The Small Business Innovation Research (SBIR) program was established by Congress in 1982 to expand the role of small businesses in federal research and development (R&D). In establishing the program, Congress found that technological innovation plays an important role in job creation, productivity improvements, and U.S. competitiveness; that small businesses are among the most cost-effective performers of R&D and particularly capable of bringing R&D results to market in the form of new products; and that despite the role of small businesses as "the principal source of significant innovations in the Nation," the vast majority of federally funded R&D is performed by large businesses, universities, and federal laboratories. With this in mind, Congress established the SBIR program to advance four objectives: to stimulate innovation, to use small businesses to meet federal R&D needs, to foster and encourage the participation of minority and disadvantaged persons in technological innovation, and to increase private sector commercialization of innovations derived from federally-funded R&D. In 1992, Congress established the Small Business Technology Transfer (STTR) program. Similar in design to the SBIR program, STTR was created to facilitate the commercialization of university and federal R&D by small companies. The SBIR and STTR programs have been reauthorized on multiple occasions, most recently by the SBIR/STTR Reauthorization Act of 2011 ( P.L. 112-81 ), which authorizes both programs through FY2017. Highlights of this law are provided in " SBIR/STTR Reauthorization Act of 2011 " later in this report. Execution of the SBIR and STTR programs is decentralized. Both the SBIR and STTR statutes require that federal agencies with extramural R&D budgets in excess of specified amounts set aside a percentage of such funds to conduct their own SBIR and STTR programs. Currently, 11 federal departments and agencies operate SBIR programs and 5 operate STTR programs. The Small Business Administration (SBA) helps to coordinate the SBIR and STTR programs, establishes overall policy guidance, reviews agencies' progress, and reports annually to Congress on the operation of the programs. Through FY2011, federal agencies had made more than 133,000 SBIR and STTR awards to small businesses to develop and commercialize innovative technologies. The total amount awarded was $33.7 billion. Figure 1 shows SBIR and STTR funding for FY2000-FY2011. This report provides information on the legislative foundations, structure, operation, and current and historical funding levels of the SBIR and STTR programs; summarizes the most recent legislative changes to the programs; provides highlights of external reviews of the program; and identifies and discusses selected policy issues. The SBA, through its SBIR.gov website, makes available certain data on SBIR and STTR awards through FY2013 (and some awards data for FY2014). However, the SBA has communicated to CRS that the data for FY2012 and later years have not been cleared by the Office of Management and Budget. For this report, CRS has relied on the SBIR.gov website for data from the inception of the SBIR and STTR programs through FY2010. For FY2011, this report relies on data provided directly to CRS by the SBA. However, the FY2011 data set has some inconsistencies; in several cases, the sum of individual agency amounts does not correspond to the stated total. The SBA informed CRS that some agency numbers were modified prior to publication of the FY2011 figures, but that the totals for each row were inadvertently not recalculated. Accordingly, for this report CRS uses the sum of the individual agency amounts rather than the totals provided by the SBA. The Small Business Innovation Research program was established under the Small Business Innovation Development Act of 1982 ( P.L. 97-219 ) and subsequently reauthorized or extended multiple times, most recently in 2011 when the program was reauthorized through September 30, 2017. Under the program, each federal agency with an extramural R&D budget greater than $100 million is required to allocate a portion of that funding to conduct a multi-phase R&D grant program for small businesses. The objectives of the SBIR program include stimulating technological innovation; increasing the use of the small business community to meet federal R&D needs; fostering and encouraging participation in innovation and entrepreneurship by socially and economically disadvantaged individuals; and expanding private-sector commercialization of innovations resulting from federally funded R&D. Currently, 11 federal agencies participate in the SBIR program: the Departments of Agriculture (USDA), Commerce (DOC), Defense (DOD), Education (ED), Energy (DOE), Health and Human Services (HHS), Homeland Security (DHS), and Transportation (DOT); the Environmental Protection Agency (EPA); the National Aeronautics and Space Administration (NASA); and the National Science Foundation (NSF). Under the 2011 reauthorization, the minimum percentage of extramural R&D funds that agencies are required to set aside for the SBIR program increases 0.1% per year for five years, from 2.5% in FY2011 to 3.0% in FY2016, then increases to 3.2% for FY2017 and each fiscal year thereafter. Agencies may opt to exceed these minimum percentages. In FY2011, the aggregate level of SBIR funding for all federal agencies was $2.119 billion, approximately 2.6% of the participating agencies' aggregate extramural R&D funding. However, a recent report by the Government Accountability Office (GAO) found that some agencies did not comply with the SBIR and STTR spending requirements. This issue is addressed in greater detail in " Agency Compliance with Mandatory Minimum Expenditure Levels ." Each participating agency operates its own SBIR program under the provisions of the law and regulations, as well as with the policy directive issued by the U.S. Small Business Administration (SBA) in its Small Business Innovation Research Program Policy Directive (referred to hereinafter as the SBIR Program Policy Directive ). According to some analysts, this approach allows for general consistency across SBIR programs, while allowing each agency a substantial degree of control and flexibility in the execution of its program in alignment with its overall mission and priorities. (See " Improving Technology Commercialization, Trade-Offs Among Program Objectives " for related discussion.) The SBIR program is a three-phase program. The purposes and parameters of each phase are discussed below. In Phase I, an agency solicits contract proposals or grant applications to conduct feasibility-related experimental or theoretical research or research and development (R/R&D) related to agency requirements. The scope of the topic(s) in the solicitation may be broad or narrow, depending on the needs of the agency. Phase I grants are intended to determine "the scientific and technical merit and feasibility of ideas that appear to have commercial potential." Generally, SBIR Phase I awards are not to exceed $150,000, though the law provides agencies with the authority to issue awards that exceed this amount (the Phase I award guideline) by as much as 50%. In addition, agencies may request a waiver from the SBA to exceed the award guideline by more than 50% for a specific topic. In general, the period of performance for Phase I awards is up to six months, though agencies may allow for a longer performance period for a particular project. Phase II grants are intended to further R/R&D efforts initiated in Phase I that meet particular program needs and that exhibit potential for commercial application. In general, only Phase I grant recipients are eligible for Phase II grants. There are two exceptions to this guideline: (1) a federal agency may issue an SBIR Phase II award to a Small Business Technology Transfer (STTR) Phase I awardee to further develop the work performed under the STTR Phase I award; and (2) through FY2017, the National Institutes of Health (NIH), DOD, and ED are authorized to make Phase II grants to small businesses that did not receive Phase I awards. Exercise of this authority requires a written determination from the agency head that the small business has demonstrated the scientific and technical merit and feasibility of the ideas and that the ideas appear to have commercial potential. Phase II awards are to be based on the results achieved in Phase I (when applicable) and the scientific and technical merit and commercial potential of the project proposed in Phase II as evidenced by: the small business concern's record of successfully commercializing SBIR or other research; the existence of second phase funding commitments from private sector or non-SBIR funding sources; the existence of third phase, follow-on commitments for the subject of the research; and the presence of other indicators of the commercial potential of the idea. The SBIR Program Policy Directive generally limits SBIR Phase II awards to $1 million (the Phase II award guideline), though the directive provides agencies with the authority to issue an award that exceeds this amount by as much as 50% (for an amount up to $1.5 million). As with Phase I grants, agencies may request a waiver from the SBA to exceed the Phase II award guideline by more than 50% for a specific topic. In general, the period of performance for Phase II awards is not to exceed two years, though agencies may allow for a longer performance period for a particular project. Agencies may make a sequential Phase II award to continue the work of an initial Phase II award. This sequential Phase II award is also subject to the $1 million Phase II guideline and agencies' authority to exceed the guideline by up to 50%. Thus, agencies may award up to $3 million in Phase II awards for a particular project to a single recipient at the agency's discretion, and potentially more if the agency requests and receives a waiver from the SBA. For sequential Phase II awards, some agencies require third party matching of the SBIR funds.