The Small Business Innovation Development Act of 1982, which authorized the Small Business Innovation Research (SBIR) program, emphasizes the benefits of technological innovation and the ability of small businesses to transform the results of research and development (R&D) into new products. The act designated four major goals for the program: Stimulating technological innovation. Using small business to meet federal R&D needs. Fostering and encouraging participation by minorities and disadvantaged persons in technological innovation. Increasing private-sector commercialization of innovations derived from federal R&D. Under the Small Business Research and Development Enhancement Act of 1992 (P.L. 102-564, Oct. 28, 1992), important changes were made to the program, including greater funding because of its success and greater emphasis on the goal of commercializing technical innovations developed under the program. The program also added a provision for discretionary technical assistance, which authorized agencies to help companies with the technical and commercial aspects of their SBIR projects. In addition to establishing goals, the original legislation determined agencies’ participation in and funding for the program. Agencies spending more than $100 million annually for external R&D were required to set aside not less than 1.25 percent of their total R&D funds for the SBIR program. The 1992 reauthorization directed agencies to increase the set-aside to not less than 1.5 percent in fiscal years 1993 and 1994, not less than 2 percent in fiscal years 1995 and 1996, and not less than 2.5 percent in fiscal year 1997 and thereafter. This requirement will effectively double the annual funding for the program to about $1 billion. At present, 11 agencies participate in the program. The five largest, accounting for over 90 percent of all SBIR awards, include the Department of Defense (DOD); the Department of Energy (DOE); the Department of Health and Human Services (HHS) and its National Institutes of Health (NIH), in particular; the National Aeronautics and Space Administration (NASA), and the National Science Foundation (NSF). The original legislation required agencies to issue a solicitation for proposals that sets the SBIR process in motion. The solicitation, a formal document issued by each agency, lists and describes the topics to be addressed by each company’s proposals and invites companies to submit proposals for consideration. Each agency with an SBIR program is responsible for targeting research areas and administering its own SBIR funding agreements. Such agreements include any contract, grant, or cooperative agreement entered into between a federal agency and any small business for the performance of experimental, developmental, or research work funded in whole or in part by the federal government. The original legislation also required the Small Business Administration (SBA) to issue policy directives for the general conduct of the SBIR programs within the federal government. The directives were to include such features as simplified, standardized, and timely SBIR solicitations; a simplified, standardized funding process; and minimization of the regulatory burden for small businesses participating in the program. Issued in January 1993, the current policy directive incorporated changes made by the 1992 legislation. Federal agencies were also required to report key data to SBA, which in turn has published annual reports on the progress of the program. SBA’s SBIR policy directive states that to be eligible for an SBIR award, small businesses must be independently owned and operated, other than the dominant firms in the field in which they are proposing to carry out SBIR projects, organized and operated for profit, the employer of 500 or fewer employees (including employees of subsidiaries and affiliates), the primary source of employment for the project’s principal investigator at the time of award and during the period when the research is conducted, and at least 51-percent owned by U.S. citizens or lawfully admitted permanent resident aliens. The law established a three-phase structure for the program. The first phase, not to exceed 6 months, is designed to determine the scientific and technical merit and feasibility of a proposed idea. The second phase, not to exceed 2 years, is designed to further develop the idea. The SBA policy directives established $50,000 and $500,000 as the general limits for phase I and II awards, respectively. The 1992 reauthorization directed SBA to raise these figures to $100,000 and $750,000, respectively, with an adjustment every 5 years to reflect economic and programmatic considerations. The third phase is somewhat more flexible and difficult to define. In general, it is expected to result in commercialization or further continuation of R&D. Unlike phases I and II, phase III has no general limits in time or dollar amounts. In addition, it can include not only federal, non-SBIR funds but private-sector funds. Regarding the selection of phase I proposals for SBIR awards, SBA’s 1993 policy directive states that an agency’s criteria shall give primary consideration to scientific and technical merit along with the potential for commercialization. According to the directive, funding for phase II shall be based upon the results of phase I and the scientific and technical merit and commercial potential of the phase II proposal. In reauthorizing the SBIR program, the Congress added a new feature to the program. Section 301 of the Small Business Research and Development Enhancement Act of 1992 provides for supplying discretionary technical assistance to SBIR awardees. The provision authorizes SBIR agencies to enter into an agreement with a vendor to provide small business concerns engaged in SBIR projects with technical assistance services, such as access to a network of scientists and engineers engaged in a wide range of technologies, or access to technical and business literature available through databases. The purpose of this agreement is to assist SBIR awardees in (1) making better technical decisions regarding such projects, (2) solving technical problems that arise during the conduct of such projects, (3) minimizing technical risks associated with such projects, and (4) developing and commercializing new products and processes that might result from such projects. In funding this assistance, the provision authorizes not more than $4,000 for phase I award recipients and $4,000 annually for phase II award recipients. The source of the funding, however, is somewhat different for each of the phases. For phase I, the legislation specifies that the money shall be given in addition to the amount of the recipient’s award. For phase II, a recipient may purchase, with funds available from SBIR awards, services in an amount not more than $4,000 per year. We have issued several reports on the SBIR program. The 1992 report dealt with the program’s accomplishments in phase III. The Small Business Research and Development Enhancement Act of 1992 directed us to submit an interim report that would include an assessment of the quality of the research performed under the SBIR program’s funding agreements entered into by each agency that has participated in the SBIR program beginning in fiscal year 1993. More specifically, the legislation required us to address, with respect to each agency, whether a demonstrable reduction occurred in the quality of research and, in the case of such reduction, whether an increase in the agency’s SBIR participation would adversely affect the performance of the agency’s research programs. The legislation also required us to address the implementation of the Discretionary Technical Assistance program. In contrast to the first two objectives, which provided specific guidance for our work, the third objective gave us greater latitude in selecting and investigating additional issues that we deemed appropriate. We focused on the issue of duplicate funding of similar proposals because of several recent occurrences. At the start of our review, the House Committee on Small Business directed us to focus our work on SBA as the main administrative agency for the program and on the five major funding agencies (DOD, HHS, NASA, NSF, and DOE) that accounted for more than 90 percent of the total expenditures for SBIR projects. Within HHS, our review focused on NIH, which accounted for almost all of the SBIR program at HHS. In responding to the first objective, we began by reviewing our earlier report that also addressed the issue of research quality in the SBIR program. In that report, we identified two ways of approaching the concern about quality. One involved an extensive questionnaire survey of project managers responsible for overseeing both SBIR and non-SBIR research; the other involved the use of a key indicator, the SBIR proposal selection rate, to show the level of competitiveness in the program. We decided that a questionnaire survey would be inappropriate for this interim report because very little time has elapsed since the reauthorization of the program. In fact, only the first (and smallest) of the three scheduled increases in funding had occurred at the time of our review. Consequently, we made use of the SBIR proposal selection rate as a key indicator of the quality of research proposals. We obtained data from the five major agencies for fiscal years 1991-93 regarding the number of proposals and awards. These years were selected because they provided an overview of the program just before and just after the reauthorization. These data enabled us to evaluate the effects of increased funding in fiscal year 1993 and compare them with the ratios in the previous 2 years. Where available, we also obtained the number of proposals that agencies deemed worthy of funding but that received no award. These data provided additional evidence of the quality of research proposals and competitiveness of the program. We further interviewed SBIR officials, mainly SBIR directors and managers, in the major agencies to obtain their views on factors affecting quality. In responding to the second objective, we interviewed SBA officials and SBIR officials in the major agencies regarding discretionary technical assistance and any further assistance that they may have provided. We also attended a meeting of SBIR agency officials, convened by staff of the House Committee on Small Business, that addressed agencies’ concerns about implementing the technical assistance provision. In responding to the third objective, we focused on the problem of duplicate funding. We met with officials in NSF’s Office of Inspector General (IG), who have investigated this matter.