SBIR at the Department of Defense (2014)

4

Commercialization Initiatives in the DoD SBIR Program

Over the past 20 years, the Department of Defense (DoD) has greatly increased its efforts to accelerate transition and to make the Small Business Innovation Research (SBIR) program a much more integral part of weapons acquisition and procurement more generally. This chapter reviews the many initiatives and programs developed primarily to achieve these goals. ¹

Although DoD is by no means a monolithic entity, it is convenient (and necessary sometimes) to talk about the “DoD SBIR program.” However, the reality is that no such program actually exists—there are quite different programs at each of the Services, and many of the larger components have differentiated programs as well.

So the discussion of commercialization initiatives in this chapter reflects the fact that while initiatives—and especially policy guidance—come from DoD or even Congress, many come from efforts at the Services or even Systems Command (SYSCOM) or Program Executive Office (PEO) level to make the program work better. Initiatives are not by any means always adopted by other components even if they prove successful. And adoption of initiatives may be uneven even within a Service. Data for this chapter have been gathered primarily from DoD documents and other public records, as well as agency interviews. In some cases, private material has been shared by DoD (these are referenced internally). These sources are discussed in more detail in Appendix A.

This chapter provides a framework for understanding the broad thrust of developments within DoD by identifying and explaining specific efforts and initiatives. It should not be read as a definitive description of activities on the

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¹Material for this chapter was sourced primarily from a range of DoD documents provided to the NRC, and interviews with SBIR and acquisitions officers at Navy. Air Force, SOCOM, and DARPA, as well as the DoD SBIR office, conducted in May and June 20 2013. Efforts to interview Army staff were unsuccessful.

ground. The chapter begins, however, with a key question: What does commercialization mean at DoD?

WHAT IS PHASE III?

“Phase III” is usually taken to refer to the period of commercialization after the end of Phase II. However, in the specific context of DoD, “Phase III” has two distinct meanings that are often conflated or confused when discussing commercialization at DoD.

In terms of the SBIR legislation, “Phase III” simply means further commercialization of an SBIR-funded product or service without the use of SBIR funding. It is, simply put, an unfunded Phase into which projects are expected to move after completing Phase II. Thus, at non-procurement agencies such as the National Institutes of Health (NIH) and the National Science Foundation (NSF), Phase III is typically taken to mean the commercial take-up of SBIR-funded technologies. The Small Business Administration (SBA) officially defines commercialization as:

At DoD, however, “Phase III” also has additional and separate meanings; in general, it means not that a project has reached the market, but that it has transitioned into use within DoD as

More specifically, Phase III in DoD means that a further contract exists from DoD or a DoD supplier which is certified as a Phase III contract by the contracting officer—i.e., it is certified as following on from an SBIR or Small Business Technology Transfer (STTR) award.

This certification carries potentially valuable contracting rights: companies seeking funds (either sales or further investment) for Phase III are exempt from normal regulations governing the need to compete for federal contracts, because the competition is deemed to have taken place at Phase I and Phase II. Hence, certified Phase III projects can be sole sourced, a designation that could provide a faster route to commercialization. Confusion between these two uses of “Phase III” is widely found even within DoD.

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² Small Business Administration, SBIR Policy Directive, September 2002, §3(f), p. 6.

³ FY2006 National Defense Authorization Act, P.L. 109-163, §252 (a)(y)(1).

For the purposes of this analysis, the committee proposes to use the following terminology, drawn from the discussion of commercialization in Chapter 3:

• “Transition” means the commercialization of any SBIR-funded technology within DoD. It is a broad term that includes but is not limited to Phase III contracts.
• “Phase III” means only certified Phase III contracts between a small business and either a defense contractor or a DoD component.
• “Commercialization” means all kinds of commercial activity, including both DoD and the private sector.

SETTING THE STAGE: 1992-2002

Issues related to the commercialization of SBIR-funded technologies are long-standing. More than 20 years ago, the Government Accountability Office (GAO) found that “issues that affect Phase III activity include the extent of the Department of Defense’s (DoD) commitment to the goal of increasing private-sector commercialization, inconsistent procurement practices in requiring competition for SBIR projects entering phase III, and whether the company or the agency that funded the work should perform additional work after phase II if the agency wishes to continue work on the technology.”⁴

The GAO report was soon followed by legislation that mandated a strategy for technology transition out of SBIR: “[T]he Secretary of Defense (SECDEF) […] shall develop and issue a strategy for effectuating the transition of successful projects under the SBIR Program.”⁵ More importantly, perhaps, in 1992 commercialization was formally incorporated into SBIR program objectives⁶:

• “emphasize the program’s goal of increasing private sector commercialization of technology”
• “the innovative products and services developed by small business concerns participating in the small business innovation research program have been important to the national defense, as well as to the missions of the other participating Federal agencies […] the small business innovation research program has effectively stimulated the commercialization of technology developed through Federal research and development, benefiting both the public and private sectors of the Nation”

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⁴Government Accountability Office (GAO), Small Business Innovation Research Shows Success but Can Be Strengthened, RCED-92-37, March 30, 1992.

⁵FY1993 National Defense Authorization Act, P.L. 102-484, §4237(c), October 1992.

⁶Small Business R&D Enhancement Act, P.L. 102-564, October 28, 1992, §102 and §103.

• “awards shall be made based on the scientific and technical merit and feasibility of the proposals, as evidenced by the first phase, considering, among other things, the proposal’s commercial potential, as evidenced by— (i) the small business concern's record of successfully commercializing SBIR or other research; (ii) the existence of second phase funding commitments from private sector or non-SBIR funding sources; (iii) the existence of third phase, follow-on commitments or the subject of the research”

Starting even before the new legislation was enacted, and continuing for several years thereafter, DoD and the major SBIR-funding components moved to address the need for improved commercialization.

• November 1991—The Secretary of the Navy (SECNAV) and the Chief of Naval Research issued general guidance to use the SBIR program to support current or planned Navy R&D and acquisition programs.
• April 1992—The Under Secretary of Defense for Acquisition & Technology (USD [A&T]) formed a Process Action Team (PAT) with Component and Office of the Secretary of Defense (OSD) participation to assess GAO findings and recommendations.⁷
• February 1993—DoD components began collecting commercialization information from Phase I proposing firms as a selection discriminator.
• 1995—The Director of Defense Research & Evaluation assessed SBIR commercialization, found that DoD Phase IIs (1984-1992) yielded a Phase III average commercialization (revenues plus additional investment) of $760,000—but the Process Action Team (PAT) found that the top 1.5 percent of Phase IIs accounted for more than 50 percent of Phase III results.⁸
• January 1997—Using recommendations from PAT, DoD established the SBIR Fast Track Program to accelerate SBIR projects that were able to attract third-party investment and required that all Phase II proposals have detailed commercialization plans.
• February 1998—DoD extended Fast Track, requested that all relevant DoD entities develop an SBIR plan that included performance-based Phase III metrics, stressed Phase III results as a criterion for proposal evaluation, and initiated a policy to pull acquisition programs closer to the SBIR program.
• January-November 1999—Navy implemented a Rapid Commercial Off-the-Shelf (COTS) Insertion (A-RCI) pilot using the SBIR

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⁷GAO, Small Business Innovation Research Shows Success but Can Be Strengthened, RCED-92-37, March 30, 1992.

⁸National Research Council, SBIR Challenges and Opportunities, Washington, DC: National Academy Press, 1999, pp. 97-98.

During this period, Congress consistently encouraged the components—and in particular the Services that accounted for the vast majority of SBIR awards—to promote commercialization. In December 1998, the FY1999 Defense Authorization Act directed DoD and SBA to develop a plan to “provide for favorable consideration, in the acquisition planning process, for funding projects under the SBIR program” and facilitate their “rapid transition into DoD acquisition programs.”¹⁰

The pressure from Congress and the directives from DoD underscored the need for change, and the three Services responded with separate initiatives for formal plans to commercialize SBIR technologies:

• The Army Research Office issued a plan to establish SBIR liaisons with ACAT¹¹ I and II programs, require that more than 20 percent of SBIR topics have ACAT approval, and that SBIR use be discussed in the context of ACAT 1 milestone reviews (October 1999).
• The Air Force Assistant Secretary for Acquisition directed ACAT I and II program managers (PMs) to “give favorable consideration to” SBIR technologies and to discuss SBIR use in ACAT 1 milestone reviews (December 1999).
• The Navy Assistant Secretary for RDA reiterated May 1998 guidance to all PEOs and acquisition managers regarding increased SBIR program participation, inclusion of SBIR in acquisition program planning, and discussion of SBIR use in milestone reviews (December 1999).
• USD (A&T) submitted a Report to Congress on DoD SBIR program improvements in six acquisition areas.¹² This reflected Congressional concerns raised in the FY2000 Defense Appropriation Act, for example, “unless program managers budget for Phase III SBIR participation in their acquisition programs […]the increased utilization of small business will not occur” (March 2000).
• OSD Office of Small Business Programs launched the Commercialization Achievement Index (CAI) from the SBIR Company Commercialization Register (CCR). CAI became an informal selection discriminator, starting in 2000. This was a first effort to address

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⁹William Johnson, Delivering combat power to the fleet, Naval Engineers Journal, Fall 2004, pp. 3-5.

¹⁰P.L. 105-261, §818(a), December 1998.

¹¹ACAT I programs are Major Defense Acquisition Programs (MDAPs). ACAT II are small but still significant acquisition programs. See Acquisition Category article at ACQipedia for more details. <https://dap.dau.mil/acquipedia/Pages/ArticleDetails.aspx?aid=a896cb8a-92ad-41f1-b85a-dd1cb4abdc82>. Accessed on October 7, 2013.

¹²House Report 106-244, January 2000, p. 49.

These steps culminated in 2002 with an important DoD acquisition management text on increased and open competition that specifically referenced the enhanced use of SBIR by ACAT program managers. This marked SBIR’s first documented step into DoD acquisition: “The Program Manager shall develop an acquisition strategy that plans for the use of technologies developed under the SBIR program, and gives favorable consideration of funding to successful SBIR technologies. At milestone and appropriate program reviews for ACAT I programs, the PM shall address the program's plans for funding the further development and insertion into the program of SBIR-developed technologies.”¹³

Also in 2002, Congress funded the Defense Acquisition Challenge (DAC) Program and Quick Reaction Fund¹⁴ and the OSD Technology Transition Initiative¹⁵ at approximately $25 million each, in an effort to address “last mile” problems—getting technology into actual use. Subsequent DAC reports, however, do not show significant, successful small business inclusion in these programs.

However, there is evidence from DoD commercialization data to suggest that despite relatively flat DoD Research, Development, Test and Evaluation (RDT&E) funding through the 1990s, a steadily increasing number of DoD Phase II SBIRs won follow-on sales/investment contracts. This increase is reflected both in the number of projects reaching the market and in the scale of commercial success. These data suggest that, even in the relative absence of “technology pull” from the DoD acquisition community from 1991 to 2001, at least 50 percent of DoD SBIR Phase IIs found sales and/or additional investment—especially private-sector sales, as DoD SBIR was seen as a “dual use” program during virtually all of this decade.¹⁶

LAYING THE FOUNDATION FOR ENHANCED COMMERCIALIZATION: 2003-2006

By 2003, pressure to improve impacts was increasing. In May 2003, a draft DoD Instruction 5000.2 on “Operation of the Defense Acquisition System” cited SBIR/STTR as a source for three key technology-related functions. But the published instruction omitted this important language.¹⁷

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¹³Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (OUSD (AT&L)), Interim Defense Acquisition Guidebook, October 2002, p. 41.

¹⁴FY2003 National Defense Authorization Act, P.L. 107-314.

¹⁵FY2003 10 U.S.C. 2359a.

¹⁶BRTRC Federal Solutions, DoD SBIR Phase III Data from CCR: Data Threshold Information, July 2005.

¹⁷OUSD (AT&L), DoDI 5000.2, May 2003, pp. 71-73.

In the same year, the biannual Office of Management and Budget (OMB) federal program review returned negative findings on the DoD SBIR program. The Program Assessment Rating Tool (PART) Review reported “results not demonstrated” for program design, planning, or management.¹⁸ OMB rated the program as “Not Performing” with results “Not Demonstrated.”

The report argued that the program had poor controls on unproductive spending, continued to provide funding to companies with track records of poor performance, and overestimated commercial successes resulting from federal support—that is, the program counted additional investment as well as product sales as measures of success. (It should be noted that this metric remains in wide use today, and indeed NRC reports including the current volume continue to utilize this useful metric).

OMB’s primary recommendation was to tighten eligibility requirements for companies and individuals that repeatedly fail to sell resulting products in the marketplace, by changing the way companies’ past performance is assessed. OMB also suggested that the program add efforts to encourage highly successful awardees to enter the mainstream of Defense contracting.

Congress remained interested in the issue. In May 2004, Congress followed by directing the Under Secretary of Defense Acquisition, Technology and Logistics (USD [AT&L]) to “encourage DoD acquisition program managers and prime contractors (holders of direct government contracts) to make significantly more SBIR Phase III contract awards” and also to present a comprehensive report by March 31, 2005.¹⁹ In July 2004, a House Armed Services Committee (HASC) special hearing on small technology firms’ DoD commercialization history generated six recommended improvements from Small Business Technology Coalition members, focused on acquisition incentives, Milestone Review inclusion, and more Phase III funding. And in July 2005, at HASC’s Subcommittee on Tactical Air/Land Forces hearing, SBIR awardees with large DoD sales described major acquisition-process barriers that impeded the selection and integration of SBIR/STTR technologies.

At about the same time, the NRC Board on Engineering Design published an influential study recommending proven best practices to speed transition, citing Defense Advanced Research Projects Agency (DARPA) work with small business.²⁰

GAO also remained engaged. In June 2005, GAO told Congress that the DoD SBIR Program was not capturing commercialization results and that the Defense Acquisition Challenge, Technology Transition Initiative and Quick Reaction Fund had together generated only four fielded projects (out of 68

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¹⁸Office of Management and Budget Program Assessment: Defense SBIR/STTR, September 27, 2003.

¹⁹FY2005 Defense Authorization Act Committee Report on P.L. 108-375.

²⁰National Research Council, Accelerating Technology Transition: Bridging the Valley of Death for Materials and Processes in Defense Systems, Washington, DC: The National Academies Press, June 2004.

total). GAO argued that this was due to inadequate acquisition management and to a lack of ACAT program commitment.²¹

In May 2006, House and Senate Small Business Committee chairs posed seven detailed questions to USD (AT&L) on the implementation of new DoD SBIR commercialization initiatives, directing a fresh DoD-wide review of SBIR commercialization with quadrennial follow-up reports to Congress.²² The seven questions were as follows:

• How did DoD plan to implement the new requirement in the FY2006 National Defense Authorization Act (NDAA) for research focus of its SBIR and STTR programs?
• How would DoD and its departments involve acquisition PMs and PEOs in topic selection, integration into DoD’s mission, and testing and evaluation (T&E)?
• How did these DoD stakeholders propose to plan for post-SBIR funding through the Project Objectives Memorandum (POM) and other vehicles, so as to utilize SBIR/STTR in acquisition processes?
• How did DoD stakeholders plan to implement the Commercialization Pilot Program (CPP)?
• What acquisition incentives and activities would be deployed to accelerate the transition of SBIR/STTR technologies into the acquisitions process?
• What reporting requirements would be imposed on acquisition PMs, PEOs, and prime contractors with regard to CPP reporting?
• How did DoD stakeholders plan to implement Executive Order 3329 on Encouraging Innovation in Manufacturing?

Technology Insertion: Early Navy Initiatives

Activity at the level of DoD and Congress continued throughout this period, providing important context for Service-level initiatives, where important changes were occurring.

Given the very long lead time and complexity of many large DoD programs, increasing the take-up of SBIR-funded technologies through acquisitions at the different Components required considerable planning—and significant shifts in the way that planning was undertaken.

In 2004, the Navy’s PEO Ships, which managed about 200 SBIR/STTR projects, supported the first-ever ACAT I Technology Insertion Plan to identify SBIR technologies for system integration. This was an extraordinarily important step. It was the first time that acquisitions programs had deliberately planned to include SBIR technologies in their eventual deployment decisions, as well as the

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²¹GAO 05-480, Defense Technology Development: Management Can Be Strengthened, June 2005.

²²Senator Olympia Snowe, Rep. Donald Manzullo, Letter to Honorable Kenneth Krieg, May 15, 2006.

first time that acquisitions had made a formal and significant effort to seek out technologies that were SBIR-funded. This initiative appears to have had a significant impact on Navy’s eventual leading role in commercializing SBIR-funded technologies through Phase III awards.²³

It was followed in December 2005 by a formal instruction from the Office of the Secretary of the Navy: “Each PEO shall designate a lead SBIR Technology Manager responsible for advocating transition of SBIR products (to its) platforms.” Navy became the first DoD Component to take this step.²⁴

And in June 2006, PEO Submarine issued a first-in-DoD instruction to its PMs requiring plans to provide incentives that would encourage prime contractors to include SBIR projects, thus helping to achieve affordability and innovation goals. ²⁵

2006-2011: CPP AND AFTER

The growing pressure on DoD from Congress and other stakeholders for more effective use of SBIR led in January 2006 to the introduction of four significant reforms in the context of the FY2006 National Defense Authorization Act.²⁶

• Quadrennial review of the SBIR topic development process at the Service level, to help ensure alignment between topics and high-priority Service acquisition needs;
• Introduction of the Commercialization Pilot Program (CPP)²⁷:

o    SECDEF and each Service were to identify SBIR projects with the greatest potential for accelerated DoD commercialization.

o    One percent of SBIR funds were made available to the Services for administration of CPP through fiscal year (FY)2009, on a pilot basis.

• Executive Order 13329 on manufacturing innovation was formally incorporated into 15 U.S.C. 638; and

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²³The Virginia Class sub program had an ACAT 1 level technology insertion plan and budget since the mid-1990s, but not dedicated to SBIR. By the late 1990s it did include SBIR projects and the Virginia class sub program had SBIRs included in the Program Acquisition Plan for Phase 3 SBIR procurements as a source for technology insertions.

²⁴SECNAVINST 4380-7B, Implementation of the Department of the Navy SBIR Program, December 23, 2005.

²⁵NAVSEA PEO Submarine Executive Director, Operating Instruction #44: Incentivizing Large Business Contractors to Increase Small Business Participation in Submarine Procurement, June 29, 2006.

²⁶FY2006 National Defense Authorization Act, P.L. 109-163 Sec. 252, which SBIR/STTR authorization is in 15 U.S.C. 638.

²⁷As of 2012, CPP ended pilot status and became known as the Commercialization Readiness Program (CRP).

In effect, each Service was encouraged to set up its own pilot to identify ways to commercialize SBIR projects more successfully within DoD; by May 2007, the Office of the Secretary of Defense (OSD) established an internal SBIR CPP Managers’ Database for reporting and tracking purposes. And in June 2006, USD (AT&L) directed the Services to implement CPP²⁸:

• Each Service was to develop and launch a CPP using the 1 percent funding set aside (to meet additional program management costs only).
• Each Service was to report on CPP action/spending plans, projects, and the use of incentives by September 15, 2006—a short time frame that suggests a high priority for this initiative.
• Each Service was to support an annual “Beyond Phase II” event beginning in 2007, bringing together SBIR projects, defense prime contractors, and DoD system developers as well as acquisitions officers.
• Status reporting was assigned to the OSD Director of Small Business Programs.

In parallel, as required by Congress, DoD reported on its plans to enhance technology transition within the agency. In what became known as the Kubricky Report, the Deputy Under Secretary for Advanced Systems and Concepts reported that successfully transitioning technology from science and technology (S&T) into defense acquisition programs required four actions:

• Expanding resources for maturing technology beyond Technology Readiness Level (TRL) 5;
• Expanding resources and developing strategies for mitigating risk in innovative technologies;
• Reducing barriers to competition and to new suppliers such as small business;
• A formal DoD-wide mechanism for improving technology transition from S&T into defense acquisition programs.²⁹

CPP’s mission was therefore quite straightforward: “The purpose of the CPP is to accelerate the transition of SBIR-funded technologies to Phase III, especially into systems being developed, acquired and maintained for the warfighter.”³⁰

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²⁸OUSD (AT&L), Small Business Innovation Research Program; June 27, 2006.

²⁹Office of the Secretary of Defense (OSD), DoD Report to Congress on Technology Transition, July 2007.

³⁰OUSD (AT&L) Ofc. of Small Business Programs, Report for Fiscal Year 2009, January 2010.

Army CPP Program

From an R&D and acquisitions perspective, the Army is a relatively centralized agency.³¹ Traditionally, SBIR had been seen as an offshoot of the Army’s R&D establishment, and was in particular closely aligned with the Army Research Office. More recently, Army SBIR was aligned with RD&E Command, which was no longer under Army Research Office jurisdiction. It was anticipated that this would enable the SBIR program to establish better linkages with Army PEOs.

The Army CPP program, formally launched in October 2006, solicited projects for accelerated transition of selected Phase II projects with studied dual-use potential and with high Army priority. Of the 548 then-active Army Phase II projects, 76 percent filed Commercialization and Technology Assessment (CTA) applications for Army CPP status. Evaluation was to be based on evidence of “factors typically exhibited by successful firms” and on Army high-priority needs or capability gaps.

The process involved filling out a 120-question application, followed by a two-stage selection process implemented by a contractor. It involved data analysis of the company responses, which reduced the number of applicants to 150, and then an assessment of match between the proposed projects and Army priorities, as well as of PEO interest in these technologies.

Under the program, Technology Assistance Advocates (TAAs) were appointed to five Army (Continental United States [CONUS]) regions. They were to support selected active Army Phase I and II projects with technical advice, aimed at mitigating risk and supporting project integration into Army Programs of Record. TAAs provided different kinds of support for different Phases:

• Phase I assistance focused on technical decision-making, technical problem-solving, and risk avoidance.
• Phase II assistance focused on building linkage with target PEOs to help ensure SBIR technology integration through detailed Phase III planning.

Army’s CPP funding was used largely to contract with MILCOM Venture Partners (MILCOM), a defense-focused venture investment firm with consulting capabilities. MILCOM helped identify SBIR projects and companies with high transition potential that met high-priority requirements, provided market research and business plan development, matched SBIR companies to customers and facilitated collaboration, prepared detailed technology transition plans and agreements, and—notably—provided additional funding for select SBIR projects.

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³¹Material in this chapter related to Army activities is derived from secondary sources. The Army SBIR Office declined to cooperate with this NRC assessment.

For FY2009, the Army’s process was similar to that of FY2008, except that it used a new electronic Commercialization and Technology Assessment (CTA) questionnaire that contained more than 80 questions, and was used to evaluate 472 active Phase II projects. One hundred and forty companies passed the initial screening. The Army approved a further 25 projects in FY2009. Overall funding was approximately $60 million in SBIR funding (over 3 fiscal years), while matching stakeholder funding was about $180 million.

At the same time, Army continued to expanded outreach, training, and collaboration opportunities for PEOs and acquisition PMs, seeking to strengthen the links between the SBIR program and the acquisition programs.³²

Army does not appear to publicly provide systematic or aggregate results from CPP: its web site mentions three cases in which CPP projects generated significant sales. However, because these were the most promising of current SBIR projects, this is not a surprise.

Air Force

Air Force CPP Program

The Air Force (AF) SBIR program has long been aligned with the Air Force Research Lab (AFRL) but it also has links to Product Centers, Test Centers, and Air Logistics Centers.

The AF process focused on using CPP to find better ways to connect SBIR projects to possible users within the AF and to prime contractors. To accomplish this, it introduced the idea of Transition Agents (TAs) based in different regions. Originally, the TAs were supposed to facilitate a “Hunter Gatherer Process” that linked Product Center PEOs to AFRL technical experts. These links were expected to support better SBIR topic development and to encourage the creation of lists of SBIR awards in alignment with highest priority Product Center needs. Once this preliminary process was completed, those implementing potential projects were invited to attend face-to-face PEO-Industry Workshops on collaboration potential.

This effort at two Product Centers produced 220 initial face-to-face meetings with 120 follow-up meetings between industry and SBIR firms. However, only nine continuing AF CPP projects resulted from this approach by the end of FY2007. AF SBIR CPP management therefore curtailed the Hunter Gatherer Process.³³

In FY2009, AF refocused on conducting two types of Technology Interchange Workshop (TIW) as the primary means by which stakeholders (program customers, integrators, SBIR firms, and laboratories) could identify areas of mutual interest and collaborate:

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³²OUSD (AT&L) Ofc. of Small Business Programs, Report for Fiscal Year 2009, May 2011, p. 2.

³³OUSD (AT&L) Ofc. of Small Business Programs, Report for Fiscal Year 2007, January 2008.

• PEO workshops to enable the technology community to concentrate on meeting documented systems needs within each AF Product Center; and
• Focused Industry Workshops conducted to facilitate prime contractors’ search for SBIR solutions to their own technology-based needs related to AF projects.

The FY2009 annual CPP report emphasizes the way in which the workshop-based approach allowed AF to expand cooperation with other components, conducting seven joint-service industry workshops for 156 small businesses and facilitating nearly 300 one-on-one “technology matching” sessions with the Navy, Army, Missile Defense Agency, and multiple industry partners. The AF CPP report also claimed credit for meetings organized at the 2009 DoD SBIR “Beyond Phase II” Conference.

In transitioning from the pilot CPP to the ongoing CRP, AF states, “The Air Force has implemented a strategically-driven process that directly links Program Executive Officers’ representatives to Air Force Research Laboratory Technical Points of Contact (TPOCs) to generate topics that are of high interest to Air Force product centers.”³⁴

AF approved 30 CPP projects in FY2009, increasing the cumulative number of CPP projects since the inception of the pilot to 148. Cumulatively (over 3 fiscal years), AF invested $46.3 million in SBIR funding to CPP projects, which included funding for accelerated transition. Stakeholders contributed an additional $141.8 million. As of the end of FY2009, AF had 23 acceleration projects expected to improve performance, 19 to provide new capabilities, 14 to reduce costs, and 8 to increase reliability.³⁵

Transitioning from CPP to CRP

By FY2013, the transition from CPP to CRP was largely in place. CRP accounted for 8.3 percent of the total AF SBIR budget in FY2013,³⁶ and the TA’s funded by CRP were established at AF research centers across the United States (see Figure 4-1). AF has identified four major goals for CRP:

• Identify and accelerate technology transition to the warfighter;
• Facilitate transition of SBIR/STTR projects;
• Establish the use of SBIR/STTR technologies as a normal course of business; and
• Enhance connectivity among SBIR firms, Major Defense Contractors, and AF Centers.

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³⁴Air Force, Commercialization Readiness program (CRP), <http://www.afsbirsttr.com/CommercializationReadinessProgram/default.aspx>. Accessed July 23, 2013.

³⁵OUSD (AT&L) Ofc. of Small Business Programs, Report for Fiscal Year 2009, May 2011, p. 1.

³⁶Air Force SBIR Briefing for NRC Staff, June 2013.

FIGURE 4-1 AF SBIR participating organizations and technology agents.
SOURCE: Air Force SBIR Briefing for NRC Staff, June 2013.

AF CRP funding to companies was explicitly designed to support development beyond Phase II, encouraging transition to use by primes or the Air Force directly. By using either CRP funding or the new capacity now available under the 2012 SBIR reauthorization to provide a sequential Phase II, AF was able to provide additional funding of up to $2.25 million per project (see Figure 4-2).

The key levers for enhanced commercialization at AF are SBIR Technology Transition Plans (STTPs) and SBIR Technology Maturation Plans (STMPs). These result from AF efforts to match up primes and their primary supply chains with SBIR companies, through AF/Industry Technology Interchange Workshops (TIWs).

After AF identified possible SBIR sources of technology/solutions that meet expressed industry needs, industry in turn vets the SBIR companies to be invited to a TIW. TAs then re-engage with the product center that initiated the need and also with the SBIR project’s Technical Point of Contact (TPOC). If successful, then the link leads to a new STTP, which identifies the specific roles

FIGURE 4-2 AF nominal SBIR commercialization funding.
NOTE: CRP=Commercialization Readiness Program.
SOURCE: Air Force SBIR Briefing for NRC Staff, June 2013.

and responsibilities of each of the stakeholders, as well as any required Phase III assistance (including funding).³⁷ (STMPs are for projects that lack clearly related PEOs [e.g., hypersonics]) or that are not yet ready for transition but are regarded as promising).

TAs start to identify candidate companies for an STTP 10 to 16 months into a Phase II award (although there are no formal rules governing this window). They work with TPOCs to ensure that the technology is maturing fast enough to meet agency needs.

In the end, the STTP is agreed upon by the small company, technology agent, and acquisition office that is interested in the ensuring technology. It must be stressed that acquisitions offices are not bound by these agreements. However, they represent an important signal of acquisitions interest, according to Richard Flake, CRP Coordinator.³⁸ In addition, a primary success metric for the program is in fact to ensure that “20% of previous year awarded Phase IIs (is) in funded SBIR Technology Transition/Maturation Plans (STTP/STMP).”³⁹ STTPs thus constitute an important effort by AF to ensure that SBIR projects are “tightly tied to critical stakeholders and necessary funding.”⁴⁰

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³⁷Air Force SBIR Briefing for NRC Staff, June 2013; Air Force agency staff interviews, June 28, 2013.

³⁸Richard Flake, Interview, June 28, 2013.

³⁹Air Force SBIR Briefing for NRC Staff, June 2013.

⁴⁰Richard Flake, Interview, June 28, 2013.

AF sees this as a way of leveraging SBIR funding. Over the extended FY2007-2012 period, during which CPP and then CRP were implemented, more than 100 AF STTPs and SMTPs used about $92 million in CRP/CPP funding but also attracted almost $340 million in additional funding, including $152 million from AF acquisitions offices and a further $54 million from industry sources (see Figure 4-3).

AF also notes that STTPs allow tighter tracking of eventual outcomes. Although STTPs do not necessarily include formal reporting requirements back to the SBIR office, AF claims that of the 108 STTP/SMTPs signed to date, 10 are inactive while 45 have generated outcomes that are now “in the hands of the customer.”⁴¹ The AF target is to reach STTP agreements for 20 percent of prior-year Phase II awards, although this will clearly be challenging, as Figure 4-4 indicates.

AF tracking shows that CRP supports transitions, and these transitions in turn provide significant benefits for AF acquisition programs. AF has developed its own tracking tool, which seeks to identify the kinds of enhancements generated by transitions. In FY2013, STTP/SMTPs supported 22 identified transitions. These generated 33 identified benefits to the AF (see Table 4-1). Of course, it should be noted that this table—and indeed the AF metrics approach more generally—does not attempt to quantify the scale of these impacts or indeed the overall amounts of commercialization in dollar terms. Nonetheless, this represents an effort to capture benefits that are not easily quantifiable (see, for example, Box 4-1 and Box 4-2, which outline two early successes from the STTP process at AF).

FIGURE 4-3 AF CRP funding FY2007-2011 (thousands of dollars).
SOURCE: Air Force SBIR Briefing for NRC Staff, June 2013.

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⁴¹Richard Flake, Interview, June 28, 2013.

FIGURE 4-4 AF STTP and SMTP agreement by year.
SOURCE: AF SBIR Office.

TABLE 4-1 AF Benefits from FY2013 Transitions

SOURCE: Air Force SBIR Briefing for NRC Staff, June 2014.

Navy

Navy CPP Program

For CPP purposes, the Department of the Navy includes both the Navy and the Marine Corps. The Navy SBIR program was aligned with the Assistant Secretary of the Navy—Research, Development and Acquisition (ASN RDA) but had links to SYSCOMs down to PEO levels.

In FY2006, the Navy SBIR CPP strategy included several elements:

• Accelerated transition of SBIR technologies into high-priority systems and formalized linkage to acquisition programs through immediate- and longer-term initiatives in each Navy SYSCOM;
• Increased PEO and acquisition program-level transition support;
• Expanded small business support for technology maturation and manufacturing capability;
• Enhanced database capability to improve project tracking and access by all transition project participants;
• Identified best transition practices and obstacles, by acquisition personnel, small business, and industry;
• In each SYSCOM, formalized SBIR program linkage with PEOs and acquisition programs through Chief Technology Officers from topic development through SBIR project management to SBIR technology insertion. Work included refinement of acquisition program technology roadmaps to ensure SBIR inclusion in product development;
• Developed and implemented new project transition tracking and data management tools at Navy and SYSCOM levels, which enabled PEO-level reporting on transition performance (i.e., “program health monitoring”); and
• Identified operational technology transition innovations in key operations: incentives to leverage non-SBIR investment, project investment via gated technology decision-making, and project tracking databases that accommodate multiple inputs from transition participants.

Of the 51 Phase II projects recommended for CPP status in FY2007, 36 completed Technology Transition Plans, six received Phase III awards, and 12 completed pre-insertion Technology Risk Assessments or Manufacturing Readiness Assessments.

In FY2007, Navy also ran an SBIR Accelerated Transition competition to speed high-priority projects. From this, 35 Phase II projects received $43.9 million in added SBIR funds, matched by $30.4 million in Phase III funds.

By FY2009, the Navy CPP had matured considerably. The annual CPP report indicated that Navy was now setting aside approximately 20 percent of SBIR program funding for selected CPP projects, funding them above the normal Phase II limits. Projects that met a high Navy priority and had a demonstrated potential for rapid transition into an acquisition program of record or fielded system could access these funds to advance their technology.

Documentation and Planning

Access to CPP funds required completion of a Technology Transition Plan/Agreement (TTP/A) and commitment of non-SBIR matching funds. The TTP/A defined the transition requirements, the funding profile, areas of risk, milestones, test and demonstration plans, and management oversight.

Tracking and Monitoring

In FY2009, 17 on-site visits were made to specific CPP companies to confirm transition potential and provide assistance. Navy staff debriefed each company visited. Navy also held one-on-one meetings, scheduled around outreach conferences, with numerous Phase II companies to discuss CPP requirements and transition-potential meetings.

Outreach

Prime contractor outreach generated numerous interactions with SBIR companies and acquisition sponsors. The Navy partnered with AF and other components to attend four TIWs hosted by different major primes during FY2009. These events enabled 41 Navy SBIR companies to present prescreened technologies for potential partnership.

Technical Assistance

CPP participants could leverage other Navy initiatives, such as the Navy Transition Assistance Program (TAP), which culminated with a technology showcase and presentations at the Navy Opportunity Forum. Other technical assistance services included assessments for risk, manufacturing and production, and technology transition, as well as assistance for engineering analysis (problem solving), best practices, transition planning, and testing and evaluation. The Navy also launched an enhanced search capability available to the public at <http://www.navysbirsearch.com> to provide access to SBIR/STTR technologies. However, tools for integrated search across all SBIR awards within DoD—or even beyond DoD—were still not available.

Metrics and Standardized Processes

Navy CPP focused on increasing standardized processes and metrics of success in FY2009. A draft set of CPP guidelines was initiated, which established funding and time limits for individual CPP projects, cost-matching requirements, procedures for annual reviews of all ongoing CPP projects, minimum reporting requirements for Commercialization Pilot Program (CPP) firms and government technical managers, and requirements for execution of TTP/As. Metrics for the Navy’s CPP were developed to cover actual

implementation of the technology, the amount of non-SBIR investment received, and the percentage of projects that met requirements set forth in the TTP/As.

The Navy approved a total of 31 projects in FY2009 (see Appendix C), increasing the cumulative number of Navy CPP projects since inception to 129 projects. Over 3 years, Navy invested $221.2 million in SBIR funding for CPP projects. Stakeholders contributed $408.8 million.⁴²

Commercialization Readiness Program (CRP): Phase II.5

Navy CRP Phase II.5 has emerged as a further significant innovation in commercialization programs at DoD. It started as a Navy transition tool, but after 2008 emerged from CPP practice as a method for identifying SBIR projects with greatest ACAT “pull,” then leveraging increased levels of SBIR investment with ACAT non-SBIR matching funds, using the GAO-recommended “gated process” of technology approval.

This emergence reflects an important aspect of the Navy SBIR program: its extraordinary degree of decentralization. Implementation of broad policy guidance—such as the mandate to increase transition—is largely left to the SYSCOMs, PEOs, or even different Acquisition Offices within each PEO. Many of these experimented with different CPP/CRP transition support strategies, and there is no standard, formal Navy approach or policy on CRP services and/or implementation.

Thus, any description of the “Navy CRP” or “Navy II.5 Program” is to some degree a simplification of a much more complex set of moving policies and initiatives. And over time, many of the Navy Phase II.5 practices changed substantially in response to testing (the Office of Naval Research [ONR], for example, discontinued Phase II.5, while the Naval Sea Systems Command [NAVSEA] and the Naval Air Systems Command [NAVAIR] increased it but used different funding approaches).

Navy views all efforts to support transition beyond Phase II as part of the Phase II.5 process. It has set aside 20 percent of SBIR program funding to support Phase II.5, with the funding provided through three basic mechanisms⁴³:

• Phase II Enhancements—require a minimum of 1:1 concurrent matching and are usually limited to $500 thousand;
• Continued Development (CD)—requires a signed TTP/TTA (which in turn requires buy-in from a PEO or HQ [Headquarters] Directorate). No matching funds are required and CD is limited to $750 thousand; and

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⁴²OUSD (AT&L) Ofc. of Small Business Programs, Report for Fiscal Year 2009, May 2011, p. 3.

⁴³Lee Ann Boyer, “Department of the Navy Commercialization Readiness Program—Phase II.5,” Internal SBIR Office memorandum n.d.

• Accelerated Transition (AT)—usually requires a signed TTP/TTA. 1:1 matching funds are required, which may be concurrent or out-year. Funding is limited to $1.5 million or the balance from $1.5 million minus prior CD or Phase II Enhancement funding.

Selection for Phase II.5

Aside from formal/legal criteria (e.g., a prior Phase II), there are three functional criteria for inclusion in the program:

• Firms must be selected by a Navy SYSCOM Transition manager. Some SYSCOMs review all of their current portfolio for potential candidates; others allow TPOCs to nominate specific projects.
• The project must address a high-priority Navy need. Project relevance to a planned or existing Acquisition Program, Future Naval Capability, or documented Technology Gap must be identified in the TTP/TTA.
• Projects must meet any/all matching funds requirements and SBIR/STTR funding limits for Phase II.5.

Although these requirements must be met, there was no formal application process for the company to complete: action remains in the hands of Navy staff. It appears now that a more formalized approach might be introduced.

Other Navy Commercialization Efforts

Navy was one of the first agencies (along with NSF) to provide commercialization training for SBIR award winners, aimed at generating an increase in the raw commercialization (percentage of projects with sales and/or additional investment). It has had a long relationship with a commercialization contractor, Dawnbreaker, which provides a year-long course for Phase II award winners. The course culminates in the Navy Opportunity Forum, a showcase at which selected companies can market their technologies, and which is well attended by executives from the prime contractors.

Results from Navy Transition Initiatives

Navy has also pioneered efforts to improve data collection to document transition successes. It has expended considerable effort on more accurate reporting of Phase II contracts through the Federal Procurement Data System (FPDS; see discussion of transition metrics elsewhere), and it consistently tracks Phase III contracts and uses these Phase III numbers as a key metric for success (see Figure 4-5). The figure shows total Phase III contracts reported through FPDS for Navy and for other DoD components (the latter through FY2010

FIGURE 4-5 Phase III contracts reported through the Federal Procurement Data System, by total value, FY1999-2011.
SOURCE: Navy SBIR program office.

only). Given the efforts made by Navy to correct reporting errors, it is not entirely clear that the reporting at other components is equivalent. However, these data indicate that Navy was a leader in encouraging transition from 2002 to2009, and has since 2009 made substantial further gains: currently, the annual FPDS-reported Phase III contracts total for Navy is about $650 million, based on approximately $271 million in Navy SBIR awards for FY2012⁴⁴

Transition Success Stories

Navy has identified 14 SBIR companies that work on the Sikorsky Super-Stallion Helicopter, supporting 13 different functions. Similarly, Navy has identified a number of SBIR companies and technologies utilized on the Virginia class submarine (See Figure 4-6).

As a second example, the Promia success story (see Box 4-3) illustrates three important elements of the SBIR program at Navy. First, the time lag to commercialization can be considerable: the Promia intrusion detection-and-alert system received its last Phase II funding in 2004 (of two Phase II awards total). Only in FY2011-2012 did it start to get commercial traction. Second, timing is affected by Navy and even DoD policy and timelines: it happened that the Promia system was ready when Navy needed a new solution—in response to new demand from new DoD policy. Third, the CRP process clearly helped to

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⁴⁴DoD, SBIR Annual Report, <http://www.acq.osd.mil/osbp/sbir/about/sbirAnnualReport.shtml>. Accessed October 14, 2013.

FIGURE 4-6 Navy SBIR firms and the Virginia Class Submarine.
SOURCE: Lee Ann Boyer, U.S. Navy, May 2013.

bring the Promia system on stream and into connection with the appropriate acquisitions officers at the right time.

Limits of Transition Funding—Team Subs

PEO Subs has for more than a decade been a pioneer within Navy in transitioning SBIR technologies, under the previous leadership of PEO Richard McNamara and currently under Dr. Regan Campbell. For recent solicitations, PEO Subs has been tracking Phase III transitions closely (see Figure 4-7). The data show that a substantial number of Phase II awards are attracting Phase III funding, although the figure does not make clear the substantial lags involved—Phase II awards are often ripe for Phase III 4 or more years after the award.

In 2012, PEO Subs transitioned six projects into the Phase II.5 program (see Table 4-2). The table shows the SBIR program funding (under Phase II.5) as well as the matching funds from acquisition programs. However, although these transitions attracted about $4.5 million in Navy transition funding, a larger backlog of projects did not receive Navy support and hence is still in the queue

FIGURE 4-7 Team Subs Phase III transitions.
SOURCE: Dr. Regan Campbell, Executive Director, PEO SUB, Department of the Navy, DoD Small Business Transition Program, presentation to NRC, June 25, 2013.

waiting for funding. PEO Subs reports 10 projects in their queue, most with little prospect of funding in subsequent rounds.

For all of these projects, Transition Agreements have been signed and matching funds from the acquisition programs have at least in principle committed. The fact that the projects are stuck suggests that the acquisition programs like these projects but are not prepared to fully fund them, or that the Navy’s financial commitment to transition—although large—is not enough to meet Service needs. Both may be true.

New Initiatives in Commercializing SBIR, 2006-2011

The momentum toward new approaches to enhance commercialization of SBIR projects continued between 2008 and 2010, reflected in a number of reports and activities:

• June 2008—A RAND study commissioned by the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD AT&L) estimated that DoD-wide the SBIR administrative budget level was 6 percent and that this was significantly lower than that of DoD

TABLE 4-2 PEO Subs SBIR Transitions, FY2012

SOURCE: Dr. Regan Campbell, PEO Subs, Department of the Navy, DoD Small Business Transition Program, presentation to NRC, June 25, 2013.

• acquisition programs, which are also responsible for maturing innovative technologies for product development, at 17 percent.⁴⁵

• January 2009—The DoD Office of Inspector General reported possible underreporting of SBIR commercialization and recommended better reporting, supplemental administration funding, and SBIR internal champions within acquisition program offices.⁴⁶
• Between June 2010 and August 2011—USD AT&L issued five memoranda on transformation of the DoD acquisition system to increase competition and affordability, principally by creating new small business access. The “Better Buying Power” memos were

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⁴⁵RAND National Defense Research Institute, Estimating the Cost of Administering DoD SBIR, June 2008.

⁴⁶DoD Inspector General, D-2009-048, DoD SBIR Program, January 30, 2009.

• supported by an execution memo from the Director of Defense Procurement and Acquisition Policy.⁴⁷

• September 2011—The House Armed Services Committee formed its first Defense Business Panel focused on recommending improvements to DoD acquisition favoring increased small business access.⁴⁸
• December 2011—The White House signaled to SBA that it planned to hold cabinet-level accountability for the small business mission by elevating the SBA Administrator position to the cabinet of Secretaries.
• November 2012—The second Better Buying Power memo reiterated support for improved integration of small business into acquisitions.⁴⁹

During this period, perhaps the most notable development of all was the validation by Congress of the CPP approach. In its FY2010 NDAA,⁵⁰ Congress made CPP a permanent component of DoD SBIR/STTR. This marked a significant change in the legal infrastructure supporting SBIR at DoD. The program was renamed the Commercialization Readiness Program (CRP).

Congressional action occurred despite limited public information about CPP outcomes. The FY2010 report on CPP was not published (and with the change in status this requirement has since lapsed). The data reported in previous reports provide detailed information about CPP inputs—what the Services did and how much it cost—but almost nothing (and in particular nothing quantitative) on program outputs.

ADDITIONAL COMMERCIALIZATION MODELS: 2006-2012

At the same time that the Services were starting to experiment with different commercialization mechanisms through CPP, other efforts to enhance commercialization relevant for SBIR were also gaining some traction within DoD.

The period was marked by a flurry of acquisition related memos and guidance for DoD SBIR programs (Table 4-3).

Small Business Technology Insertion Program

In 2008, House appropriators led by Rep. John Murtha funded an annual “Small Business Technology Insertion” program funded at about $50 million. Funding was split between Services’ ACAT programs to test the

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⁴⁷Defense Procurement and Acquisition Policy (DPAP), Increase Dynamic Small Business Role in the Defense Marketplace, June 27, 2011.

⁴⁸House Armed Services Committee (HASC) Press Release, HASC Leadership Announces Bipartisan Defense Business Panel, September 12, 2011.

⁴⁹Office of Under Secretary of Defense (OUSD) memorandum for Acquisition Professionals, Better Buying Power 2.0: Continuing the Pursuit for Greater Efficiency and Productivity in Defense Spending, November 12, 2012.

⁵⁰P.L. 111-84.

proposition that innovative SBIR technologies could bring efficiencies of cost, schedule, and performance to DoD acquisition if decisions were made within acquisition programs.⁵¹

The Deputy Under Secretary of Defense (DUSD) formally recognized the program,⁵² and in 2008 a Navy report on first-year progress with PEO Submarine’s Virginia-class and PEO Integrated Warfare Systems Anti-Submarine Program supported the House appropriators’ hypothesis.⁵³ The same year, a Navy survey of DoD Tier 1 and 2 prime contractors, integrators, and suppliers noted among other findings that technology commercialization

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⁵¹Committee on Appropriations-Report 110-279, Report on the DoD Appropriations Bill 2008, July 2007, pp. 13-14.

⁵²Deputy Under Secretary of Defense for Acquisition and Technology (DUSD (A&T)), Small Business Technology Insertion Funding, December 21, 2007.

⁵³NAVSEA, Report to DUSD on Small Business Technology Insertion Plan, DAA FY08, March 2008 (distribution restricted).

TABLE 4-3 SBIR Related Acquisitions Memos and Guidance

SOURCE: John Williams, Navy SBIR Program Manager.

decisions are most effectively made within acquisition programs and their industry correlate offices—that is, at lower acquisition levels.⁵⁴

Beginning with the FY2008 DoD Appropriations Bill, Congress annually supported this “Small Business Technology Insertion” program in amounts ranging from $100 million in FY2008 to $50 million in FY2012, to ensure funding support for actual technology insertion. Although funding was originally split between the Services for the two highest-priority ACAT programs each, by FY2010 this funding was allocated to Navy ACAT programs only, based on prior results. ACAT PMs selectively applied these funds to SBIR projects that had already successfully competed for awards and were included in ACAT system technology roadmaps.

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⁵⁴Navy SBIR/STTR Program Office, Defense Contractors SBIR/STTR Partnering Manual, August 2008, pp. 47-49.

DoD Rapid Innovation Program (RIP) (Later Renamed Rapid Innovation Fund [RIF])

In its May 2010 report on the proposed FY2011 NDAA, HASC cited a December 2009 Defense Science Board finding that DoD “lacks the ability to rapidly field new capabilities to the warfighter” and cited the success of Small Business Technology Insertion to justify a competitive DoD Rapid Innovation Program (RIP),⁵⁵ which was established through the FY2011 NDAA (and other related legislation).

The objective of the RIP was “(to) accelerate the fielding of technologies developed pursuant to Phase II SBIR projects […] and others […] to stimulate innovative technologies […] and reduce acquisition costs […] improve T&E outcomes […] and rapidly insert such products […] in primarily military MDAPs.”⁵⁶

Funding for the new program was by small business standards quite substantial: not less than $128 million for each Service for Phase III SBIR projects.⁵⁷ Formal USD (AT&L) guidance on RIP was issued in August 2011. It reiterated Congressional goals, renamed the initiative the “Rapid Innovation Fund” (RIF), and directed each Service and Office of the Secretary of Defense Office of the Small Business Program (USD OSBP) to establish RIF award procedures. The guidance emphasized SBIR/STTR prioritization for the competition, outlined proposal solicitation and selection processes, and established an RIF timeline.⁵⁸

In response, in October 2011 each Service and OSD published Broad Agency Announcements (BAAs)⁵⁹ inviting RIF applications by November submission deadlines and describing the RIF execution and program purpose as in this example from Navy:

“The goals of the Navy Rapid Innovation Fund (RIF) are to enhance and accelerate delivery of military capability, reduce the cost of weapons systems either fielded or under development, or improve the quality of life for service personnel, by meeting urgent operational needs or other critical national security needs.”⁶⁰

The new RIF funding attracted a large number of applications, resulting in success rates lower than those for standard Phase I SBIR awards. Drawing from unofficial sources, responses by component are provided in Table 4-4.

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⁵⁵House Report 111-491, Report of the Committee on Armed Services on H.R. 5136, May 21, 2010, pp. 356, 370.

⁵⁶FY2011 NDAA, P.L. 111-83, §1073 and “Explanatory Statement,” p. 447.

⁵⁷FY2011 CAA, P.L. 112-10, §9436.

⁵⁸OUSD (AT&L), Defense R&D Rapid Innovation Fund Goals and Implementation Guidelines, August 12, 2011.

⁵⁹For current DoD BAA links, see <http://www.defenseinnovationmarketplace.mil/RIF2012.html>. Accessed on October 10, 2013.

⁶⁰Office of Naval Research BAA #11-032, Department of the Navy Rapid Innovation Fund, September 2011.

TABLE 4-4 Responses to DoD RIF BAAs, by Component

SOURCE: Unpublished draft of OSD situational summary for HASC leadership, February 8, 2012.

Each of the three Services moved to address the need for better commercialization models during this period. Navy focused on the twin efforts to improve linkages between acquisition offices and SBIR and to support commercialization through adoption of what came to be known as the SBIR Phase II.5 Program. AF instead focused on enhancing connections between SBIR and prime contractors and, through the addition of new TTAs with explicit mandates to work out of selected AF bases, to encourage the transition of SBIR technologies.

Navy Commercialization Training

Navy has supported an extensive Technology Assistance Program (TAP) for a number of years, operated by a contractor (Dawnbreaker, Inc.). The TAP is an 11-month training program that provides scientists and engineers with basic business training, culminating in the Navy Opportunity Forum (see above). Phase II awardees are eligible, and Navy makes a concerted effort to alert potential participants to the benefits of the program.⁶¹

LINKING SBIR AND ACQUISITIONS

The need to improve linkages between SBIR and acquisitions is well recognized and goes back almost 20 years. It has become well understood that “technology push”—simply funding the development of advanced technologies—is not in and of itself sufficient to lead to the adoption of technologies downstream.

Within DoD this is especially true, because weapons development programs have developed careful technology-development roadmaps that specify sequential improvements and then integration of technologies, a process that can span many years or even decades. Technologies that are not included in

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⁶¹Navy requires that “[a]ll [SBIR] awardees, during the second year of the Phase II, must attend a one-day Transition Assistance Program (TAP) meeting. This meeting is typically held in the summer in the Washington, D.C. area. Awardees will be contacted separately regarding this program. It is recommended that Phase II cost estimates include travel to Washington, D.C. for this event.” <http://www.dawnbreaker.com/defense/navy-tap.php>. Accessed June 11, 2013.

the roadmap are essentially orphaned and will be picked up for use within DoD only by fortunate chance.

Thus, as pressure has increased from Congress and from DoD senior staff (notably USD AT&L) to improve utilization of SBIR-funded technologies, three broad areas for reform and improvement can be discerned:

• Better coordination of topics between SBIR programs and acquisitions;
• Better connections to primes, who generally control the technology utilized in acquisition programs; and
• Improved communication between technology providers and potential users.

Topics and Planning

In recent years, there has been considerable effort to include more input from acquisition into the topic selection process and to shorten the process to allow more opportunities to use SBIR for rapid insertion.

We have seen that in 2004 Navy’s PEO Ships supported the first-ever ACAT I Technology Insertion Plan to identify SBIR technologies for system integration—the first time that acquisitions programs had deliberately planned to include SBIR technologies as a core part of their eventual deployment decisions, and the first time that acquisitions had made a formal and significant effort to seek out SBIR-funded technologies.⁶²

Today, a much greater percentage of topics originate with the acquisition programs’ informal estimates Agency interviews suggest that these now account for about 50 percent of Army topics, 70 percent of AF topics, and about 65 percent of Navy topics. And even for topics that originate elsewhere, acquisitions input has increased. At Navy, PEO input is now a required “gate” through which topics must pass before approval.

At NAVAIR, concerted attention to topic coordination has grown over the years. NAVAIR uses a web-based Technology Portfolio Evaluation Tool™, which facilitates a collaborative virtual evaluation of more than 100 hundred SBIR topics by NAVAIR technologists, POs, and PEOs distributed throughout NAVAIR’s global network.⁶³ One example of tool use is the review and tracking of Navy topics by different variables (see Table 4-5).

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⁶²The VA class program started COTS based and Open Systems adoption strategies in the mid-1990s as a direct result of SBIR successes with DSR starting in 1992. The VA Class program paid $34M for a Phase III in 1994 which was the first.

⁶³Dawnbreaker, NavAir CPP, <http://www.dawnbreaker.com/defense/navair-cpp.php>. Accessed June 11, 2013.

TABLE 4-5 Navy Utilization of Prognostics and Health Management Tool

NOTE: Shaded cells denote annual data. *Did/do not collect this data. **Data collected since 07.2 solicitation. ***Data collected since 08.1 solicitation. Table dated Tuesday, April 17, 2012.
SOURCE: Navy SBIR program office.

Integration into the Acquisitions Planning Process

Acquisitions planning is an exceptionally complex and formally constricted process. To increase the inclusion of SBIR technologies in acquisitions, the acquisition process must be engaged directly. Discussions with senior Navy staff suggest that SBIR must be built into core acquisition Milestone documents and into the Milestone assessment process (note that the planning process is different for each Component: the discussion below focuses on Navy, but similar processes will have to be engaged throughout DoD).

This means that the SBIR program must be engaged before Milestone A, during the planning phases identified as Analysis of Alternatives (AoA); Acquisition Strategy (AS); and Acquisition Planning, aka Technology Insertion Plan (TIP). This early engagement will help to ensure that planners are aware of SBIR technologies at an early stage, and of the potential uses of SBIR in filling technology gaps, which in turn will help to keep SBIR technologies within the process from the start.

Engagement will be needed beyond Milestone A, through sequential updates to AoA and TIP, completion of a Technology Development Strategy (TDS) and a Test & Evaluation Strategy, as well as a Corrosion Prevention/Control Strategy (CPC) and a Life Cycle Sustainment Plan. For Navy, this planning process also includes the Naval Probability of Program Success (PoPS) assessment process, in which the SBIR program will probably have to be engaged.

Tracking and Enforcement

A core issue for SBIR firms has been the need for better enforcement of goals and agreed-upon processes. Several companies interviewed (see Chapter 5) indicated that in some cases acquisitions staff simply ignored requirements for SBIR data rights. The mandates have become increasingly clear:

• P.L.112-81 (FY12 NDAA) mandates increased SBIR/STTR technology transition in four sections of Division E “SBIR and STTR Reauthorization”: Secs. 5121, 5122, 5141, and 5165.
• P.L.112-39 (FY13 NDAA) supports small business technology transition: Title XVI “Industrial Base Matters” includes two sections in Subtitle B and 11 sections in five Parts of Subtitle C that establish processes to increase DoD acquisition contracts and subcontracts to small business, either directly from federal agencies or from industry contractors.
• DON SBIR/STTR PO published a “how to” handbook on use of incentives to increase small business/SBIR-STTR subcontracting (November 2012).

At the same time, DoD hierarchies have sought to ensure that acquisitions leadership understands and complies with these mandates. The range of memoranda discussed earlier in this chapter indicates that significant efforts have been made and are continuing in this area. It also suggests that success is not yet at hand. Recent memos have focused on tracking and reporting, and in particular improving the tracking of Phase III awards. A 2011 memo in the USD AT&L “Better Buying Power” series required industry to review its Independent Research and Development (IRAD) investment strategy in SBIR/STTR projects to ensure alignment with DoD acquisition priorities. In addition, the FY2012 NDAA requires that industry fully report its SBIR Phase III investments.¹ Other sections set small business contracting and subcontracting goals² and require improved transparency in subcontracting contracts.

Primes

Prime contractors (“primes”) hold an extraordinarily important place in the DoD innovation and technology ecosystem. Both DoD and the primes have been under pressure to improve linkages between the primes and SBIR programs for almost a decade now, dating back to Congressional statements and the first USD AT&L memo on the subject in 2004.

In the case studies presented in Chapter 5 some small companies report working successfully with prime contractors, while others report a dysfunctional relationship. Incentives and risks both have to be addressed: in many cases, primes have minimal incentives to work with SBIR companies, because they themselves have or are developing competing technologies. Small companies pose risks in that or other categories; moreover, primes are not sure that small companies can perform as long-term suppliers.

Therefore, policy in this area has attempted to support the development of incentives to both encourage linkages and minimize or buy down various kinds of risks. In 2006, PEO Subs issued a first-in-DoD instruction to PMs that required development of plans to encourage primes to include SBIR projects.³

In 2009, Navy partnered with AF on four Focused Industry Technology Workshops, each hosted by a different prime contractor.

Efforts to engage the primes also include the Navy Opportunity Forum, an annual event usually held near Washington, DC, which brings together selected SBIR companies and projects, Navy acquisitions managers, and staff from primes. The Forum is in general favorably reviewed by participants, although systematic data about ultimate outcomes is not publicly available.

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¹FY2012 National Defense Authorization Act, P.L. 112-81, Division E “SBIR and STTR Reauthorization,” § 5122.

²P.L. 112-239, Subtitle C, parts 1-IV.

³NAVSEA PEO Submarine Exec. Director, Operating Instruction #44: Incentivizing Large Business Contractors to Increase Small Business Participation in Submarine Procurement, June 29, 2006.

However, reviews of the publicly available documentation do not offer any sense of the extent to which these initiatives have been systematically successful. DoD does not appear to track this information, although it seems likely that more detailed information may be available internally, especially at Navy.

CONCLUSIONS

The persistent efforts documented above to deliver SBIR technologies to the war fighter show that DoD has long recognized the need for improvements but that no simple fixes are available in this area. Key areas for policy focus have been as follows:

• Linking SBIR with acquisitions;
• Funding further development of SBIR technologies beyond Phase II; and
• Utilizing SBIR to address specific needs in acquisitions, notably the need for rapid development and deployment of advanced technologies to meet mission needs.

These efforts can yield impressive results. At Navy, the impact on one program of record in particular—Virginia-class nuclear submarines—has been well documented (see Figure 4-6); similar impacts of other weapons programs have been recorded—for example, the F-35 Joint Strike Fighter (Figure 4-8). These

FIGURE 4-8 Navy Phase III contracts for F-35 Lightning II Joint Strike Fighter.
SOURCE: Navy SBIR program office.

illustrations of the key deliverables for the subs and joint strike fighter development programs highlight a positive link between acquisitions and the SBIR program—albeit at a level that does not address the scale of the impact or the extent of more, similar successes in other categories.