SBIR Policy Directive 2012
D. Section 4--Competitively Phased Structure of the Program
section 5162 of the Reauthorization Act.
SBA also amended this paragraph to explain that agencies may not use investment of venture capital, hedge funds or private equity firms as a criterion for a Phase I, Phase II, or Phase III award. This amendment is required by section 5107(a) of the Reauthorization Act.
SBA has amended this section of the directive, which addresses Phase I awards, to incorporate the provisions of section 5165 of the Reauthorization Act concerning agency measures of progress towards commercialization. Specifically, section 5165 requires that agencies establish standards, or benchmarks, to measure the success of Phase I awardees in receiving Phase II awards. These are referred to as the ``Phase I-Phase II'' Transition Rate benchmarks in the Policy Directive. Section 5165 also requires agencies to establish benchmarks to measure the success of Phase I awardees in receiving Phase III awards. These are referred to as the ``Commercialization Rate'' benchmarks in the Policy Directive.
SBIR agencies must establish the Phase I-Phase II benchmark rate and have received SBA approval for the rate by October 1, 2012. Agencies must establish the Commercialization Rate and have received SBA approval for the rate by October 1, 2013. Any subsequent changes in the benchmarks must be approved by SBA.
Once established, agencies will only apply these benchmarks to those Phase I applicants that have received more than 20 Phase I awards or more than 15 Phase II awards over the prior 5 fiscal years (excluding the most recently completed two fiscal years). However, at the agency's option, it may apply the benchmark to a Phase I applicant that has received more than 20 Phase I awards over the prior 10 or 15 fiscal years (excluding the most recently completed fiscal year) or has received more than 15 Phase II awards over the prior 10 or 15 fiscal years (excluding the most recently completed two fiscal years).
With the Phase I-Phase II Transition Rate, each agency must establish the minimum number of Phase II awards a small business must have received for a given number of Phase I awards over the preceding 5, 10, or 15 fiscal years (excluding the most recently completed fiscal year). For example, an agency may state that its Phase I-Phase II Transition Rate requires an SBIR Phase I applicant to have received at least one Phase II award for every five Phase I awards received in the prior 10 fiscal years. Another agency could state that its Phase I-Phase II Transition Rate requires an SBIR Phase I applicant to have received at least one Phase II award for every ten Phase I awards received in the prior 5 fiscal years. Agencies will set the benchmark as appropriate for the specific agency's SBIR Program, taking into consideration the fact that Phase I is intended to explore high-risk, early-stage research and therefore many Phase I awards will not result in a Phase II award.
With the Commercialization Rate, each agency must establish the level of Phase III commercialization results a small business must have received from work performed under prior Phase II awards over the preceding 5, 10, or 15 fiscal years (excluding the most recently completed two fiscal years). Agencies have discretion to define this benchmark in a number of ways, including: In financial terms (e.g., dollar value of revenues and additional investment per dollar value of Phase II awards); in terms of the share of Phase II awards that have resulted in the introduction of a product to the market relative to the number of Phase II awards received; or by other means (e.g., a commercialization score or index). SBA is aware that some agencies currently have a commercialization benchmark they are using. The directive provides the agencies with the discretion to continue to use those benchmarks or establish new Commercialization Rates relevant to that agency.
We note that the Reauthorization Act refers to ``the success of small business concerns with respect to the receipt of Phase III SBIR or STTR awards'' when determining the Commercialization Rate benchmark. However, the SBA understands that the intent of this provision is to measure success at commercializing SBIR technology not only in the Federal procurement market in the form of Phase III awards, but also in the private market place through sales or other means. Therefore, SBA has drafted the Policy Directive in a manner consistent with this understanding.
SBA will maintain a system that records all Phase I and Phase II awards and calculates these benchmark rates. The small business will be able to provide these rates to the SBIR agency with its application. The Reauthorization Act requires that each agency determine whether an SBIR Phase I applicant meets both of these benchmarks. If the applicant does not meet both of the benchmarks, then by statute it is not eligible for the Phase I award and it is not eligible for any other SBIR Phase I awards from that agency for a period of one year from the date it submitted the application to the agency and was determined ineligible for failure to meet the benchmark. That applicant, however, may be eligible for a Phase I award from a different agency if it meets that particular agency's benchmarks. If the applicant does meet the particular agency's benchmark rates, the agency will still evaluate the applicant's commercial potential for the specific R&D in that application and base this evaluation on agency-specific criteria.
The purpose of this statutory provision is to ensure that SBIR awardees are attempting to commercialize their R&D. SBA understands that not all Phase I awardees will receive Phase II awards due to many factors, such as the exploratory nature of Phase I awards, insufficient funding for Phase II awards, and changes in requirements for the agency. SBA has taken all of this into consideration when drafting these benchmark provisions, while also allowing agencies flexibility in setting the benchmarks.
2. Sec. Section 4(b)--Phase II Awards
SBA has amended this section of the directive, which addresses Phase II awards, to set forth two new statutory exceptions to the general rule that only SBIR Phase I awardees may receive an SBIR Phase II award. According to section 5104 of the Reauthorization Act, a Federal agency may now issue an SBIR Phase II award to an STTR Phase I awardee in order to further develop the work performed under the STTR Phase I award.
In addition, section 5106 of the Reauthorization Act states that, for fiscal years 2012-2017, the National Institutes of Health (NIH), Department of Defense (DoD) and the Department of Education (Education) may issue a Phase II award to a small business that did not receive an SBIR Phase I award. NIH, DoD, and Education must issue a written determination that the small business has demonstrated the scientific and technical merit and feasibility of the ideas that appear to have commercial potential. The agencies must submit this written determination to SBA prior to award.
SBA has also amended this section of the directive to state that agencies may not use an invitation, pre-screening, or pre-selection process for determining eligibility for a Phase II award. Agencies must set forth a notice in each solicitation stating that all Phase I awardees are eligible to apply for a Phase II award and must provide specific guidance on how to apply. This amendment is required by section 5105 of the Reauthorization Act.
Finally, SBA amended this section to address section 5111 of the Reauthorization Act, concerning multiple Phase II awards. Specifically, agencies may now issue one additional, sequential Phase II award to continue the work of an initial Phase II award. Therefore, a small business may receive no more than two SBIR Phase II awards for the same R&D project, and the awards must be made sequentially.
3. Section 4(c)--Phase III Award SBA amended this section to address the specific statutory directive at section 5108 of the Reauthorization Act that agencies, to the greatest extent practicable, shall issue Phase III awards to the SBIR awardee that developed the technology. Agencies may issue sole source Phase III awards to the SBIR Phase I or Phase II awardee to meet this statutory requirement. At times, agencies have failed to use this authority, bypassed the small business that created the technology, and pursued the Phase III work with another business. Congress has expressed, again, and now in stronger terms, a clear intent for the agencies to issue Phase III awards to the SBIR awardees that created the technology so that these small businesses can commercialize it.
SBA requests comments, however, on whether it should define ``to the greatest extent practicable'' with respect to when agencies shall issue these Phase III awards, and if so, how it should define the phrase. For example, if the agency elects not to issue a Phase III sole source award to the SBIR Phase II awardee for follow-on Phase III work, then SBA requests comments on what other ways, if any, the agency could meet this statutory requirement (e.g., whether SBIR preference is an option within the context of a full and open competition).
unofficial copy annotated by Zyn Systems