Recent Amendments to SBIR and STTR Policy Directives Impact Calculation of Benchmark Rates

The Small Business Administration (SBA) recently amended provisions of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Policy Directives in response to comments that the SBA received in response to the final Policy Directives, published on August 6, 2012 (77 Fed. Reg. 46,806-46,908).  The Policy Directives provide guidance to Federal agencies that participate in the SBIR and STTR programs, which are designed to encourage the participation of eligible small businesses in Federally-funded research and development.  The amendments make several key changes to the regulations governing the eligibility of program participants, specifically with respect to calculating performance benchmark rates.  They also clarify issues of program administration, and agency requirements to prevent fraud, waste and abuse. With regard to changes to the SBIR and STTR program eligibility requirements, the amendments clarified rules pertaining to the performance benchmarks that applicants with multiple SBIR or STTR awards must achieve in order to be eligible for a new Phase I award.  Performance benchmarks measure the rate at which a SBIR or STTR awardee has commercialized the product developed under its award (“commercialization rate”), and the proportion of an awardee’s Phase I awards that transition into a Phase II award (“transition rate”).  The amendments clarified the time periods that are used to calculate transition rates, stating that Phase I awards will be calculated over the most recent 5, 10 or 15-year period (as determined by the funding agency), but will exclude the most recently completed fiscal year.  Additionally, the time period for calculating Phase II awards will begin one year after that of the Phase I award time period, and does include the most recently completed fiscal year.  Prior to this amendment the Policy Directives calculated the number of Phase I and II awards in the same time period.  Additionally, the amendments clarified that the transition rate benchmark only applies to firms that have received more than 20 Phase I awards over the applicable time period, and the commercialization rate benchmark only applies to firms that have received more than 15 Phase II awards over the applicable time period. The new amendments also explain that SBA will now assist agencies in determining eligibility by annually assessing the benchmark rates of every awardee on June 1.  Those firms that have not met the applicable benchmark rates are ineligible to receive new Phase I awards from that agency during the one-year period beginning June 1 and ending May 31.  An ineligibility determination will not preclude a firm from applying for new Phase II or III awards, or from continuing work on its ongoing SBIR/STTR awards.  Previously, the Policy Directives stated that awardees would be ineligible for a year after its application submission if it did not meet the benchmark requirements. The SBA also addressed comments concerning the waste, fraud and abuse prevention measures set forth in the Policy Directives.  Some commentators expressed concerns that such measures were “too stringent and may discourage small businesses from applying.”  In response, SBA stated that these provisions were developed in consultation with the Council of Inspectors General on Integrity and Efficiency, and that they would remain unchanged.  These measures require agencies to, inter alia, require awardees to certify to their eligibility and size status, establish written policies for detecting and reporting fraud waste and abuse, and avoid funding work that is essentially equivalent to work funded by other agencies. The amendments are available at 79 Fed. Reg. 1,303 (SBIR Policy Directive) and 79 Fed. Reg. 1,309 (STTR Policy Directive).  They are effective as of January 8, 2014.

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