Federal Research

Observations on the Small Business Innovation Research Program Gao ID: RCED-98-132 April 17, 1998

As a nation competing in a global economy, the United States depends heavily on innovation through research and development (R&D). Because small business is a leading source of significant innovation, Congress established the Small Business Innovation Research program in 1982. Funding for the program, which was reauthorized in 1992, totaled about $1 billion in fiscal year 1997. This report discusses the following aspects of the program: (1) agencies' adherence to statutory funding requirements, (2) agencies' audits of external R&D budgets, (3) the effect of the application review process and funding cycles on award recipients, (4) the extent of companies' project activity after receiving program funding and agencies' techniques to foster commercialization, (5) the number of multiple-award recipients and the extent of their project-related activity after receiving program funding, (6) the occurrence of funding for single-proposal awards, (7) participation by women-owned businesses and socially and economically disadvantaged businesses, (8) the program's promotion of the critical technologies, (9) the extent to which foreign firms benefit from the results of the program, and (10) the geographical distribution of program awards. GAO summarized this report in testimony before Congress; see: Federal Research: Observations on the Small Business Innovation Research Program, by Susan D. Kladiva, Associate Director for Energy, Resources, and Science Issues, before the Subcommittee on Government Programs and Oversight, House Committee on Small Business. GAO/T-RCED-98-170, Apr. 22 (11 pages).

GAO noted that: (1) the agencies' SBIR officials reported that they have adhered to the requirements that preclude them from using SBIR finds to pay for the administrative costs of the program; (2) the program officials also believe that they are adhering to statutory funding levels for the program; (3) however, some said that they are uncertain whether the agencies are correctly adhering to the requirements for establishing their extramural research budgets; (4) only two of the five agencies that GAO reviewed have conducted audits of their extramural research budgets; (5) in 1997, the Office of Inspector General at the National Science Foundation audited the agency's extramural budget and found that it contained over $100 million of unallowable costs; (6) while most of the SBIR officials GAO interviewed said that neither the application review process nor current funding cycles have had an adverse effect on award recipients' financial status or ability to commercialize their ideas, some recipients have said that any interruption in funding awards, for whatever reason, affects them negatively; (7) the companies responding to GAO's and the Department of Defense's (DOD) surveys reported that approximately 50 percent of their projects had sales of products or services related to the research or received additional developmental funding after receiving SBIR funding; (8) the number of companies receiving multiple awards, defined here as those phase I award recipients that also received 15 or more phase II awards in the preceding 5 years, grew from 10 companies in 1989 to 17 in 1996; (9) GAO found that the funding of single-proposal awards was rare; (10) all of the agencies GAO examined reported that they engaged in activities to foster the participation of women-owned businesses or socially and economically disadvantaged small businesses; (11) all of the agencies' SBIR officials GAO interviewed felt that the listings of critical technologies are used in developing their respective research topics or that the research being conducted falls within one of the two lists; (12) GAO found little evidence of foreign firms, or U.S. firms with substantial foreign ownership interests, benefiting from technology or products developed as a direct result of SBIR-funded research; (13) SBIR awards are concentrated in the states of California and Massachusetts; (14) however, every state received at least two awards; and (15) previous studies have linked the concentration of awards to local characteristics, such as the prevalence of small high-tech firms.


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