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FAQS on Amendments to the SBIR & STTR Policy Directives

Q:  When do the new Policy Directives become effective and when will the agencies implement the changes?

A:  The Policy Directives themselves become effective when they are published in the Federal Register on August 6, 2012 (anticipated publication date).  Some of the changes required by Congress that are implemented in the new Directives are effective immediately, while others are scheduled to become effective at the beginning of the fiscal year or calendar year, or when incorporated in the next solicitation of an agency.  Other measures will be implemented as soon as is practicable for each agency.  The effective dates of the various changes are included in the individual FAQs below.

Q:  Shouldn’t the public have a chance to comment on the Policy Directives before they become effective? 

A:  These Policy Directives are effective upon publication.  During the drafting, SBA worked extensively with the agencies to identify workable implementation policies.  However, SBA plans to continue its long-standing practice of soliciting, considering, and responding to comments from the public on any changes made to the SBIR/STTR programs.  Therefore, SBA is requesting comments on the changes made to the Policy Directives.  To submit a comment, please follow the directions listed in the Federal Register posting of the Policy Directives.   Comments will be accepted through October 5, 2012 (or sixty days from the date the Policy Directives are published).  The SBA expects to revise the Policy Directives after that, based on the feedback received.

Q:  How does this affect small businesses?

A:  SBA believes this approach significantly benefits small businesses since it means that some of the reauthorization mandates can be implemented sooner.  Since many specific features will be implemented on a rolling basis, there will be ample opportunity to modify implementation plans based on changes in the policy directive that stem from the public comment period.

Q:  Have the sizes of these programs been changed?  Will there be more funds available for awards? 

A:  The size of the programs is determined by the share of agencies’ extramural R&D budgets they are required to allocate to the SBIR/STTR programs.  For the SBIR program, historically that share was 2.5%.  For the calendar year 2012, SBA gave guidelines to the agencies to increase the share to 2.6% per the statute, prior to the new Policy Directives being issued.  The share will increase by 0.1 percentage point each fiscal year until it reaches 3.2% for fiscal year 2017 where it will remain.  For STTR, the minimum required set-aside percentage will be 0.35% for 2012 and 2013, 0.4% for 2014 and 2015, and 0.45% for 2016 and thereafter.  The size of the programs in any given year therefore depends on the sizes of the extramural R&D budgets of the participating agencies.  Agencies may exceed these minimum percentages. 

Q:  Have the size of awards changed?

A:  Since March 2010, the guideline award amounts for the SBIR program have been $150,000 for Phase I and $1 million for Phase II.  These amounts have not changed.  The guideline amounts for STTR awards are now raised to match the SBIR amounts.  This is effective immediately.  

Q:  May agencies exceed the guideline award amounts?  If so, under what circumstances? 

A:  Beginning with the next release of an agency’s solicitation, an agency may exceed the guideline amounts by up to 50% on awards from that solicitation.  The agency must, however, provide information to SBA about each such award and its recipient including a justification for exceeding the award amount.  Under rare circumstances, SBA may grant a one-year waiver to an agency to enable it to exceed these amounts for a specific topic.

Q:  Have the eligibility requirements for the programs changed?

A:  The following changes are made to program eligibility:    

  1. All applicants will be required to register with the Company Registry Database at at the time of application.   This will become effective when the size regulation final rule is published in the Federal Register (anticipated date is 1/1/2013). 
  2. An STTR Phase I awardee is now eligible to receive an SBIR Phase II award, and an SBIR Phase I awardee is eligible to receive an STTR Phase II award.  This will be implemented at the agencies’ discretion. 
  3. For fiscal years 2012-2017, the NIH, DoD, and Department of Education may issue Phase II awards to firms without requiring that they first win a Phase I.  Implementation will be at the discretion of the agency. 
  4. Effective immediately, a Phase II awardee may receive a second Phase II award to continue Phase II work. 
  5. Beginning 1/1/2013, Phase I applicants that have previously won other SBIR/STTR Phase I awards, must meet the newly developed agency standards for progress towards Phase II.   Proposed benchmarks will be published in the Federal Register for comment by 10/1/2012.  See also the FAQ regarding “Commercialization Benchmarks.” 
  6. Once the necessary data systems are in place, all applicants will be required, as part of the application process, to provide information on the commercialization of their prior SBIR/STTR awards.    
  7. Effective 10/1/2013, Phase I applicants that have previously won SBIR/STTR Phase II awards, will be required to meet the newly developed agency benchmarks regarding the commercialization success of those Phase II awards.   Proposed benchmarks will be published in the Federal Register for comment by 7/1/2013. 
  8. SBA has published a proposed rule to amend SBIR/STTR size regulations (see Federal Register Vol. 77, No. 94, May 15, 2012) to permit firms that are majority-owned by multiple venture capital operating companies (VCOCs), hedge funds and/or private equity firms to receive SBIR and STTR awards.  This proposed rule was open for public comment through July 16, 2012.  The SBA is currently reviewing the comments and plans to issue the final rule in early 2013, at which time the changes will become effective.  Until then, the current regulations at 13 C.F.R. §121.702 remain in effect. 

Q: What is the commercialization benchmark, how will it be measured, and will it apply to all applicants? 

A:  Congress created the requirement that applicants must demonstrate successful transition of past awards in order to be eligible for future awards.  Each agency will then set a relevant “commercialization benchmark” to show minimum requirements.  Each agency will publish its proposed Phase I to Phase II Transition Rate benchmark in the Federal Register for public comment by 10/1/2012.  Final rates will be published and become effective by 1/1/2013.  These rates will identify, as a condition for eligibility for Phase I, the number of Phase II awards that must be won for a given number of Phase I awards received.  If a firm fails to meet this benchmark, it is ineligible for a Phase I for one year.  The Policy Directives limit the application of this benchmark requirement to firms that have received more than 20 Phase I awards over the prior 5, 10, or 15 fiscal years (the time period to be decided by the agency). 

Each agency will publish its proposed Phase II Commercialization Rate benchmark in the Federal Register by 7/1/2013, with final rates to be published and be effective by 10/1/2013.  This rate identifies the commercialization results required for a given number of Phase II awards received.  Failure to meet this benchmark means the firm is not eligible for Phase I for one year.  This benchmark requirement is to be applied only to firms that have received more than 15 Phase II awards over the prior 5, 10, or 15 fiscal years.  

Q:  Why must all applicants register with the Company Registry--the legislation requires it only for VC-owned firms?

A:  With the reauthorization, Congress required a significant increase in data collection and reporting requirements including information to be collected from all applicants – not only on ownership and size, but also on commercialization success of past awards.  The SBA and agencies are required to build an integrated data system to meet these demands.  SBA believes that a centralized Company Registry for the SBIR/STTR program will reduce the overall burden on SBIR/STTR applicants by allowing them to enter the required company information once initially for all SBIR/STTR purposes, thereafter requiring only updates as needed.  This information will automatically populate other forms and databases required of the awardee.  SBA will maintain and manage the company registry to track ownership and affiliations for all companies applying to the SBIR and STTR programs, including participants that are majority-owned by multiple VCOCs, private equity firms, or hedge funds.  Data collected in the Company Registry Database will not be shared publicly. This registration is comparable to government contracting programs, which require registering with a centralized database to sell to the federal government.

Q:  The new Policy Directives require a tremendous amount of data collection and reporting.  Do agencies and applicants have to provide this right away?

A:  The Policy Directives simply lay out the data collection and reporting requirements stipulated in the statute.  SBA believes that the burden on small businesses can be reduced by:  1) implementing the data collection in phases so that small businesses don’t get hit with everything at once, 2) adopting an “enter once” philosophy  to reduce the amount of duplicative form filling across agencies, and  3) retaining basic data over time so companies can simply update their data each year rather than having to start from scratch.

Q:  Do applicants have to qualify as a small business at the time of application, or at the time of award? 

A:  Under current rules, the awardee must meet the definition of a small business concern at the time of award.  However, the proposed amendments to 13 C.F.R. §121.702 state that the requirements must be met both at the time of submission of the initial application and at the time of award.  It is anticipated that the final rule amending 13 C.F.R. §121.702 will be published by January 2013. 

Q:  Are SBIR/STTR agencies required to do more to prevent possible fraud, waste and abuse in these programs? 

A:  Awardee firms must certify they are meeting program requirements at the time of award as well as at points during the life cycle of the award.  Life cycle certification for SBIR/STTR was recommended by a working group of Inspector Generals as an important way to avoid possible fraud, waste and abuse.  It should be noted that this does not alter the policy that awardees may complete their SBIR/STTR award even if they no longer meet the definition of an SBC.  In addition, the Policy Directives include other new measures addressing fraud, waste and abuse.  For example, agencies must, among other things, include on their website and in each solicitation a telephone hotline number or web-based method for how to report fraud, waste and abuse; designate at least one individual to serve as the liaison for the SBIR/STTR program, Office of Inspector General (OIG), and the agency’s Suspension and Debarment Official (SDO); include on the agency’s website successful prosecutions of fraud, waste and abuse in the SBIR/STTR programs; and create, or ensure that a system exists to enforce accountability (e.g., creating templates for referrals to the OIG or SDO).

Q:  Are new measures being taken to reduce the time required to make awards? 

A:  Yes.  The Reauthorization Act requires changes aimed at reducing the gaps in time between the close of the solicitation and the notification of award.   Agencies are to implement these measures as soon as is practicable.  In addition, the Policy Directives include new reporting requirements for the participating agencies to develop the data needed to monitor and analyze these time lags. 

Q:  Will agencies be allowed to use SBIR set-aside funds to cover costs of administering the programs?  

A:  Yes, the Reauthorization Act allows each agency to create a pilot program that permits the use of up to 3% of their SBIR funds for administration of the SBIR/STTR programs.  Prior to this amendment, agencies were not permitted to use SBIR funds for any purpose other than awards and technical assistance to small businesses.  Therefore, SBA has amended the SBIR/STTR Policy Directives to set forth when and how agencies may begin using this pilot program authority – with a focus on demonstrating that this money (1) will be used to provide added support rather than simply replace the non-SBIR funds formerly used, and (2) will focus on material improvements in performance of the program on critical issues (e.g. streamlining).  Each agency must submit its plan of work to SBA for approval by 10/1/2012.  Note that the amount under this provision is 3% of the SBIR budget only, however it is to be used for administration of both the SBIR and STTR programs. 

Q:  The Reauthorization Act includes many new reporting requirements, on the part of both applicants and agency offices.  Will SBA’s TechNet database be able to accommodate the new requirements?   

A:  SBA is implementing a vastly improved program data system to facilitate administrative reporting and program evaluation.  Some elements of the data system are currently in place, however new features will be added over time.  When fully in place, the new system will enable applicants and agencies to provide the statutorily required information into one or more of seven specific databases, collectively referred to as Tech-Net, available at  Tech-Net will consist of:  (1) the Solicitations Database of all solicitations and topic information from the agencies; (2) the Company Registry housing company information on all SBIR/STTR applicants including specific information on SBC applicants that are majority-owned by multiple VCOCs, hedge funds and/or private equity firms; (3) the Application Information Database containing information on each SBIR/STTR application; (4) the Award Information Database of information on each SBIR/STTR awardee; (5) the Commercialization Database of information on the SBCs that have received prior SBIR/STTR awards; (6) the Annual Report Database used to generate the Annual Report that SBA submits to Congress; and (7) the Other Reports Database containing information required by statute but not stored in any of the other databases. 

Q:  NIH, DoD, and Department of Education may award Phase II awards to firms without a Phase I.  Must the agency put a notice about this feature in its Phase II solicitation?  Does this mean that any firm can apply for a Phase II and that the agency must consider these applications? 

A:  These agencies are allowed to exercise this option, but they are not required to do so.  An agency electing to do this, may put a notice in its Phase I solicitation informing respondents that it will accept Phase II proposals from firms that have not received the relevant Phase I and the conditions and application requirements.  These awards are restricted to those pursuing topics identified in the Phase I solicitation. 

Q:  The reauthorization legislation included a section on Phase III preference in contracting.  How does this change the programs in practice? 

A:  Since the 2000 reauthorization, federal agencies have been required to give preference to the SBIR/STTR awardee when considering any follow-on work that derives from, extends or logically concludes that firm’s SBIR work.  Further, an agency must report all instances where it pursues such work with another firm.  Section 5108 of the recent reauthorization legislation added a section to the Small Business Act that explicitly requires agencies, when pursuing work related to earlier SBIR work, to issue Phase III awards to the SBIR awardee that completed the earlier, related, work.  This provision makes it clear that Congress intends that agencies support the commercialization of SBIR work through the SBIR awardee and that they do so using Phase III contracts.