SBIR PD 2002
PD Section-by-Section Analysis - Section 4
Competitively Phased Structure of the Program
Section 4 of the Directive addresses the competitively phased structure of the program. SBA received several comments on this section of the Directive and amends several provisions.
In section (b) of the proposed Policy Directive, SBA proposed a new policy that would allow participating Federal agencies to fund Phase II awards under their SBIR or Small Business Technology Transfer (STTR) Programs, which had its origin in either program. Under this proposal, agencies would continue to meet the statutory expenditure of the extramural budget of 2.5 percent for the SBIR program and .15 percent for the STTR program. Any award that would have been funded through this process would have been deemed an award of the program which provides the Phase II funding. The awardee would have been required to meet the eligibility requirements for the program under which the Phase II award is funded.
SBA received several comments regarding this proposal. Most commenters believed that the SBIR and STTR Programs are based on distinct law, with distinct legislative history, goals and budgets, and are therefore not interchangeable programs. This proposal could, they stated, weaken each program. Commenters also believed that most STTR funds would be used to fund SBIR Phase I projects, and most SBIR funds would fund STTR Phase II projects. Commenters also believed that this proposal effectively reduces funding for SBIR Phase I awards and takes flexibility away from small businesses competing in the SBIR and STTR Programs.
One commenter, however, supported the idea because it allowed a project to be supported by a different program in Phase II and this could be important in a few cases. In addition, the commenter believed it provided flexibility to the agencies.
Upon review of the comments and the proposal, SBA agrees that the two programs are different and distinct and that the proposal could weaken each program. Therefore, SBA amends the Policy Directive and removes this proposal.
In addition, SBA received comments concerning awardees eligible to compete for a Phase II award. One commenter recommended adding a sentence to make it clear that awardees can change their principal investigator upon approval by the funding agency. The commenter believed this is necessary because principal investigators sometimes leave the SBIR company and SBA should ensure that the new principal investigator has the proper credentials to complete the project. Another commenter believes that SBA should keep the parenthetical that states Phase I awardees that are "novated " or "successors in interest " can receive a Phase II award. However, the commenter thought SBA should delete the requirement that the same key staff is needed because principal investigators and staff change or leave the company after a novation. Another commenter believes that a Phase II novation agreement should preclude eligibility for a Phase II award.
SBA retains the provision relating to novation and successor in interests. However, SBA amends section 4(b) to permit agencies "to require the original awardee to relinquish its rights and interests in an SBIR project in favor of another applicant as a condition for that applicant's eligibility to participate in the SBIR Program for that project. " In addition, all applicants and their proposed personnel, including the principal investigator and key supporting staff, must meet the eligibility and scientific and technical qualifications attendant to the SBIR Program. Furthermore, SBA notes that it amends section 6(a)(4) to permit agencies to approve a change in principal investigator. Finally, although novated funding agreements are discussed in the Policy Directive in the context of Phase II, the same applies to situations involving Phase I and III awards.
SBA received several comments on Phase III of the SBIR Program, including several on the scope of a Phase III award. One commenter stated that the term "derives from " should be deleted from the description of Phase III work because it is too broad. Along similar lines, one commenter asked that SBA clarify whether all contracts are automatically Phase III contracts where an agency makes a series of successive follow-on awards to the Phase III contractor further developing and producing the SBIR technology. The commenter is concerned that the Directive may be limiting an agency's flexibility in awarding Phase III contracts or even requiring Phase III awards for follow-on efforts to large businesses that developed technology many years ago. Another commenter requested clarification that a follow-on non-SBIR program funding agreement is a Phase III agreement only when the agency is contracting with the same business concern that was awarded the Phase II contract. One commenter recommended re-writing this paragraph to state that a Phase III award is one that has its origins in, extends, or is the logical conclusion of Phases I and II.
SBA believes that the statute and legislative intent dealing with Phase III awards is clear and includes work that "derives from " prior SBIR work. SBA amends section 4(c) of the Policy Directive to be clear in the definition, application, and status of Phase III awards. Accordingly, section 4(c) provides that "SBIR Phase III refers to work that derives from, extends, or logically concludes effort(s) performed under prior SBIR funding agreements. " In addition, SBA has amended the Directive to state that an agency official may determine, using the Directive's guidance, whether a contract or other funding agreement is a Phase III award.
With respect to Phase III in general, one commenter stated that "work share " can be accomplished in Phase I and II, but questioned why it could not also be used for Phase III. Statutory provisions for the conduct of work with SBIR funds relate to Phases I and II only. Arrangements for work to be accomplished in Phase III awards are matters of negotiation between agencies and awardees.
SBA received several comments on data rights for Phase III (which are discussed in other sections of the Directive, as well). One commenter suggested that an SBIR Phase III awardee should not have data rights where a competition is held. Another suggested that the Directive should clarify that intellectual property data rights protections on an SBIR Phase III award are afforded only to new technical data generated under the SBIR funding agreement. The commenter believes that any part of a technical data package on a Phase III funding agreement that includes data originally generated under prior SBIR funding agreements, where intellectual property protections have expired, should not be afforded the additional 4 years protection.
SBA believes that section 4(c)(2) of the Policy Directive clearly states that a "Phase III award is, by its nature, an SBIR award, has SBIR status, and must be accorded SBIR data rights. " As provided in section 8(b)(2) of the Directive, data rights are protected by agencies for a period of not less than 4 years from delivery of the last deliverable under the Phase I, II, or III award. In addition, SBA believes that even if a competition is held, if the awardee was a Phase II SBIR awardee and the contract is for work that derives from, extends, or logically concludes that firm's work, the contract must have all SBIR Phase III status and data rights.
SBA also received comments regarding competition requirements for Phase III. Two commenters asked for clarification of Phase III "follow-on " requirements. One stated that the language "has been competitively selected using peer review or scientific review criteria " sounds like competition is necessary, and the other commenter asked whether an agency's technical review process under Phase I and Phase II meets the requirement for peer review or scientific review under Phase III. The statement that Phase III awards may be made using non-SBIR funding for the "continuation of R/R&D that has been competitively selected using peer review or scientific review criteria " means that competition is not necessary again, because competition via this peer review, etc. occurred for prior SBIR phases.
SBA also received several comments on the justification and approval (J&A) requirements for Phase III awards discussed in section 4(c)(3). One commenter recommended that SBA specifically state that no J&A is needed in Phase III. The commenter stated that agencies believe J&As limit their authority to issue a sole source award in Phase III. In addition, agencies might also limit the scope of Phase III awards to the scope of the J&A. Two commenters stated that FAR 6.302-5 states that a J&A is not required when the statute expressly requires the procurement be made from a specific source but one is required when the statute only authorizes it. This commenter argued that the Small Business Act only authorizes, but does not require, that the procurement be made from the successful Phase II awardee. Another commenter recommended stating that issuance of a J&A does not change the SBIR status or limit data rights for Phase III awardees and requested that this amendment apply retroactively.
SBA amends the Policy Directive to address several of these comments. According to the Competition in Contracting Act, when awarding a contract pursuant to 10 U.S.C. 2304(b)(2), the procuring agency need not prepare a J&A. 10 U.S.C. 2304(b)(3); see also 41 U.S.C. 253(b)(3). Section 2304(b)(2) states that the head of an agency may provide for the procurement of property or services using competitive procedures, but excluding concerns other than small business concerns in furtherance of sections 9 and 15 of the Act (15 U.S.C. 638, 644). 10 U.S.C. 2304(b)(2). Section 9 of the Small Business Act addresses the SBIR Program. Therefore, a procuring agency may restrict competition under the SBIR to small businesses or a small business (if that is all that can perform the award) and is not required by statute to prepare a J&A.
Consequently, SBA has revised the Directive to provide that a J&A is not required to fund an SBIR Phase III project, but if an agency wishes to prepare one, "it is sufficient to state for purposes of a Justification and Approval pursuant to FAR 6.302-5, that the project is an SBIR Phase III award that is derived from, extends, or logically concludes efforts performed under prior SBIR funding agreements and is authorized under 10 U.S.C. 2304(b)(2) or 41 U.S.C. 253(b)(2). " All provisions of this SBIR Program Policy Directive are effective upon publication in the Federal Register and supercede those contained in previously issued SBA Policy Directives concerning the SBIR Program, but are not retroactive.
One commenter requested clarification on section 4(c)(5), which states there is no limit on the number, duration, or dollar value of Phase III awards made to a business concern. One commenter recommended such awards be cut off in time (perhaps after the period of protection of the SBIR data rights). SBA has reviewed these comments and believes the Directive is clear: "there is no limit on the number, duration, type, or dollar value of Phase III awards made to a business concern, " or "on the time that may elapse between a Phase I or Phase II award and Phase III award, or between a Phase III award and any subsequent Phase III award. "
SBA also received several comments on reporting requirements for Phase III. Two commenters stated that the Policy Directive implies that agencies must report every time they do not issue a Phase III award to a Phase II awardee. One commenter noted that the statute limits the reporting requirements to instances where the agency is pursuing technology developed under the SBIR program of that agency (as opposed to the technology developed under the SBIR program of another agency); the SBIR business concern remains a small business; and the agency makes the decision to pursue the technology from a source other than the SBIR business concern. One commenter recommended making it clear that agencies only have to report when they issue an award to a concern, other than the Phase II awardee, for a technology developed by the SBIR concern. Another commenter stated that the agency SBIR Program Manager would have no way of knowing whether or not a contract was not awarded to an SBIR Participant, so it will be difficult to give such data to SBA.
SBA believes that section 4(c)(7) (and 10(b)(13)) of the Policy Directive is clear that agencies are required to report only those instances where a follow-on award with non-SBIR funds was issued to a concern other than the SBIR awardee that developed the technology to be pursued under the follow-on award. In addition, SBA believes that the "notice " requirement in section 4(c)(7), as well as the "reporting " requirements in section 10(b)(13), require agency coordination of, at least, SBIR Program Managers/Coordinators and contracting activities. SBA does not believe that the reporting requirements are limited to instances where the SBIR business concern remains a small business. The statute and legislative history evidence that the intent of the program is to help small businesses grow through commercialization in Phase III. Therefore, when agencies make follow-on awards to a concern other than the one that received the Phase I and II award, this should be reported to Congress.
SBA received several comments concerning the size of a Phase III awardee. One commenter stated that there is a contradiction between sections 4(c)(7) and 6(a)(1) of the Policy Directive. Section 4 states that Phase III awardees need not be eligible as an SBC, but section 6 states that each awardee under the SBIR Program must qualify as an SBC. Several commenters asked for clarification on the size of a Phase III awardee. Two commenters thought other than small businesses should not qualify for Phase III because it is inconsistent with the intent of the SBIR Program. One commenter appeared to support the position that Phase III awardees need not be eligible as an SBC.
SBA reviewed these comments, as well as congressional intent and the purpose of the SBIR Program, and determines that Phase III awardees do not have to qualify as SBCs. The intent of Congress is that SBIR firms should be encouraged in Phase III to develop and expand business applications of their SBIR research with the desired outcome that new employment and income are generated. The purpose of Phase III is to commercialize the innovation and help the SBC grow. Restricting Phase III to only SBCs might hinder the growth of SBIR Participants. Section 4(c)(6) of the Policy Directive is clear that the small business size limits do not apply to Phase III awards. Thus status as an SBC is required only for receipt of Phase I and Phase II awards.
One commenter noted that section 4(c)(7) of the Policy Directive states that it is the intent of Congress that agencies give special acquisition preference, including sole source awards, to the SBIR awardee that developed the technology. The commenter asked for clarification of this preference and to state that the preference is not mandatory. Another commenter stated its support for the special acquisition preference for Phase III.
SBA concurs and believes the Policy Directive is clear that this is a preference and is not mandatory. However, there is a statutory requirement that SBA establish procedures to "ensure " that an agency that issues a follow-on award for technology developed by an SBIR awardee, executes that follow-on award with that SBIR awardee (see Section 4(c)(8) of the Policy Directive) and "reports " instances where the award was issued to other than that SBIR awardee (see Section 9(a)(12)). It is clear that Congress intends, to the greatest extent practicable, that agencies issue Phase III awards to the SBIR awardees that developed the technology.