(Editor’s Note. Though budget cuts have required considerable adjustments for quite some time, recent projections for significant increases in research and development spending over the next several years will make contracting tools oriented to R&D much more important. One of the most significant contracting vehicles is the Small Business Innovation Research Program and a recent article in the December 16 issue of the Government Contractor by Thomas Chilcott of the law firm of Odin, Feldman & Pittlemean, P.C. presents the basics of the program.)

The Government has a major interest in fostering technological innovation both for its own interests of national defense and efficient government operations as well as the economic benefits to the nation. One of the primary ways its assists in technological advances is through the Small Business Innovation Research (SBIR) program.

Background

In 1982, Congress created the program for a 10 year trial period to strengthen the research and development role of small, innovative firms. Following a study in the early nineties that hailed the program a success in involving small business in federal R&D and providing high quality R&D in a cost effective manner, Congress extended the program another 8 years. Though it is due to expire in 2000, Congress is expected to not only extend the program but also to expand it.

Mechanics of SBIR

The SBIR program is authorized by the Small Business Act to provide funding for innovative research projects by small businesses. The Small Business Administration issues directives to guide participating agencies in conducting their SBIR programs. The directives define a small business as one which (1) does not have more than 500 employees (2) is organized for profit and is independently owned and operated (3) is not dominant in its field of operation (4) has its principle place of business in the U.S. and (5) is at least 50% owned by U.S. citizens or lawfully admitted permanent resident aliens.

Each agency with a budget for external research or research and development (R/R&D) exceeding $100 million is required and those with lesser budgets are permitted to establish an SBIR program and to reserve at least 2.5% of that budget for SBIR funding. The 11 agencies currently participating include Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Transportation, the Environmental Protection Agency, NASA, the National Science Foundation and the Nuclear Regulatory Agency. Each of these agencies publishes, at least annually, a list of research topics of interest to it and a solicitation to submit research proposals for the listed topics. For example, DOD publishes SBIR solicitations twice a year at the Internet website at "http://www.acq.osd.mil/sadbu/sbir ".

Evaluation of competing proposals may involve peer review and the decisions are those of the funding agency. Service contracts are the typical mechanism for funding. Contracts are usually awarded in three phases. In Phase 1, a contract for exploratory research may be awarded for six months of work, not to exceed $100,000. If Phase 1 demonstrates technical feasibility, scientific merit and commercial potential a Phase ll award may be awarded at the agency’s discretion for another two years of work not to exceed $750,000. Concerns over loss of momentum between completion of Phase I and decision to pursue Phase ll has led to recent efforts to accelerate the review and award process. Agencies have the discretion to continue the R&D or production efforts beyond Phase ll with a Phase lll contract. The law directs the agency, to the extent practicable, to award the Phase lll contract to the same business concern that developed the two earlier efforts. Hence, agencies may and, in fact, are encouraged to award Phase lll contracts on a sole source basis where the Competition in Contracting Act requirements are considered to have been satisfied during Phase l and Phase ll competitions.

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