H. Rept. 110-595 - 110th Congress (2007-2008)
April 18, 2008, As Reported by the Small Business Committee

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House Report 110-595 - SBIR/STTR REAUTHORIZATION ACT




[House Report 110-595]
[From the U.S. Government Printing Office]



110th Congress                                            Rept. 110-595
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
                     SBIR/STTR REAUTHORIZATION ACT

                                _______
                                

                 April 18, 2008.--Ordered to be printed

                                _______
                                

  Ms. Velazquez, from the Committee on Small Business, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 5819]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business, to whom was referred the 
bill (H.R. 5819) to amend the Small Business Act to improve the 
Small Business Innovation Research (SBIR) program and the Small 
Business Technology Transfer (STTR) program, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

  I. Purpose of the Bill and Summary.................................13
 II. Background and Need for Legislation.............................15
III. Hearings........................................................20
 IV. Committee Consideration.........................................20
  V. Committee Votes.................................................20
 VI. Section-by-Section Analysis of H.R. 5819........................22
VII. Congressional Budget Office Cost Estimate.......................30
VIII.Committee Estimate of Costs.....................................31

 IX. Oversight Findings..............................................31
  X. Statement of Constitutional Authority...........................31
 XI. Compliance With Public Law 104-4................................31
XII. Congressional Accountability Act................................31
XIII.Federal Advisory Committee Statement............................31

XIV. Statement of No Earmarks........................................31
 XV. Performance Goals and Objectives................................32
XVI. Changes in Existing Law Made by the Bill, as Reported...........32

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``SBIR/STTR 
Reauthorization Act''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

            TITLE I--MODERNIZING THE SBIR AND STTR PROGRAMS

Sec. 101. Extension of termination dates.
Sec. 102. Increased SBIR and STTR set-asides.
Sec. 103. Increased SBIR and STTR award levels.
Sec. 104. Establishment of SBIR advisory boards.
Sec. 105. Increase in amount of technical assistance funds and option 
to purchase technical assistance directly.
Sec. 106. Increased number of research topic solicitations annually and 
shortened period for final decisions on applications.
Sec. 107. Inclusion of energy-related research topics and rare-disease-
related research topics as deserving ``special consideration'' as SBIR 
research topics.
Sec. 108. Agencies should fund vital R&D projects with the potential 
for commercialization.
Sec. 109. Federal agency engagement with SBIR awardees that have been 
awarded multiple Phase One awards but have not been awarded Phase Two 
awards.
Sec. 110. Limitation on certain awards.
Sec. 111. Comptroller General audit of how Federal agencies calculate 
extramural research budgets.

             TITLE II--VENTURE CAPITAL INVESTMENT STANDARDS

Sec. 201. Ensuring that innovative small businesses with substantial 
investment from venture capital operating companies are able to 
participate in the SBIR program.

                TITLE III--SBIR AND ECONOMIC DEVELOPMENT

Sec. 301. Reauthorization and modernization of Federal and State 
Technology Partnership Program (FAST).
Sec. 302. Obtaining SBIR applicant's consent to release contact 
information to economic development organizations.

     TITLE IV--ADVANCING COMMERCIALIZATION OF SBIR-FUNDED RESEARCH

Sec. 401. Clarifying the definition of ``Phase Three''.
Sec. 402. Agency research goals.
Sec. 403. Express authority for an agency to award sequential Phase Two 
awards for SBIR-funded projects.
Sec. 404. Increased partnerships between SBIR awardees and prime 
contractors, venture capital investment companies, and larger 
businesses.
Sec. 405. Express authority to ``fast-track'' Phase Two awards for 
promising Phase One research.
Sec. 406. Commercialization programs.
Sec. 407. Report on efforts to enhance manufacturing activities.

                TITLE V--SUPPORTING PROGRAM UTILIZATION

Sec. 501. Agency databases to support program evaluation.
Sec. 502. Agency databases to support technology utilization.
Sec. 503. Interagency Policy Committee.
Sec. 504. Nanotechnology-related research topics.
Sec. 505. Rural preference.

                        TITLE VI--IMPLEMENTATION

Sec. 601. Conforming amendments to the SBIR and STTR policy directives.
Sec. 602. National Research Council SBIR Study.

            TITLE I--MODERNIZING THE SBIR AND STTR PROGRAMS

SEC. 101. EXTENSION OF TERMINATION DATES.

  (a) SBIR.--Section 9(m) of the Small Business Act (15 U.S.C. 638(m)) 
is amended by striking ``2008'' and inserting ``2010''.
  (b) STTR.--Section 9(n)(1)(A) of the Small Business Act (15 U.S.C. 
638(n)(1)(A)) is amended by striking ``2009'' and inserting ``2010''.

SEC. 102. INCREASED SBIR AND STTR SET-ASIDES.

  (a) SBIR.--Section 9(f)(1) of the Small Business Act (15 U.S.C. 
638(f)(1)) is amended--
          (1) in subparagraph (B) by striking ``and'' at the end;
          (2) in subparagraph (C) by striking ``in each fiscal year 
        thereafter,'' and inserting ``in each of fiscal years 1997 
        through 2008; and'' and
          (3) by adding after subparagraph (C) the following:
                  ``(D) not less than 3.0 percent of such budget in 
                each fiscal year thereafter,''.
  (b) STTR.--Section 9(n)(1)(B) of the Small Business Act (15 U.S.C. 
638(n)(1)(B)) is amended--
          (1) in clause (i), by striking ``and'' at the end;
          (2) in clause (ii), by striking ``fiscal year 2004 and each 
        fiscal year thereafter.'' and inserting ``each of fiscal years 
        2004 through 2008; and''; and
          (3) by adding after clause (ii) the following new clause:
                          ``(iii) 0.6 percent for fiscal year 2009 and 
                        each fiscal year thereafter.''.

SEC. 103. INCREASED SBIR AND STTR AWARD LEVELS.

  (a) SBIR Award Level.--Section 9(j)(2)(D) of the Small Business Act 
(15 U.S.C. 638(j)(2)(D)) is amended by striking ``$100,000'' and 
``$750,000'' and inserting ``$300,000'' and ``$2,200,000'', 
respectively.
  (b) STTR Award Level.--Section 9(p)(2)(B)(ix) of the Small Business 
Act (15 U.S.C. 638(p)(2)(B)(ix)) is amended by striking ``$100,000'' 
and ``$750,000'' and inserting ``$300,000'' and ``$2,200,000'', 
respectively.
  (c) Annual Adjustments.--Section 9 of the Small Business Act (15 
U.S.C. 638) is amended--
          (1) in subsection (j)(2)(D), by striking ``and an adjustment 
        of such amounts once every 5 years to reflect economic 
        adjustments and programmatic considerations'' and inserting 
        ``and a mandatory annual adjustment of such amounts to reflect 
        economic adjustments and programmatic considerations''; and
          (2) in subsection (p)(2)(B)(ix), by striking ``greater or 
        lesser amounts'' and inserting ``with a mandatory annual 
        adjustment of such amounts to reflect economic adjustments and 
        programmatic considerations, and with lesser amounts''.
  (d) Limitation on Certain Awards.--Section 9 of the Small Business 
Act (15 U.S.C. 638) is amended by adding at the end the following:
  ``(z) Limitation on Phase I and II Awards.--
          ``(1) In general.--No Federal agency shall issue an award 
        under the SBIR program or the STTR program if the size of the 
        award exceeds the amounts established under subsections 
        (j)(2)(D) and (p)(2)(B)(ix), except as provided in paragraph 
        (2).
          ``(2) Exception.--The prohibition in paragraph (1) does not 
        apply to an agency for a fiscal year if the head of the 
        agency--
                  ``(A) notifies the Administrator that the agency 
                intends to issue awards in that fiscal year without 
                regard to the prohibition in paragaph (1); and
                  ``(B) reports to the Committee on Small Business and 
                the Committee on Science and Technology of the House of 
                Representatives and the Committee on Small Business and 
                Entrepreneurship of the Senate at least annually the 
                number of instances in which the agency issued an award 
                that exceeds the amounts referred to in paragraph (1) 
                and the justification for each such instance.''.

SEC. 104. ESTABLISHMENT OF SBIR ADVISORY BOARDS.

  (a) In General.--Section 9 of the Small Business Act (15 U.S.C. 638) 
is amended by inserting after subsection (z) the following:
  ``(aa) SBIR Advisory Boards.--
          ``(1) Advisory boards required.--Each Federal agency that is 
        required by this section to conduct an SBIR program and that 
        administers annually $50,000,000 or more in SBIR grants shall 
        have an SBIR advisory board.
          ``(2) Members.--For each advisory board required by paragraph 
        (1), the members of the advisory board shall include--
                  ``(A) at least two individuals who are employees of 
                the agency;
                  ``(B) at least two representatives of private sector 
                technology firms; and
                  ``(C) such other individuals as the agency considers 
                appropriate.
          ``(3) Security clearances.--Where it is appropriate to the 
        work of an advisory board required by paragraph (1) that the 
        members and staff of the advisory board have a security 
        clearance, the appropriate departments and agencies of the 
        executive branch shall cooperate with the advisory board to 
        expeditiously provide members and staff with appropriate 
        security clearances to the extent possible under applicable 
        procedures and requirements.
          ``(4) Meetings.--Each advisory board required by paragraph 
        (1) shall meet at least two times per year.
          ``(5) Duties.--Each advisory board required by paragraph (1) 
        shall--
                  ``(A) review the quarterly reports submitted under 
                subsection (g)(8);
                  ``(B) make recommendations to the agency about 
                potential modifications to the agency's SBIR program 
                that are intended to--
                          ``(i) encourage applications, particularly 
                        applications from small business concerns owned 
                        and controlled by women, small business 
                        concerns owned and controlled by minorities, 
                        and small business concerns in States and 
                        regions that historically receive few SBIR 
                        awards; and
                          ``(ii) support commercialization of Federal 
                        research funded by SBIR awards; and
                  ``(C) submit to the Committee on Small Business and 
                the Committee on Science and Technology of the House of 
                Representatives and the Committee on Small Business and 
                Entrepreneurship of the Senate an annual report on the 
                SBIR program conducted by the agency.
          ``(6) Contents of annual report.--The annual report required 
        by paragraph (5)(C) shall include a description of how that 
        agency's SBIR program is functioning and any recommendations of 
        the advisory board for strengthening that agency's SBIR 
        program. The annual report shall also state the number and 
        dollar amount of awards under the agency's SBIR program, and 
        under the agency's STTR program, that were made to small 
        business concerns owned and controlled by women, small business 
        concerns owned and controlled by minorities, small business 
        concerns owned and controlled by veterans, and small business 
        concerns in States and regions that historically receive few 
        SBIR awards.
          ``(7) Non-applicability of faca.--The Federal Advisory 
        Committee Act (5 U.S.C. App.) shall not apply to an advisory 
        board required by paragraph (1).''.
  (b) Agency Reports to SBIR Advisory Boards.--Section 9(g)(8) of the 
Small Business Act (15 U.S.C. 638(g)(8)) is amended by inserting before 
the semicolon at the end the following: ``and, if the agency is 
required by subsection (aa) to have an SBIR advisory board, submit a 
quarterly report on the SBIR program to that SBIR advisory board''.

SEC. 105. INCREASE IN AMOUNT OF TECHNICAL ASSISTANCE FUNDS AND OPTION 
                    TO PURCHASE TECHNICAL ASSISTANCE DIRECTLY.

  Section 9(q) of the Small Business Act (15 U.S.C. 638(q)) is 
amended--
          (1) in paragraph (1)--
                  (A) by striking ``paragraph (2)'' and inserting 
                ``paragraph (2)(A), or another Federal agency under 
                paragraph (2)(B),'';
                  (B) by striking ``and'' at the end of subparagraph 
                (C);
                  (C) by striking the period at the end of subparagraph 
                (D) and inserting ``; and''; and
                  (D) by adding at the end the following new 
                subparagraph:
                  ``(E) implementing manufacturing processes and 
                production strategies for utilization.'';
          (2) by amending paragraph (2) to read as follows:
          ``(2) Assistance providers.--
                  ``(A) Vendor selection.--Each agency may select a 
                vendor to assist small business concerns to meet the 
                goals listed in paragraph (1) for a term not to exceed 
                3 years. Such selection shall be competitive and shall 
                utilize merit-based criteria.
                  ``(B) Interagency collaboration.--In addition, each 
                agency may enter into a collaborative agreement with 
                the technical extension or assistance programs of other 
                Federal agencies in order to provide the assistance 
                described in paragraph (1).''; and
          (3) in paragraph (3)--
                  (A) in subparagraph (A) by striking ``$4,000'' and 
                inserting ``$5,000'';
                  (B) by amending subparagraph (B) to read as follows:
                  ``(B) Second phase.--Each agency referred to in 
                paragraph (1) may provide directly, or authorize any 
                second phase SBIR award recipient to purchase with 
                funds available from their SBIR awards, services 
                described in paragraph (1), in an amount equal to not 
                more than $8,000 per year, per award.''; and
                  (C) by adding at the end the following:
                  ``(C) Authority to opt out.--The Administrator shall 
                establish guidelines under which an award recipient 
                eligible to receive services under subparagraph (A) may 
                decline those services and receive instead an amount 
                equal to not more than $2,500, which shall be in 
                addition to the amount of the recipient's award and 
                which shall be used to purchase services described in 
                paragraph (1).''.

SEC. 106. INCREASED NUMBER OF RESEARCH TOPIC SOLICITATIONS ANNUALLY AND 
                    SHORTENED PERIOD FOR FINAL DECISIONS ON 
                    APPLICATIONS.

  (a) Increased Number of Research Topic Solicitations.--Section 
9(g)(2) of the Small Business Act (15 U.S.C. 638(g)(2)) is amended by 
inserting before the semicolon at the end the following: ``, but not 
less often than twice per year''.
  (b) Shortened Period for Final Decisions on Applications.--Section 
9(g)(4) of that Act (15 U.S.C. 638(g)(4)) is amended--
          (1) by inserting before the semicolon at the end the 
        following: ``: Provided, That if the agency is required by 
        subsection (aa) to have an SBIR advisory board--''; and
          (2) by adding at the end the following:
                  ``(A) a final decision on each proposal shall be 
                rendered not later than 90 days after the date on which 
                the solicitation closes;
                  ``(B) the SBIR advisory board may, on a case by case 
                basis, extend the 90 days to 180 days; and
                  ``(C) the SBIR advisory board shall include in each 
                annual report to Congress under subsection (aa) a 
                statement identifying how many times a decision was not 
                rendered in 90 days, how many times an extension was 
                granted, and how many times a decision was not rendered 
                in 180 days;''.

SEC. 107. INCLUSION OF ENERGY-RELATED RESEARCH TOPICS AND RARE-DISEASE-
                    RELATED RESEARCH TOPICS AS DESERVING ``SPECIAL 
                    CONSIDERATION'' AS SBIR RESEARCH TOPICS.

  Section 9(g)(3) of the Small Business Act (15 U.S.C. 638(g)(3)) is 
amended--
          (1) in the matter preceding subparagraph (A) by inserting 
        after ``critical technologies'' the following: ``or pressing 
        research priorities'';
          (2) at the end of subparagraph (A) by striking ``or''; and
          (3) by adding at the end the following:
                  ``(C) the National Academy of Sciences, in the final 
                report issued by the `America's Energy Future: 
                Technology Opportunities, Risks, and Tradeoffs' 
                project, and in subsequent reports issued by the 
                National Academy of Sciences on sustainability, energy, 
                and alternative fuels;
                  ``(D) the National Institutes of Health, in the 
                annual report on the rare diseases research activities 
                of the National Institutes of Health for fiscal year 
                2005, and in subsequent reports issued by the National 
                Institutes of Health on rare diseases research 
                activities; or''.

SEC. 108. AGENCIES SHOULD FUND VITAL R&D PROJECTS WITH THE POTENTIAL 
                    FOR COMMERCIALIZATION.

  Section 9(j)(2) of the Small Business Act (15 U.S.C. 638(j)(2)), as 
amended by section 103, is further amended--
          (1) in subparagraph (H) by striking ``and'' at the end;
          (2) in subparagraph (I) by striking the period at the end and 
        inserting ``; and''; and
          (3) by adding at the end the following:
                  ``(J) procedures to ensure that the Administrator, on 
                an annual basis, submits to the Committee on Small 
                Business and the Committee on Science and Technology of 
                the House of Representatives and the Committee on Small 
                Business and Entrepreneurship of the Senate a list 
                identifying each small business concern that, for the 
                period covered by the preceding 5 fiscal years, 
                received 15 or more first phase SBIR awards and no 
                second phase SBIR awards.''.

SEC. 109. FEDERAL AGENCY ENGAGEMENT WITH SBIR AWARDEES THAT HAVE BEEN 
                    AWARDED MULTIPLE PHASE ONE AWARDS BUT HAVE NOT BEEN 
                    AWARDED PHASE TWO AWARDS.

  Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is amended 
by adding at the end the following:
          ``(4) Requirements relating to federal agency engagement with 
        certain first phase sbir awardees.--The Administrator shall 
        modify the policy directives issued pursuant to this subsection 
        to provide for each Federal agency required by this section to 
        conduct an SBIR program to engage with SBIR awardees that have 
        been awarded multiple first phase SBIR awards but have not been 
        awarded any second phase SBIR awards and to develop performance 
        metrics to measure awardee progression in the SBIR program.''.

SEC. 110. LIMITATION ON CERTAIN AWARDS.

  Section 9 of the Small Business Act (15 U.S.C. 638) is amended by 
adding at the end the following:
  ``(bb) Subsequent Phases.--
          ``(1) In general.--A small business concern which received an 
        award from a Federal agency under this section shall be 
        eligible to receive an award for a subsequent phase from 
        another Federal agency, if the head of each relevant Federal 
        agency makes a written determination that the topics of the 
        relevant awards are the same.
          ``(2) Crossover between programs.--A small business concern 
        which received an award under this section under the SBIR 
        program or the STTR program may, at the discretion of the 
        granting agency, receive an award under this section for a 
        subsequent phase in either the SBIR program or the STTR 
        program.
          ``(3) Phase ii sbir applications.--An agency may permit an 
        applicant to apply directly for a Phase II award, as described 
        in subsection (e)(4)(B), without first completing a Phase I 
        award, as described in subsection (e)(4)(A), if the applicant 
        can demonstrate that project feasibility was achieved without 
        SBIR or other Federal funding.
          ``(4) Phase ii sttr applications.--An agency may permit an 
        applicant to submit proposals for Phase II awards, as described 
        in subsection (e)(6)(B), without first completing a Phase I 
        award, as described in subsection (e)(6)(A), if the applicant 
        can demonstrate it has accomplished Phase I through cooperative 
        research and development achieved without STTR or other Federal 
        funding.
  ``(cc) Waiver of Minimum Work Requirement.--A Federal agency making 
an SBIR or STTR award under this section may waive the minimum small 
business concern or research institution work requirements under 
subsection (e)(7) if the agency determines that to provide such waiver 
would be consistent with the purposes of this section and consistent 
with achieving the objectives of the award proposal.''.

SEC. 111. COMPTROLLER GENERAL AUDIT OF HOW FEDERAL AGENCIES CALCULATE 
                    EXTRAMURAL RESEARCH BUDGETS.

  The Comptroller General of the United States shall carry out a 
detailed audit of how Federal agencies calculate extramural research 
budgets for purposes of calculating the size of the agencies' Small 
Business Innovation Research and Small Business Technology Transfer 
budgets. Not later than 1 year after the date of the enactment of this 
Act, the Comptroller General shall submit to the Committee on Small 
Business and the Committee on Science and Technology of the House of 
Representatives and the Committee on Small Business and 
Entrepreneurship of the Senate a report on the results of the audit.

             TITLE II--VENTURE CAPITAL INVESTMENT STANDARDS

SEC. 201. ENSURING THAT INNOVATIVE SMALL BUSINESSES WITH SUBSTANTIAL 
                    INVESTMENT FROM VENTURE CAPITAL OPERATING COMPANIES 
                    ARE ABLE TO PARTICIPATE IN THE SBIR PROGRAM.

  Section 9(e) of the Small Business Act (15 U.S.C. 638(e)) is amended 
by striking ``and'' at the end of paragraph (8), striking the period at 
the end of paragraph (9) and inserting ``; and'', and adding at the end 
the following:
          ``(10) effective only for the SBIR and STTR programs, and 
        notwithstanding any provision in section 3 to the contrary, the 
        following shall apply:
                  ``(A) A business concern that has more than 500 
                employees shall not qualify as a small business 
                concern.
                  ``(B) In determining whether a small business concern 
                is independently owned and operated under section 
                3(a)(1) or meets the small business size standards 
                instituted under section 3(a)(2), the Administrator 
                shall not consider a business concern to be affiliated 
                with a venture capital operating company (or with any 
                other business that the venture capital operating 
                company has financed) if--
                          ``(i) the venture capital operating company 
                        does not own 50 percent or more of the business 
                        concern; and
                          ``(ii) employees of the venture capital 
                        operating company do not constitute a majority 
                        of the board of directors of the business 
                        concern.
                  ``(C) A business concern shall be deemed to be 
                `independently owned and operated' if--
                          ``(i) it is owned in majority part by one or 
                        more natural persons or venture capital 
                        operating companies;
                          ``(ii) there is no single venture capital 
                        operating company that owns 50 percent or more 
                        of the business concern; and
                          ``(iii) there is no single venture capital 
                        operating company the employees of which 
                        constitute a majority of the board of directors 
                        of the business concern.
                  ``(D) To be eligible to receive an award under the 
                SBIR or STTR program, a small business concern may not 
                have an ownership interest by more than one venture 
                capital operating company controlled by a business with 
                more than 500 employees, and that venture capital 
                operating company may not own more than 10 percent of 
                that small business concern.
                  ``(E) The term `venture capital operating company' 
                means a business concern--
                          ``(i) that--
                                  ``(I) is a Venture Capital Operating 
                                Company, as that term is defined in 
                                regulations promulgated by the 
                                Secretary of Labor; or
                                  ``(II) is an entity that--
                                          ``(aa) is registered under 
                                        the Investment Company Act of 
                                        1940 (15 U.S.C. 80a-51 et 
                                        seq.); or
                                          ``(bb) is an investment 
                                        company, as defined in section 
                                        3(c)(14) of such Act (15 U.S.C. 
                                        80a-3(c)(14)), which is not 
                                        registered under such Act 
                                        because it is beneficially 
                                        owned by less than 100 persons; 
                                        and
                          ``(iii) that is itself organized or 
                        incorporated and domiciled in the United 
                        States, or is controlled by a business concern 
                        that is incorporated and domiciled in the 
                        United States.''.

                TITLE III--SBIR AND ECONOMIC DEVELOPMENT

SEC. 301. REAUTHORIZATION AND MODERNIZATION OF FEDERAL AND STATE 
                    TECHNOLOGY PARTNERSHIP PROGRAM (FAST).

  Section 9 of the Small Business Act (15 U.S.C. 638) is amended by 
inserting after subsection (r) the following:
  ``(s) Outreach and Support Activities.--
          ``(1) In general.--Subject to the other provisions of this 
        subsection, the Administrator shall make grants on a 
        competitive basis to organizations, to be used by the 
        organizations to do one or both of the following:
                  ``(A) To conduct outreach efforts to increase 
                participation in the programs under this section.
                  ``(B) To provide application support and 
                entrepreneurial and business skills support to 
                prospective participants in the programs under this 
                section.
          ``(2) Program authority.--Of the amounts made available to 
        carry out this section for each of fiscal years 2009 through 
        2010, the Administrator may expend not more than $10,000,000 in 
        each such fiscal year to carry out paragraph (1).
          ``(3) Amount of assistance.--For each of subparagraphs (A) 
        and (B) of paragraph (1), the amount of assistance provided to 
        an organization under that subparagraph in any fiscal year--
                  ``(A) shall be equal to the total amount of matching 
                funds from non-Federal sources provided by the 
                organization; and
                  ``(B) shall not exceed $250,000.
          ``(4) Direction.--An organization receiving funds under 
        paragraph (1) shall, in using those funds, direct its 
        activities at one or both of the following:
                  ``(A) Small business concerns located in geographic 
                areas that are underrepresented in the programs under 
                this section.
                  ``(B) Small business concerns owned and controlled by 
                women, small business concerns owned and controlled by 
                service-disabled veterans, and small business concerns 
                owned and controlled by minorities.
          ``(5) Advisory board.--
                  ``(A) Establishment.--Not later than 90 days after 
                the date of the enactment of this subsection, the 
                Administrator shall establish an advisory board for the 
                activities carried out under this subsection.
                  ``(B) Non-applicability of faca.--The Federal 
                Advisory Committee Act (5 U.S.C. App.) shall not apply 
                to the advisory board.
                  ``(C) Members.--The members of the advisory board 
                shall include the following:
                          ``(i) The Administrator (or the 
                        Administrator's designee).
                          ``(ii) For each Federal agency required by 
                        this section to conduct an SBIR program, the 
                        head of the agency (or the designee of the head 
                        of the agency).
                          ``(iii) Representatives of small business 
                        concerns that are current or former recipients 
                        of SBIR awards, or representatives of 
                        organizations of such concerns.
                          ``(iv) Representatives of service providers 
                        of SBIR outreach and assistance, or 
                        representatives of organizations of such 
                        service providers.
                  ``(D) Duties.--The advisory board shall have the 
                following duties:
                          ``(i) To develop guidelines for awards under 
                        paragraph (1)(A), including guidelines relating 
                        to award sizes, proposal requirements, metrics 
                        for monitoring awardee performance, and metrics 
                        for measuring overall value of the activities 
                        carried out by the awardees.
                          ``(ii) To identify opportunities for 
                        coordinated outreach, technical assistance, and 
                        commercialization activities among Federal 
                        agencies, the recipients of the awards under 
                        paragraph (1)(A), and applicants and recipients 
                        of SBIR awards, including opportunities such 
                        as--
                                  ``(I) podcasting or webcasting for 
                                conferences, training workshops, and 
                                other events;
                                  ``(II) shared online resources to 
                                match prospective applicants with the 
                                network of paragraph (1)(A) recipients; 
                                and
                                  ``(III) venture capital conferences 
                                tied to technologies and sectors that 
                                cross agencies.
                          ``(iii) To review and recommend revisions to 
                        activities under paragraph (1)(A).
                          ``(iv) To submit to the Committee on Small 
                        Business and Entrepreneurship of the Senate and 
                        the Committee on Small Business and the 
                        Committee on Science and Technology of the 
                        House of Representatives an annual report on 
                        the activities carried out under paragraph 
                        (1)(A) and the effectiveness and impact of 
                        those activities.
          ``(6) Selection criteria.--In awarding grants under this 
        subsection, the Administrator shall use selection criteria 
        developed by the advisory board established under paragraph 
        (5). The criteria shall include--
                  ``(A) criteria designed to give preference to 
                applicants who propose to carry out activities that 
                will reach either an underperforming geographic area or 
                an underrepresented population group (as measured by 
                the number of SBIR applicants);
                  ``(B) criteria designed to give preference to 
                applicants who propose to carry out activities that 
                complement, and are integrated into, the existing 
                public-private innovation support system for the 
                targeted region or population; and
                  ``(C) criteria designed to give preference to 
                applicants who propose to measure the effectiveness of 
                the proposed activities.
          ``(7) Peer review.--In awarding grants under this subsection, 
        the Administrator shall use a peer review process. Reviewers 
        shall include--
                  ``(A) SBIR program managers for agencies required by 
                this section to conduct SBIR programs; and
                  ``(B) private individuals and organizations that are 
                knowledgeable about SBIR, the innovation process, 
                technology commercialization, and State and regional 
                technology-based economic development programs.
          ``(8) Per-state limitations.--
                  ``(A) In general.--To be eligible to receive a grant 
                under this subsection, the applicant must have the 
                written endorsement of the Governor of the State where 
                the targeted regions or populations are located (if the 
                regions or populations are located in more than one 
                State, the applicant must have the written endorsement 
                of the Governor of each such State). Such an 
                endorsement must indicate that the Governor will ensure 
                that the activities to be carried out under the grant 
                will be integrated with the balance of the State's 
                portfolio of investments to help small business 
                concerns commercialize technology.
                  ``(B) Limitation.--Each fiscal year, a Governor may 
                have in effect not more than one written endorsement 
                for a grant under paragraph (1)(A), and not more than 
                one written endorsement for a grant under paragraph 
                (1)(B).
          ``(9) Specific requirements for fast awards.--In making 
        awards under paragraph (1)(A) (to be known as `FAST' awards) 
        the Administrator shall ensure the following:
                  ``(A) Goals.--Priority shall be given applications 
                that address one or more of the following goals:
                          ``(i) Increasing the number of SBIR 
                        applications from underperforming geographic 
                        areas (as measured by the number of SBIR 
                        applicants).
                          ``(ii) Increasing the number of SBIR 
                        applications from underrepresented population 
                        groups (as measured by the number of SBIR 
                        applicants).
                  ``(B) Duration.--Each award shall be for a period of 
                2 fiscal years. The Administrator shall establish rules 
                and performance goals for the disbursement of funds for 
                the second fiscal year, and funds shall not be 
                disbursed to a recipient for such a fiscal year until 
                after the advisory board established under this 
                subsection has determined that the recipient is in 
                compliance with the rules and performance goals.''.

SEC. 302. OBTAINING SBIR APPLICANT'S CONSENT TO RELEASE CONTACT 
                    INFORMATION TO ECONOMIC DEVELOPMENT ORGANIZATIONS.

  Section 9 of the Small Business Act (15 U.S.C. 638) is amended in 
subsection (s) (as added by this title) by adding at the end the 
following:
          ``(5) Consent to release contact information to 
        organizations.--
                  ``(A) Enabling concern to give consent.--Each Federal 
                agency required by this section to conduct an SBIR 
                program shall enable a small business concern that is 
                an SBIR applicant to indicate to the agency whether the 
                agency has its consent to--
                          ``(i) identify the concern to appropriate 
                        local and State-level economic development 
                        organizations as an SBIR applicant; and
                          ``(ii) release the concern's contact 
                        information to such organizations.
                  ``(B) Rules.--The Administrator shall establish rules 
                to implement this paragraph. The rules shall include a 
                requirement that the agency include in its SBIR 
                application forms a provision through which the 
                applicant can indicate consent for purposes of 
                subparagraph (A).''.

     TITLE IV--ADVANCING COMMERCIALIZATION OF SBIR-FUNDED RESEARCH

SEC. 401. CLARIFYING THE DEFINITION OF ``PHASE THREE''.

  Section 9(e) of the Small Business Act (15 U.S.C. 638(e)) is 
amended--
          (1) in paragraph (4)(C)--
                  (A) in the matter preceding clause (i) by inserting 
                after ``a third phase'' the following: ``, which shall 
                consist of work that derives from, extends, or 
                logically concludes efforts performed under prior SBIR 
                funding agreements (which may be referred to as `Phase 
                III')''; and
                  (B) in clause (i) by inserting after ``non-SBIR 
                Federal funding awards'' the following: ``: Provided, 
                That for purposes of this clause, such sources of 
                capital and such funding awards include private 
                investment, private research, development, testing, and 
                evaluation (RDT&E) awards, private sales or licenses, 
                government RDT&E contracts and awards, and government 
                sales'';
          (2) in paragraph (8) by striking ``and'' at the end;
          (3) in paragraph (9) by striking the period at the end and 
        inserting ``; and''; and
          (4) by adding at the end the following:
          ``(10) the term `commercialization' means the process of 
        developing marketable products or services and producing and 
        delivering products or services for sale (whether by the 
        originating party or by others) to government or commercial 
        markets.''.

SEC. 402. AGENCY RESEARCH GOALS.

  Section 9 of the Small Business Act (15 U.S.C. 638) is amended by 
striking subsection (h) and inserting the following:
  ``(h) Agency Research Goals.--
          ``(1) In general.--In addition to the requirements of 
        subsection (f), each Federal agency that is required by this 
        section to have an SBIR program and that awards annually 
        $5,000,000,000 or more in procurement contracts shall, 
        effective for fiscal year 2009 and each fiscal year thereafter, 
        establish annual goals for commercialization of projects funded 
        by SBIR awards.
          ``(2) Specific goals.--The goals required by paragraph (1) 
        shall include specific goals for each of the following:
                  ``(A) The percentage of SBIR projects that receive 
                funding for the third phase (as defined in subsection 
                (e)(4)(C)).
                  ``(B) The percentage of SBIR projects that are 
                successfully integrated into a program of record.
                  ``(C) The amount of Federal dollars received by SBIR 
                projects through Federal contracts, not including 
                dollars received through the SBIR program.
          ``(3) Submission to advisory board.--For each fiscal year for 
        which goals are required by paragraph (1), the agency shall 
        submit to the agency's SBIR advisory board--
                  ``(A) not later than 60 days after the beginning of 
                the fiscal year, the goals; and
                  ``(B) not later than 90 days after the end of the 
                fiscal year, data on the extent to which the goals were 
                met and a description of the methodology used to 
                collect that data.''.

SEC. 403. EXPRESS AUTHORITY FOR AN AGENCY TO AWARD SEQUENTIAL PHASE TWO 
                    AWARDS FOR SBIR-FUNDED PROJECTS.

  Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is amended 
by adding after paragraph (4) (as added by section 109) the following:
          ``(5) Requirements relating to additional second phase sbir 
        awards.--The Administrator shall modify the policy directives 
        issued pursuant to this subsection to provide the following:
                  ``(A) A small business concern that receives a second 
                phase SBIR award for a project remains eligible to 
                receive additional second phase SBIR awards.
                  ``(B) Agencies are expressly authorized to provide 
                additional second phase SBIR awards for testing and 
                evaluation assistance for the insertion of SBIR 
                technologies into technical or weapons systems.
                  ``(C) Each agency that is required by subsection (aa) 
                to have an SBIR advisory board shall include in the 
                quarterly reports submitted under subsection (g)(8) the 
                number of projects that have received additional second 
                phase SBIR awards and the total dollar amount of those 
                additional second phase SBIR awards.''.

SEC. 404. INCREASED PARTNERSHIPS BETWEEN SBIR AWARDEES AND PRIME 
                    CONTRACTORS, VENTURE CAPITAL INVESTMENT COMPANIES, 
                    AND LARGER BUSINESSES.

  Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is amended 
by adding after paragraph (5) (as added by section 403) the following:
          ``(6) Increased partnerships.--Each agency required by this 
        section to conduct an SBIR program shall establish initiatives 
        by which the agency encourages partnerships between SBIR 
        awardees and prime contractors, venture capital investment 
        companies, and larger businesses, for the purpose of 
        facilitating the progress of the SBIR awardees to the third 
        phase. If the agency is required by subsection (aa) to have an 
        SBIR advisory board, the advisory board shall include in each 
        report submitted under subsection (aa) a description of the 
        initiatives established and an assessment of the effectiveness 
        of such initiatives.''.

SEC. 405. EXPRESS AUTHORITY TO ``FAST-TRACK'' PHASE TWO AWARDS FOR 
                    PROMISING PHASE ONE RESEARCH.

  Section 9(j)(2)(G) of the Small Business Act (15 U.S.C. 638(j)(2)(G)) 
is amended by inserting before the semicolon at the end the following: 
``, and to encourage agencies to develop `fast-track' programs to 
eliminate that delay by issuing second phase SBIR awards as soon as 
practicable, including in appropriate cases simultaneously with the 
issuance of the first phase SBIR award''.

SEC. 406. COMMERCIALIZATION PROGRAMS.

  Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is amended 
by adding after paragraph (6) (as added by section 404) the following:
          ``(7) Commercialization programs.--Each agency required by 
        this section to conduct an SBIR program shall establish a 
        commercialization program that supports the progress of SBIR 
        awardees to the third phase. The commercialization program may 
        include activities such as partnership databases, partnership 
        conferences, multiple second phases, mentoring between prime 
        contractors and SBIR awardees, multiple second phases with 
        matching private investment requirements, jumbo awards, SBIR 
        helpdesks, and transition assistance programs. The agency shall 
        include in its annual report an analysis of the various 
        activities considered for inclusion in the commercialization 
        program and a statement of the reasons why each activity 
        considered was included or not included, as the case may be. If 
        the agency is required by subsection (aa) to have an SBIR 
        advisory board, the advisory board shall include in each report 
        under subsection (aa) a statement identifying the number of 
        SBIR awardees that successfully progressed to the third phase.
          ``(8) Funding for commercialization programs.--
                  ``(A) In general.--From amounts made available to 
                carry out this paragraph, the Administrator may, on 
                petition by agencies required by this section to 
                conduct an SBIR program, transfer funds to such 
                agencies to support the commercialization programs of 
                such agencies.
                  ``(B) Petitions.--The Administrator shall establish 
                rules for making transfers under subparagraph (A). The 
                initial set of rules shall be promulgated not later 
                than 90 days after the date of the enactment of this 
                paragraph.
                  ``(C) Authorization of appropriations.--There is 
                authorized to be appropriated to the Administrator to 
                carry out this paragraph $27,500,000 for fiscal year 
                2009 and each fiscal year thereafter.
          ``(9) Funding limitation.--For payment of expenses incurred 
        to administer the commercialization programs described in 
        paragraphs (7) and (8), the head of the agency may use not more 
        than an amount equal to 1 percent of the funds available to the 
        agency pursuant to the Small Business Innovation Research 
        program. Such funds--
                  ``(A) shall not be subject to the limitations on the 
                use of funds in subsection (f)(2); and
                  ``(B) shall not be used for the purpose of funding 
                costs associated with salaries and expenses of 
                employees of the United States Government.''.

SEC. 407. REPORT ON EFFORTS TO ENHANCE MANUFACTURING ACTIVITIES.

  Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is amended 
by adding after paragraph (9) (as added by section 406) the following:
          ``(10) Efforts to enhance manufacturing activities.--If an 
        agency is required by subsection (aa) to have an SBIR advisory 
        board, the advisory board shall include in each report under 
        subsection (aa) a part relating to efforts to enhance 
        manufacturing activities, which shall include--
                  ``(A) a comprehensive description of the actions 
                undertaken each year by the SBIR and STTR programs of 
                that agency in support of Executive Order 13329;
                  ``(B) an assessment of the effectiveness of such 
                actions toward enhancing the research and development 
                of manufacturing technologies and processes; and
                  ``(C) any recommendations that the program managers 
                of the SBIR and STTR programs consider appropriate for 
                additional actions to be undertaken in order to 
                increase the effectiveness toward enhancing 
                manufacturing activities within the defense industrial 
                base.''.

                TITLE V--SUPPORTING PROGRAM UTILIZATION

SEC. 501. AGENCY DATABASES TO SUPPORT PROGRAM EVALUATION.

  Section 9(k) of the Small Business Act (15 U.S.C. 638(k)) is 
amended--
          (1) in paragraph (2)(A)--
                  (A) by striking ``and'' at the end of clause (ii);
                  (B) by inserting ``and'' at the end of clause (iii); 
                and
                  (C) by adding at the end the following new clause:
                          ``(iv) information on the ownership structure 
                        of award recipients, both at the time of 
                        receipt of the award and upon completion of the 
                        award period;'';
          (2) by amending paragraph (3) to read as follows:
          ``(3) Updating information for database.--
                  ``(A) In general.--A Federal agency shall not make a 
                Phase I or Phase II payment to a small business concern 
                under this section unless the small business concern 
                has provided all information required under this 
                subsection with respect to the award under which the 
                payment is made, and with respect to any other award 
                under this section previously received by the small 
                business concern or a predecessor in interest to the 
                small business concern.
                  ``(B) Apportionment.--In complying with this 
                paragraph, a small business concern may apportion sales 
                or additional investment information relating to more 
                than one second phase award among those awards, if it 
                notes the apportionment for each award.
                  ``(C) Annual updates upon termination.--A small 
                business concern receiving an award under this section 
                shall--
                          ``(i) in the case of a second phase award, 
                        update information in the databases required 
                        under paragraphs (2) and (6) concerning that 
                        award at the termination of the award period;
                          ``(ii) in the case of award recipients not 
                        described in clause (iii), be requested to 
                        voluntarily update such information annually 
                        thereafter for a period of 5 years; and
                          ``(iii) in the case of a small business 
                        concern applying for a subsequent first phase 
                        or second phase award, be required to update 
                        such information annually thereafter for a 
                        period of 5 years.''; and
          (3) by adding at the end the following new paragraph:
          ``(6) Agency program evaluation databases.--Each Federal 
        agency required to establish an SBIR or STTR program under this 
        section shall develop and maintain, for the purpose of 
        evaluating such programs, a database containing information 
        required to be contained in the database under paragraph (2). 
        Each such database shall be designed to be accessible to other 
        agencies that are required to maintain a database under this 
        paragraph.''.

SEC. 502. AGENCY DATABASES TO SUPPORT TECHNOLOGY UTILIZATION.

  Section 9(k) of the Small Business Act (15 U.S.C. 638(k)), as amended 
by this Act, is further amended by adding at the end the following new 
paragraph:
          ``(7) Agency databases to support technology utilization.--
        Each Federal agency with an SBIR or STTR program shall create 
        and maintain a technology utilization database, which shall be 
        available to the public and shall contain data supplied by the 
        award recipients specifically to help them attract customers 
        for the products and services generated under the SBIR or STTR 
        project, and to attract additional investors and business 
        partners. Each database created under this paragraph shall 
        include information on the other databases created under this 
        paragraph by other Federal agencies. Participation in a 
        database under this paragraph shall be voluntary, except that 
        such participation is required of all award recipients who 
        received supplemental payments from SBIR and STTR program funds 
        above their initial Phase II award.''.

SEC. 503. INTERAGENCY POLICY COMMITTEE.

  (a) Establishment.--The Director of the Office of Science and 
Technology Policy shall establish an Interagency SBIR/STTR Policy 
Committee comprised of one representative from each Federal agency with 
an SBIR program.
  (b) Cochairs.--The Director of the Office of Science and Technology 
Policy and the Director of the National Institute of Standards and 
Technology shall jointly chair the Interagency Policy Committee.
  (c) Duties.--The Interagency Policy Committee shall review the 
following issues and make policy recommendations on ways to improve 
program effectiveness and efficiency:
          (1) The public and government databases described in section 
        9(k)(1) and (2) of the Small Business Act (15 U.S.C. 638(k)(1) 
        and (2)).
          (2) Federal agency flexibility in establishing Phase I and II 
        award sizes, and appropriate criteria to exercise such 
        flexibility.
          (3) Commercialization assistance best practices in Federal 
        agencies with significant potential to be employed by other 
        agencies, and the appropriate steps to achieve that leverage, 
        as well as proposals for new initiatives to address funding 
        gaps business concerns face after Phase II but before 
        commercialization.
  (d) Reports.--The Interagency Policy Committee shall transmit to the 
Committee on Science and Technology and the Committee on Small Business 
of the House of Representatives, and to the Committee on Small Business 
and Entrepreneurship of the Senate--
          (1) a report on its review and recommendations under 
        subsection (c)(1) not later than 1 year after the date of 
        enactment of this Act;
          (2) a report on its review and recommendations under 
        subsection (c)(2) not later than 18 months after the date of 
        enactment of this Act; and
          (3) a report on its review and recommendations under 
        subsection (c)(3) not later than 2 years after the date of 
        enactment of this Act.

SEC. 504. NANOTECHNOLOGY-RELATED RESEARCH TOPICS.

  (a) SBIR.--Section 9(g)(3) of the Small Business Act (15 U.S.C. 
638(g)(3)), as amended by section 107, is further amended by adding at 
the end the following new subparagraph:
                  ``(E) the national nanotechnology strategic plan 
                required under section 2(c)(4) of the 21st Century 
                Nanotechnology Research and Development Act (15 U.S.C. 
                7501(c)(4)) and in subsequent reports issued by the 
                National Science and Technology Council Committee on 
                Technology, focusing on areas of nanotechnology 
                identified in such plan;''.
  (b) STTR.--Section 9(o)(1) of the Small Business Act (15 U.S.C. 
638(o)(1)) is amended by inserting ``, giving special consideration to 
topics that further 1 or more critical technologies, as identified by 
the national nanotechnology strategic plan required under section 
2(c)(4) of the 21st Century Nanotechnology Research and Development Act 
(15 U.S.C. 7501(c)(4)) and in subsequent reports issued by the National 
Science and Technology Council Committee on Technology, focusing on 
areas of nanotechnology identified in such plan'' after ``its STTR 
program''.

SEC. 505. RURAL PREFERENCE.

  Section 9 of the Small Business Act (15 U.S.C. 638) is amended by 
adding at the end the following new subsection:
  ``(dd) Rural Preference.--In making awards under this section, 
Federal agencies shall give priority to applications so as to increase 
the number of SBIR and STTR award recipients from rural areas.''.

                        TITLE VI--IMPLEMENTATION

SEC. 601. CONFORMING AMENDMENTS TO THE SBIR AND STTR POLICY DIRECTIVES.

  Not later than 180 days after the date of enactment of this Act, the 
Administrator of the Small Business Administration shall promulgate 
amendments to the SBIR and the STTR Policy Directives to conform such 
directives to this Act and the amendments made by this Act.

SEC. 602. NATIONAL RESEARCH COUNCIL SBIR STUDY.

  Section 108(d) of the Small Business Reauthorization Act of 2000 is 
amended--
          (1) by striking ``of the Senate'' and all that follows 
        through ``not later than 3'' and inserting ``of the Senate, not 
        later than 3''; and
          (2) by striking ``; and'' and all that follows through 
        ``update of such report''.

                   I. Purpose of the Bill and Summary

    The SBIR/STTR Reauthorization Act extends for a period of 
two years the Federal government's largest small business 
research and development programs. The legislation modernizes 
the Small Business Innovation Research (SBIR) program, changing 
the legislative guidelines and policies in order to update the 
program in response to the unique challenges facing small 
research companies and the changing research priorities of 
Federal agencies.
    The Act is aimed at three broad goals. First, the bill 
seeks to encourage greater participation in SBIR. An increase 
in the number of small businesses applying for SBIR is critical 
to the on-going success of the program. Second, the bill 
permits small companies that are majority-owned by qualifying 
venture capital firms to participate in the SBIR program. A 
2003 ruling by the Small Business Administration (SBA) has made 
small firms with large investments from venture capital 
companies ineligible to participate in the SBIR program. The 
SBA ruling forces many small businesses to choose between 
accepting investments from venture capital firms and 
participating in the Federal government's largest R&D program 
for small research firms. Third, the bill seeks to encourage 
and support commercialization initiatives at Federal agencies 
that administer SBIR programs. Under current law certain 
Federal agencies have the authority to develop 
commercialization programs. This bill extends to all agencies 
the authority to develop programs designed to support the 
commercialization of SBIR-funded research.
    Additionally, the bill seeks to codify in statute the 
programmatic flexibility that Federal agencies need in order to 
administer SBIR awards in a manner that is most consistent with 
the agency's specific mission. The SBIR policy directive issued 
by the SBA has provided a great deal of autonomy to the Federal 
agencies, the bill codifies agency autonomy with respect to 
administering their SBIR programs. Along with granting to 
Federal agencies a great degree of autonomy, the bill also 
requires Federal agencies to establish more concrete goals and 
objectives with respect to their SBIR programs and directs the 
agencies to provide Congress with more regular reports.

Encouraging greater participation in SBIR and STTR

    The Act includes a number of provisions designed to 
encourage more small firms to apply for SBIR and STTR awards. 
The bill more than doubles the size of SBIR and STTR awards for 
Phase I and Phase II grants and establishes a 90-day timeline 
for issuing a final decision on an SBIR application after the 
solicitation is closed. The legislation also requires Federal 
agencies to designate SBIR advisory boards that will provide 
small businesses a means to raise concerns about the SBIR 
application process and other issues associated with the unique 
needs of small research companies.
    The legislation establishes a $10,000,000 federal grant 
program to reach-out to small firms owned and controlled by 
women and minorities and small businesses located in areas that 
are under represented in the SBIR program. Under the grant 
program established by the bill, the SBA Administrator is 
instructed to make competitive grants to organizations to 
conduct outreach efforts to increase participation in the SBIR 
program and provide application support and entrepreneurial and 
business skills support for current and prospective 
participants in the SBIR program. To be eligible for these 
Federal and State Technology or ``FAST'' awards, an 
organization must have the written endorsement of the Governor 
of the State where the targeted regions or populations are 
based. Awards made under grant program established by the bill 
cannot exceed $250,000 per year and require matching funds from 
sources other than the Federal government.

Permitting small companies that are more than 50%-owned by qualifying 
        venture capital firms to participate in SBIR

    The Act includes provisions that establish clear guidelines 
governing the participation of small businesses with 
substantial investment from venture capital operating companies 
in the SBIR program. The provisions will allow a small company 
that is majority-owned by qualifying venture capital firms\1\ 
to participate in the SBIR program, so long as the small 
business concerns do not 1) have a single venture capital 
company owning a majority of the concern or 2) have a venture 
capital company controlling a majority of the concern's board 
of director's seats.
---------------------------------------------------------------------------
    \1\Small companies majority-owned by a single venture capital firm 
are not be eligible to participate in the SBIR program under the Act.
---------------------------------------------------------------------------

Advancing commercialization of SBIR-funded research and development 
        projects

    To support the successful commercialization of SBIR-funded 
research, the Act permits an agency to grant multiple Phase Two 
awards and requires agencies to establish initiatives designed 
to encourage partnerships between SBIR awardees and prime 
contractors, venture capital investment companies and larger 
businesses. The legislation also allows an agency to issue a 
Phase Two award to a qualifying applicant, even if the 
applicant's research proposal had not been awarded a Phase One 
grant.
    The Act defines ``Phase Three'' of the SBIR program and 
requires agencies to establish commercialization programs that 
support the progress of SBIR awardees towards ``Phase Three'' 
of the SBIR program. The commercialization programs may include 
activities such as partnership databases, partnership 
conferences, mentoring initiatives between prime contractors 
and SBIR awardees, SBIR helpdesks and transition assistance 
programs. The legislation authorizes appropriation to the Small 
Business Administration (SBA) funds equal to approximately 1% 
of the SBIR set-aside. The SBA will allocate these funds to 
agencies to support the commercialization programs that they 
are required to implement.

Retains programmatic flexibility

    The Committee's legislation makes these meaningful changes 
to the SBIR without reducing the programmatic flexibility that 
is a central feature of the SBIR program as it is currently 
administered.

                II. Background and Need for Legislation

    In 1982, Congress passed the Small Business Innovation 
Development Act which established the Small Business Innovation 
Research (SBIR) program. The intent of the Act was to increase 
government funding of small, innovative companies for the 
performance of research and development with commercial 
potential. Supporters of the SBIR program argued that while 
small companies were highly innovative, such firms were 
underrepresented in federal R&D activities.
    The potential of small companies to be sources of 
significant innovation led Congress to establish the SBIR 
program. From the program's original development, however, SBIR 
has been intended to stimulate technological innovation related 
to each participating agency's goals and mission, use small 
businesses for federal R&D needs and increase private sector 
commercialization of innovations derived from federal R&D 
expenditures. To meet these objectives, the Act required 
Federal departments with an extramural research budget of $100 
million or more to set aside a small percentage of their 
agency's overall research budget and award technology 
development contracts to small firms. The percentage of R&D 
activities to be conducted by small firms has increased since 
the Act was originally passed and now stands at 2.5%.
    Currently, eleven agencies have research budgets large 
enough to require participation in the SBIR program. In 2006, 
Federal agencies awarded more than $2 billion to small research 
firms through the SBIR program. In 2007, the Department of 
Defense will have awarded more than $1 billion to small firms 
for the development of advanced technologies. From the 
program's inception in FY1983 through FY2006, over $20 billion 
in awards have been made for more than 90,000 projects (see 
chart below). The original program has been extended several 
times and is scheduled to sunset on September 30, 2008.
    A key element of the SBIR program is that it establishes a 
three-phase development system for participants. During Phase 
One, participating agencies fund a proposed idea to determine 
if it has scientific and technical merit and is feasible. 
Projects that demonstrate potential after the initial endeavor 
can compete for Phase Two awards (lasting one to two years) to 
perform the principal R&D. Generally, Phase One and Phase Two 
awards may not exceed $100,000 and $750,000, respectively. A 
third phase of the program, aimed at the commercialization of a 
product or process developed in the earlier phases, is intended 
to be funded by the private sector.

                                SBIR PROGRAM: DOLLARS AWARDED AND PROJECTS FUNDED
----------------------------------------------------------------------------------------------------------------
                                                   Dollars awarded (millions)                 Awards
                  Fiscal year                  -----------------------------------------------------------------
                                                 Phase I    Phase II    Total     Phase I    Phase II    Total
----------------------------------------------------------------------------------------------------------------
1983..........................................       44.5  .........       44.5        686  .........        686
1984..........................................       48.0       60.4      108.4        999        338      1,337
1985..........................................       69.1      130.0      199.1      1,397        407      1,804
1986..........................................       98.5      199.4      297.9      1,945        564      2,509
1987..........................................      109.6      240.9      350.5      2,189        768      2,957
1988..........................................      101.9      284.9      389.1      2,013        711      2,724
1989..........................................      107.7      321.7      431.9      2,137        749      2,886
1990..........................................      118.1      341.8      460.7      2,346        837      3,183
1991..........................................      127.9      335.9      483.1      2,553        788      3,341
1992..........................................      127.9      371.2      508.4      2,559        916      3,475
1993..........................................      154.0      490.7      698.0      2,898      1,141      4,039
1994..........................................      220.4      473.6      717.6      3,102        928      4,030
1995..........................................      232.1      601.9      834.1      3,085      1,263      4,348
1996..........................................      228.9      645.8      916.3      2,841      1,191      4,032
1997..........................................      277.6      789.1    1,106.7      3,371      1,404      4,775
1998..........................................      262.3      804.4    1,066.7      3,022      1,320      4,342
1999..........................................      299.5      797.0    1,096.5      3,334      1,256      4,590
2000..........................................      302.0      888.2    1,190.2      3,166      1,330      4,496
2001..........................................      317.1      977.3    1,294.4      3,215      1,533      4,748
2002..........................................      411.5    1,023.4    1,434.9      4,243      1,577      5,820
2003..........................................      445.4    1,214.7    1,660.1      4,465      1,759      6,224
2004..........................................      498.7    1,368.7    1,867.4      4,638      2,013      6,651
2005..........................................      461.2    1,404.7    1,865.9      4,300      1,871      6,171
----------------------------------------------------------------------------------------------------------------

    Since SBIR's inception in 1983, the program has been the 
focus of numerous studies, assessments and evaluations. The 
Government Accountability Office (GAO) has issued a series of 
reports on the implementation of the Small Business Development 
Act. The National Academies of Science completed a 
comprehensive three-year evaluation of the SBIR program in 
2007. Additionally, participating federal agencies have also 
provided assessments of their agency's SBIR program.

Independent evaluations of the SBIR program

    The Small Business Innovation Development Act directed the 
Government Accountability Office (GAO) to assess the 
implementation of the Act. GAO has issued at least nine reports 
documenting its findings. A 1987 study found that both the 
evaluation and selection processes were sufficient to 
``reasonably'' ensure awards were based on technical merit. In 
1989, GAO reported that agency heads found the SBIR effort to 
be beneficial and met the organization's R&D needs. A GAO 
report issued in May 1992 noted that almost two-thirds of the 
projects already had sales or received additional funding 
(primarily from the private sector) totaling approximately $1.1 
billion. Another GAO study, released in April 1998, noted that 
between 35% and 50% of SBIR projects had resulted in sales or 
additional private sector investment. A more recent report by 
GAO in June 2005 found that the effort appears to be achieving 
its goal of ``enhanced'' participation of small business in the 
R&D enterprise.
    As part of the reauthorization of the SBIR program in 2000, 
Congress directed the National Research Council (NRC) of the 
National Academies to ``conduct a comprehensive study of how 
the SBIR program has stimulated technological innovation and 
used small businesses to meet Federal research and development 
needs'' and to make recommendations with respect to the SBIR 
program. After more than 3 years of research and analysis, the 
NRC study released its assessment of the SBIR program as 
administered by the five federal agencies that together make up 
some 96 percent of SBIR program expenditures in July 2007.\2\
---------------------------------------------------------------------------
    \2\The agencies examined by the NRC study, in order of program 
size, are the Department of Defense, the National Institutes of Health, 
the National Aeronautics and Space Administration, the Department of 
Energy, and the National Science Foundation.
---------------------------------------------------------------------------
    The core finding of the study is that the SBIR program is 
sound in concept and effective in practice. In support of the 
report's core finding, the NRC concludes that the SBIR program 
is: 1) stimulating technological innovations, 2) increasing 
private sector commercialization of innovations, 3) using small 
business to meet federal research and development needs and 4) 
providing widely distributed support for innovation activity. 
Notable among the Academies' key findings are the following 
conclusions:
    SBIR is Linking Universities to the Public and Private 
Markets--Over a third of respondents to the NRC survey reported 
university involvement in their SBIR project. More than two-
thirds of companies reported that at least one founder was 
previously an academic. About one-third of founders were most 
recently employed as academics before founding the company. 
Some 27 percent of projects had university faculty as 
contractors on the project, 17 percent used universities 
themselves as subcontractors, and 15 percent employed graduate 
students.
    SBIR is a Commercial Enabler for Small Firms--Just over 20 
percent of companies responding to the NRC Phase II Recipient 
Survey indicated that they were founded entirely or partly 
because of a prospective SBIR award. Companies responding to 
the same survey reported that over two-thirds of SBIR projects 
would not have taken place without SBIR funding. Although the 
data vary by agency, respondents to the Committee's Phase II 
recipient survey indicate that just under half of the projects 
do reach the marketplace.
    SBIR is Helping Agencies Meet Their Procurement Needs--At 
the Department of Defense, the Navy has achieved significant 
success in improving the insertion of SBIR-funded technologies 
into the acquisition process. At DoD, the growing importance of 
the SBIR program within the defense acquisition system is 
reflected in the growing interest of prime contractors, who are 
seeking opportunities to be in support of SBIR projects--a key 
step toward acquisition.
    SBIR is Providing Widely Distributed Support for Innovation 
Activity--During the fourteen years between 1992 and 2005, more 
than 14,800 firms received at least one Phase II award, 
according to the SBA's SBIR database. Each year, over one third 
of the firms awarded SBIR funds participate in the program for 
the first time.

         THE NEED TO REAUTHORIZE AND MODERNIZE THE SBIR PROGRAM

    Statutory authorization for the SBIR program and the STTR 
expire on September 30, 2008 and September 30, 2009, 
respectively. The positive evaluations of the SBIR program 
issued by independent research organizations and testimony 
presented to the Committee on Small Business in support of SBIR 
create the basis of support for H.R. 5819. Small firms, federal 
agencies, patient organizations, economic development 
organizations and academics have testified in strong support of 
reauthorization of the SBIR and STTR programs.
    During the eight years that have elapsed since Congress 
last passed legislation extending and modernizing the SBIR 
program, our country's R&D priorities and the role of small 
innovative companies in the U.S. economy have changed. The 
manner in which the participating federal agencies administer 
their SBIR programs has also changed over the last eight years. 
Reflective of these changes, participating small firms, 
participating federal agencies, research organizations and 
other interested parties support modernizing the SBIR program. 
Specifically, expert witnesses have testified that legislation 
is necessary in order to make the following important changes 
to SBIR program.

Increase SBIR funding level and improve the SBIR application process

    According to SBA data, small businesses employ one-third of 
the nation's scientists and engineers and produce 13 times more 
patents per employee than large patenting firms. Despite these 
and other indications that small firms are the originators of 
leading-edge technologies and products, only 4.3% of federal 
R&D dollars go to small companies. Federal R&D dollars 
administered by the SBIR program account for the majority of 
the R&D funds that small businesses receive from Federal 
agencies. Legislation is needed to expand the SBIR program so 
that small research firms are given a greater opportunity to 
conduct research and development projects on behalf of the 
Federal government. The legislation increases to 3% the SBIR 
share of federal dollars from its current level of 2.5%.
    In addition, the legislation makes two significant changes 
to the administration of the SBIR program designed to help 
improve the SBIR application process. The bill establishes a 
90-day timeline for issuing a final decision on an SBIR 
application and it directs Federal agencies to designate SBIR 
advisory boards that will include representatives of small 
business. These legislative provisions are needed to ensure 
that SBIR applicants are given a timely final decision on their 
applications and are provided an avenue to give Federal 
agencies feedback about how their SBIR programs can better meet 
the unique needs of small firms.

Permit multiple SBIR awards

    A number of the participating federal agencies have 
developed programs whereby they provide additional funding and 
support--beyond the support specifically delineated in the 
statute\3\--for small firms that have been awarded SBIR grants 
and contracts. Agencies posit that the programmatic flexibility 
provided for in the SBIR policy directive and statute has 
allowed participating agencies to develop and implement 
programs aimed at ``gap-funding'' between award phases and 
``commercialization assistance.'' These programs help small 
firms advance commercial readiness during and after Phase One 
and Phase Two awards.
---------------------------------------------------------------------------
    \3\A September 24, 2002 Policy Directive issued by the Small 
Business Administration allows Federal agencies participating in SBIR 
flexibility in the operation of their individual SBIR program.
---------------------------------------------------------------------------
    The Act provides Federal agencies the statutory authority 
to develop and implement multiple awards and gap funding 
programs designed to meet the unique needs to small firms and 
entrepreneurs. SBIR companies should be given discretion with 
The legislation is necessary to ensure that the Small Business 
Administration does not impose an inflexible cap-on SBIR awards 
dollar amounts or a prohibition on multiple awards. Changes to 
the SBIR program, such as these, would undermine initiatives at 
some Federal agencies that have successfully helped small firms 
commercialize SBIR-funded research and development.

Reauthorize and extend DoD Commercialization Pilot Program (CPP)

    Section 252 of the National Defense Authorization Act of 
FY2006, authorized the Secretary of Defense and the Secretary 
of each Military Department to establish a Commercialization 
Pilot Program (CPP). The Act grants military departments 
authority to establish pilot programs that enhance connectivity 
among SBIR firms, prime contractors, and DoD science and 
technology and acquisition communities in order to facilitate 
effective technology transfer. Authorization for the CPP 
expires at the end of fiscal year 2009. Legislation is needed 
to both reauthorize and extend the CPP and to provide other 
Federal agencies with the authority to develop 
commercialization initiatives similar to the DoD's CPP.

Permit small firms that have significant investments from qualified 
        venture capital companies to participate in the SBIR program

    To qualify for SBIR awards, small firms must affirm that 
they meet certain ownership criteria, such as being 51 percent 
or more owned by individuals who are U.S. citizens or permanent 
resident aliens. In 2003, an SBA administrative law judge 
issued a decision that venture capital firms could not be 
considered ``individuals'' for the purpose of satisfying the 
ownership criteria of the SBIR program. As a result, a number 
of firms that are majority-owned by venture capital firms that 
had once been eligible to participate (or did, in fact 
participate) in the SBIR program before the 2003 ruling are no 
longer eligible. Small venture-backed companies that have been 
ruled ineligible for SBIR are unable to secure necessary 
funding to conduct important research activities.
    The ruling created confusion among program participants and 
has led some firms to steer away from the program. Since 2003, 
NIH reports that SBIR applications have been decreasing and 
awards to new applicants are also decreasing. In FY 2006, only 
about one-forth of the awardees were new to the program--the 
lowest proportion in a decade. Many of the small research 
companies that are rendered ineligible by the SBA's 2003 ruling 
have fewer than 100 employees and--in the case of small 
biotechnology companies--no revenue.
    While it was asserted that venture-backed small businesses 
could access research awards through the non-SBIR portion of 
federal research budgets, this is not the case. While 97.5 
percent of federal agency research budgets are not subject to 
SBIR set-asides, nearly all of this amount (97.1 percent) is 
awarded to universities. This means that small businesses 
primary point of access to federal research contracts is 
through the SBIR program.
    Legislation is needed in order to ensure that small firms 
with significant (a majority) investment from venture capital 
operating companies can compete for and win SBIR awards. 
Legislation is also required to prohibit program participation 
of small business concerns that have a single venture capital 
company owning a majority of the concern or have a venture 
capital company controlling a majority of the concern's board 
of director's seats.

Reauthorize the Federal and State Technology Partnership Program (FAST)

    The SBIR reauthorization legislation that Congress passed 
during the 106th Congress included the authorization for 
funding of a ``Federal and State Technology Partnership Program 
(FAST)''. FAST was designed to promote awards in states that do 
not have a high volume of SBIR awards, and in low-income areas 
of all states. Authorization for the FAST program expired in 
2005. Legislation reauthorizing the FAST program is needed in 
order to encouraging small businesses that are owned and 
operated by women and minorities and small businesses located 
in geographic areas that are under represented in SBIR to apply 
for SBIR grants.

                             III. Hearings

    In the 110th Congress, the Committee on Small Business 
convened three hearings on the reauthorization of the SBIR 
program. On January 29, 2008, the House Committee on Small 
Business convened a hearing entitled ``SBIR: America's 
Technology Development Incubator.'' The hearing explored the 
numerous contributions that the SBIR program makes to national 
security priorities, economic development objectives and 
America's international economic competitiveness. On February 
13, 2008 the House Committee on Small Business, Subcommittee on 
Investigations and Oversight convened a hearing entitled 
``SBIR: Advancing Medical Innovations.'' The Subcommittee 
hearing examined the impact of the SBIR program on the 
development of innovative medical technologies, therapies and 
products. On March 13, 2008 the Committee on Small Business 
held a hearing to review a Committee Print of proposed 
legislation that would reauthorize and modernize the SBIR 
program.

                      IV. Committee Consideration

    The Committee on Small Business met in open session on 
April 17, 2008 at 12:45pm, and ordered H.R. 5819 reported, as 
amended, to the House by a recorded vote. Only one amendment, 
offered by Ms. Velazquez, was offered at the markup. That 
amendment was adopted by voice vote. The bill was ordered 
reported by a vote of 20-0.

                           V. Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. 
During committee consideration of the legislation, an amendment 
was offered by Ms. Velazquez. The amendment was agreed to by 
voice vote. A motion by Ms. Velazquez to report the bill, as 
amended, to the House with a favorable recommendation was 
AGREED to by a vote of 20-0.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

              VI. Section-by-Section Analysis of H.R. 5819


           TITLE I ``MODERNIZING THE SBIR AND STTR PROGRAMS''

Sec 101. Extended SBIR and STTR termination date

    The last SBIR reauthorization bill that Congress passed in 
2001 and extended the SBIR program for eight years. The length 
of this authorization did not require Congress to focus its 
attention on this important research and development program 
and allowed years to pass between formal Congressional 
inquiries into the SBIR program's implementation and 
effectiveness.
    This section reauthorizes and extends the SBIR program, 
which will expire on September 30, 2008, until September 30, 
2010. The two-year extension of the SBIR program provides for 
more regular Congressional oversight and evaluation of the SBIR 
and STTR programs. The one-year extension of STTR, which is due 
to expire on September 30, 2009, will encourage Congress to 
consider and reauthorize these complementary programs at the 
same time.

Sec 102. Increased Set Asides for SBIR and STTR Programs

    Since 1997, the SBIR program set aside has remained at 2.5 
percent of participating Federal agencies' extramural research 
budgets. The bill increases the existing SBIR set aside from 
2.5% to 3.0% beginning in fiscal year 2009 and each year 
thereafter. The bill also increases the STTR set aside from 
0.3% to 0.6% beginning in fiscal year 2009 and for each year 
thereafter. The purpose of the provision is to increase funding 
so that more small firms can participate in and contribute to 
Federal research and development activities. These higher set-
aside levels will also permit agencies to offer more awards 
given the potential for higher award sizes pursuant to section 
103.

Sec 103. Increased SBIR and STTR grant awards levels and permitted 
        agencies to exceed the grant levels

    Since 1992, the statutory prescriptions for SBIR award 
amounts have remained unchanged at $100,000 for a Phase One 
award and $750,000 for a Phase Two award. The Section increases 
the award levels at $300k for Phase One and $2.2 million for 
Phase Two for both the SBIR and STTR programs. The increase, 
which is greater than a simple indexing for inflation, is 
intended to encourage more small firms to apply for the awards. 
The amount designated by the Committee also recognizes the high 
costs associated with the development of valuable new 
technologies and therapies.
    The section also allows agencies to exceed the award levels 
that are prescribed in the legislation, if the agencies first 
notify the SBA and then provide subsequent reporting to 
Congress. Under current practice, Federal can (with a waiver 
from the Small Business Administration) exceed the award levels 
proscribed in the statute. The Committee acknowledges that 
large awards reduce the total number of small firms that 
receive awards. The Committee recognizes, however, that the 
Federal agencies that have exceeded the proscribed award levels 
are funding research at the level necessary to accomplish the 
Agencies' goals and supporting commercialization of promising 
research. As such, the Committee seeks to extend to 
participating agencies the authority to exceed the proscribed 
award levels, with the appropriate notifications and reporting 
requirements.

Sec 104. Established SBIR advisory boards at each participating agency

    Section 104 directs Federal agencies to establish or 
designate an SBIR Advisory Board. The purpose of the SBIR 
Advisory Boards is to provide SBIR applicants and STTR 
participants with a means to provide feedback to the agency on 
how the SBIR application process, technical support, 
commercialization assistance and other facets of the program 
might be improved. The SBIR Advisory Boards are also intended 
to provide an oversight function. The Committee's intent is 
that Federal agencies will provide the SBIR Advisory Boards 
with quarterly reports on the agencies' SBIR programs and will 
respond to questions and recommendations from their SBIR 
Advisory Boards. The quarterly reports should include 
information such as agency's outreach efforts, and 
commercialization assistance. The quarterly reports should also 
provide the Advisory Board with appropriate SBIR program data, 
as requested by the Board.
    The Advisory Boards will submit a written report to 
Congress. In this report, the Advisory Board will provide an 
assessment of the agencies SBIR program, including the agencies 
efforts to encourage applications and advance commercialization 
of SBIR-funded research projects. The annual report must also 
state the number and dollar amount of awards under the agency's 
SBIR and STTR programs that were made to small business 
concerns owned and controlled by women, small business concerns 
owned and controlled by minorities, small business concerns 
owned and controlled by veterans and small business concerns in 
States and regions that historically receive few SBIR awards.

Sec 105. Increased technical assistance funds for Phase One and Phase 
        Two awardees

    The Section increases currently available technical 
assistance funds for Phase One awardees and Phase Two grantees. 
The Section also directs Federal agencies to allow Phase One 
grantees to ``opt-out'' of the agency's technical assistance 
program in favor of a $2,500 payment which shall be in addition 
to the amount of the awardees grant and which the awardee shall 
use to purchase technical assistance services. The section also 
requires agencies to select technical assistance vendors for a 
term not to exceed three years. The Committee intends the 
selection of technical assistance vendors to be based on 
competitive and merit based criteria.

Sec 106. Required Federal agencies to issue at least two research 
        solicitations each year and must issue annually and requires 
        Federal agencies to render a decision on an SBIR application 
        within 90 days after the solicitation closes

    The intension of the section is to ensure that each agency 
issues at least two rounds of SBIR research solicitations each 
year. A single, annual solicitation forces many small firms to 
wait a year or more to have their SBIR application(s) 
evaluated. The Committee is concerned that the length of this 
delay can discourage potential applicants. The Section also 
directs Federal agencies to render a final decision on each 
proposal 90 days after the date a solicitation closes. A clear 
timeline will allow applicants to better forecast and prepare 
for receipt of potential SBIR awards. Recognizing that the 
agencies will not be able to meet with this directive in all 
cases, the section provides the agencies' SBIR Advisory Boards 
with the authority to extend the 90-day deadline to a 180-day 
deadline on a case by case basis.

Sec 107. Added an energy research report and a rare-disease research 
        report to the list of research reports deserving of special 
        consideration

    The intention of this section is to expand the number of 
research reports deserving of special attention. The Committee 
expects that those who are responsible for the creation of SBIR 
solicitations to give special consideration to the findings of 
the two important research reports referenced in the section.

Sec 108. Directed agencies to fund vital R&D projects with the 
        potential for commercialization

    Section calls on the SBA to release to the Committees on 
Small Business and the House Committee on Science and 
Technology the names of firms that have received 15 Phase 1 
grants and zero Phase 2 grants in a five year period. The 
intention of the provision is to ensure that the Congressional 
Committees of jurisdiction have access to data about SBIR 
awardees that have received a large number of Phase One grants 
and have not received a Phase Two award.

Sec 109. Directed the Small Business Administration to develop quality 
        metrics that will help agencies limit awards to so-called `SBIR 
        Mills'

    The Committee expects that the Administrator of the Small 
Business Administration shall ``develop quality metrics that 
can assist agencies in developing standards to limit the 
perceived effect of so-called `SBIR Mills'.''\4\ The Committee 
further expects that the Administrator of the Small Business 
Administration will incorporate these metrics into the SBIR 
policy directives.
---------------------------------------------------------------------------
    \4\From the statement of Administrator Steven C. Preston delivered 
to the House Committee on Small Business on March 13, 2008.
---------------------------------------------------------------------------

Sec 110. Allowed Federal agencies to issue cross-agency awards and 
        allow applicants to apply directly to Phase Two awards

    The intention of the cross-agency award provision is to 
provide agencies with the authority to issue a Phase Two award 
to a company that has received a Phase One or Phase Two grant 
from another Federal agency, so long as the head of each agency 
makes a written determination that the topics of the relevant 
awards are the same. The Committee also intends to extend to 
Federal agencies the authority to grant a Phase Two award for a 
research project that has not been issued a Phase One award, so 
long as the applicant can demonstrate it has accomplished Phase 
One. The purpose of both provisions is to provide agencies with 
programmatic flexibility such that they can meet the unique 
needs of small research firms applying for SBIR grants.

Sec. 111 Directs GAO to carry out an audit of processes by which 
        Federal agencies calculate their extramural research budgets

    This provision is intended to improve accountability of the 
way Federal agencies determine what is ``extramural'' and what 
is ``intramural''. The Committee is not aware of the existence 
of independent audits that confirm that the agencies are 
performing these calculations correctly. A GAO report analyzing 
this issue will provide more transparency to these 
calculations.

           TITLE II ``VENTURE CAPITAL INVESTMENT STANDARDS''

Sec. 201. Ensuring that innovative small businesses with substantial 
        investment from venture capital operating companies are able to 
        participate in the SBIR program

    This provision permits small businesses with majority 
investment from venture capital companies to participate in the 
SBIR and STTR program. It reverses a policy that resulted from 
a 2003 SBA administrative ruling that placed a restriction on 
such majority venture capital investment. The Committee has 
found that small businesses engaged in federal research require 
sufficient sources of external capital to successfully 
commercialize their research. This is readily apparent in the 
medical and defense industries, but also in other fields 
including transportation and energy. As a result, the Committee 
believes that the overriding policy focus should be on 
enhancing small firms' access to financing--including equity 
investment in the form of venture capital.
    The Committee understands that many research companies, in 
particular those that are small, do not possess positive 
revenue streams. This makes access to venture capital even more 
critical, as such investment often does not require an 
immediate return. This limits the impact on small businesses' 
cash flow and increases their ability to carry out their 
research activities. The Committee also recognizes that 
Congress has placed significant weight on small SBIR firms' 
ability to secure non-federal private funding. This emphasis is 
clearly apparent in section 9(e)(4)(B)(ii) and 9(e)(4)(C)(i) of 
the Small Business Act and suggests that reopening sources of 
external financing such as venture capital is aligned with 
Congress's intent in establishing the SBIR program.
    To accomplish this, the section specifies that portfolio 
companies of venture capital companies are not affiliated with 
the venture capital company itself or other portfolio companies 
of the same venture capital company for the purposes of the 
SBIR and STTR program. This treatment for affiliation is 
sensible for the venture capital industry as employees of one 
portfolio company do not regularly provide uncompensated 
services for, nor are they regularly dually employed by, other 
portfolio companies. In fact, it is not uncommon for portfolio 
companies of the same venture capital company to be in the same 
industry sector as other portfolio companies and even compete 
with one another. As a result, the Committee believes that 
small business concerns with venture capital investment should 
not have employees from other portfolio companies of the same 
venture capital company counted as its own employees.
    In addition, this provision deems a small business concern 
with venture capital investment to be independently owned and 
operated. The nature of venture capital is to provide 
investment capital and not long-term control of a business. The 
business concern retains day-to-day control over the 
operations, as well as significant ownership. The venture 
capital acts as an investor seeking financial profits--not an 
entity seeking outright ownership and operational control. The 
Committee finds no evidence that venture capital companies are 
investing in small business concerns solely to access SBIR 
funds--rather they are seeking to benefit as an investor in the 
underlying research. Often a venture capital company divests 
itself within seven years of its initial investment. As a 
result, the Committee believes that treating SBIR-eligible 
small business concerns with venture capital investment as 
independently owned and operated is appropriate.
    In both dealing with the affiliation standard and the 
independently owned and operated standard, the legislation is 
limited to small business concerns that: (1) do have a single 
venture capital company owning a majority of the concern and 
(2) do not have a venture capital company controlling a 
majority of the concern's board of director's seats. This 
ensures that while a majority of a small business concern may 
be owned by venture capital companies, no single venture 
capital company can own a majority.
    Finally, the legislation defines venture capital company 
for the purposes of this Act, including requiring that such 
entity have less than 500 employees and be domiciled in the 
United States. It also prevents the venture capital operating 
company from being controlled by a business that is not a small 
business concern. The Committee does not believe means testing 
venture capital companies with an asset-based limitation or 
restricting certain investors because of their personal wealth 
is appropriate or aligned with the interests of small, high 
growth, research-oriented businesses. Such constraints serve 
only to impair the underpinnings of a market-based economy and 
would impair the free flow of capital to small businesses. Such 
federal government intervention in the capital markets and such 
regulation of financial transactions is inconsistent with the 
needs of small firms participating in the SBIR program.
    The amendment adopted by the Committee amends section 201. 
The amendment clarifies the role that corporate-owned venture 
capital companies can play when investing in SBIR-eligible 
companies. Under current law, corporate-owned venture capital 
companies can invest in SBIR-eligible companies, so long as 
they do constitute a majority ownership share of the small 
business concern. The original legislation prevented such 
investment by corporate-owned venture capital companies and 
this amendment clarifies that such investment is still 
permissible subject to certain limitations. The amendment 
specifies that such a corporate-owned venture capital company 
can only own up to 10 percent of an SBIR eligible small 
business concern and that such SBIR eligible small business 
concern can only have investment from one such corporate-owned 
venture capital company.

              TITLE III ``SBIR AND ECONOMIC DEVELOPMENT''

Sec 301. Modernized and reauthorized the Federal and State Technology 
        (FAST) Program and expands the program to support application 
        support for eligible small businesses

    The provisions will establish an annual $10,000,000 
competitive grant program where organizations in all fifty 
states can submit proposals to conduct SBIR outreach efforts 
and/or application support and business skills development 
efforts directed at small businesses in underrepresented states 
and regions, women-, service-disabled veterans- and minority-
owned small businesses. The provisions are intended to increase 
the number of small firms applying for awards, increase the 
number of small companies owned and controlled by women and 
minorities that apply for SBIR awards, and encourage economic 
development organizations to develop effective programs to 
increase the size of the SBIR economy in their State.
    The Committee expects that, not later than 90 days after 
the date of enactment of this subsection, the Administrator of 
the Small Business Administration will establish an Advisory 
Board for the FAST program. The Board will develop guidelines 
for the administration of the FAST program that are consistent 
with the statutory direction provided in Title III of HR 5918. 
The Committee expects that the Advisory Board will serve as 
stewards of the FAST program and will submit an annual report 
to Congress on the effectiveness and impact of the program.

Sec 302. Implemented a voluntary means for SBIR applicants to release 
        their contact information of state and local economic 
        development organizations

    The section directs Federal agencies to enable SBIR 
applicants to permit the Federal agency to identify the 
applicant to appropriate local and state-level economic 
development organizations and release the concern's contact 
information to such organizations. The Committee expects that 
Federal agencies will make necessary changes to the SBIR 
application forms in order to comply with the requirements of 
this section. The Committee also expects that Federal agencies 
will respond to the data requests from appropriate local and 
State-level economic organizations and provide the data in a 
timely manner.

    TITLE IV ``ADVANCING COMMERCIALIZATION OF SBIR-FUNDED RESEARCH''

Sec 401. Clarified the definition of Phase Three and specified the 
        appropriate measures for assessing whether a Phase Two project 
        has successfully transitioned to Phase Three

    The purpose of the provision is to identify metrics that 
Federal agencies can use to measure how many of the Phase Two 
projects they fund have successfully reached Phase Three of the 
SBIR program. The Committee expects that a definition of 
``Phase Three'' of the SBIR program will provides a basis for 
agencies to set goals for successful commercialization of SBIR-
funded research.

Sec 402. Directed agencies to develop annual goals associated with 
        commercialization of SBIR-funded projects

    The Section requires that agencies must establish annual 
goals associated with (1) the percentage of SBIR projects that 
receive Phase Three funds, (2) the percentage of SBIR projects 
that are integrated into a program of record and (3) the amount 
of non-SBIR federal dollars received by SBIR projects through 
Federal contracts. The Committee expects that each Federal 
agency that awards annually $5,000,000,000 or more in 
procurement contracts shall submit to the agency's SBIR 
Advisory Board annual goals for commercialization and data on 
the extent to which the goals were met. The Committee expects 
that the report that agencies make to the SBIR Advisory Board 
will include a description of the methodology used to collect 
the data.

Sec 403. Permitted multiple Phase Two awards for promising research

    The section permits the issuance of Phase Two awards for 
testing and evaluation assistance associated with the insertion 
of SBIR technologies in technical and weapons systems. The 
Committee provides Federal agencies with this explicit 
authority with the intention that agencies will issue multiple 
Phase II awards in order to ensure that a greater number of 
SBIR research projects cross the so-called ``valley of death.'' 
Because the Committee is concerned that agency decisions to 
issue multiple Phase Two awards can mean that fewer SBIR 
applicants are awarded SBIR grants, the section also requires 
agencies to provide quarterly reports to their SBIR advisory 
boards. The Committee expects that the quarterly reports to the 
Advisory Board will include the number of projects that receive 
additional Phase Two awards and the total dollar amount of the 
multiple awards. The Committee also expects that the Advisory 
Boards will include the same data in their annual reports to 
Congress.

Sec 404. Required Federal agencies to establish a means to encourage 
        partnerships that facilitate a SBIR grantee's progress to Phase 
        Three

    The Committee expects that each Federal agency that 
administers an SBIR program shall establish initiatives that 
will encourage partnerships between SBIR awardees and prime 
contractors, venture capital operating companies and larger 
businesses. The purpose of these provisions is to facilitate 
the progress of SBIR awardees to Phase Three of the SBIR 
program. The Committee intends the agencies shall include data 
about these initiatives in the reports to their SBIR Advisory 
Board. The Committee intends that the Advisory Board will 
include an assessment of the effectiveness of the initiatives 
in their annual report to Congress.

Sec 405. Authorized Federal agencies to award Phase Two grants on an 
        accelerated timetable

    A funding gap of 6 to 12 months (which is the timeframe 
that often separates a Phase One and Phase Two grant) can 
derail a small company's ability to continue its research. To 
address this issue, the Committee provided authority to 
agencies to issue Phase Two awards on a timeline that bests 
supports the development of promising research and 
technologies. The Committee intends agencies to issue Phase Two 
SBIR awards to promising Phase One awardees as soon as is 
practicable, including in appropriate cases simultaneously with 
the issuance of the Phase One award.

Sec 406 Directed all agencies to develop commercialization programs and 
        authorized appropriation of funds to support the administration 
        of commercialization programs

    Section requires that agencies establish efforts designed 
to support SBIR-funded research projects transition to Phase 
Three. Section also authorizes an annual appropriation to the 
Small Business Administration of $27,500,000 that the SBA will 
transfer to Federal agencies administering SBIR programs.
    The Committee intends that Federal agencies will develop 
commercialization programs and in doing so will consider 
initiatives such as partnership databases, partnership 
conferences, multiple Phase Twos, mentoring between Primes and 
SBIR, multiple Phase Two with matching private investment 
requirements, jumbo awards, SBIR Helpdesks, and Transition 
Assistance Programs. The Committee intends for the agencies to 
petition the Small Business Administration in order to receive 
funds to pay for the administration of programs designed to 
help SBIR-funded research projects transition to Phase Three.
    The Committee expects that, not later that 90 days after 
the day of enactment of this section, the Administrator of the 
Small Business Administration will, in consultation with the 
Interagency Policy Committee established in Section 503 of the 
Act, will develop and establish rules for making transfer to 
agencies that have developed or are developing SBIR 
commercialization programs.

Sec 407. Required agencies to report on the actions they are taking to 
        strengthen research in the area of manufacturing technology

    The provision requires Federal agencies to report to their 
SBIR Advisory Board on the actions that the agency has 
undertaken in support of Executive Order 13329. A 2006 Defense 
Science Board Study concluded that the President's Executive 
order directing a manufacturing emphasis for SBIR and STTR has 
not been adequately addressed. The Committee's intention with 
this provision is to encourage Federal agencies to recognize 
the importance of research projects that advance manufacturing 
technology.

               TITLE V ``SUPPORTING PROGRAM UTILIZATION''

Sec 501. Required Federal agencies to develop and maintain SBIR and 
        STTR program evaluation databases that can be accessed by other 
        agencies

    The intention of the section is to increase the data that 
Federal agencies collect about the small business concerns that 
participate in the SBIR and STTR programs and to require that 
Federal agencies develop a database for the purpose of program 
evaluation.

Sec 502. Required each Federal agency to create and maintain a 
        technology utilization database that is available to the public

    The purpose of this section is to direct Federal agencies 
to establish technology databases designed to attract investors 
and potential business partners to the small companies that are 
participating in SBIR.

Sec 503. Established an Interagency SBIR/STTR Policy Committee and 
        requires the Committee to report on SBIR/STTR issues to 
        Congress

    The purpose of this section is to establish an Interagency 
SBIR/STTR Policy Committee that will examine the programmatic 
challenges facing all agencies administering SBIR/STTR programs 
and develop recommendations on ways to improve program 
effectiveness and efficiency. The Committee will report to 
Congress twelve months, eighteen months and twenty-four months 
after the date of enactment of this section on its progress.

Sec 504. Added nanotechnology research to the SBIR statute's list of 
        research topics deserving of special consideration

    The intention of this section is to expand the number of 
research reports deserving of special attention to include 
reports on nanotechnology research. The Committee expects that 
those who are responsible for the creation of SBIR 
solicitations to give special consideration to the findings of 
the reports referenced in the section.

Sec 505. Specified that increasing SBIR participation from rural 
        businesses shall be a priority of federal SBIR agencies

    The intention of this section is to increase the number of 
rural businesses that receive SBIR awards. Federal agencies are 
directed to give priority to applications submitted by rural 
companies.

                      TITLE VI ``IMPLEMENTATION''

    Sec 601. This section requires the Administrator of the 
Small Business Administration to promulgate amendments to the 
SBIR and STTR Policy Directives to conform to the Act.
    Sec 602. This section removes the authorization established 
in the Small Business Reauthorization Act of 2000 that the 
National Research Council provide an updated report on the SBIR 
program.

             VII. Congressional Budget Office Cost Estimate

    The legislation is under review by CBO and an estimate will 
be made part of the Congressional Record prior to consideration 
of the legislation by the House. The CBO has provided a letter 
that the legislation includes no direct spending and complies 
with House Rules.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 17, 2008.
Hon. Nydia M. Velazquez,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Madam Chairman: The Congressional Budget Office is 
reviewing H.R. 5819, the SBIR/STTR Reauthorization Act, as 
ordered reported by the Committee on Small Business on April 
17, 2008. Enacting the bill would have no impact on direct 
spending or revenues. CBO will provide an estimate of the 
bill's effects on discretionary spending next week.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                         Robert A. Sunshine
                                   (For Peter S. Orszag, Director).

                   VIII. Committee Estimate of Costs

    Clause 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
H.R. 5819. The legislation is under review by CBO and an 
estimate will be made part of the Congressional Record prior to 
consideration of the legislation by the House. The Committee 
estimates that the bill could cost in excess of $100 million 
over the two year authorization. As such, the committee 
estimates the 5-year budgetary impact would be $100 million.

                         IX. Oversight Findings

    In accordance with clause (2)(b)(1) of rule X of the Rules 
of the House of Representatives, the oversight findings and 
recommendations of the Committee on Small Business with respect 
to the subject matter contained in H.R. 5819 are incorporated 
into the descriptive portions of this report.

                X. Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Section 8, clause 18, of the 
Constitution of the United States.

                  XI. Compliance With Public Law 104-4

    H.R. 5819 contains no unfunded mandates.

                 XII. Congressional Accountability Act

    H.R. 5819 does not relate to the terms and conditions of 
employment or access to public services or accommodations with 
the meaning of section 102(b)(3) of P.L. 104-1.

               XIII. Federal Advisory Committee Statement

    This legislation does not establish or authorize the 
establishment of any new advisory committees.

                     XIV. Statement of No Earmarks

    Pursuant to clause 9 of rule XXI, H.R. 5819 does not 
contain any congressional earmarks, limited tax benefits, or 
limited tariff benefits as defined in clause 9(d), 9(e), or 
9(f) of rule XXI.

                  XV. Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 5819 includes a number of provisions designed to 
modernize and make more effective the Small Business Innovation 
Research (SBIR) and Small Business Technology Transfer (STTR) 
programs.

       XVI. Changes in Existing Law Made by the Bill, as Reported

    The Ramseyer Print for H.R. 5819 was not available at time 
of the filing of report. A Ramseyer version will be made part 
of the Congressional Record.

 Committee on Small Business Markup of Pending Legislation, April 17, 
                                  2008


              H.R. 5819, The SBIR/STTR REAUTHORIZATION ACT
------------------------------------------------------------------------
                                  Amendment
            Sponsor                 Number            Description
------------------------------------------------------------------------
Velazquez......................           01  The amendment will permit
                                               certain venture capital
                                               companies to play a role
                                               in the financing of SBIR
                                               firms.
------------------------------------------------------------------------