Legal Insights: The New SBIR Policy Directive
Fall 2012

The Small Business Innovation Research (SBIR) program funds R&D efforts to encourage small business to engage in technological innovation and increase private sector commercialization of innovations derived from federal research and development. Federal agencies with an extramural R&D budget exceeding $100 million must spend at least 2.5% of their budgets in an SBIR program. Under the SBIR program, the government enters into agreements to fund research and development projects through contracts, grants, or cooperative agreements.

On August 6, 2012, the Small Business Administration issued a new Small Business Innovation Research Program Policy Directive. 77 Fed. Reg. 46805. By means of this directive, the SBA amended its policies concerning the SBIR program. These amendments implement changes set forth in the National Defense Authorization Act for Fiscal Year 2012. The purpose of the new directive is to meet statutory requirements to simplify and standardize the proposal, selection, contracting, compliance, and audit procedures for the SBIR program to the extent practicable while allowing agencies with SBIR programs flexibility in the operation of these individual programs.

Although the amendments constitute a final policy directive, the SBA accepted comments on the directive through October 5, 2012. Moreover, new regulations will be issued by the SBA and other agencies to implement the requirements of the policy directive. Thus, further changes are on the way.

The new SBIR policy directive amends the SBIR program in the areas of eligibility, the SBIR award process, SBIR program administration and fraud, waste and abuse.

Eligibility

With respect to eligibility for an SBIR award the policy directive:

  • Addresses the new statutory requirements permitting small business concerns that are majority owned by multiple venture capital operating companies (VCOCs), hedge funds or private equity firms to participate in the program. Agencies electing to use this authority may issue only a certain percentage of their SBIR awards to such small businesses. 
  • Allows a Small Business Technology Transfer (STTR) Phase I awardee to receive an SBIR Phase II award to further develop work performed under the STTR Phase I award. 
  • Permits certain agencies, including DOD, to issue an SBIR Phase II award to a small business that did not receive an SBIR Phase I award. 
  • Provides that a small business may receive two sequential SBIR Phase II awards.

SBIR Award Process

Concerning the SBIR award process, the policy directive:

  • Increases the minimum percentage of an agency’s extramural R&D budget that must be awarded to small businesses under the program. These minimum percentages increase by 0.1% each fiscal year through 2016 and then by 0.2% in 2017. The term “extramural budget” means the sum of the total obligations minus amounts obligated for such activities by employees of the agency in or through government owned and operated facilities.
  • Establishes agency measures to evaluate an SBIR Phase I applicant’s success with prior Phase I and Phase II awards. The purpose of these standards is to ensure that repeat Phase I awardees are attempting to and have some success in receiving Phase II awards and commercializing their research. 
  • Ensures agencies make award decisions within the statutorily required time frames. The purpose of this amendment is to reduce the gap in time between submission of an application and the time of award. Agencies other than NIH and NSF must issue a notice to each applicant as to whether it has been selected for an award within 90 calendar days from the closing date of the solicitation. These agencies must then issue the actual award within 180 calendar days of the closing date of the solicitation. 
  • Increases the maximum thresholds for Phase I and Phase II awards to $150,000 and $1,000,000, respectively. Agencies may exceed these thresholds by no more than 50% unless the agency requests and is granted a waiver from the SBA.

SBIR Program Administration

With respect to each agency’s administration of the SBIR program, the policy directive: 

  • Addresses statutory changes for technical assistance provided to SBIR awardees. Agencies may contract with a vendor for up to five years to provide technical assistance to SBIR awardees, permit an agency to provide technical assistance itself to an SBIR awardee in an amount up to $5,000 per year or permit the small business to elect to acquire the technical services on its own. 
  • Creates and sets forth the policies for a new pilot program that permits agencies to use SBIR money for administration of the SBIR program. Agencies may use up to 3% of their SBIR funds for specified activities. 
  • Sets forth new reporting and data collection requirements. Both applicants and agencies will be able to provide statutorily required information into one or more of seven specific databases, collectively referred to as Tech-Net, which will be available at www.SBIR.gov. The seven databases are (1) Solicitations; (2) Company Registry; (3) Application Information; (4) Award Information; (5) Commercialization; (6) Annual Report; and (7) Other Reports.

Fraud, Waste and Abuse

Finally, the policy directive incorporates several amendments relating to fraud, waste and abuse: 

  • Requires small businesses to certify their satisfying the program’s requirements during the life cycle of a funding agreement. In addition to each small business certifying at the time of award that it is in compliance with law, for Phase I awards agencies must require that awardees submit a certification as to whether they are in compliance with specific SBIR program requirements at the time of final payment or disbursement. For Phase II awards, agencies must require that awardees submit a certification as to whether they are in compliance with specific SBIR requirements prior to receiving more than 50% of the total award amount and prior to final payment or disbursement. Agencies are also granted the discretion to request additional certifications throughout the life cycle of the award. 
  • Establishes specific measures to ensure agencies are preventing fraud, waste and abuse in the program. These measures include a telephone hotline or web-based method for reporting fraud, waste and abuse, designation of at least one individual to serve as liaison between the SBIR program, Office of the Inspector General (OIG), and the agency’s Suspension and Debarment Official (SDO) and ensuring there is a system to enforce accountability, such as creating templates for referrals to the OIG or SDO.

Contractors Need to Stay on Top of Changes

The new SBIR policy directive imposes many changes on the SBIR program. For the most part these changes expand opportunities under the program, but they also increase the compliance obligations of awardees. Contractors who participate in the SBIR program or who anticipate becoming involved in the program need to be aware of these changes and the additional changes that will soon follow.

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