8
Program Management

The discussion of program management includes developing topics, planning and implementing the grant cycle, conducting outreach to stimulate grant-worthy proposals, selecting proposals for grant, encouraging firms to take the next steps needed to develop and commercialize their technologies, bridging across funding gaps, implementing reporting by grantees, and evaluating program results. The treatment of program management also covers the degree of program flexibility, size of grants, online capabilities, and administration of the program.

8.1
TOPIC DEVELOPMENT AND SELECTION

8.1.1
Topics

As the Small Business Innovation Research (SBIR) program evolved from control by the National Science Foundation’s (NSF’s) research divisions to centralized management in the mid-to-late 1990s, solicitation topics were reduced in number and oriented less toward scientific disciplines and more toward broad technology areas that would better mesh with business sectors. A purpose was to orient the topics in a way that would increase private-sector commercialization of the innovations derived from the grants. “The NSF SBIR/STTR [Small Business Technology Transfer] program aligned the solicitation topics with external investment and market opportunities and simultaneously preserved the science and engineering alliances with the NSF directorates.”1

1

Office of Industrial Innovation (OII), Strategic Plan (draft, June 2, 2005), p. 13.



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8 Program Management The discussion of program management includes developing topics, planning and implementing the grant cycle, conducting outreach to stimulate grant-worthy proposals, selecting proposals for grant, encouraging firms to take the next steps needed to develop and commercialize their technologies, bridging across funding gaps, implementing reporting by grantees, and evaluating program results. The treatment of program management also covers the degree of program flexibility, size of grants, online capabilities, and administration of the program. 8.1 TOPIC DEVELOPMENT AND SELECTION 8.1.1 Topics As the Small Business Innovation Research (SBIR) program evolved from control by the National Science Foundation’s (NSF’s) research divisions to cen- tralized management in the mid-to-late 1990s, solicitation topics were reduced in number and oriented less toward scientific disciplines and more toward broad technology areas that would better mesh with business sectors. A purpose was to orient the topics in a way that would increase private-sector commercialization of the innovations derived from the grants. “The NSF SBIR/STTR [Small Business Technology Transfer] program aligned the solicitation topics with external invest- ment and market opportunities and simultaneously preserved the science and engineering alliances with the NSF directorates.”1 1Office of Industrial Innovation (OII), Strategic Plan (draft, June 2, 2005), p. 13. 

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7 PROGRAM MANAGEMENT In 2005, the program identified the following seven broad topic areas: Biotechnology (BT) Electronics Technology (EL) Information Based Technology (IT) Advanced Materials and Manufacturing (AM) Chemical Based Technology (CT) Security Based Technology (ST) Manufacturing Innovation (MI) When a solicitation is held in a topic area, it is fleshed out with subtopics. The subtopics add specificity to the solicitation. (For additional discussion, see Chapter 4.) For example, Table 8.1-1 shows the 2004 “Advanced Materials” (AM) second- and third-level subtopics. Note that the third level serves to eliminate, as well as to define, areas of inquiry. AM included “Manufacturing” and “Chemical Processes,” but these are shown here only to the second level. In its first solicitation, the Securities Technologies (ST) topic area was defined as cross-disciplinary, and proposals submitted under this topic had to represent the convergence of at least two of the following three technologies: nanotechnology, biotechnology, and information technology (both hardware and software). Proposals also had to “be responsive to a subtopic within the solicita- tion,” listed in Table 8.1-2, effective April 2004. 8.1.2 Sources for Topic Ideas According to NSF SBIR program management: . . . topics are rooted in the agency’s vision and strategic goals. In particular, SBIR and STTR are uniquely positioned to emphasize NSF vision of innovation. Since NSF is not the final customer for the SBIR/STTR grantees, it is impera- tive that our grantees are positioned to tap into private sector capital, which is essential for commercializing the technology developed under the SBIR grant. Therefore, NSF topics reflect the market opportunity and are aligned with the broad investment business. At the same time the topics also resonate with the science and engineering disciplines that NSF supports within its Directorates and Divisions. (SOURCE: “NSF SBIR Response to NRC Questions,” January 2004) This study found no formal process for soliciting outside input in the genera- tion of NSFs topic ideas—such as a white-paper process used to develop thematic ideas in concert with industry. Rather, the sources for topic and subtopic ideas were said to come from NSFs program managers as they interact with industry and others at conferences and workshops, or through an approach devised by a program manager and approved by the SBIR director.

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION TABLE 8.1-1 Advanced Materials, Second- and Third-Level Topics— Example 1 from the 2004 Solicitation A. Advanced Materials 1. Environmentally benign technology • Improved techniques for recycling • Processing of recycled materials • Pollution prevention/avoidance processes 2. High temperature materials • Metal, ceramic, and composite materials developed for high temperature applications (e.g., improved turbine blade materials/processing) 3. Structural materials • Improved strength, toughness, fracture resistance, etc., materials • Processing and material improvements 4. Corrosion-resistant coatings • Surface coatings and modifications which lead to improved corrosion resistance • Improvements in materials for corrosion resistance 5. Tribological and wear-resistant coatings • Surface coatings and modifications which lead to improved wear resistance and/or reduced friction • Material improvements in tribology/wear 6. Engineered materials • Improved processing and/or materials with engineering applications other than those listed above (No nanotechnology, biotechnology, or electronic materials) • Smart materials • Shape memory alloys 7. Surface modification and thin film technology • Process improvements for modifying surfaces and applying thin films • Material improvements related to process modification that are not related to corrosion or tribology B. Manufacturing (also developed to a third level—but only shown to level 2) 1. Polymer processing and rheology 2. Casting/molding processes 3. Machining and material removal processes 4. Deformation processes 5. Powder material processing 6. Composite manufacturing processes 7. Additive manufacturing 8. Manufacturing process control 9. Machine design 10. Joining and assembly processes 11. Nontraditional material removal processes 12. Manufacturing systems C. Chemical Processes (also developed to a third level—but only shown to level 2) 1. Separations applications 2. Novel catalytic systems 3. Photochemical or electrochemical applications 4. Fluid flow applications 5. Combustion-related processes 6. Applications of plasma technology 7. Thermal energy applications 8. Reactor engineering applications 9. Chemical technology NOTE: The first-level topic is Advanced Materials; the second-level topics are those numbered; the third-level topics are those preceded by bullets.

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9 PROGRAM MANAGEMENT TABLE 8.1-2 Security Technologies, with Subtopics Listed—Example 2 from the 2004 Solicitation A. Prevention 1. Tools and systems for smart buildings/structures for • Public resources (energy, water, air) monitoring and control • Human resources coordination during emergency situations 2. Networked sensors and tools to provide real-time information on structural integrity 3. Systems beyond optical recognition (finger, facial, or retinal) that provide quick (under two minutes), unambiguous identity authentication B. Detection 1. Terahertz sources and detectors 2. Systems utilizing hardened RFID and other modalities for secure supply chain management, traceability, and counterfeit detection 3. Multiscale integration tools including new-generation packaging to enable nano-micro- meso system integration 4. Compact, cost-effective, environmentally friendly and long-lived power supplies (e.g., for widely disbursed wireless sensor networks) • Biomimetic • Energy-scavenging systems • Photovoltaic systems • Acoustic-voltaic systems • Other systems that provide energy densities exceeding 1000 Wh/kg 5. Proteomic-based biometric systems (NOTE: NOT PCR-based) C. Treatment 1. Site-specific wireless and wireline data/information systems to empower responders and emergency managers 2. Systems and tools for wide-area rapid treatment dissemination (including agricultural applications) 3. Systems with information management capability for rapid susceptibility D. Remediation 1. Systems and approaches for chemical (including industrial), biological, or radiological event remediation • Homes • Workplaces • Reservoirs 2. Stand-alone, single-use, widely dispersible sensors or detectors for environmental monitoring (NOTE: NOT lab-on-a-chip systems) 3. Environmentally friendly agent-specific widely dispersible decontamination media • Organic-based • Inorganic-based E. Attribution 1. Taggants and anticounterfeit/product authentication systems with unique spectral and other signatures 2. Field-deployable front-end sample preparation systems to extend the reach of laboratory-based analytic equipment

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0 SBIR AT THE NATIONAL SCIENCE FOUNDATION An example of the latter, an NSF SBIR program manager promoted revision of the manufacturing topic. According to the program manager,2 the manufactur- ing topic area had, over time, become “stale” and “not enough connected to the real world of manufacturing, such that introducing high tech alone would not help manufacturing’s competitive problem.” The manufacturing subtopics were described as holdovers from the time when the SBIR had operated as a decentral- ized program with close affiliation to its research divisions and with an academic orientation to the topics. To revitalize the manufacturing topic area, the program manager put together a panel, using volunteers from the topic area’s review panels. As a result, “the topics became more open and more targeted to issues of established manufactur- ing. In addition, the experts sent a recommendation for more reviewers for the manufacturing area.”3 Topics are posted as part of a solicitation announcement. During the time between the initial solicitation announcement and the proposal due date, it appears that modifications may be made at the subtopic level if developments or ideas from the outside suggest to the program manager(s) that modifications are warranted. These modifications reportedly are handled by addendums to the solicitation list. Letters may be sent out to companies to alert them to the addi- tional ideas. Supplemental funds may be provided to support newly identified areas of special interest. Through outreach activities of program managers and postings on the pro- gram’s Web site, further information on acceptable subtopics is conveyed to the public. For example, feedback was given to potential proposers on the accept- ability of homeland security as a research topic area prior to issuing the topic area and after release of the solicitation. Outreach activities by program managers can further delineate topic areas after release of the solicitation. NSF SBIR program management provided the following statement regarding topic modification after announcement of a solicitation: NSF SBIR/STTR topics are not modified or changed once the solicitation is an- nounced and published on the NSF SBIR Web site. The published solicitation includes submission instructions and proposal submission deadlines. However, NSF SBIR program management will make modifications to the topics areas prior to the solicitation announcement. NSF SBIR program management will stay aligned with NSF strategic goals, make changes based on current techno- logical trends, and give careful consideration to the market and investment com- munity. (SOURCE: “NSF SBIR Response to NRC Questions,” January 2004) Presumably, the apparent discrepancy between what this inquiry found and the NSF management statement lies in the distinction between topics and sub- topics. Furthermore, it should be noted that what may appear at first glance to 2Based on interview with NSF Program Manager Cheryl Albus on January 7, 2004. 3Ibid.

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 PROGRAM MANAGEMENT represent a change at the subtopic level, may not always actually change the acceptability of a given research theme. For example, next-generation vehicles were spelled out in one solicitation’s subtopic list, but not in the next. Yet, next- generation vehicles reportedly remained an acceptable topic of research proposed under other specified subtopics. The program may need more transparency in defining its topics and more communication with its partnering communities. A useful model is provided by the Advanced Technology Program. (ATP). From 1994 through 1998, the ATP used a white-paper process whereby any organization or individual could pro- pose a topic area for a competition. The purpose was to ensure maintenance of a bottom-up approach that would result in selection of topics in touch with industry and the marketplace. The program published guidelines for preparing and submit- ting the white papers. White papers were grouped by common themes, and when ideas gained momentum, public workshops would be held to assess the level of interest, to further develop the ideas, and, if merited, to prepare a topic descrip- tion that would be widely circulated for comments. A review board periodically considered emergent ideas for topics, helped establish priority among competition topics, and recommended to the director those that might form a subprogram for a series of funding competitions. In this way, the bottom-up selection process was maintained as the program experimented with topic specification. At the same time, in parallel to the “topic competitions,” the ATP held an “open competition” as part of each solicitation to provide an open door to all topics. 8.1.3 Agency-Driven versus Investigator-Driven Approach to Topics In most cases, NSFs topic specification leaves open the approaches and techniques that an investigator can take to respond to the particular problem or opportunity in the topic. At the same time, the NSF’s SBIR program information in the past stated that the applicant must propose within the announced topic areas or the proposal is rejected, and it currently states that the proposal may not be considered if it is not responsive to the program announcement/solicitation. 4 While none of the companies interviewed in the case studies complained that the NSF overspecified topics, they did comment that the NSF SBIR program’s broad definition of topic areas is unique compared with other agency programs. However, firms did comment on the length of time they had to wait until their topic areas come up for solicitation. According to one program official, the time to wait for a topic to be repeated has gone up, to as long as eighteen months.5 Also, the larger eligible small firms were concerned that the NSF’s SBIR program limits the number of proposals a firm can submit in response to a given solicita- tion to four. 4Reasons for returns are listed under “Frequently Asked Questions,” found at . 5Telephone interview with Joseph Hennessey, NSF, March 3, 2006.

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION TABLE 8.1-3 Criteria Used to Guide “Topic” Development Criteria Used to Guide Development of Topicsa Weight (%) Cutting edge of the field 45 Likely commercial technologies 45 Other 10 aThe response suggested that “topic” was interpreted broadly to include subtopics. SOURCE: NRC Program Manager Survey. 8.1.4 Topic Decision Making The broad topic areas that were in effect several years ago were reportedly developed by the SBIR program management staff acting as a working group. 6 The subtopic areas change, on average, about 35 percent each year. 7 The deci- sions are made by the program manager(s) responsible for the solicitations, with informal input from industry and with concurrence from other members of the program management staff who edit and adjust the topics/subtopics according to the criteria assigned the weights shown in Table 8.1-3.8 The program director makes the final topic selection.9 The Office of Industrial Innovation’s (OII’s) 2005 Strategic Plan noted the “increased awareness of and the necessity for the SBIR/STTR program to be aligned with national needs.”10 It set forth an action plan to: (a) identify tech- nologies with external investment/market focus; (b) exploit emerging discoveries from NSF-supported science, math, and engineering disciplines as subtopics; and (c) respond to national priorities set forth by the administration and other emerg- ing or pressing societal needs. The perspective expressed in the 2005 Strategic Plan is that most of the currently identified major topics will stay relatively constant and that changes will likely be made in response to emerging national needs. The NSF has also made decisions about topics it will not accept. Guidelines state that it will return proposals if they propose research in the following areas: (1) weapons research; (2) biomedical research (except bioengineering research); (3) any topics that fall in the area of classified research; and (4) any topics for which the primary purpose is demonstration, technical assistance, literature survey, or market research. 6Based on interview with NSF Program Manager Cheryl Albus on January 7, 2004. 7NRC Program Manager Survey completed by Joseph Hennessey, NSF. Note that the survey referred only to topics, not subtopics, but the nature of the responses suggested a broader interpreta- tion than the major topics only. 8Ibid. 9Ibid. 10Office of Industrial Innovation, Strategic Plan, p. 13.

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 PROGRAM MANAGEMENT Applicants are instructed to be responsive to NSF topics if they wish their proposals to be considered. They are instructed to designate “one, and only one, of the topics, keeping in mind that a firm cannot submit more than 4 proposals per solicitation (which includes the parent company and any of its subsidiaries). The topic name and the appropriate subtopic letter MUST be identified on the cover sheet.” In connection with its 2003 solicitation, the NSF provided the following instructions for classifying proposals by topic, noting that the NSF had made substantive revisions to subtopics under its then-four technology areas: NSF has established a cascading decision-making procedure in selecting the fit of each sub-topic under the four broad solicitation topics. The hierarchy for the fit of sub-topic starts at the top with BT [Biotechnology], followed by EL [Electronics], followed by IT [Information Technology], and finally AM [Adanced Materials]. The following are presented as illustrative examples. If the research is biology-based, it is BT. If the research is electronics or informa- tion or materials-based for applications in biotechnology such as devices for medical or bioinformatics or biocompatible materials, it should be submitted to the BT topic. If the research is electronics or photonics or magnetism-based, it is EL. Most instrumentation outside the BT application area fits into EL. If research is information or materials-based, such as embedded software or nano carbon tubes for use as semiconductors for electronic applications, it should be submitted to the EL topic. If the research is computer science or cognitive science-based, it is IT. If the research is modeling and simulation of engineering applications with software as the resultant commercial product, it is IT. If the research is on structural materials or chemical processes, it is AM. If research is on mechanical parts or manufacturing processes, it is AM. These examples are not meant as a comprehensive list of research opportunities but to assist in finding the proper fit for research ideas under the four NSF solicitation topics.” (SOURCE: NSF Web site, , as of November 2003.) The NSF SBIR FY2006 Phase I solicitation lists four topics: Advanced Materials (AM), Information Technology (IT), Manufacturing Innovation (MI), and Emerging Opportunities (EO). Each topic is further developed under “Research Topics.” Additional information on recent developments regarding topics lists is provided in the overview of Section 4.4.3 of this report. Funding is not apportioned among the topics/subtopics in an attempt for equality among them. Rather, the strategy is to fund the projects with the most merit. Sometimes topics/subtopics are narrowed or eliminated to reduce the number of applications.11 It was not determined when this narrowing or elimina- tion of topics/subtopics occurs or what its effect is on applicants—both issues of possible concern. 11NRC Program Manager Survey, op. cit.

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION In conclusion, the NSF’s SBIR program headquarters decides the topic areas for the program and the subtopics for a given competition with the assistance of program managers and, sometimes, other program-manager-devised sources, such as convened panels.12 The topics are fixed once the solicitation is issued, but subtopics appear to evolve in response to ongoing developments. 8.2 OuTREACH The NSF has an active outreach program and has sponsored the SBIR spring and fall national conferences since the inception of the program in 1982. These conferences provide information on upcoming competitions, include workshops that offer training, and allow face-to-face meeting opportunities for grantees and prospective applicants with program managers and each other. In addition to the prime audience of small businesses, these conferences are aimed at sales and marketing professionals, university researchers interested in business, scientists, prospective partners, and others. Notifications of upcoming conferences and meetings are easy to find through an online search, which yields notices of meetings on several Web sites. For example, one site sponsored by the NSF gives substantial information about the SBIR and STTR programs. 13 It lists national and regional conferences and events, details upcoming solicitations, provides links to federal agencies, pro- vides a guide to state resources, announces partnering opportunities, and enables companies and others to join an email list to receive notices of NSF-sponsored national SBIR/STTR conferences. The Small Business Administration (SBA) provides outreach for the program as a whole.14 State SBA-related sites, as well as other federal agency sites, are also rich sources of SBIR/STTR information for prospective applicants. The Pacific Northwest National Laboratory (PNNL) operates an agency-wide SBIR/ STTR online alert service.15 Privately operated sites also provide SBIR information. The SBIR Resource CenterTM operates one such privately operated site that purports to provide up- to-date information covering ten SBIR/STTR agencies in one place.16 Another site claims to be “the most comprehensive and easy to use SBIR information site.”17 12Based on a telephone interview with NSF Program Manager Rosemarie Wesson on December 1, 2003, and a face-to-face interview with NSF Program Manager Cheryl Albus on January 7, 2004. 13See . 14See . 15The PNNL-operated online alerting service may be found at . 16For more about the SBIR Resource Center, see . 17See the Web site for “SBIR Gateway” at .

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 PROGRAM MANAGEMENT 8.2.1 Agency Outreach Objectives A review of NSF-supported Web sites targeted at potential applicants sug- gests that the NSF has the objective of reaching areas that have submitted large numbers of applications as well as those that have not. Searches of NSFs outreach offerings identified many varied outreach opportunities. For example, a 2004 search of the NSF-supported SBIRworld.com revealed a national NSF SBIR out- reach conference scheduled in Atlanta, Georgia, and a recently completed national conference in Boise, Idaho. Both Georgia and Idaho are states that supply a rela- tively low number of SBIR proposals. The search revealed a workshop, “How to Prepare Winning Proposals for SBIR and STTR,” scheduled in Livermore, California—California being the state with the highest number of SBIR applica- tions and grants. The search showed several regional meetings—including one in North Carolina, a relatively low-application state, and one in Ohio, a relatively high-application state. Similarly, a 2005 search of the same NSF-sponsored Web site showed multiple workshops aimed at prospective applicants in diverse parts of the country. It included an “SBIR Grant Writing Workshop” to be held at Florida State University and an “SBIR/STTR Phase I Proposal Preparation Workshop” to be held at the Moore School of Business, part of the University of South Carolina. Florida is a mid-tier state in terms of numbers of applications, and South Carolina has fewer SBIR applications than average. Thus, the outreach activities of the NSF are not limited to a single geographical region or to either low- or high-application states.18 Through its association with the “Experimental Program to Stimulate Com- petitive Research and Institutional Development” (EPSCoR), however, the NSF’s SBIR program, like the other agency SBIR programs, has a special tie to low- application states. The EPSCoR program aims to increase the ability of states that receive a low proportion of federal research funds to become more successful in attracting such funds. It often partners with other state programs that have simi- lar goals. For example, in conjunction with EPSCoR, Nevada’s Small Business Development Center and the Nevada Commission on Economic Development joined forces to increase the number of SBIR grants going to firms in the state. They tried to raise funds for state-based “Phase 0” competitions and to provide assistance to companies developing SBIR proposals.19 The NSF’s SBIR program receives supplemental funding from EPSCoR that allows it to participate in SBIR events in EPSCoR states. Each year, the OII schedules one of its national con- ferences in an EPSCoR state and one in a non-EPSCoR state.20 The OII works jointly with EPSCoR to develop a competitive research infrastructure within the 18Not all the state and regional effects would be NSF sponsored. In some cases, when resources permit, NSF staff members participate in state SBIR-related workshops and meetings. 19This outreach activity in the State of Nevada is described at . 20Telephone interview with Joseph Hennessey, NSF, October 18, 2005.

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION TABLE 8.2-1 NSF SBIR Outreach Activities and Their Relative Importance Importance as a Share of NSF’s Overall Type of Outreach Activity Outreach Program (%) SBIR National Conferences 50 State conferences 15 NSF National Agency SBIR Meeting 10 Other agency conferences and outreach meetings 10 The SWIFT Bus Tour 10 Academic conferences 5 Total 100 SOURCE: NRC Program Manager Survey. EPSCoR states and territories. According to program administrators, “Special consideration is given by the SBIR/STTR program regarding funding decisions for proposals received from EPSCoR states and territories in collaboration with the EPSCoR program.”21 8.2.2 Outreach Programs Table 8.2-1 lists the major types of outreach activities undertaken by NSF SBIR staff and indicates the relative importance program managers place on each activity. According to the NRC Program Manager Survey, the NSF views the SBIR national conferences as the premiere outreach activity because they draw the larg- est number of applicants and are the most cost-effective. Next in importance are the state conferences. The NSF assigns its own national conference a weight of 10 out of 100, indicating that it is of equal importance to other agencies’ conferences and outreach meetings and of equal importance to “the SWIFT Bus Tour”—a bus tour of program managers from several federal agencies who publicize SBIR grant opportunities by periodically traveling together to regional state-sponsored small business conferences and meetings. Academic conferences are considered by OII to be the least important of the outreach activities. The SBIR office often engages in partnering to provide outreach services. Table 8.2-2 lists the types of organizations that partner with the NSF for outreach. As noted previously, the NSF also partners online with various sources to make its outreach activities known. Assistance programs that help companies prepare their SBIR proposals are offered by universities, state agencies, regional associations, and mentor compa- nies. While these programs are generally not sponsored or run by the NSF, the 21“NSF SBIR Response to NRC Questions,” January 2004.

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7 SBIR AT THE NATIONAL SCIENCE FOUNDATION TABLE 8.10-1 Phase I Grants, 1992–2005 Fiscal Year Number of Grants Average ($) Total ($) 1992 208 49,755 10,349,115 1993 256 49,727 12,730,184 1994 309 64,103 19,807,945 1995 301 64,571 19,436,011 1996 252 74,283 18,719,287 1997 261 74,262 19,382,371 1998 215 98,371 21,149,814 1999 236 98,749 23,304,757 2000 233 99,405 23,161,372 2001 219 99,353 21,758,218 2002 286 99,162 28,360,340 2003 437 99,275 43,383,103 2004 244 100,000 25,117,992 2005 149 98,575 14,687,703 SOURCE: NSF SBIR program data. 8.10.2 Distribution of Funding to Phase I and Phase II Grants within the Specified Limits The distribution of NSF SBIR funds to Phase I and Phase II grants reflects the amount of funding available and a time-lag effect of the previous year’s allo- cation decisions. For example, a year of a large rise in the allocation to Phase I grants tends to be followed the next year by a rise in the allocation to Phase II grants. Discussions with NSF SBIR program officials did not reveal a formulaic approach for allocating available funding among the different grant categories. However, the solicitations mention an approximate amount of funding available, indicating advanced planning for the funding allocation. Actual Size and Duration of Phase I Grants. The average size of NSF Phase I grants, stated in current dollars, increased in a series of steps from nearly $50,000 in 1992 and 1993 to an average of approximately $64,000 in 1994 and 1995, to approximately $74,000 in 1996 and 1997; and thereafter to an average of nearly $100,000, the current maximum Phase I grant amount. Total annual Phase I funding rose stepwise over much of the fourteen-year period. Over the years 1992 to 1993, annual Phase I funding ranged from $10 mil- lion to $12 million. Over the years 1994 to1997, Phase I funding totaled roughly $19 million annually. Over the years 1998 to 2001, Phase I funding ranged from $21 million to $23 million annually. Then, in 2002, the total jumped to $28 mil- lion, followed by an even more dramatic jump to $43 million in 2003. In 2004 there was a drop in total Phase I funding back to $25 million, and a further drop

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79 PROGRAM MANAGEMENT TABLE 8.10-2 Phase II Grants, 1992–2005 Fiscal Year Number of Grants Average ($) Total ($) 1992 57 246,373 14,043,289 1993 52 269,668 14,022,757 1994 21 279,983 5,879,644 1995 48 277,136 13,302,542 1996 90 297,584 26,782,533 1997 122 289,390 35,305,525 1998 117 344,958 40,360,087 1999 89 394,854 35,141,968 2000 95 400,827 38,078,524 2001 91 475,018 43,226,632 2002 67 495,645 33,208,238 2003 77 498,505 38,384,851 2004 131 498,254 65,278,995 2005 132 499,715 65,962,445 SOURCE: NSF SBIR program data. in 2005 to $14.7 million. Table 8.10-1 shows the annual number, average size, and total amount of Phase I grants from 1992 to 2005. The mean annual duration of Phase I grants was essentially half a year throughout the ten-year period, with only minor fluctuations. A mean duration of half a year would be expected since this is a standard feature of Phase I grants for the NSF’s SBIR program, as established by the SBA, which has oversight responsibility for the program. Actual Size and Duration of Phase II Grants. The average size of a Phase II grant grew from $246,000 in 1992 to over $300,000 by 1998, to over $400,000 by 2000, and to nearly $500,000 from 2001 to 2005. Effective Novem- ber 1, 2003, the SBA increased the limit of Phase II (including the combination of Phase II/IIB grants) from $750,000 to $1,000,000. The NSF, however, has chosen to limit the funding of its Phase II grants to $500,000 and to make the remain- ing allowable $500,000 available as a supplement to the initial amount through follow-on Phase IIB grants. Like its total Phase I funding, NSF total annual Phase II funding rose over the thirteen-year period, but this rise was more irregular. Total Phase II funding was at the $14-million level in 1992 and 1993. It dropped in 1994, rose back to the $13-million level in 1995, and jumped to nearly $27 million in 1996. Between 1997 and 2003, total annual Phase II funding fluctuated between $33 million to $43 million. In 2004, Phase II funding surged to $65 million as Phase I funding fell back to its 2002 level. Table 8.10-2 shows the annual number, average size, and total amount of Phase II grants from 1992 to 2005.

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0 SBIR AT THE NATIONAL SCIENCE FOUNDATION TABLE 8.10-3 Phase IIB Grants, 1998–2005 Fiscal Year Number of Grants Average ($) Total ($) 1998 4 99,986 399,944 1999 21 95,170 1,998,574 2000 9 184,466 1,660,191 2001 14 307,334 4,302,682 2002 39 245,861 9,588,580 2003 24 237,096 5,690,294 2004 22 273,883 6,025,436 2005 28 330,731 9,260,464 NOTE: Effective November 1, 2003, the limit of Phase IIB grants was increased from $250,000 to $500,000. Yet the average is shown to exceed $250,000 in 2001. This apparent dichotomy is explained by the fact that if the Phase II grant were below the allowable size, the program would sometimes increase the amount of the Phase IIB grant to bring the combined Phase II/Phase IIB amount up to the allowable limit—in this case, $750,000. The record keeping for this practice would cause the Phase IIB award amount to appear to exceed the limit. Telephone interview with Joseph Hennessey, NSF, October 18, 2005. Dollar amounts are in current dollars. SOURCE: NSF SBIR program data. According to the SBA, Phase II grants may last “as many as two years.” The annual mean duration for the initial Phase II grants over the ten-year period ranged from two to two and a half years. Reasons for the average exceeding the official limit likely reflect accounting closeout issues or requests for extensions. Actual Size and Duration of Phase IIB Grants. In 1998 and 1999 the aver- age Phase IIB grant ranged between $92,000 and $100,000. The average jumped to $184,000 in 2000. Thereafter, the average Phase IIB grant fluctuated between $234,000 and $294,000 each year. Total Phase IIB grants rose dramatically from $399,900 in 1998, to nearly $2 million in 1999, which was followed by a drop to $1.7 million in 2000. The total jumped to over $4.3 million the next year, and in 2002 it more than doubled to $9.6 million, the highest level of the entire period. In 2003 and 2004 the total was close to $6 million, and it rose to $9.3 million in 2005. Table 8.10-3 gives the number, average size, and total amount of Phase IIB grants. According to NSF program officials, they made the decision to increase the amount of funding to Phase IIB as opposed to increasing the amount for Phase I or Phase II grants in an attempt to leverage the government’s investment more effectively. Program officials thought offering additional funding through Phase IIB grants would accelerate development and commercialization of technology by encouraging Phase II grantees to seek third-party funding. Program officials pointed out that changes in the average size of Phase IIB grants in response to the move to provide supersized grants depend on how suc-

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 PROGRAM MANAGEMENT TABLE 8.10-4 Total Funding Provided to Grantees by the NSF’s SBIR Program, 1992–2005 Fiscal Year Total Grants of All Types Total Grant Outlays ($) 1992 265 24,392,404 1993 308 26,752,941 1994 330 25,687,589 1995 349 32,738,553 1996 342 45,501,820 1997 383 54,687,896 1998 336 61,909,845 1999 346 60,445,299 2000 337 62,900,087 2001 324 69,287,532 2002 392 71,157,158 2003 538 87,458,248 2004 397 96,422,423 2005 309 89,910,612 SOURCE: NSF SBIR program data. cessful grantees are in securing third-party investments. “We do not anticipate a significant increase in the amount of total funding, because the grantee will be required to secure $1 million in outside investment in order for NSF to match with an additional $500,000. For instance, we received 15 Phase IIB proposals in November [2004], and only three were able to secure $1 million in outside commitments.”77 Total Amount of Funding Provided by the NSF. Table 8.10-4 shows the total funding the NSF’s SBIR program provided to small businesses each year from 1992 to 2005. It began at a level of $24.4 million, rose fairly steadily to a level of $96.4 million in 2004, and fell back to $89.9 million in 2005. 8.11 ONLINE CAPABILITIES AND PLANS 8.11.1 FastLane System Grant application and processing at the NSF is now entirely electronic via the NSF’s online FastLane system. FastLane is used for proposal submittal, panel review, proposal management, tracking payments, checking proposal status, making travel arrangements, submitting reports, and other purposes. According 77NSF SBIR Response to NRC Questions, op. cit.

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION to program administrators, as a result of FastLane, “Doing business with NSF is simpler, faster, more accurate, and less expensive.”78 Proposers are required to prepare and submit all proposals through the FastLane system. To facilitate proposal preparation, FastLane has smart forms capability that pulls in all individual and organizational information available in the NSF database to minimize the amount of information that must be typed in by the user. Detailed instructions for proposal preparation and submission via FastLane are available at . Principal investigators are also required to use the NSF electronic project reporting system, available through FastLane, for preparation and submission of project reports. This system facilitates electronic submission and updating of project reports, including information on project participants (individual and organizational), activities and findings, publications, and other specific products and contributions. According to program administrators, adoption of electronic business Web- based approaches is consistent with the broader commitment to e-business by the NSF. At the time of the study, the NSF was the only agency to receive the highest status rating (green) in two of the government-wide President’s Manage- ment Agenda initiatives. During 2002 the NSF became the first federal agency to receive the top rating for the e-government initiative.79 8.11.2 Barriers to Online Capabilities and Plans No barriers obstructing implementation of electronic filing and processing of proposals were found. The provision of online capabilities appears to have been successfully achieved by the NSF’s SBIR program for all aspects of grant application, processing, and reporting. 8.12 ADMINISTRATIVE RESOuRCES 8.12.1 Funding of Program Administration According to NSF SBIR program officials, the program’s dedicated annual administrative budget was $2 million in a recent year, not including program officer salaries and other administrative support that does not come out of the $2 million. Items included in the $2 million are contracts for support to supple- ment NSF personnel, costs of running review panels, contractor costs to organize and run national conferences or operate outreach Web sites, and other items. 80 78NSF SBIR Response to NRC Questions, op. cit. 79Ibid. 80Note that the NSF SBIR staff originally reported its 2004 administrative budget at $3 million. Ibid. This figure was later changed to $2 million. Telephone interview with Joseph Hennessey, NSF, October 18, 2005.

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 PROGRAM MANAGEMENT The COV in 2004 commented in a broad way on the inadequacy of the resources that are available for managing and administering the program. It noted that as the workload of the program has increased, pressures on resources have intensified. 8.12.2 Administration Budget as a Percentage of Agency SBIR Funding The administrative budget was 2 percent of agency SBIR funding in 2004 ($2 million out of a total SBIR funding of $96.4 million). Because the administra- tive budget has been relatively stable over several years, while the SBIR funding has increased, the administrative budget as a percentage of the agency’s SBIR funding has dropped. For example, the administrative budget was 2.8 percent of total funding in 2002 and 2.3 percent in 2003. Because the administrative budget is not free to vary with changes in the SBIR funding, program managers have to do more with less as the program grows. If NSF budgets increase in coming years, the pinch in administrative funding can be expected to tighten further unless a change is made. 8.12.3 Evaluation and Assessment Funding As noted in Section 8.8.4, program officials have estimated that the program’s annual expenditures on evaluation and assessment in recent years total less than 1 percent of the NSF SBIR program budget.81 However, no actual dollar value was placed on the amount spent, so it might be anywhere between $0 and nearly $100,000 per year. Considering the fact that externally conducted evaluation would have to come out of the small administration budget, it is not surprising that the program generally has not commissioned such evaluations. Given that in-house staff do not come out of this budget, it is likewise not surprising that staff members have generally carried out the evaluations that have been done. 8.13 BEST PRACTICES AND PROGRAM EVOLuTION 8.13.1 Adoption of Best Practices from Other Agencies There is evidence that the NSF’s SBIR program has adopted at least three to four best practices from other agencies. The following are illustrative rather than exhaustive. A notable example of how the NSF’s SBIR program adopted a “best-prac- tice” from another agency was the introduction of the NSF Phase IIB program in 1998. According to an NSF staff member, in the mid-1990s the Department of Defense (DoD) introduced “Fast Track” as an incentive for partnering between 81NRC Program Manager Survey op. cit.

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION the small business and investment communities. The DoD’s Fast Track required third-party funding at the front end as a prerequisite for a faster transition from Phase I to Phase II. The DoD program manager would automatically raise the ranking of Fast Track proposals to the top of the funding category. Recognizing the value of attracting investors early on, the OII decided to adapt the third-party financing requirements of Fast Track to the NSF’s SBIR/STTR program. Though derived from the DoD’s Fast Track, the NSF put its own stamp on its Phase IIB program, placing the third-party financing initiative after Phase II and using it to move grantees closer to commercialization. A second practice borrowed from another agency is NSF’s Commercializa- tion Assistance Program (CP2). The DoE’s SBIR program initiated a commer- cialization assistance program to assist its grantees early on. The NSF program later recognized the value of such assistance, and adapted the concept for its own grantees, recognizing that many of the grantees tend to be strong in science but less so in business. A third practice, very recently borrowed by the NSF from the DoE and Navy SBIR programs, is to provide grantees the opportunity to network with and present to potential investors in organized events. In 2005 the NSF began to sponsor some of its own grantees in participating in a DoE-sponsored “Oppor- tunity Forum.” A fourth practice, the NSF’s Matchmaker service, may have been modeled on ATP’s R&D Alliance Network, which was established in the mid-1990s. It is not clear that NSF actually did model its service on ATP’s, however, the services are similar and ATP’s service predated NSF’s. 8.13.2 Evolution of the NSF’s Program During the NRC Study It has often been noted that the effects of program evaluation and assessment typically are felt before a study is completed and recommendations are made. As an outside body examines a program, the subject program almost immediately intensifies its self-examination, which leads to internally generated changes. This phenomenon may be at work in the present situation, as the rate of evolution in the NSF’s SBIR program appears to have intensified during the NRC study. Of course, during this same period, the program has also been responding to recom- mendations of its COV. An example of a program improvement that has occurred during the course of the program is improved data compilation and analysis. At the beginning of this study, requests for program data were met with delays, delivery of partial and incorrect data, and a lack of evidence that the program administration routinely and systematically used program data effectively to manage the program. Dur- ing the course of the study, the program appeared to have made progress in its data management and analysis and became more responsive to the study’s data requests. Furthermore, as evidenced by the program’s recent Strategic Report, the

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 PROGRAM MANAGEMENT program is making use of data to profile and enhance understanding of program developments and trends. OII Operational Plans for Improvements. OII included plans for addi- tional program improvements in its recent Strategic Plan. In part, these plans anticipate and potentially address some of the issues identified in this study. 82 Here we provide a brief overview of these plans, particularly as they relate to the issues identified in this study. OII’s Strategic Plan addressed four major goals: (1) to identify, nurture, and lead the small business community to technological innovation arising from the frontiers of academic research; (2) to improve the commercial success of small high technology businesses; (3) to grow the small business community as a major employer of U.S. scientists and engineers; and (4) to deliver the highest value to the nation’s small technology business community. For each of these major goals, a set of objectives is given and an operation plan is presented listing specific tasks for accomplishing the objectives. Here we briefly identify a selection of those objectives and a selection of operational plans. A. OII Objective: Enhance training and assistance to small business grant- ees for the commercialization of SBIR/STTR grants Operational Plan: 1. Offer additional contract assistance to Phase II grantees • Develop plans to work with incubators, business schools, and other resources • Concentrate on specific technology incubators, for example, Bio- tech incubators in Maryland • Provide innovation management courses to grantees 2. Revise Phase I requirements (to include more “meat” up front) • Bring business reviewers into the Phase I process 3. Provide training for international patent strategies B. OII Objective: Create small business partnerships with investors and corporate partners and provide incentives to accelerate commercialization Operational Plan: 1. Bring investors and corporate partners to grantees conferences and workshops 2. Use business school MBAs for business assistance 3. Conduct workshops on “narrow” topics for partnering 82According to the preface in the Strategic Plan, the motivating force driving the OII Strategic Plan is the Engineering Directorate’s strategic directions to “Strengthen Technological Innovation” in response to the National Innovation Initiative Report “Innovate America.”

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 SBIR AT THE NATIONAL SCIENCE FOUNDATION 4. Proactively channel NSF grantees to other agencies as potential subcon- tractors to primes C. OII Objective: Judiciously select SBIR/STTR solicitation topics Operational Plan: 1. Continuously review, refine, rejuvenate, and revise the investment busi- ness focused topics of Electronics Technology, Biotechnology, and Information-Based Technology 2. Continuously review, refine, rejuvenate, and revise the industrial market- driven topics of Advanced Materials and Manufacturing and Chemical- Based Technology 3. Be flexible and nimble to have solicitations at short notice on technologies that respond to national needs D. OII Objective: Encourage entrepreneurship by underrepresented groups Operational Plan: 1. Expand SBIR/STTR program beyond the newly initiated partnering with CREST (predominantly minority academic research institutions) 2. Increase subcontractor efforts to expose underrepresented small businesses to all business resources including National Outreach Conferences 3. Seek ways to increase underrepresented participation in SBIR/STTR 4. Target underrepresented community pockets 5. Target both the physically disabled community as well as the technologies for that community E. OII Objective: Grant all Phase I and Phase II grants within six (6) months of the solicitation deadline Operational Plan: The plan includes a group of tasks that center on organizing [in order] to handle a high volume of proposals with limited staff and the need to employ contractors and convene panels of reviewers. F. OII Objective: Implement a robust grants management program G. OII Objective: Redefine outreach H. OII Objective: Conduct an in-depth outcomes assessment Operational Plan: Develop a plan to define, measure, and test SBIR/STTR program metrics

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7 PROGRAM MANAGEMENT The objectives in OII’s Strategic Plan point to the program’s efforts to improve the program on a continuing basis. Moreover, the history of the program is replete with changes to make the program better. 8.14 CONCLuSION This report is one element of the study that Congress requested of the SBIR program as a part of the 2000 program reauthorization.83 It focuses on the small- est, and the oldest, of the “big-five” federal SBIR programs addressed by the NRC study, namely, the NSF’s SBIR program. Drawing on results of survey, case study, data and document analyses, and interviews of program staff and officials, the report has examined how the NSF’s SBIR program is meeting its four mandated purposes. In the aggregate, the report provides an account of a program that is well managed and is delivering results. At the same time, it identifies challenges and recommends operational improvements to strengthen the SBIR program at the National Science Foundation. 83SBIR Reauthorization Act of 2000 (H.R. 5667, Section 108).

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