has completed a survey of fiscal year 1995 budget data and is currently reviewing fiscal year 1996 data at its various field centers. NASA officials say this is an effort to (1) determine the amount spent on R&D and (2) categorize the R&D as either intramural or extramural activities. Most of the SBIR officials we interviewed believed that neither the application review process nor current funding cycles are having an adverse effect on award recipients’ financial status or their ability to commercialize their projects. Specifically, DOD, DOE, NSF, and NASA stated that their respective review processes and funding cycles have little to no adverse effect on the recipients’ financial status or the small companies’ ability to commercialize their technologies. Furthermore, NIH believes that having three funding cycles in each year has had a beneficial effect on applicants. SBIR officials did say that some recipients had said that any interruption in funding awards, for whatever reason, affects them negatively. One SBIR program manager stated that at DOD, most award recipients often have no way of paying their research teams during a funding gap. As a result, ongoing research may be delayed, and the “time-to-market”—that is the length of time from the point when research is completed to the point when the results of the research are commercialized—may be severely impaired, thus limiting a company’s commercial potential. As a result, most of the participating SBIR agencies have established special programs and/or processes in an effort to mitigate any adverse effect(s) caused by funding gaps. One such effort is the Fast Track Program, employed at DOD, whereby phase I award recipients who are able to attract third-party funding are given the highest priority in the processing of phase II awards. At DOE and NIH, phase I award recipients are allowed to submit phase II applications prior to the completion of phase I. NASA has established an electronic SBIR management system to reduce the total processing time for awards and is currently exploring the possibility of instituting a fast track program similar to that of DOD. The third phase of SBIR projects is expected to result in commercialization or a continuation of the project’s R&D. In 1991, we surveyed 2,090 phase II awards that had been made from 1984 through 1987 regarding their phase III activity. In 1996, DOD conducted its own survey, which closely followed our format. DOD’s survey included all 2,828 of DOD’s SBIR projects that received a phase II award from 1984 through 1992. While analyzing the response data from our 1991 survey, we found that approximately half of the phase II awards reported phase III activity (e.g., sales and additional funding) while the other half had no phase III activity. (See table 1.) Overall, 515 responses, or 35 percent, indicated that their projects had resulted in sales of products or processes, while 691, or 47 percent, had received additional developmental funding. Our analysis of DOD’s 1996 survey responses showed that phase III activity was occurring at similar rates to GAO’s survey. Our analysis of these responses showed that 765 projects, or 53 percent, reported that they were active in phase III at the time of the survey, while the other half did not report any phase III activity. The DOD respondents indicated that 442 awards, or 32 percent, had resulted in actual sales, while 588 reported the awards had resulted in additional developmental funding. Agencies are currently using various techniques to foster commercialization, although there is little or no empirical evidence suggesting how successful particular techniques have been. For example, in an attempt to get those companies with the greatest potential for commercial success to the marketplace sooner, DOD has instituted a Fast Track Program, whereby companies that are able to attract outside commitments/capital for their research during phase I are given higher priority in receiving a phase II award. The Fast Track Program not only helps speed these companies along this path but also helps them attract outside capital early and on better terms by allowing the companies to leverage SBIR funds. In 1996, for example, DOD’s Fast Track participants were able to attract $25 million in outside investment. Additionally, DOD, in conjunction with NSF and SBA, sponsors three national SBIR conferences annually. These conferences introduce small businesses to SBIR and assist SBIR participants in the preparation of SBIR proposals, business planning, strategic partnering, market research, the protection of intellectual property, and other skills needed for the successful development and commercialization of SBIR technologies. DOE’s Commercialization Assistance Program provides phase II award recipients with individualized assistance in preparing business plans and presentation materials to potential partners or investors. This program culminates in a Commercialization Opportunity Forum, which helps link SBIR phase II award recipients with potential partners and investors. NSF provides (1) its phase I award recipients with in-depth training on how to market to government agencies and (2) its phase I and II award recipients with instructional guides on how to commercialize their research. Similarly, NASA assists its SBIR participants through numerous workshops and forums that provide companies with information on how to expand their business. NASA also provides opportunities for SBIR companies to showcase their technologies to larger governmental and commercial audiences. Moreover, NASA has established an SBIR homepage on the Internet to help promote its SBIR technologies and SBIR firms and has utilized several of its publications as a way for SBIR companies to make their technologies known to broader audiences. Using SBA’s data, we identified phase I award recipients who had received 15 or more phase II awards in the preceding 5 years. On the basis of survey data from both GAO’s and DOD’s surveys, we compared the commercialization rates as well as the rates at which projects received additional developmental funding for these multiple-award recipients with the non-multiple-award recipients. This comparison of the phase III activity is summarized in table 2. This analysis shows that the multiple-award recipients and the non-multiple-award recipients are commercializing at comparable rates. According to both surveys, multiple-award recipients receive additional developmental funding at higher rates than the non-multiple-award recipients. However, the average levels of sales and additional developmental funding for the multiple-award recipients are lower than those for non-multiple-award recipients. When an agency funds research for a given solicitation topic where only one proposal was received, it may appear that there was a lack of competition. The majority of the SBIR officials we interviewed indicated that receiving a single proposal for a given solicitation topic is extremely rare. DOD reported that from 1992-96 there were only three instances when a single proposal was submitted for a given solicitation topic out of 30,000 proposals that were received for various solicitations.