House Report 111-190, Part 1 - 111th Congress (2009-2010)

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House Report 111-190 - ENHANCING SMALL BUSINESS RESEARCH AND INNOVATION ACT OF 2009

[House Report 111-190]
[From the U.S. Government Publishing Office]


111th Congress                                            Rept. 111-190
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

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



 
      ENHANCING SMALL BUSINESS RESEARCH AND INNOVATION ACT OF 2009

                                _______
                                

                 June 26, 2009.--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. 2965]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 2965) to amend the Small Business Act with respect 
to the Small Business Innovation Research Program and the Small 
Business Technology Transfer 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

                                                                   Page
  I. Purpose of the Bill and Summary.................................11
 II.  Background and Need for Legislation............................13
III.  Hearings.......................................................18
 IV.  Committee Consideration........................................18
  V.  Committee Votes................................................18
 VI.  Section-by-Section Analysis of H.R. 2965.......................22
VII.  Congressional Budget Office Cost Estimate......................30
VIII. Committee Estimate of Costs....................................30

 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...............................31
XVI.  Changes in Existing Law Made by the Bill, as Reported..........31
  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 ``Enhancing Small 
Business Research and Innovation Act of 2009''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

   TITLE I--PROGRAM EXTENSION AND VENTURE CAPITAL OPERATING COMPANY 
                              INVOLVEMENT

Sec. 101. Extension of termination dates.
Sec. 102. Ensuring that innovative small businesses with substantial 
investment from venture capital operating companies are able to 
participate in the SBIR and STTR programs.

 TITLE II--COMMERCIALIZATION ACTIVITIES AND RESEARCH TOPICS DESERVING 
                         SPECIAL CONSIDERATION

Sec. 201. Focus on commercialization.
Sec. 202. Inclusion of energy-related research topics and rare disease-
related research topics as deserving ``special consideration'' as SBIR 
research topics.
Sec. 203. Nanotechnology-related research topics.
Sec. 204. Clarifying the definition of ``Phase Three''.
Sec. 205. Agency research goals.
Sec. 206. Commercialization programs.

               TITLE III--RURAL DEVELOPMENT AND OUTREACH

Sec. 301. Outreach and support activities.
Sec. 302. Rural preference.
Sec. 303. Obtaining SBIR applicant's consent to release contact 
information to economic development organizations.
Sec. 304. Increased partnerships between SBIR awardees and prime 
contractors, venture capital investment companies, and larger 
businesses.

                  TITLE IV--SBIR AND STTR ENHANCEMENT

Sec. 401. Increased number of research topic solicitations annually and 
shortened period for final decisions on applications.
Sec. 402. Agencies should fund vital R&D projects with the potential 
for commercialization.
Sec. 403. Federal agency engagement with SBIR awardees that have been 
awarded multiple Phase One awards but have not been awarded Phase Two 
awards.
Sec. 404. Funding for administrative, oversight, and contract 
processing costs.
Sec. 405. Comptroller general audit of how Federal agencies calculate 
extramural research budgets.
Sec. 406. Agency databases to support program evaluation.
Sec. 407. Agency databases to support technology utilization.
Sec. 408. Interagency Policy Committee.
Sec. 409. National Research Council SBIR Study.
Sec. 410. Express authority to ``fast-track'' Phase Two awards for 
promising Phase One research.
Sec. 411. Increased SBIR and STTR award levels.
Sec. 412. Express authority for an agency to award sequential Phase Two 
awards for SBIR-funded projects.
Sec. 413. First phase required.
Sec. 414. Involvement of Chief Counsel for Advocacy.

   TITLE I--PROGRAM EXTENSION AND VENTURE CAPITAL OPERATING COMPANY 
                              INVOLVEMENT

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 ``2011''.
  (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 ``2011''.

SEC. 102. ENSURING THAT INNOVATIVE SMALL BUSINESSES WITH SUBSTANTIAL 
                    INVESTMENT FROM VENTURE CAPITAL OPERATING COMPANIES 
                    ARE ABLE TO PARTICIPATE IN THE SBIR AND STTR 
                    PROGRAMS.

  Section 9 of the Small Business Act (15 U.S.C. 638) is amended by 
adding at the end the following:
  ``(aa) Venture Capital Operating Companies.--Effective only for the 
SBIR and STTR programs the following shall apply:
          ``(1) A business concern that has more than 500 employees 
        shall not qualify as a small business concern.
          ``(2) 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--
                  ``(A) the venture capital operating company does not 
                own 50 percent or more of the business concern; and
                  ``(B) employees of the venture capital operating 
                company do not constitute a majority of the board of 
                directors of the business concern.
          ``(3) A business concern shall be deemed to be `independently 
        owned and operated' if--
                  ``(A) it is owned in majority part by one or more 
                natural persons or venture capital operating companies;
                  ``(B) there is no single venture capital operating 
                company that owns 50 percent or more of the business 
                concern; and
                  ``(C) there is no single venture capital operating 
                company the employees of which constitute a majority of 
                the board of directors of the business concern.
          ``(4) If a venture capital operating company controlled by a 
        business with more than 500 employees (in this paragraph 
        referred to as a `VCOC under large business control') has an 
        ownership interest in a small business concern that is owned in 
        majority part by venture capital operating companies, the small 
        business concern is eligible to receive an award under the SBIR 
        or STTR program only if--
                  ``(A) not more than two VCOCs under large business 
                control have an ownership interest in the small 
                business concern; and
                  ``(B) the VCOCs under large business control do not 
                collectively own more than 20 percent of the small 
                business concern.
          ``(5) The term `venture capital operating company' means a 
        business concern--
                  ``(A) 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--
                                  ``(I) is registered under the 
                                Investment Company Act of 1940 (15 
                                U.S.C. 80a-51 et seq.); or
                                  ``(II) is an investment company, as 
                                defined in section 3(c)(1) of such Act 
                                (15 U.S.C. 80a-3(c)(1)), which is not 
                                registered under such Act because it is 
                                beneficially owned by less than 100 
                                persons; and
                  ``(B) 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 II--COMMERCIALIZATION ACTIVITIES AND RESEARCH TOPICS DESERVING 
                         SPECIAL CONSIDERATION

SEC. 201. FOCUS ON COMMERCIALIZATION.

  Section 9(a) of the Small Business Act (15 U.S.C. 638(a)) is amended 
by adding at the end the following: ``It is further the policy of 
Congress that the programs established in this section should focus on 
promoting research and development of projects governed by commercial 
business plans, which have significant potential to produce products or 
services for the marketplace or for acquisition by Federal agencies.''.

SEC. 202. 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) in subparagraph (A) by striking ``or'' at the end; 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
                  ``(E) the National Academy of Sciences, in the final 
                report issued by the `Transit Research and Development: 
                Federal Role in the National Program' project and the 
                `Transportation Research, Development and Technology 
                Strategic Plan (2006-2010)' issued by the United States 
                Department of Transportation Research and Innovative 
                Technology Administration, and in subsequent reports 
                issued by the National Academy of Sciences and United 
                States Department of Transportation on transportation 
                and infrastructure;''.

SEC. 203. NANOTECHNOLOGY-RELATED RESEARCH TOPICS.

  (a) SBIR.--Section 9(g)(3) of the Small Business Act (15 U.S.C. 
638(g)(3)), as amended, is further amended--
          (1) in subparagraph (D) by striking ``or'' at the end;
          (2) in subparagraph (E) by adding ``or'' at the end; and
          (3) by adding at the end the following:
                  ``(F) 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)(3) of the Small Business Act (15 U.S.C. 
638(o)(3)) is amended--
          (1) in subparagraph (A) by striking ``or'' at the end;
          (2) in subparagraph (B) by adding ``or'' at the end; and
          (3) by adding at the end the following:
                  ``(C) 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;''.

SEC. 204. 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) 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')'';
          (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. 205. AGENCY RESEARCH GOALS.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further 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 2010 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 committees.--For each fiscal year for 
        which goals are required by paragraph (1), the agency 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) 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 such data.''.

SEC. 206. COMMERCIALIZATION PROGRAMS.

  Section 9 of the Small Business Act (15 U.S.C. 638) as amended, is 
further amended, by adding at the end the following:
  ``(bb) Commercialization Programs.--
          ``(1) In general.--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.
          ``(2) 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 
                2010 and each fiscal year thereafter.
          ``(3) Funding limitation.--For payment of expenses incurred 
        to administer the commercialization programs described in 
        paragraphs (1) and (2), the head of an agency may use not more 
        than an amount equal to 1 percent of the funds set aside for 
        the agency's 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 Federal Government.''.

               TITLE III--RURAL DEVELOPMENT AND OUTREACH

SEC. 301. OUTREACH AND SUPPORT ACTIVITIES.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further 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) Authorization of appropriations.--There is authorized 
        to be appropriated to the Administrator $10,000,000 to carry 
        out paragraph (1) for each of fiscal years 2010 and 2011.
          ``(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), including guidelines relating to 
                        award sizes, proposal requirements, measures 
                        for monitoring awardee performance, and 
                        measures for determining the 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), 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) 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).
                          ``(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) 
                        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;
                  ``(C) criteria designed to give preference to 
                applicants who propose to measure the effectiveness of 
                the proposed activities; and
                  ``(D) criteria designed to give preference to 
                applicants who include a Small Business Development 
                Center program that is accredited for its technology 
                services.
          ``(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 awards.--In making awards 
        under paragraph (1) the Administrator shall ensure that 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. RURAL PREFERENCE.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(cc) 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.''.

SEC. 303. 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), as amended, is 
further amended by adding at the end the following:
  ``(dd) Consent To Release Contact Information to Organizations.--
          ``(1) 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--
                  ``(A) identify the concern to appropriate local and 
                State-level economic development organizations as an 
                SBIR applicant; and
                  ``(B) release the concern's contact information to 
                such organizations.
          ``(2) Rules.--The Administrator shall establish rules to 
        implement this subsection. 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 paragraph (1).''.

SEC. 304. INCREASED PARTNERSHIPS BETWEEN SBIR AWARDEES AND PRIME 
                    CONTRACTORS, VENTURE CAPITAL INVESTMENT COMPANIES, 
                    AND LARGER BUSINESSES.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(ee) Increased Partnerships.--
          ``(1) In general.--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, 
        business incubators, and larger businesses, for the purpose of 
        facilitating the progress of the SBIR awardees to the third 
        phase.
          ``(2) Definition.--In this subsection, the term `business 
        incubator' means an entity that provides coordinated and 
        specialized services to entrepreneurial businesses which meet 
        selected criteria during the businesses' startup phases, 
        including providing services such as shared office space and 
        office services, access to equipment, access to 
        telecommunications and technology services, flexible leases, 
        specialized management assistance, access to financing, 
        mentoring and training services, or other coordinated business 
        or technical support services designed to provide business 
        development assistance to entrepreneurial businesses during 
        these businesses' startup phases.''.

                  TITLE IV--SBIR AND STTR ENHANCEMENT

SEC. 401. INCREASED NUMBER OF RESEARCH TOPIC SOLICITATIONS ANNUALLY AND 
                    SHORTENED PERIOD FOR FINAL DECISIONS ON 
                    APPLICATIONS.

  (a) Increased Number of Research Topic Solicitations Annually.--
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 the Small Business Act (15 U.S.C. 638(g)(4)) is amended by 
inserting before the semicolon at the end the following: ``, but a 
final decision on each proposal shall be rendered not later than 90 
days after the date on which the solicitation closes unless the 
Administrator determines, on a case by case basis, that a decision may 
be extended from 90 days to 180 days''.

SEC. 402. AGENCIES SHOULD FUND VITAL R&D PROJECTS WITH THE POTENTIAL 
                    FOR COMMERCIALIZATION.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(ff) Multiple First Phase SBIR Awards Report.--The Administrator 
shall, on an annual basis, 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 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. 403. FEDERAL AGENCY ENGAGEMENT WITH SBIR AWARDEES THAT HAVE BEEN 
                    AWARDED MULTIPLE PHASE ONE AWARDS BUT HAVE NOT BEEN 
                    AWARDED PHASE TWO AWARDS.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(gg) Requirements Relating to Federal Agency Engagement With 
Certain First Phase SBIR Awardees.--Each Federal agency required by 
this section to conduct an SBIR program shall engage with SBIR awardees 
that have been awarded multiple first phase SBIR awards but have not 
been awarded any second phase SBIR awards and shall develop performance 
measures with respect to awardee progression in the SBIR program.''.

SEC. 404. FUNDING FOR ADMINISTRATIVE, OVERSIGHT, AND CONTRACT 
                    PROCESSING COSTS.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(hh) Assistance for Administrative, Oversight, and Contract 
Processing Costs.--
          ``(1) In general.--From amounts made available to carry out 
        this subsection, the Administrator may, on petition by Federal 
        agencies required by this section to conduct an SBIR program, 
        transfer funds to such agencies to assist with the 
        administrative, oversight, and contract processing costs 
        relating to such program.
          ``(2) Petitions.--The Administrator shall establish rules for 
        making transfers under paragraph (1). The initial set of rules 
        shall be promulgated not later than 180 days after the date of 
        the enactment of this subsection.
          ``(3) Limit on transfer.--A Federal agency may not receive 
        under this subsection in a fiscal year an amount greater than 3 
        percent of the SBIR budget of such agency for such fiscal year.
          ``(4) Authorization of appropriations.--There is authorized 
        to be appropriated to the Administrator to carry out this 
        subsection $27,500,000 for each of fiscal years 2010 and 
        2011.''.

SEC. 405. 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 Program and Small Business Technology 
Transfer Program 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.

SEC. 406. 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 and available at the time 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. Each such database shall be developed and operated 
        in a manner to ensure that each such database is relevant to 
        and contributes to the agency's oversight and evaluation of the 
        SBIR and STTR programs. Paragraphs (4) and (5) apply to each 
        database under this paragraph.''.

SEC. 407. AGENCY DATABASES TO SUPPORT TECHNOLOGY UTILIZATION.

  Section 9(k) of the Small Business Act (15 U.S.C. 638(k)), as 
amended, 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. Each database created under 
        this paragraph shall be developed and operated in a manner to 
        ensure that each such database is relevant to and contributes 
        to the agency's oversight and evaluation of the SBIR and STTR 
        programs.''.

SEC. 408. 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 and the Office of Management and Budget.
  (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 SBIR/STTR Policy 
Committee.
  (c) Duties.--The Interagency SBIR/STTR 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.
          (4) Development and incorporation of a standard evaluation 
        framework to enable systematic assessment of SBIR and STTR, 
        including through improved tracking of awards and outcomes and 
        development of performance measures for individual agency 
        programs.
  (d) Reports.--The Interagency SBIR/STTR 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 
        subsections (c)(1) and (c)(4) 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. 409. NATIONAL RESEARCH COUNCIL SBIR STUDY.

  Section 108(d) of the Small Business Reauthorization Act of 2000 (15 
U.S.C. 638 note), enacted into law by reference under section 1(a)(9) 
of the Consolidated Appropriations Act, 2001 (Public Law 106-554), 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''.

SEC. 410. EXPRESS AUTHORITY TO ``FAST-TRACK'' PHASE TWO AWARDS FOR 
                    PROMISING PHASE ONE RESEARCH.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(ii) Authority To `Fast-Track' Phase Two Awards for Promising Phase 
One Research.--To address the delay between an award for the first 
phase of an SBIR program and the application for and extension of an 
award for the second phase of such program, each Federal agency with an 
SBIR program may develop `fast-track' programs to eliminate such 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. The Administrator shall encourage the development of 
such `fast-track' programs.''.

SEC. 411. INCREASED SBIR AND STTR AWARD LEVELS.

  (a) SBIR Award Level and Annual Adjustments.--Section 9(j) of the 
Small Business Act (15 U.S.C. 638(j)) is amended by adding at the end 
the following:
  ``(4) Further Additional Modifications.--Not later than 180 days 
after the date of enactment of this paragraph and notwithstanding 
paragraph (2)(D), the Administrator shall modify the policy directives 
issued pursuant to this subsection to provide for an increase to 
$250,000 in the amount of funds which an agency may award in the first 
phase of an SBIR program, and to $2,000,000 in the second phase of an 
SBIR program, and a mandatory annual adjustment of such amounts to 
reflect economic adjustments and programmatic considerations.''.
  (b) STTR Award Level and Annual Adjustments.--Section 9(p)(2)(B)(ix) 
of the Small Business Act (15 U.S.C. 638(p)(2)(B)(ix)) is amended--
          (1) by striking ``$100,000'' and ``$750,000'' and inserting 
        ``$250,000'' and ``$2,000,000'', respectively; and
          (2) 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''.
  (c) Limitation on Certain Awards.--Section 9 of the Small Business 
Act (15 U.S.C. 638), as amended, is further amended by adding at the 
end the following:
  ``(jj) Limitation on Phase I and II Awards.--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)(4) 
and (p)(2)(B)(ix).''.

SEC. 412. EXPRESS AUTHORITY FOR AN AGENCY TO AWARD SEQUENTIAL PHASE TWO 
                    AWARDS FOR SBIR-FUNDED PROJECTS.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(kk) Requirements Relating to Additional Second Phase SBIR 
Awards.--
          ``(1) In general.--A small business concern that receives a 
        second phase SBIR award for a project remains eligible to 
        receive additional second phase SBIR awards for such project.
          ``(2) Technical or weapons systems.--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.''.

SEC. 413. FIRST PHASE REQUIRED.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(ll) First Phase Required.--Under this section, a Federal agency 
shall provide to a small business concern an award for the second phase 
of an SBIR program with respect to a project only if such agency finds 
that the small business concern has been provided an award for the 
first phase of an SBIR program with respect to such project or has 
completed the determinations described in subsection (e)(4)(A) with 
respect to such project despite not having been provided an award for 
the first phase.''.

SEC. 414. INVOLVEMENT OF CHIEF COUNSEL FOR ADVOCACY.

  Section 9 of the Small Business Act (15 U.S.C. 638), as amended, is 
further amended by adding at the end the following:
  ``(mm) Involvement of Chief Counsel for Advocacy.--The Chief Counsel 
for Advocacy, as described in section 201 of Public Law 94-305 (15 
U.S.C. 634a), and any individual reporting to the Chief Counsel for 
Advocacy, without regard to whether such individual was hired under 
section 204 of Public Law 94-305 (15 U.S.C. 634d), may not provide to 
the Administrator, to any individual who reports directly or indirectly 
to the Administrator, or to any Federal agency any advice, guidance, 
oversight, or review with respect to the programs authorized under this 
section.''.

                   I. Purpose of the Bill and Summary

    The Enhancing Small Business Research and Innovation Act of 
2009 extends through fiscal year 2011 the Federal government's 
largest small business research and development programs. The 
legislation modernizes the Small Business Innovation Research 
(SBIR) and Small Business Technology Transfer (STTR) programs, 
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. 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 establishes a federal grant program to 
reach out to small firms located in underrepresented areas, and 
that are owned by service-disabled veterans, women, and 
minorities. 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 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. Safeguards--including limits on corporate-
backed entities have been incorporated to prevent large 
companies from using the SBIR program at the expense of smaller 
researchers.
---------------------------------------------------------------------------
    \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 partnerships databases, partnership 
conferences, mentoring initiatives between prime contractors 
and SBIR awardees, SBIR helpdesks and transition assistance 
programs. The legislation authorizes appropriations to the 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 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 that 
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 percent.
    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 alone 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.
    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.
    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 
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.

 2009 NRC REPORT ON VENTURE CAPITAL FUNDING IN THE NATIONAL INSTITUTES 
                            OF HEALTH (NIH)

    A recent NRC report on the venture capital prohibition in 
the SBIR program found that the impact of the 2003 ruling falls 
disproportionately on the most promising firms i.e., those 
firms that have repeatedly been selected by both NIH for their 
promising technologies and by venture investors for their 
commercial potential.\3\
---------------------------------------------------------------------------
    \3\Venture Funding and the NIH SBIR Program, National Research 
Council of the National Academies of Science, May 2009.
---------------------------------------------------------------------------
    While the report does site a percentage of venture-backed 
firms likely excluded from the SBIR program (4.1 percent to 
11.9 percent), it qualifies this by stating that there is a 
downward bias--this means the percentage excluded is likely 
higher.\4\ This is due to the fact that venture capital 
investment smaller firms considered by the study (1) was just 
beginning in the 1990s and (2) has matured dramatically in the 
last five years to favor investment in commercially viable 
technologies and therapies. The result is that the level of 
exclusion is likely much higher that the report states.
---------------------------------------------------------------------------
    \4\Ibid.
---------------------------------------------------------------------------
    The report concludes that restricting access to SBIR 
funding for firms that benefit from venture investments would 
thus appear to disproportionately affect some of the most 
commercially promising small innovative firms. To this extent, 
the SBA ruling has the potential to diminish the positive 
impact of the nation's investments in research and development 
in the biomedical area.\5\
---------------------------------------------------------------------------
    \5\Ibid.
---------------------------------------------------------------------------
    The NRC states that by selecting out some of the most 
commercially promising innovative small firms, the SBA 
directive appears to limit opportunities to exploit the 
nation's substantial investments in research at NIH. This is 
contrary to one of the four key goals of the SBIR program, 
which is the commercialization of federal research. The 
implementation of the SBA ruling appears to be negatively 
affecting current participation by firms and the long-term 
commercialization potential of the NIH SBIR program.\6\
---------------------------------------------------------------------------
    \6\Ibid.
---------------------------------------------------------------------------

         The Need to Reauthorize and Modernize the SBIR Program

    The SBIR program has been reauthorized three times since 
its enactment, first in 1986 and subsequently in 1992 and 2000. 
The latest authorization was set to expire on September 30, 
2008 but was temporarily extended by the SBA through March 20, 
2009, and again extended by a continuing resolution passed by 
the House and Senate. Under the current extension, SBIR will 
expire on July 31, 2009. The STTR program was last reauthorized 
in 2001 and is scheduled to sunset on September 30, 2009.
    The positive evaluations of the SBIR program issued by 
independent research organizations and testimony presented to 
the Committee on Small Business during the 110th Congress and 
111th Congress in support of SBIR and STTR create the basis of 
support for H.R. 2965. 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.

 EXPAND COMMERCIALIZATION OPPORTUNITIES FOR SBIR AND STTR R&D PROJECTS

    Witnesses have testified before the Committee that small 
businesses face serious challenges in commercializing their 
research following Phases I and II. Many potential partners and 
investors require that a product achieve a certain degree of 
technological readiness before they are willing to support or 
invest in a given product's later stage development. This is 
described as the ``valley of death,'' where promising research 
is derailed because the small business does not have the 
funding required to develop the product to the requisite 
technological readiness. Witnesses have described how SBIR- and 
STTR-funded projects can stall or fail at the end of a Phase II 
award due to a lack of available funding to continue developing 
the product to the desired specifications.
    In order to address the ``valley of death,'' several 
federal agencies have developed initiatives within their SBIR 
programs that offer commercialization support to SBIR awardees. 
These initiatives include business planning assistance, 
business-to-business mentoring, manufacturing assistance, 
technology transition assistance, partnership assistance and/or 
additional funding. Although these initiatives are only a few 
years old, early anecdotal data from these agencies suggest 
that the programs are increasing commercialization of SBIR-
funded research and development projects.

     PERMIT VENTURE-BACKED FIRMS 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.
    Legislation is needed so that small firms with significant 
venture capital investment can compete for and win SBIR awards. 
However, legislation should also prohibit small firms from 
receiving and competing for SBIR awards if either: (1) a single 
venture capital company owns a majority of the small firm or 
(2) a single venture capital company controls a majority of the 
concern's board of director's seats.

      INCREASE OUTREACH TO RURAL AREAS AND UNDERSERVED POPULATIONS

    Effective outreach to small firms owned and controlled by 
women, veterans and minorities and to businesses located in 
areas that are underrepresented in the SBIR and STTR programs 
is a continuing challenge for the programs. Some state economic 
development offices run effective application support and 
entrepreneurial and business skills support for current and 
prospective participants in the programs while other states 
offer no such support. Federal agencies report that, despite 
their outreach efforts, they struggle to receive applications 
from underrepresented populations.
    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. Before authorization for the 
program expired in 2005, between 2002 and 2005 the SBA was able 
to make grants to organizations to support the development of 
SBIR proposals.

              RESOURCES FOR SBIR MANAGEMENT AND EVALUATION

    Under current law, participating federal agencies are 
prohibited from using any of the 2.5 percent SBIR set-aside to 
fund the program's administrative costs, including costs 
associated with salaries and expenses. Authorizing agencies to 
separately fund operating expenses may enhance SBIR program 
utilization, management and evaluation. Federal agencies that 
set aside special funds to pay for SBIR management expenses 
have asserted that they have more effective programs than 
agencies that do not set aside special funds for administration 
of the program. Proposals have also called for databases to 
collect relevant information on project outcomes and milestones 
to provide greater transparency to the programs for both the 
government and the private sector.

          INCREASE AWARD SIZE AND SIMPLIFY APPLICATION PROCESS

    The SBIR application process should be reviewed to ensure 
that it is not overly burdensome and that firms receive a 
timely decision. Witnesses have also recommended that the size 
of SBIR awards be increased. The award levels set out in the 
legislation have not increased since 1992 and the value of the 
awards has been eroded by inflation. Simplifying the 
application process and increasing the award levels would, 
according to witness testimony, increase the competition for 
SBIR awards and ultimately result in a more effective program. 
A related issue is a potential cap on the dollar amount that an 
SBIR agency can award a grantee. Under SBA's existing policy 
directive, the agencies are able to grant awards that exceed 
the guidance provided in legislation. Representatives of 
Federal agencies that administer the SBIR program have 
testified that an inflexible cap on SBIR awards dollar amounts 
would undermine programs that have successfully helped small 
firms commercialize SBIR-funded research and development.

                             III. Hearings

    In the 111th Congress, the Committee on Small Business held 
three hearings on the SBIR and STTR programs and related 
legislation. On June 17, 2009, the Committee convened a hearing 
entitled ``Legislative Initiatives to Strengthen and Modernize 
the SBIR and STTR Programs.'' Testimony was taken from a wide 
range of small businesses that use these programs in the 
defense, health care, and energy arenas. This hearing followed 
a previous full Committee hearing on April 22, 2009, which 
explored issues related to the overall effectiveness of the 
SBIR program and a legislative hearing in the Committee's 
Contracting and Technology Subcommittee on June 4, 2009.
    In the 110th Congress, the Committee on Small Business also 
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 June 
25, 2009 and ordered H.R. 2965 reported, as amended, to the 
House by a recorded vote of 22 yeas to zero nays at 10:55am. 
Four amendments were offered during the markup. Ms. Velazquez 
offered an amendment, which was adopted by voice vote, to 
require the interagency policy committee established in the 
legislation to develop an evaluation framework for the SBIR and 
STTR programs. Mr. Akin offered an amendment, which was adopted 
by voice vote, which would prevent the SBA's Office of Advocacy 
from intervening in matters concerning the SBIR and STTR 
programs. Mr. King offered two amendments. His first amendment, 
which was rejected by voice vote, would have eliminated 
minorities and women from the focus of the legislation's 
outreach program. His second amendment would have prohibited 
SBIR and STTR funds from being directed to certain 
organizations. This amendment was rejected by a recorded vote 
of 9 yeas to 13 nays at 10:49 am.

                           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. As 
noted in the comprehensive description of the markup above, two 
recorded votes were conducted. During committee consideration 
of the legislation, an amendment numbered King #2 was offered 
by Mr. King. This amendment was NOT AGREED to by a recorded 
vote of 9 yeas to 13 nays at 10:49 am. 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 22 yeas to 
zero nays at 10:55 am.


              VI. Section-by-Section Analysis of H.R. 2965


Sec. 1. Short title

    This provision sets a short title for the Act as ``The 
Enhancing Small Business Research and Innovation Act of 2009.''
    Title 1. Program Extension and Venture Capital Investment

Sec. 101. Authorization period

    The Small Business Act is amended to extend through FY2011 
the SBIR and STTR programs of the SBA. The Committee believes 
that a two-year authorization period is appropriate given the 
rapid changes in technological evolution and the constantly 
evolving needs on small firms. A biennial authorization 
provides for necessary congressional oversight and program 
evaluation. The Committee believes that programs as valuable as 
SBIR and STTR should be given regular oversight from Congress, 
which is most appropriately conducted through the legislative 
reauthorization process.
    The last SBIR reauthorization bill that Congress passed was 
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.
    It should be noted that Congress is able to reauthorize the 
Department of Defense (DoD), with a budget of nearly a trillion 
dollars (equal to more than 7 percent of GDP), each year. For 
comparison, the SBIR and STTR program's cost is estimated at 
less than $70 million per year. If an agency as complicated as 
DoD, with varied and complex programs, can be reauthorized 
annually, it would seem reasonable that SBIR and STTR could be 
reauthorized biannually.
    The argument that the SBIR and STTR programs should be 
reauthorized for a longer period to give the programs stability 
is weak. Lengthy reauthorization periods serve little purpose 
other than to evade oversight and ultimately reduce the public 
policy nexus for government initiatives. In addition, a program 
like SBIR--which is technology-focused--needs to be continually 
updated to reflect the changing economic realities more 
frequently.
    Finally, the Committee notes that SBIR and STTR funding 
awards are made annually, just as federal contracts are made 
annually. The funding for future awards--much like future 
contracts--is dependent on the agencies budget being funded 
from Congress. Such an annual requirement has not deterred 
small firms from seeking work with the government and has not 
deterred small firms from applying to the SBIR and STTR 
programs.

Sec. 102. Venture capital investment standards

    This provision permits small businesses with 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. This ruling, by an administrative 
law judge of the SBA's Office of Hearing and Appeals, placed a 
restriction on venture capital investment in SBIR awardees. The 
Committee notes that this ruling could have been overturned by 
regulation in the last six years, but the SBA has failed to 
revisit this issue fully. As a result, the Committee has 
incorporated this section into H.R. 2965.
    The Committee believes that the capital structure of a 
small business concern is irrelevant for the purposes of the 
SBIR program. This is supported by the series of hearings 
conducted by the Committee over the last two years and 
independent research. The NRC has found in its May 2009 
research report that small businesses engaged in federal 
research require sufficient sources of external capital to 
successfully commercialize their research.\7\ 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 
believes that the recent NRC report provides further 
justification for restoring the SBIR program to its pre-2003 
status when venture capital investment was permitted.
---------------------------------------------------------------------------
    \7\For a broader discussion of the May 2009 NRC report please see 
Section II of this Committee Report.
---------------------------------------------------------------------------
    The Committee understands that many research companies, in 
particular those that are small, do not possess positive 
revenue streams. This limits the impact on small businesses' 
cash flow and increases their ability to carry out their 
research activities. Such realities make access to venture 
capital even more critical, as such investment often does not 
require immediate repayment. 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' original 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 day-to-day management and control of 
a business. Venture capital investors seek financial profits--
not outright operational control. The Committee finds no 
evidence that venture capital companies are investing in small 
business concerns solely to access SBIR funds. Rather it finds 
that they are seeking to benefit as an investor in the 
underlying research, which has the effect of contributing to 
the success of the small business. 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 or control its operations via the board of 
directors.
    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 a cap of any size is 
appropriate and that such a restraint would create massive 
administrative problems within SBIR agencies and does not 
recognize the recent evolution of capital markets. 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.
    Finally, the legislation 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. This section specifies that an SBIR 
company can only have investment from two such corporate-owned 
venture capital companies and that together they can only own 
up to 20 percent of the SBIR eligible concern.

          TITLE II. COMMERCIALIZATION AND RESEARCH PRIORITIES

Sec. 201. Focus on Commercialization

    The Committee intends this section to place emphasis on 
applied research in the SBIR and the STTR programs. Taxpayer 
funds used for these initiatives are meant to go toward 
research that can be readily commercialized, not basic research 
which is the purview of the universities and the recipient of 
the lion's share (97.5 percent) of federal extramural research 
budgets. The provision amends section 9 to modify the purpose 
and policy of the SBIR and STTR programs as follows:
    ``It is further the policy of Congress that the programs 
established in this section should focus on promoting research 
and development of projects governed by commercial business 
plans, which have significant potential to produce products or 
services for the marketplace or for acquisition by Federal 
agencies.''

Sec. 202. Rare Disease and Energy-related Research Focus and Priorities

    In issuing research SBIR solicitations, this section 
requires agencies to give special consideration to topics 
contained in the report of 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. In addition, this 
section requires agencies to give special consideration to 
topics contained in the report of 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.
    The intention of this section is to expand the number of 
research activities into rare-disease research and energy-
related research. The Committee expects federal agencies to 
increase SBIR solicitations in these areas and increase awards 
for meritorious proposals responding to such solicitations.

Sec. 203. Nanotechnology Research Focus and Priority

    In issuing research SBIR and STTR solicitations, this 
section requires agencies to give special consideration to 
topics contained in 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.
    The Committee intends that such designation will increase 
the likelihood of federal SBIR agencies issuing research 
solicitations in this area.

Sec. 204. Definition of Phase Three

    This section revises the definition of ``Phase Three'' of 
the SBIR program so that it is clear that such work shall be 
directed toward commercial applications and derives from 
research and development completed in earlier phases.
    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 provide a basis for 
agencies to set goals for successful commercialization of SBIR-
funded research.

Sec. 205. Agency research goals

    This provision 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 Congress 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 Congress will include a description of the methodology 
used to collect the data.

Sec. 206. SBIR commercialization program

    This section requires that agencies establish efforts 
designed to support SBIR-funded research projects in their 
transition to Phase Three. This provision also authorizes an 
annual appropriation to the SBA of $27,500,000 for such 
purposes of carrying out this program.
    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 SBA 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 date of enactment of this section, the Administrator of the 
SBA will develop and establish rules for making transfer to 
agencies that have developed or are developing SBIR 
commercialization programs.

                  TITLE III. OUTREACH AND PARTNERSHIPS

Sec. 301. Outreach and support activities

    The provisions will establish an annual competitive grant 
program where organizations in all fifty states may 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 SBA Administrator 
will establish an Advisory Board for this program. The Board 
will develop guidelines for the administration of the program 
that are consistent with the statutory direction provided in 
this section. The Committee expects that the Advisory Board 
will serve as stewards of the program and will submit an annual 
report to Congress on the effectiveness and impact of the 
program.

Sec. 302. Rural preference

    This section requires agencies to give a preference to SBIR 
and STTR award applications submitted by small businesses 
located in rural areas. The Committee notes that the language 
is written to give a priority for applications, not awards, and 
it meant generally to give an emphasis--not a binding 
requirement--to agencies for rural applicants. In addition, the 
Committee recognizes that there are several statutory 
definitions of ``rural.'' The Committee's intent is that the 
SBA, when implementing this provision, select a narrower 
definition of the term ``rural.'' This would focus the 
initiative on those areas most in need of assistance while, in 
turn, would not likely have a significant effect on the number 
of SBIR and STTR applications or award determinations.
    Further, it is not the Committee's intent that this 
provision is used by agencies to exclude meritorious research 
proposals from non-rural areas. The Committee expects the SBA 
to issue a rulemaking for notice and comment in this area and 
solicit a broad range of feedback from the SBIR and STTR 
community before implementing this provision.

Sec. 303. Privacy and applicants consent required

    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 
applications 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.

Sec. 304. Partnering

    This section directs each agency to establish initiatives 
to encourage partnerships between SBIR awardees and prime 
contractors, venture capital investment companies, business 
incubators, and larger businesses in order to facilitate the 
progression of SBIR awardees to Phase Three. The SBA 
Administrator shall establish by regulation protections so that 
small firms retain a substantial benefit from any joint venture 
that results from this section. In addition, the Administrator 
shall establish by regulation joint venture size standards and 
affiliations requirements for this section

                  TITLE IV. SBIR AND STTR ENHANCEMENT

Sec. 401. Research solicitations

    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 Committee also 
intends that agencies include acquisition personnel and 
executives in the development of the SBIR topics to ensure that 
SBIR topics are truly addressing future procurement needs.
    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 
with the authority to extend the 90-day deadline to a 180-day 
deadline on a case-by-case basis.

Sec. 402. Phase One reporting requirements

    This section requires the SBA to submit to Congress the 
firms that have received 15 or more Phase One awards and zero 
Phase Two awards in the previous five-year period. Given the 
statutory emphasis on commercialization, the intention of the 
provision is to ensure that the Congress 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. 403. Phase One performance measures

    This provision requires each agency to engage with SBIR 
awardees that have been awarded multiple Phase One awards but 
no Phase Two awards, and to develop performance metrics to 
measure awardee progress in the SBIR program.
    The Committee expects that the Administrator of the SBA 
shall ``develop quality metrics that can assist agencies in 
developing standards to limit the perceived effect of so-called 
`SBIR Mills'.''\8\ The Committee further expects that the SBA 
will incorporate these metrics into the SBIR policy directives.
---------------------------------------------------------------------------
    \8\From the statement of Administrator Steven C. Preston delivered 
to the House Committee on Small Business on March 13, 2008.
---------------------------------------------------------------------------

Sec. 404. SBIR Agency Administration and Oversight

    This section authorizes funding at SBA for administrative, 
oversight, and contract-processing costs related to SBIR. This 
authority allows the SBIR program offices in each of the 
Federal SBIR/STTR agencies to withdraw funds from this account 
at SBA that is equal up to 3 percent of their respective 
agencies total SBIR set-aside. The Committee intends that these 
funds are used to strengthen management of the SBIR and STTR 
programs, increase the progress of companies in these 
initiatives, enhance oversight, and result in more SBIR/STTR 
funded research being incorporated into agency procurement 
actions.

Sec. 405. Extramural Budget

    This provision is intended 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.

Sec. 406. Outcomes database

    This section requires SBIR and STTR small business 
participants to provide updated project information for 
purposes of updating agency databases which evaluate the 
outcome of Phase One and Two awards; and participating agencies 
to develop and maintain such databases. This shall include 
milestones where appropriate.
    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. 407. Databases to support technology utilization

    This provision requires each agency to create and maintain 
a technology utilization database, available to the public, 
containing data supplied by award recipients. The purpose of 
this section is to enhance outreach to attract investors and 
potential business partners to the small companies that are 
participating in SBIR.

Sec. 408. Interagency policy committee and reports

    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. In addition, the Interagency 
Policy Committee will make recommendations to the SBA regarding 
a process to systematically evaluate the SBIR and STTR program. 
This Interagency Policy Committee will act solely in an 
advisory capacity to the Congress and the SBA and will not have 
any formal authority to implement or enact policy directives 
regarding the SBIR and STTR programs. The Committee will report 
to Congress twelve months, eighteen months and twenty-fours 
months after the date of enactment of this section on its 
progress.

Sec. 409. NRC SBIR study

    This section removes the authorization established in the 
Small Business Reauthorization Act of 2000 that the NRC provide 
an updated report on the SBIR program.

Sec. 410. Fast track authority

    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 best 
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. 411. Award size increase and authority to exceed awards 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 to $250,000 for Phase One and $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 is silent on whether or not federal agencies 
can exceed the award levels that are prescribed in the 
legislation. However, the Committee does not intend such 
silence to prevent agencies from exercising their independent 
judgment regarding awards in excess of the stated award sizes. 
The Committee recognizes that Federal agencies that previously 
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 does not seek to end this practice of permitting 
participating agencies to exceed the proscribed award levels.

Sec. 412. Multiple Phase Two awards

    The section permits the issuance of multiple Phase Two 
awards, including for purposes related to military technology 
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''.

Sec. 413. First Phase required

    The Committee intends this section to limit companies' 
ability to evade Phase One. An exception is granted, however, 
for companies that can demonstrate to agency SBIR proposal 
evaluators that the company has completed phase one work. The 
Committee believes that this is a reasonable way to balance the 
hypothesis testing conducted in Phase One, with the realities 
that some small firms may have progressed passed this stage 
through other means.

Sec. 414. Involvement of Chief Counsel for Advocacy

    This section provides that the Chief Counsel of SBA's 
Office of Advocacy or any other reporting to the Chief Counsel 
may not provide advice, guidance, oversight, or review to any 
agency participating in the SBIR or STTR programs. The 
Committee intends such provision to limit any involvement by 
the Office of Advocacy in the operation of or policy decisions 
pertaining to the SBIR and STTR programs.

             VII. Congressional Budget Office Cost Estimate

    The legislation is currently under review by CBO and the 
Committee expects that an estimate will be completed and as 
such made part of the Congressional Record prior to 
consideration of the legislation by the House.

                   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. 2965. 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. Based on 
estimates provide by CBO for H.R. 5819, as reported by the 
Committee on Small Business in the 110th Congress and further 
analysis by Committee staff, the Committee estimates that the 
bill could cost $142 million over the two year authorization. 
The Committee notes two major changes regarding cost between 
H.R. 5819 and H.R. 2965. First, H.R. 2965 does not increase the 
SBIR and STTR set-aside, which H.R. 5819 did and CBO estimated 
cost $29 million over the five-year budget period. Second, H.R. 
2965 includes a management program that will reimburse agencies 
for their expenses associated with operating the SBIR and STTR 
programs. The Committee assumes that this initiative will 
generally negate agencies direct expenses of operating the 
programs, which CBO estimated at $111 million over the five-
year budget period. As such, the committee estimates the cost 
of H.R. 2965 would be $260.5 million over the 2010-2014 period, 
subject to appropriation of the specified and necessary 
amounts. In addition, based on prior CBO analysis and current 
staff review, the Committee does not believe that H.R. 2965 
would affect direct spending or revenue.

                         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. 2965 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. 2965 contains no unfunded mandates.

                 XII. Congressional Accountability Act

    H.R. 2965 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. 2965 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. 2965 includes a number of provisions designed to 
modernize and make more effective the SBIR and STTR programs.

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

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

SMALL BUSINESS ACT

           *       *       *       *       *       *       *


  Sec. 9. (a) Research and development are major factors in the 
growth and progress of industry and the national economy. The 
expense of carrying on research and development programs is 
beyond the means of many small-business concerns, and such 
concerns are handicapped in obtaining the benefits of research 
and development programs conducted at Government expense. These 
small-business concerns are thereby placed at a competitive 
disadvantage. This weakens the competitive free enterprise 
system and prevents the orderly development of the national 
economy. Is is the policy of the Congress that assistance be 
given to small-business concerns to enable them to undertake 
and to obtain the benefits of research and development in order 
to maintain and strengthen the competitive free enterprise 
system and the national economy. It is further the policy of 
Congress that the programs established in this section should 
focus on promoting research and development of projects 
governed by commercial business plans, which have significant 
potential to produce products or services for the marketplace 
or for acquisition by Federal agencies.

           *       *       *       *       *       *       *

  (e) For the purpose of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) the term ``Small Business Innovation Research 
        Program'' or ``SBIR'' means a program under which a 
        portion of a Federal agency's research or research and 
        development effort is reserved for award to small 
        business concerns through a uniform process having--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) where appropriate, a third phase, 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'')--
                          (i)  * * *

           *       *       *       *       *       *       *

          (8) the term ``research institution'' means a 
        nonprofit institution, as defined in section 4(5) of 
        the Stevenson-Wydler Technology Innovation Act of 1980, 
        and includes federally funded research and development 
        centers, as identified by the National Scientific 
        Foundation in accordance with the governmentwide 
        Federal Acquisition Regulation issued in accordance 
        with section 35(c)(1) of the Office of Federal 
        Procurement Policy Act (or any successor regulation 
        thereto); [and]
          (9) the term ``commercial applications'' shall not be 
        construed to exclude testing and evaluation of 
        products, services, or technologies for use in 
        technical or weapons systems, and further, awards for 
        testing and evaluation of products, services, or 
        technologies for use in technical or weapons systems 
        may be made in either the second or the third phase of 
        the Small Business Innovation Research Program and of 
        the Small Business Technology Transfer Program, as 
        defined in this subsection [.]; and
          (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.

           *       *       *       *       *       *       *

  (g) Each Federal agency required by subsection (f) to 
establish a small business innovation research program shall, 
in accordance with this Act and regulations issued hereunder--
          (1) * * *
          (2) issue small business innovation research 
        solicitations in accordance with a schedule determined 
        cooperatively with the Small Business Administration, 
        but not less often than twice per year;
          (3) unilaterally determine research topics within the 
        agency's SBIR solicitations, giving special 
        consideration to broad research topics and to topics 
        that further 1 or more critical technologies or 
        pressing research priorities, as identified by--
                  (A) the National Critical Technologies Panel 
                (or its successor) in the 1991 report required 
                under section 603 of the National Science and 
                Technology Policy, Organization, and Priorities 
                Act of 1976, and in subsequent reports issued 
                under that authority; [or]

           *       *       *       *       *       *       *

                  (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;
                  (E) the National Academy of Sciences, in the 
                final report issued by the ``Transit Research 
                and Development: Federal Role in the National 
                Program'' project and the ``Transportation 
                Research, Development and Technology Strategic 
                Plan (2006-2010)'' issued by the United States 
                Department of Transportation Research and 
                Innovative Technology Administration, and in 
                subsequent reports issued by the National 
                Academy of Sciences and United States 
                Department of Transportation on transportation 
                and infrastructure; or
                  (F) 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;
          (4) unilaterally receive and evaluate proposals 
        resulting from SBIR proposals, but a final decision on 
        each proposal shall be rendered not later than 90 days 
        after the date on which the solicitation closes unless 
        the Administrator determines, on a case by case basis, 
        that a decision may be extended from 90 days to 180 
        days;

           *       *       *       *       *       *       *

  [(h) In addition to the requirements of subsection (f), each 
Federal agency which has a budget for research or research and 
development in excess of $20,000,000 for any fiscal year 
beginning with fiscal year 1983 or subsequent fiscal year shall 
establish goals specifically for funding agreements for 
research or research and development to small business 
concerns, and no goal established under this subsection shall 
be less than the percentage of the agency's research or 
research and development budget expended under funding 
agreements with small business concerns in the immediately 
preceding fiscal year.]
  (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 2010 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 committees.--For each fiscal year 
        for which goals are required by paragraph (1), the 
        agency 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) 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 such data.

           *       *       *       *       *       *       *

  (j)(1)  * * *

           *       *       *       *       *       *       *

  (4) Further Additional Modifications.--Not later than 180 
days after the date of enactment of this paragraph and 
notwithstanding paragraph (2)(D), the Administrator shall 
modify the policy directives issued pursuant to this subsection 
to provide for an increase to $250,000 in the amount of funds 
which an agency may award in the first phase of an SBIR 
program, and to $2,000,000 in the second phase of an SBIR 
program, and a mandatory annual adjustment of such amounts to 
reflect economic adjustments and programmatic considerations.
  (k) Database.--
          (1) * * *
          (2) Government database.--Not later than 180 days 
        after the date of the enactment of the Small Business 
        Innovation Research Program Reauthorization Act of 
        2000, the Administrator, in consultation with Federal 
        agencies required to have an SBIR program pursuant to 
        subsection (f)(1) or an STTR program pursuant to 
        subsection (n)(1), shall develop and maintain a 
        database to be used exclusively for SBIR and STTR 
        program evaluation that--
                  (A) contains for each second phase award made 
                by a Federal agency--
                          (i) * * *
                          (ii) information collected in 
                        accordance with paragraph (3) on 
                        additional investment from any source, 
                        other than first phase or second phase 
                        SBIR or STTR awards, to further the 
                        research and development conducted 
                        under the award; [and]
                          (iii) any other information received 
                        in connection with the award that the 
                        Administrator, in conjunction with the 
                        SBIR and STTR program managers of 
                        Federal agencies, considers relevant 
                        and appropriate; and
                          (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;

           *       *       *       *       *       *       *

          [(3) Updating information for database.--
                  [(A) In general.--A small business concern 
                applying for a second phase award under this 
                section shall be required to update information 
                in the database established under this 
                subsection for any prior second phase award 
                received by that small business concern. 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.
                  [(B) Annual updates upon termination.--A 
                small business concern receiving a second phase 
                award under this section shall--
                          [(i) update information in the 
                        database concerning that award at the 
                        termination of the award period; and
                          [(ii) be requested to voluntarily 
                        update such information annually 
                        thereafter for a period of 5 years.]
          (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 and 
                available at the time 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.

           *       *       *       *       *       *       *

          (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. 
        Each such database shall be developed and operated in a 
        manner to ensure that each such database is relevant to 
        and contributes to the agency's oversight and 
        evaluation of the SBIR and STTR programs. Paragraphs 
        (4) and (5) apply to each database under this 
        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. Each 
        database created under this paragraph shall be 
        developed and operated in a manner to ensure that each 
        such database is relevant to and contributes to the 
        agency's oversight and evaluation of the SBIR and STTR 
        programs.

           *       *       *       *       *       *       *

  (m) Termination.--The authorization to carry out the Small 
Business Innovation Research Program established under this 
section shall terminate on September 30, [2008] 2011.
  (n) Required Expenditures for STTR by Federal Agencies.--
          (1) Required expenditure amounts.--
                  (A) In general.--With respect to each fiscal 
                year through fiscal year [2009] 2011, each 
                Federal agency that has an extramural budget 
                for research, or research and development, in 
                excess of $1,000,000,000 for that fiscal year, 
                shall expend with small business concerns not 
                less than the percentage of that extramural 
                budget specified in subparagraph (B), 
                specifically in connection with STTR programs 
                that meet the requirements of this section and 
                any policy directives and regulations issued 
                under this section.

           *       *       *       *       *       *       *

  (o) Federal Agency STTR Authority.--Each Federal agency 
required to establish an STTR program in accordance with 
subsection (n) and regulations issued under this Act, shall--
          (1) * * *

           *       *       *       *       *       *       *

          (3) unilaterally determine research topics within the 
        agency's STTR solicitations, giving special 
        consideration to broad research topics and to topics 
        that further 1 or more critical technologies, as 
        identified--
                  (A) by the National Critical Technologies 
                Panel (or its successor) in reports required 
                under section 603 of the National Science and 
                Technology Policy, Organization, and Priorities 
                Act of 1976; [or]
                  (B) by the Secretary of Defense, in 
                accordance with section 2522 of title 10, 
                United States Code; or
                  (C) 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;

           *       *       *       *       *       *       *

  (p) STTR Policy Directive.--
          (1) * * *
          (2) Contents.--The policy directive required by 
        paragraph (1) shall provide for--
                  (A) * * *
                  (B) a simplified, standardized funding 
                process that provides for--
                          (i) * * *

           *       *       *       *       *       *       *

                          (ix) 1-year awards for the first 
                        phase of an STTR program, generally not 
                        to exceed [$100,000] $250,000, and 2-
                        year awards for the second phase of an 
                        STTR program, generally not to exceed 
                        [$750,000] $2,000,000, [greater or 
                        lesser amounts] with a mandatory annual 
                        adjustment of such amounts to reflect 
                        economic adjustments and programmatic 
                        considerations, and with lesser amounts 
                        to be awarded at the discretion of the 
                        awarding agency, and shorter or longer 
                        periods of time to be approved at the 
                        discretion of the awarding agency where 
                        appropriate for a particular project;

           *       *       *       *       *       *       *

  (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) Authorization of appropriations.--There is 
        authorized to be appropriated to the Administrator 
        $10,000,000 to carry out paragraph (1) for each of 
        fiscal years 2010 and 2011.
          (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), including 
                        guidelines relating to award sizes, 
                        proposal requirements, measures for 
                        monitoring awardee performance, and 
                        measures for determining the 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), 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) 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).
                          (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) 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;
                  (C) criteria designed to give preference to 
                applicants who propose to measure the 
                effectiveness of the proposed activities; and
                  (D) criteria designed to give preference to 
                applicants who include a Small Business 
                Development Center program that is accredited 
                for its technology services.
          (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 awards.--In making 
        awards under paragraph (1) the Administrator shall 
        ensure that 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.

           *       *       *       *       *       *       *

  (aa) Venture Capital Operating Companies.--Effective only for 
the SBIR and STTR programs the following shall apply:
          (1) A business concern that has more than 500 
        employees shall not qualify as a small business 
        concern.
          (2) 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--
                  (A) the venture capital operating company 
                does not own 50 percent or more of the business 
                concern; and
                  (B) employees of the venture capital 
                operating company do not constitute a majority 
                of the board of directors of the business 
                concern.
          (3) A business concern shall be deemed to be 
        ``independently owned and operated'' if--
                  (A) it is owned in majority part by one or 
                more natural persons or venture capital 
                operating companies;
                  (B) there is no single venture capital 
                operating company that owns 50 percent or more 
                of the business concern; and
                  (C) there is no single venture capital 
                operating company the employees of which 
                constitute a majority of the board of directors 
                of the business concern.
          (4) If a venture capital operating company controlled 
        by a business with more than 500 employees (in this 
        paragraph referred to as a ``VCOC under large business 
        control'') has an ownership interest in a small 
        business concern that is owned in majority part by 
        venture capital operating companies, the small business 
        concern is eligible to receive an award under the SBIR 
        or STTR program only if--
                  (A) not more than two VCOCs under large 
                business control have an ownership interest in 
                the small business concern; and
                  (B) the VCOCs under large business control do 
                not collectively own more than 20 percent of 
                the small business concern.
          (5) The term ``venture capital operating company'' 
        means a business concern--
                  (A) 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--
                                  (I) is registered under the 
                                Investment Company Act of 1940 
                                (15 U.S.C. 80a-51 et seq.); or
                                  (II) is an investment 
                                company, as defined in section 
                                3(c)(1) of such Act (15 U.S.C. 
                                80a-3(c)(1)), which is not 
                                registered under such Act 
                                because it is beneficially 
                                owned by less than 100 persons; 
                                and
                  (B) 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.
  (bb) Commercialization Programs.--
          (1) In general.--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.
          (2) 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 2010 and each 
                fiscal year thereafter.
          (3) Funding limitation.--For payment of expenses 
        incurred to administer the commercialization programs 
        described in paragraphs (1) and (2), the head of an 
        agency may use not more than an amount equal to 1 
        percent of the funds set aside for the agency's 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 Federal 
                Government.
  (cc) 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.
  (dd) Consent To Release Contact Information to 
Organizations.--
          (1) 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--
                  (A) identify the concern to appropriate local 
                and State-level economic development 
                organizations as an SBIR applicant; and
                  (B) release the concern's contact information 
                to such organizations.
          (2) Rules.--The Administrator shall establish rules 
        to implement this subsection. 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 
        paragraph (1).
  (ee) Increased Partnerships.--
          (1) In general.--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, business incubators, and larger 
        businesses, for the purpose of facilitating the 
        progress of the SBIR awardees to the third phase.
          (2) Definition.--In this subsection, the term 
        ``business incubator'' means an entity that provides 
        coordinated and specialized services to entrepreneurial 
        businesses which meet selected criteria during the 
        businesses' startup phases, including providing 
        services such as shared office space and office 
        services, access to equipment, access to 
        telecommunications and technology services, flexible 
        leases, specialized management assistance, access to 
        financing, mentoring and training services, or other 
        coordinated business or technical support services 
        designed to provide business development assistance to 
        entrepreneurial businesses during these businesses' 
        startup phases.
  (ff) Multiple First Phase SBIR Awards Report.--The 
Administrator shall, on an annual basis, 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 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.
  (gg) Requirements Relating to Federal Agency Engagement With 
Certain First Phase SBIR Awardees.--Each Federal agency 
required by this section to conduct an SBIR program shall 
engage with SBIR awardees that have been awarded multiple first 
phase SBIR awards but have not been awarded any second phase 
SBIR awards and shall develop performance measures with respect 
to awardee progression in the SBIR program.
  (hh) Assistance for Administrative, Oversight, and Contract 
Processing Costs.--
          (1) In general.--From amounts made available to carry 
        out this subsection, the Administrator may, on petition 
        by Federal agencies required by this section to conduct 
        an SBIR program, transfer funds to such agencies to 
        assist with the administrative, oversight, and contract 
        processing costs relating to such program.
          (2) Petitions.--The Administrator shall establish 
        rules for making transfers under paragraph (1). The 
        initial set of rules shall be promulgated not later 
        than 180 days after the date of the enactment of this 
        subsection.
          (3) Limit on transfer.--A Federal agency may not 
        receive under this subsection in a fiscal year an 
        amount greater than 3 percent of the SBIR budget of 
        such agency for such fiscal year.
          (4) Authorization of appropriations.--There is 
        authorized to be appropriated to the Administrator to 
        carry out this subsection $27,500,000 for each of 
        fiscal years 2010 and 2011.
  (ii) Authority To ``Fast-track'' Phase Two Awards for 
Promising Phase One Research.--To address the delay between an 
award for the first phase of an SBIR program and the 
application for and extension of an award for the second phase 
of such program, each Federal agency with an SBIR program may 
develop ``fast-track'' programs to eliminate such 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. The Administrator shall 
encourage the development of such ``fast-track'' programs.
  (jj) Limitation on Phase I and II Awards.--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)(4) and (p)(2)(B)(ix).
  (kk) Requirements Relating to Additional Second Phase SBIR 
Awards.--
          (1) In general.--A small business concern that 
        receives a second phase SBIR award for a project 
        remains eligible to receive additional second phase 
        SBIR awards for such project.
          (2) Technical or weapons systems.--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.
  (ll) First Phase Required.--Under this section, a Federal 
agency shall provide to a small business concern an award for 
the second phase of an SBIR program with respect to a project 
only if such agency finds that the small business concern has 
been provided an award for the first phase of an SBIR program 
with respect to such project or has completed the 
determinations described in subsection (e)(4)(A) with respect 
to such project despite not having been provided an award for 
the first phase.
  (mm) Involvement of Chief Counsel for Advocacy.--The Chief 
Counsel for Advocacy, as described in section 201 of Public Law 
94-305 (15 U.S.C. 634a), and any individual reporting to the 
Chief Counsel for Advocacy, without regard to whether such 
individual was hired under section 204 of Public Law 94-305 (15 
U.S.C. 634d), may not provide to the Administrator, to any 
individual who reports directly or indirectly to the 
Administrator, or to any Federal agency any advice, guidance, 
oversight, or review with respect to the programs authorized 
under this section.

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     SECTION 108 OF THE SMALL BUSINESS REAUTHORIZATION ACT OF 2000

SEC. 108. NATIONAL RESEARCH COUNCIL REPORTS.

  (a) * * *

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  (d) Report.--The National Research Council shall transmit to 
the heads of agencies entering into an agreement under this 
section and to the Committee on Science and the Committee on 
Small Business of the House of Representatives, and to the 
Committee on Small Business [of the Senate--
          [(1) not later than 3] of the Senate, not later than 
        3 years after the date of the enactment of this Act, a 
        report including the results of the study conducted 
        under subsection (a)(1) and recommendations made under 
        subsection (a)(2)[; and
          [(2) not later than 6 years after that date of the 
        enactment, an update of such report].