Federal Research

Observations on the Small Business Innovation Research Program Gao ID: T-RCED-98-170 April 22, 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. The related report (GAO/RCED-98-132) 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 noted that: (1) it appears that agencies have adhered to the Small Business Research and Development Enhancement Act's funding requirements; (2) agency program officials reported that they are not using SBIR funds to pay for administrative costs of the program such as salaries and support services used to process awards; (3) the program officials also believe that they are adhering to the statutory requirement to fund the program at 2.5 percent of agencies' extramural research budget; (4) however, some officials believe that agencies are using different interpretations of the extramural budget definition, which may lead to incorrect calculations of their extramural research budgets; (5) of the five agencies that GAO reviewed, only two--the National Science Foundation (NSF) and the National Aeronautics and Space Administration--have conducted audits of their extramural budgets; (6) in 1997, the Office of Inspector General at NSF conducted an audit of the agency's extramural budget and found that it contained over $100 million of unallowable costs such as training and overhead; (7) 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, some recipients have said that any interruption in funding awards, for whatever reason, affects them negatively; (8) in response to these concerns over the continuity of funding, most of the participating SBIR agencies have established programs to minimize funding gaps; (9) companies responding to GAO's and the Department of Defense's surveys of award recipients 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; (10) GAO found that the number of companies receiving multiple awards, which GAO defined as those phase I award recipients that also received 15 or more phase II awards in the proceeding 5 years, had grown from 10 companies in 1989 to 17 in 1996; (11) GAO found that agencies rarely fund research for a given solicitation topic where only one proposal was received; (12) of the five agencies that GAO examined, all reported engaging in activities to foster the participation of women-owned or socially and economically disadvantaged small businesses; and (13) 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.

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