The Small Business Administration released revised SBIR/STTR policy directives, which include privisions strengthening both Phase III preference and data rights. We have had a number of conversations with SBA over the past couple years on both of these issues, and we are happy to see them addressed here. These policy directive revisions will go into affect on May 2, 2019
SBIR/STTR data rights has been an point of contention lately between agencies, which want a firm clear timeline for when data rights expires, and SBIR firms, who worry that if data rights expire too soon, they could lose their competitive advantage before their technology is fully commercialized. When SBA first proposed a 12-year data rights protection period, SBTC objected and argued that that period is insufficient given the length of time it takes many SBIR firms to develop their technologies. We’re pleased to see the SBA has extended that period to 20 years, which starts with the SBIR funding agreement (page 12818):
(hh) SBIR/STTR Protection Period. The period of time during which the Government is obligated to protect SBIR/STTR Data against unauthorized use and disclosure in accordance with SBIR/STTR Data Rights. The SBIR/STTR Protection Period begins at award of an SBIR/STTR Funding Agreement and ends not less than twenty years from that date. (See § 8(b)(4) of this Policy Directive).
Phase III preference has also been strengthened for SBIR firms, and clarifying language has added to make sure sole source awards are awarded to SBIR firms for Phase III work where applicable (page 12812):
(ii) Sole Source Awards. If pursuing the Phase III work with the Awardee is found to be practicable, the agency must award a non-competitive contract to the firm.
(iii) Other Preference. If pursuing Phase III work with the Awardee on a sole source/non-competitive basis does not meet the requirements set forth in the above sections regarding availability, practicality and capability, the Agency must document the file and provide a copy of the decision, including the rationale, to the SBA. The agency should also use other means of affording preference for the Phase III work, especially when the request is for a large acquisition program, which may not be best suited for an SBIR/STTR Award. Examples include reference to the SBIR/STTR Awardee’s brand-name as a required deliverable in the request for proposals, requiring the prime awardee to use evaluation factors favoring subcontracting to SBIR/STTR concerns, or providing other incentives to the prime contractor for utilizing SBIR/STTR Awardees as subcontractors, as referenced in 15 U.S.C. 638(y).
Follow the link below to view the entire policy directive:
Now that we’ve had some more time to parse the policy directives, we wanted to get back with a more detailed breakdown of some of the smaller and more nuanced changes to the programs that are in these regulations.
These new SBA Policy Directive contains major steps forward for companies that have won SBIR/STTR projects, both in the form of helpful clarifications and in substantive changes. This implements changes to the law that SBTC has been active in helping to formulate. We encourage company executives to read the Policy Directive to better understand and perform in SBIR/STTR projects and to better utilize the commercialization opportunities presented by the program. Please send us any comments or concerns you might have about these changes. Overall there are improvements for most SBIR companies, though some areas remain problematic and some unclear.
Data rights: A number of changes and clarifications are made to the definitions relating to data and data rights.
- Clarifies that the data is owned by the SBIR company; the government is provided rights in the data.
- Changes in the definitions of data and intellectual property.
- In place of the four/five year renewable SBIR data rights protection period from the date of deliverables, there is now a single non-renewable SBIR/STTR data rights protection period of 20 years counted from the date that the award begins. “4) SBIR/STTR Protection Period. The SBIR/STTR Protection Period begins with award of an SBIR/STTR Funding Agreement and ends twenty years, or longer at the discretion of the Participating Agency, from the date of award of an SBIR/STTR Funding Agreement (either Phase I, Phase II, or Federally-funded SBIR/STTR Phase III) unless subsequent to the award, the agency and the SBC negotiate for some other protection period for the SBIR/ STTR Data.” P12809, P12818. This is important and removes a number of problems faced by the prior policy, but does provide a fixed date for the end of the SBIR data protection period.
- Also note that you can clearly negotiate away your SBIR data rights; be careful! § 8(b)(4) of this Policy Directive. “However, any such agreement must be entered into voluntarily and by mutual agreement of the SBIR/STTR Awardee and agency, and not a condition for additional work under the Funding Agreement or the exercise of options. Such a bilateral data rights agreement must be entered into only after the subject SBIR/STTR award (which award must include an appropriate SBIR/STTR Data Rights clause) has been signed.” P12818
- Improper SBIR/STTR data markings can only be cured in the six months after delivery. “If SBIR/STTR Data is delivered without the required legend or notice, the SBIR/STTR Awardee may, within 6 months of such delivery (or a longer period approved by the agency for good cause shown), request to have an omitted SBIR/STTR Data legend or notice, as applicable, placed on qualifying Data. If SBIR/STTR Data is delivered with an incorrect or nonconforming legend or notice, the agency may correct or permit correction at the Awardee’s expense of such incorrect or nonconforming notice(s).” P12818.
- Restrictions on allowable government uses during the protection period are more clearly stated. “The Federal Government provides effective protection of the Data that is comparable to and at least as strong as the protection the Federal Government gives to delivered proprietary Data that is developed exclusively at private expense.” P 12817.
- “Any provision in a competitive non-SBIR or SBIR solicitation that would have the effect of diminishing SBIR/STTR Data Rights shall have no effect on the provision of SBIR/STTR Data Rights in a resulting Phase I, Phase II, or Phase III award.” This is important if it will be enforced. P 12818.
- Physical prototypes are recognized as containing SBIR data rights, though they must be marked and there is some uncertainty how to mark these. “Participating Agencies must handle all Prototypes developed under an SBIR/STTR award with caution during the SBIR/STTR Protection Period to prevent any use or disclosure of these items that has the potential to reveal the innovative aspects of the technology in ways that may harm the Awardee’s ability to commercialize the technology.” P12819
- After the data rights protection period, the government receives Government Purpose rights as defined, which include for procurement but do not include for non-governmental commercial use. “Government purposes include competitive procurement, but do not include the rights to use, modify, reproduce, release, perform, display, or disclose Technical Data or Computer Software for commercial purposes or authorize others to do so.” P 12808. This Government purpose right does not extend to DOE, which will receive Unlimited Rights argued as part of their agency mission and requirements relative to funded research.
- Commercialization database: “Database SBA and SBIR/STTR Participating Agencies will coordinate data collection to ensure that small businesses will not need to report the same data more than once.” P 12826. Hopefully we will soon find only one place to report rather than each agency.
Phase III: Many helpful clarifications in this area. Among these:
- A subcontract to a Federal contract that may be a Phase III. Page 12811.
- The requirement of the government to issue SBIR Phase IIIs to the company that developed the technology is stated more clearly, and with greater requirements placed upon a Government entity that wishes to do such work without awarding it to the SBIR company. Long description under P12812 “Agencies or their Government-owned, contractor-operated (GOCO) facilities, Federally-funded research and development centers (FFRDCs), or Government prime contractors that pursue R/R&D or production of technology developed under the SBIR/ STTR program shall issue Phase III awards relating to the technology, including sole source awards, to the Awardee that developed the technology under an SBIR/STTR award, to the greatest extent practicable, consistent with an Agency’s mission and optimal small business participation.” P12812
- Further clarification of sole source direction: “Sole Source Awards. If pursuing the Phase III work with the Awardee is found to be practicable, the agency must award a non-competitive contract to the firm.”
- The “to the greatest extent practicable” is strongly stated, though perhaps a little clarified/diluted in other PD direction on the same page. (Note, practicable here means 1. Available, 2. Capable, and 3. Willing. It has nothing to do whether it is practical for the agency to award, it is about the companies availability, capability, and willingness to perform.) “Agencies must make a good faith effort to negotiate with such Awardees regarding the performance of the new, related, work and to issue Phase III awards for the work. When implementing this requirement, the agency will evaluate the work for consistency with its documented mission requirements and must consider the practicality of pursuing the work with the Awardee through a direct follow-on award by performing market research to determine whether the firm is available, capable, and willing to perform the work.”
- But other wording is stronger: “If an award is made, the Agency must identify the funding agreement as an SBIR or STTR Phase III. The Agency must act in ways consistent with the Congressional intent to support the Commercialization of an SBIR/ STTR-developed technology by the SBIR/STTR Awardee, and all parties must proceed along these steps in good faith.” … The government must try in good faith, e.g. “Examples include reference to the SBIR/STTR Awardee’s brand-name as a required deliverable in the request for proposals, requiring the prime awardee to use evaluation factors favoring subcontracting to SBIR/STTR concerns, or providing other incentives to the prime contractor for utilizing SBIR/STTR Awardees as subcontractors, as referenced in 15 U.S.C. 638(y).”
- If the government chooses not to use the SBIR firm for the Phase III, it must document a file on this and report to the SBA. This is a difficult process for the agency. This notification must include, at a minimum:
- (A) The steps the agency has taken to fulfill the special acquisition requirement (e.g., a good faith effort to make the award to the SBIR/STTR Awardee).
- (B) The reasons why a follow-on Funding Agreement with the SBIR/ATTR Awardee is not practicable (e.g., SBIR/STTR Awardee was not willing or interested in the work, not capable of doing the work or functioning as a prime and subcontracting the work, or no longer in business).
- Note, that the Agency does not select the SBC, the firm can request that the SBA appeal. (vi) Suspension of Upon receipt of SBA’s notice of intent to appeal, the Funding Agreement officer must suspend further action on the funding agreement until the head of the contracting activity issues a written decision on the appeal. The Funding Agreement officer may proceed with award only if he or she determines in writing that the award must be made to protect the public interest. The Funding Agreement officer must include a statement of the facts justifying such a determination and provide a copy of its determination to SBA. Page 12812
Number of Phase II awards potentially up to 3 per Phase I: “A Phase II Awardee may receive one additional, sequential Phase II award (a total of three Phase IIs) to continue the work of an initial Phase II award. The additional, sequential Phase II award has the same guideline amounts and limits as an initial Phase II award.” P12811. “SBCs may apply to receive a third Phase II award to carry out further commercialization activities. The head of each Participating Agency may be allocated not more than 5 percent of the funds allocated o the SBIR program of that agency for the purpose of making awards under this pilot program.” P 12810.
Cost sharing is prohibited for Phase Is and may not be a requirement for Phase IIs, though in the latter case it may be an award factor: “Agencies may not use investment of venture capital or investment from hedge funds or private equity firms as a criterion for an SBIR/ STTR award. Although cost sharing or matching funds cannot be required for Phase I or Phase II awards, agencies may require a small business to have matching funds for certain special awards (e.g., to reduce the gap between a Phase II and Phase III award).”
Page 12819 each Federal agency must: (i) Give priority in the SBIR/STTR program to manufacturing-related research and development in accordance with Executive Order 13329. In addition, agencies must develop an Action Plan for implementing Executive Order 13329, which identifies activities used to give priority in the SBIR/STTR program to manufacturing-related research and development. These activities should include the provision of information on the Executive Order on the agency’s SBIR/STTR program website. [Note: These technologies include: Medical devices and equipment for Patient Monitoring and Critical Care Instrumentation; Advanced human-machine interfaces for Neurotechnologies, sensors, and signal processing.]
Page 12820 Each agency may provide up to $6,500 of SBIR/STTR funds for the technical and business assistance described above in (b)(1) per year for each Phase I award, which shall be in addition to the amount of the award. Each agency may provide up to $50,000 of SBIR/STTR funds for technical and business assistance described above in (b)(1) per project for Phase II awards.
Page 12820 An SBIR/STTR Applicant may acquire the technical assistance services set forth in (b)(1)(i) above itself rather than through a vendor selected by the Federal Agency. The Applicant must request the authority to select its own technical and business assistance provider from the Federal Agency and demonstrate in its SBIR/STTR application that the individual or entity selected can provide the specific technical and business services needed. . . The amount of technical and business assistance for Phase I awards shall be in addition to the amount of the award. Phase II awards, as determined appropriate by the head of the Federal agency, may be included as part of the recipient’s award or be in addition to the amount of the recipient’s award.