NAVY | SBIR | TAP
TRANSITIONS . . . FALL EDITION VOLUME 10 ISSUE 3 2013
From the Director For many in the SBIR/STTR community, September signals the end of summer, the beginning of a new school year, and reordered family agendas – but with increased divisions in Congress on budget issues and our FY2013 difficulties with “the sequester” imposed by Congress, September also marks fresh uncertainty about what the new fiscal year may bring. I’ll talk about that concern in this issue, and discuss new SBIR/STTR initiatives led by our team here at the Dept. of the Navy (DON). Regarding the FY2014 SBIR/STTR program, you’ve heard over the course of the summer heated rhetoric about the debt ceiling, continued sequestration, RDT&E cuts and other negative possibilities. You may have read, too, of resulting industry retrenchment as prime integrators cut back on their internal investment in R&D, which could impact SBIR/ STTR partnering. At this writing, however, we simply don’t know what to expect from Congress regarding the FY2014 budget – and it may be a couple of more years before we see a measure of Congressional unity on appropriations. Recall USD AT&L Frank Kendall’s assessment at the Navy Opportunity Forum® last June: “Looking ahead, do I see a way out of this? Unfortunately I do not … The debt ceiling is another issue coming up and the likelihood is that we’ll go into FY14 with sequestration still as the law of the land and a Continuing Resolution, or CR.” (See the Forum article below in this issue.) What should you anticipate? At best – if a new sequester and CR aren’t draconian – the increase in the SBIR/STTR set-asides would mean only minimal reductions in Phase I and II awards. For comparison, our FY2011 SBIR budget of $264M allowed us to make 483 Phase I awards and 257 Phase II awards – and our FY2013 SBIR budget of $234M is 11% smaller, necessitating proportionately fewer Phase I awards (approximately 50 when the final numbers are in) and fewer Phase II awards (approximately 25, with final numbers). We would also proportionately reduce the number of Topics we publish. But, worstcase scenarios could create much more pain for our program, and we’ve already seen large reductions in some Commands and PEOs. At this time, I have no way of predicting our FY2014 and outyear budgets, or the steepness of potential decline. We will continue to do everything we can to minimize the impact on our small businesses – but there will be a rough road ahead. The DON SBIR/STTR team has taken a leadership role in supporting government-wide outreach for the SBIR/STTR program. We’ve worked a partnership with TechConnect to execute the June 2013
National SBIR Conference, a big success in its Washington DC venue at National Harbor – and are now planning a June 16-19 2014 National SBIR Conference for that same location, as well as a November 2014 event in the Austin, TX area. You can expect more such outreach proactivity and leadership from the DON SBIR/STTR program in the future. A second reauthorization challenge concerns improved and expanded commercialization of SBIR/STTR technologies. While we’ll continue to enhance our “best in class” Transition Assistance Program (TAP) and the Navy Opportunity Forum®, we realize that much more could be done – and will be done – to draw new entrepreneurs closer to the SBIR/STTR community, give them a “How SBIR Works” education, and offer them training on improved business functions, through use of innovative eLearning tools. Within the next six months, you should see a beta version of our SBIR University, or “SBIRU” website, with an array of valuable learn-at-your-own-pace modules. SBIRU is designed as a complement to other government agency SBIR/ STTR commercialization assistance initiatives, and will be designed to provide SBIR/STTR education across all the Federal agencies. In summary, we’re prepared for adversity – but working to create new opportunity for the SBIR/STTR community.
John Williams Director, Navy SBIR/STTR Programs
IN THIS ISSUE: The 2013 Navy Opportunity Forum ® Recap Technology Transition: The Art Behind the Science Reauthorization Brings Changes to the Navy’s Phase II Submission Process Constant Change Contributes to Referentia’s Success SBIR Data: What They Are, What They Are Not, and How to Mark Them
Navy Small Business Innovation Research Program Office www.navysbir.com
The 2013 Navy Opportunity Forum Recap ®
The adage, “The show must go on,” usually refers to the theater but similar sentiments were echoed at the 13th annual Navy Opportunity Forum® held from June 3rd-5th, 2013 at the Hyatt Regency in Crystal City, VA. Despite numerous challenges brought about by sequestration, the show did go on, and was well received by all in attendance.
The Forum serves as the culmination of the Navy Transition Assistance Program (TAP), an 11 month program that begins in July of each year and culminates with the Forum. Approximately 200 small businesses funded by the Navy’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer programs (STTR) presented their opportunities to a targeted audience of individuals from the acquisition community, primes, and first and secondtier suppliers. More than 1,100 people were in attendance. Throughout the event, each small business maintained a booth in the Exhibit Hall and also provided a formal 15-minute presentation focused on the needs their Navy-funded technology could address, their performance differentiators, and their transition strategies. More focused interactions were facilitated through planned and scheduled Strategic Introduction (SI) meetings between the small businesses and attendees. In addition, Acquisition One-on-One meetings were held which also provided opportunities to interact with representatives from various Navy Program Offices. Approximately 500 individual meetings were held with those in attendance. Of keen interest, especially in a time of great change, is the message that Navy leadership brings.
sequestration and financial constraint the idea of technologies that are both “innovative and affordable,” is paramount. The Office of Naval Research (ONR) has always considered small business a priority and has been a long-time supporter of events like the Forum that foster collaboration and technology transition. In his speech RADM Klunder noted that SBIR accounts for 25% of ONR awards to small businesses, which fortified his discussion of the Forum; “It’s about transitioning, it’s about helping people get to transition.” However, sequestration has thwarted some of RADM Klunder’s efforts to further transitions – plans for quarterly focus meetings at ONR have been put on hold. However, RADM Klunder is hopeful that they may be able to move forward this fall.
RADM Matthew L. Klunder This year RADM Matthew L. Klunder, Chief of Naval Research kicked off the event with an engaging and energetic keynote speech. RADM Klunder’s wealth of experience was apparent as he made his way around the room, interacting with attendees and discussing naval innovation in the past, present, and future. In today’s climate of
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RADM Matthew L. Klunder (left) and The Honorable Frank Kendall (right) speak to Forum attendees.
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Steve Sullivan, Navy STTR Program Manager, tours the exhibit hall.
Honorable Frank Kendall The Honorable Frank Kendall, Under Secretary of Defense for Acquisition, Technology and Logistics drew upon his more than 40 years of experience in engineering, management, defense acquisition, and national security affairs in private industry, government, and the military during his talk on Monday afternoon. Speaking candidly, Mr. Kendall described the current budgetary situation as unfortunate and unintentional. When looking at the impact of sequestration, both large and small actions are being carried out to absorb the cuts and the impact of these actions varies. For example, the Blue Angels not being able to fly at a graduation, has less impact, but not fixing a runway, delaying maintenance on necessary equipment, units not training, and troops having to stay longer in Afghanistan because we don’t have the people prepared and the money to bring them back and rotate other people in, is a problem. “All of these things are happening and it’s more a death of a thousand cuts then it is a deluge or a cataclysmic thing, but the cuts just keep coming.” Furthermore, cuts to all of the investment accounts, including SBIR present problems – a cut of 8% represents about 100 Phase II SBIR awards, or 100 companies that aren’t going to get their seed money, and that number is even higher for Phase I awards – that equates to a couple hundred companies. Receiving an SBIR award helps a company raise other money by improving the company’s credibility and without these awards that is diminished as well. “The other side [of budget cuts] is the tremendous importance of innovation that small business is to keeping our innovation active and vibrant and alive and investing for the future for the Department in the face of the budget situation we see.” When discussing moving forward, Mr. Kendall stated, “Looking ahead, do I see a way out of this? Unfortunately I do not … The debt ceiling is
another issue coming up and the likelihood is that we’ll go into FY14 with sequestration still as the law of the land and a CR [Continuing Resolution].” However, events like the Forum that showcase technology and innovation are valuable. Mr. Kendall reiterated this theme and discussed potential ways to support small business through increased collaboration with the primes. Despite the challenging environment, Mr. Kendall underscored the importance of events like the Forum and the need for continued government support for meetings like this, as they are often technical interchange meetings and not just conferences.
Congressmen Bill Shuster and Rick Larsen Sequestration and small business was also a common theme on Tuesday when Congressman Bill Shuster (R-PA) and Congressman Rick Larsen (D-WA) who co-chaired the House Armed Services Committee’s Panel on Business Challenges within the Defense Industry from September 2011 to March 2012 discussed the challenges that businesses face in working with the Department of Defense. Key takeaways from their discussion included the need to develop better metrics to judge what makes a successful transition, the need to improve communication between small business, industry, and the DOD, and the need to develop an acquisition workforce to improve and streamline processes. Although the overarching message from many of the speakers reiterated the challenges small businesses will face in the current budget situation, the event served as a successful platform for bringing the acquisition community, primes, and first and second-tier suppliers together to discuss how SBIR and STTR-funded technologies can address Navy needs. The enthusiasm that this engenders is evident in the videos that were taken at this year’s Forum. www.youtube.com/watch?v=EO3WgsJM6hg
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Technology Transition: The Art Behind the Science While it may be impossible to escape the ever-present discussion of sequestration and the challenges faced by small businesses in this climate, technology transition is still happening every day. Bob Smith works in the Transition Directorate (ONR 03T) as Director, Technology Transition Initiatives at the Office of Naval Research. In this role he is charged with coordination, execution, and monitoring of DON Programs including RTT/TIPS/Tech Transfer, and he coordinates several OSD programs as well (Rapid Innovation Fund, FCT, JCTD). Based upon his wealth of experience with technology transition, Mr. Smith is able to offer advice on how to work at technology transition when the environment is tough. When discussing technology transition, Mr. Smith brought to light a key point about technology transition within the Navy, “One thing to think of with technology transition is that the Navy does it every day, and we do it in terms of billions of dollars in the form of new ships leaving pier side, aircraft rolling out of the hangars. We’re trying to improve that rate of tech transition and the pace of technology transition.” To achieve this level of transition takes smart people at the right time and at the right place for all of these stars to align and give our warfighter the best capability in the world. Although the Navy is extremely adept at technology transition, from the perspective of the small business, it may still be a challenging process. Some of the main challenges that small businesses face are communication, alignment, and resources. In terms of communication - the number of people that small businesses need to talk to gets complicated quickly. Furthermore, the challenge of how something is said and how it’s heard adds to the challenge. Throw in the struggle of limited resources, and it becomes tougher and uglier to make it through to the winning position and avoiding the so called valley of death! So, what can a small business do to overcome these challenges? Follow Bob Smith’s rules of technology transition: • Know your environment • Know your market • Know your product • Know your customer • Know your consumer The environment is challenging, but knowing how it’s structured is crucial when working to transition successfully - the figure below illustrates this environment. The Joint Capabilities Integration and Development System (JCIDS), the 5000.1 and 5000.02 processes are event-driven and the Planning Programming, Budgeting, and Execution (PPBE) is calendar-driven, and the Quadrennial Defense Review (QDR) is carried out every four years to shape where the DOD is going and to drive requirements. Through these processes spending is determined two years out. Currently, with the addition of Continuing Resolution Authority (CRA) and sequestration presenting new challenges this environment has grown a little more difficult. Different types of requirements are generated to meet a variety of
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needs. Mr. Smith describes these differing requirements and “big R” and “little r” requirements. Capability needs make up the big R requirements, or what the warfighter needs now – technologies that are faster, lighter, stronger, etc. The acquisition community then sets the smaller requirements which go into the big R requirements – technologies that are a set amount faster, lighter, or stronger. Once you understand the process, it’s important to understand how to work within it, and part of that is to know the right questions to ask. In the current climate with R&D spending being decreased and programs shrinking or being eliminated it is even more important to know your customer – the Acquisition Program Manager. By and large, according to Mr. Smith, the Acquisition Program Manager is: • Risk averse • Responsible for cost, schedule, and performance • Has a budget and a plan • Has some flexibility to accommodate change, but not much Mr. Smith notes that, “When someone says I like what you have, but I have to get through the requirements process before we can insert it into our Program of Record (POR) so we can use it, what you should have heard is – ‘I need at least two years before I can cut you a check.’” Being prepared to follow up with a question about what to do until it is a validated requirement may help mitigate these challenges, like “So who should I speak to now?” However, it’s not only about knowing how to work within the system. As the budgets are shrinking and large and small programs are going away, the fundamental differentiators are still the same – you must be able to provide a technology that addresses costs, performance, schedule, and is simply more competitive than the other technologies out there. After all, technology transition is about getting the best technologies available into the hands of the warfighter. When framing a conversation with a program manager it may be helpful to use phrases like, ‘I understand you have a gap - my technology addresses that problem
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and is faster, cheaper, and meets the cost, schedule, performance requirements.’ It is important to speak to those specifics without an overly technical discussion. To maximize your chances of success, developing a strong team with diverse skill sets will enable you to communicate more effectively while also developing quality technologies. In terms of teamwork, put it in context – your team may need a lawyer, a tech guy, and an extrovert to deliver on all aspects of the transition process. According to Mr. Smith, transition is a contact sport and it’s all dealing with personal relationships, so you should get out there, and forge those relationships - even when facing obstacles and travel bans start simply with email to get the ball rolling. Participate in programs like the Rapid Innovation Fund (RIF), it’s competitive, but it’s out there and it’s one of the few ways that a small business can at least initiate the conversations with program managers in SYSCOMs until travel bans can be lifted. Find a champion, work with SYSCOMs, TPOCs, SBIR PMs, and start thinking outside of current relationships to find future customers. So, ultimately how do you succeed?
Acronym Key Rapid Technology Transition (RTT) RTT programs transition technology from any source, including those not traditionally associated with defense technology. According to the RDT&E Budget Item Justification: PB 2014 Navy RTT is unfunded. www.dtic.mil/descriptivesum/Y2014/ Navy/0203761N_7_PB_2014.pdf
Technology Insertion Program for Savings (TIPS) The mission of the TIPS program is to increase the rate that new cutting edge technologies are inserted into DON acquisition programs in order to significantly reduce operations and maintenance support costs. According to the RDT&E Budget Item Justification: PB 2014 Navy, the total FY 2014 funding for TIPS is $13.436 million and the typical funding per project is $2 or less.
Rapid Innovation Fund (RIF)
• Be informed • Appreciate the environment • Establish strategic relationships • Use the tools that are available
The Rapid Innovation Fund was established by Congress in 2011 with typical funding per project of $3 million or less and the typical completion timeframe for these projects is 24 months or less. The FY13 RIF budget, DOD wide, is $250M.
Reauthorization Brings Changes to the Navy’s Phase II Submission Process The reauthorization of the Small Business Innovation Research (SBIR) program has required some changes to the way Agencies conduct their Phase II proposal submission processes. Prior to the Reauthorization, the Navy conducted a downselect at the end of the Phase I program to determine which firms would be invited to submit a Phase II proposal. This was typically accomplished by the Technical Point of Contact (TPOC), who reviewed the results of the Phase I effort and then selected one or two Phase I awardees on a given topic. Those companies with technologies that the TPOC thought had the best chance of transitioning were then invited to submit a full proposal. The Reauthorization Act, however, calls for an open Phase II submission process, thereby doing away with Phase II invitations. To meet this requirement, the Navy has established an Initial Phase II proposal, which must be submitted by the due date of the Phase I Final Report. This Initial Phase II proposal will be used to evaluate the offeror’s potential to progress to a workable prototype in Phase II and transition technology to Phase III. As described in the Navy’s FY13.3 SBIR Solicitation, Phase II selection is based on the DOD’s evaluation criteria, with technical merit ranked the highest, followed by qualifications and commercialization potential ranked equally. The evaluation of the initial proposals will be conducted by either
the TPOC or a team of reviewers. Some SYSCOMs will also require contracting officials to approve the selections. Those firms that are selected after the initial review will be asked to submit a full Phase II proposal. The Initial Phase II proposal calls for general information on the development effort, and is a brief document with a limited number of pages. Instructions for the proposal are available on the Navy’s SBIR website under a section called “Phase II Initial Lee Ann Boyer, Navy Commercialization Proposal Instructions.” (www. Readiness Program (CRP) Manager navysbir.com/links_forms.htm) Companies will be notified about the Initial Phase II proposal as part of their Phase I Award and will be provided with information on the due date, content and submission requirements of the proposal. If for some reason the notification is not included in the award, a separate notification will be sent to the firm. The initial proposal is only
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IN DISCUSSING THE NEW PHASE II SUBMISSION PROCESS, Lee Ann Boyer, Navy Commercialization Readiness Program (CRP) Manager, made it clear that in establishing the Initial Phase II proposal, the Navy is hoping to save companies the time, effort, and money associated with putting together a full proposal without first having the potential for award and success evaluated.
required as part of the selection process for Phase I awards resulting from solicitations beginning in Fiscal Year (FY) 2013. Phase II awards on topics from earlier than FY2013 will not require an initial proposal and will instead follow the previous, submission by invitation only, process. Initial Phase II proposals will be submitted through the Program Manager (PM) database, while full Phase II proposals will continue to be uploaded through the DoD website as in the past. Both the SBIR and STTR programs will make use of Initial Phase II proposals to assist in determining which firms should be asked to submit full Phase II proposals. Individual SYSCOMs will have the option to include additional documentation, such as Transition Plans, as part of the initial submission. Once selections have been made based on the Initial Phase II proposal, all companies that submitted a proposal will be notified of the selected firms by email. Those firms that are selected will receive separate correspondence discussing the full Phase II proposal. These notifications are automatic emails generated by the Navy’s PM Database. Firms that are not chosen can file challenges as they have in the past. Firms will also have the option of requesting a debrief on their proposal evaluation. Phase I awardees who fail to submit an Initial Phase II proposal by the time the Phase I Final report is due will be contacted and advised that they will not be considered for selection in the Phase II award process. If a company receives this notice and believes it to be an error, they should contact the Navy immediately.
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In certain circumstances, subsequent or second Phase II awards can be made to a firm on a given topic. These subsequent awards do not require the submission of an Initial Phase II proposal as a second competition is not needed. However, in instances where the Navy wishes to start a new Phase II effort, to replace where a previous effort was not successful, initial Phase II proposals will be requested from all original Phase I awardees that competed for the original Phase II award. This applies only to subsequent or second awards and does not preclude the Contracting Officer from determining that a firm initially recommended for an award cannot receive the contract and making an award to the next best candidate (either as a first or subsequent award). As with initial Phase II awards, this process will only be necessary on Topics from FY2013 and later. The Reauthorization legislation also requires that all companies be notified of selection within 90 days. The Navy will meet this requirement by notifying companies of selection within 90 days of their initial proposal deadline. In circumstances where the Navy will not be able to achieve the 90 day goal, the Navy will request a waiver from SBA and will notify the affected companies. This is not expected to be necessary. In discussing the new Phase II submission process, Lee Ann Boyer, Navy Commercialization Readiness Program (CRP) Manager, made it clear that in establishing the Initial Phase II proposal, the Navy is hoping to save companies the time, effort, and money associated with putting together a full proposal without first having the potential for award and success evaluated. While this process adds another deliverable to the Phase I effort and an additional step to the Phase II selection process, it will allow all Phase I awardees a chance to illustrate to the Navy what they could provide through a Phase II award.
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Constant Change Contributes to Referentia’s Success For Referentia Systems, Inc., one thing that has been consistent is change. Based in Honolulu, Hawaii, Referentia started out 17 years ago as an e-learning company focused on providing communications, multimedia, and e-learning solutions for customers like Autodesk, Borland, GoldMine CRM, and others just as the dotcom bubble was growing. However, when that bubble burst Referentia was able to draw upon its experience working with the federal government to reinvent itself. By casting a wide net and taking advantage of strategic relationships and proximity to key operational commands, the company was able to survive by working on government contracts. As part of this strategy Referentia initially took on any type of work that fit their skill set. However, over time the company sharpened its focus and today is positioned as a firm that provides software development and technology solutions. Focusing on and maintaining their skill set has helped the company to redefine and refine their path forward. The company has continually sought patents for their technology and maintained core technology areas including cyber-network defense, cross-domain solutions, enterprise architectures, and advanced network management and analysis systems. These core technology areas evolved through working with the DOD and were funded through proposals prepared in response to numerous Requests for Proposals (RFPs) and Broad Agency Announcements (BAAs). Working with the DOD allowed Referentia to start looking at technologies from a communications perspective, and to transition and expand their focus to critical infrastructure markets. The critical infrastructure markets encompass several verticals including healthcare, utilities, transportation, telecom and others with a strong demand for cybersecurity and other communications tools. Today, the company with its 80 employees is positioned as an innovative software solutions company.
LiveAction was the 2012 Platinum winner in the Govies Government Security Award competition for the network security category at the Government Security Conference & Expo. Referentia has achieved Phase III success with their product, LiveAction. This product provides unique real-time cyber and network situational awareness and control by transforming an organization’s existing network infrastructure into a real-time sensor to improve cybersecurity and maintain mission critical operations. With LiveAction, an operator can easily see and understand critical or malicious network flows, and with a simple right click, can easily implement Quality of Service (QoS) policies, re-route, analyze via visual forensics, or stop the flow. LiveAction was developed by Referentia Systems to support the Federal Government’s network communication need to improve reliability, availability, and security within bandwidth limited environments particularly for the Marine Corps and Navy. The software has been placed on the Approved Products List (APL) of the Defense Information Systems Agency (DISA) by the DOD Joint Interoperability Test Command (JITC). The work on LiveAction started in 2008 when Referentia won a Phase I SBIR award in response to topic N07-193, “Planning and Management of QoS based Mobile Wireless Networks.” Referentia responded to the solicitation because the company had the necessary capabilities and had done work in the past with challenging tactical data field environments for ONR and MARFORPAC. Referentia went on to receive a Phase II in 2009, a Phase II option, bridge funding, a Phase II.5 award in 2011, RIF funding in 2012 and product
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LiveAction’s Real-time QoS åMonitoring by Application
sales. The funding challenges change over time. Referentia credits competition from other awardees with strong as well as relevant technologies as the biggest challenge that one has to address to get from a Phase I to a Phase II award. However, securing Phase II.5 funding depends more on the acquisition customer and the small business being able to demonstrate their technology value to this group. To demonstrate that one is able to provide value to the acquisition customer, the small business must maintain close interaction with the customer and develop a good understanding of technology gaps, and the schedule for technology refresh, if appropriate. Cultivating a strategic relationship with the Shore and Expeditionary Integration Program Office (PMW 790) proved to be a key element to LiveAction’s continued success. To develop this relationship, Referentia began working with the operations community on a number of efforts to have their technology fielded, evaluated, and exercised with PMW 790 through the Trident Warrior exercises. Participation in these exercises and engagement with the customer is vital to the company’s success – Referentia believes that receiving feedback directly from operators and decision makers keeps the company from developing in a vacuum and veering off course. While some companies may be nervous about participating in field exercises, Referentia has taken advantage of these opportunities for several years, due in part to their geographic proximity to centers like the U.S. Marine Corps Forces, Pacific Experimentation Center (MEC). “Prior to Trident Warrior we had been participating in field exercises for awhile and the combination was very beneficial. We gained a lot of good feedback from operators when using the technology.” Receiving feedback from ONR prior to the exercise also helped to refine the technology. To participate in the Trident Warrior exercise Referentia applied in 2009. Following this initial engagement, Referentia was sponsored by PMW 790 to participate in the 2010 and 2011 Trident Warrior exercises. The company has also been able to cultivate successful relationships with the Army and Lockheed Martin utilizing similar strategies.
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When asked what they have learned and what guidance they would give other small businesses, Referentia offered several key points. • Get operator feedback – this feedback is invaluable and can come from participating in field and fleet exercises. Set up meetings and demonstrations, and find different ways to work with centers like MEC and other operational commands. • Deliver and understand requirements and produce quality products. The company’s philosophy is to over-deliver and provide commercial quality products to all users. It’s important that the user feels like they’re working with a solid product. • Look at multiple funding sources (SBIRs, BAAs, etc) and consider any topic that can leverage your technology base. A continuous flow of development dollars is important. • Meet with your customers frequently and provide status reports to SBIR customers and the acquisition community to assure that you’re on target and not working in a vacuum. • See beyond the requirements and interact with the R&D and acquisition communities. • Develop quality products that provide value to the Navy. Referentia’s evolution has helped set them apart - many companies continually broaden, but Referentia has continually focused their efforts. To maintain this focus, the company believes that it’s important to always be cognizant of where you are with technology and business development. “Focus allows us to position ourselves better. It took a long time for people to initially learn that we were not an e-learning company anymore. We let everyone know that we have technologies and innovations in specific areas and that has helped Referentia to grow our business in specific areas.” Furthermore, the company works to assure that their best people are all focused on where they want to go with specific technology areas. This focused growth strategy is demonstrated with the company’s first spin-off, ActionPacked Networks, dedicated to selling LiveAction commercially to companies in different verticals. Referentia sees this as a success in that they have taken a mature product and are now applying it to generate viable commercial sales. As a final word of advice, the company notes, “Try to reposition the company and yourself as you evolve.”
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SBIR Data: What They Are, What They Are Not, and How to Mark Them by David P. Metzger, Esquire and Kristen O. Riemenschneider, Esquire 1 It is widely known in Small Business Innovation Research (“SBIR”) circles that SBIR data rights are a hallmark benefit of the SBIR Program. By virtue of the SBIR Re-Authorization Act of 2011 (“Act”),2 and the SBIR Policy Directive of August 6, 2012 of the U.S. Small Business Administration (“Directive”),3 SBIR firms obtain favorable treatment of data generated under SBIR funding agreements (“SBIR Data”). With very limited exceptions, agencies cannot disclose SBIR Data outside of the Government and have strict limits on their use. The rights of SBIR firms and the Government in SBIR Data (“SBIR Data Rights”) are unique in all of Government contracting. SBIR Data Rights are much more favorable and stand in sharp contrast to the broader technical data rights that federally funded non-SBIR contractors are required to grant to federal agencies under non-SBIR data rights clauses. SBIR Data Rights, particularly the Government’s nondisclosure obligation, add value to SBIR firms and wealth to their owners. 4 The definition of “data” underlying these widely recognized SBIR Data Rights, however, is lesser known. This article explains: 1) what constitutes SBIR Data, but also, 2) what does not, and 3) basic marking principles that apply to SBIR deliverables.
What Constitutes SBIR Data Both the Act and the Directive define SBIR Data Rights in terms of “data.” However, neither the Act nor the Directive expressly define what constitutes this SBIR Data.5 The Directive takes a very broad approach to the term -- without defining it -- by referencing the Act; Section 8(b), Terms of Agreement Under SBIR Awards, states that “[t]he Act provides for ‘retention by [a small business concern] of the rights to data generated by the concern in the performance of an SBIR award.’”6 The SBIR clause proscribed by the Defense Federal Acquisition Regulation Supplement (“DFARS”) for insertion into all SBIR defense agency contracts 7 also does not define the term “data.” Rather, it expressly defines SBIR Data Rights as attaching to “technical data” and “computer software,” 8 and provides definitions for these two terms along with several other secondary definitions. Per the SBIR DFARS Clause, the term “technical data” is defined as: recorded information, regardless of the form or method of the recording, of a scientific or technical nature (including software documentation). The term does not include computer software or data incidental to contract administration, such as financial and/or management information.9 The term “computer software” is defined in the SBIR DFARS Clause, as: computer programs,10 source code, source code listings, object code listings, design details, algorithms, processes, flow charts, formulae, and related material that enable the software to be reproduced, recreated, or recompiled. Computer software does not include computer databases11 or computer software documentation.12, 13
David P. Metzger and Kristen O. Riemenschneider
Before we examine these definitions in detail, we note that all three sources -- the Act, the Directive and the SBIR DFARS Clause -- are in agreement that SBIR Data only include data generated under the SBIR contract. For example, the SBIR DFARS Clause expressly establishes that SBIR Data Rights attach only to “technical data or computer software generated under [the SBIR] contract …”14 Thus, SBIR Data only include technical data and computer software, including computer programs, generated under the SBIR funding agreement.15 This has several ramifications. First, the SBIR Data need not be delivered to the Government to constitute SBIR Data -- the data need only be generated under an SBIR funding agreement. A great deal of SBIR Data may be generated under an SBIR funding agreement but never delivered to the Government. Nevertheless, that data is still SBIR Data. Second, any data generated under a non-SBIR federal contract will be subject to the less favorable non-SBIR DFARS regulations and clauses. Third, data that the SBIR firm generates on its own, either out of independent research and development (“IR&D”) funding, overhead, or profits, receive more favorable treatment as limited rights or restricted rights (for computer code and computer related documentation) data.16 “Technical data” are limited by the Clause to data which have been recorded. 17 This means that SBIR protection generally does not extend to ideas or concepts until they are written down under an SBIR funding agreement. (The recording language is not found in the definition of “computer software,” but by virtue of its existence as software, such data has necessarily been recorded.) Thus, taken as a whole, SBIR Data are best described as scientific or technical data, generated under an SBIR funding agreement, that exist in a form that that can be read. Examples of SBIR Data – assuming that the data are in writing and were generated under an SBIR funding agreement – will include, but are not limited to:
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• SBIR Phases I and II final reports; • Computer code; • Computer programs; • Computer documentation; • Computer databases; • Algorithms; • Sketches; • Drawings; • Test data; • Formulae; • Equations; • Technical or scientific theories; and • Applications of SBIR technologies.
That said, the SBIR DFARS Clause requests a specific date on which the SBIR protection period expires. According to the terms of the Clause, this date is five years from the end of the project.21 The Directive, however, provides for a “roll-over” of previous SBIR Data Rights to five years from the end of the project of a subsequent SBIR Phase III funding agreement that may be awarded.22 Because of this “roll-over” provision, SBIR contractors, including those with Navy contracts, should fill in the date requested in the SBIR legend with the date that is five years from the projected end of the contract project, and then add the words: “[,]subject to Section 8 of the SBA SBIR Policy Directive.” This alerts those who wish to disclose SBIR Data after the date noted on the legend to be aware of the possibility of the “roll-over” provision.
What Does Not Constitute SBIR Data
While carefully marking deliverables to the Government with the SBIR legend is mandatory, it is neither appropriate nor advisable to mark such SBIR data with the SBIR legend when delivered to a third party outside of a Government contract or subcontract.23 When delivering data, including SBIR Data, in such a context, the marking should reflect the fact that the data is owned by the SBIR firm, and is proprietary and confidential. With respect to those private sector entities, SBIR Data has the same proprietary status as data developed by the SBIR contractor at its own expense. For those types of deliveries, the appropriate marking is the same marking the firm would use when delivering proprietary, non-SBIR Data to a third party. For example, the contractor should consider marking such data: “Proprietary and Confidential Trade Secrets: Not to Be Disclosed Without the Consent of [the name of the SBIR firm].” 24 Labeling the data as “trade secrets” helps to trigger protection under the trade secrets statutes of the various states.25
Objects that are visible to the naked eye do not receive the benefit of SBIR Data Rights and, as such, are not subject to the nondisclosure obligation of the Government. For example, a coffee cup, with an exquisitely shaped handle, cannot be SBIR Data, because the coffee cup and exquisite handle are designed to be seen. This is because, according to the U.S. Court of Federal Claims (“COFC”), “a tangible product delivered under a contract may indeed constitute the embodiment of data, but it is not itself recorded information,”18 -- and, as noted above, data must be recorded in order to be considered “technical data” under the Clause. In the Night Vision case, the COFC found that a set of night vision goggles did not constitute “data” under the SBIR DFARS Clause, because the set of goggles, a tangible product, were not “recorded information.” As a result of the Night Vision holding, in the example above, neither the cup nor the handle are protected from disclosure, even if both were developed under an SBIR funding agreement. However, a very different result might have been found if the prototype or deliverable in question had been recorded information from the representative samples listed above. For example, the cup’s composition, if developed pursuant to a secret formula which would not be readily ascertained by inspecting the cup, could very well be SBIR Data. In the same way, a black box may contain software that is protected SBIR Data, but the outside container of the black box, plainly visible, may not be SBIR Data. Additionally, a display panel, with buttons configured in a certain way, may not constitute SBIR Data, even if the button configuration was generated under an SBIR funding agreement, because the display panel is designed to be viewed, and cannot be protected from disclosure. The coffee cup’s handle shape, the shape of the “black box,” and the display panel could be evaluated for patent or other commercial intellectual property protection, but would not be subject to SBIR Data protection.
Thus, because the SBIR firm owns the SBIR Data it develops, it marks SBIR Data differently to third party, non-Government entities, to which it delivers the SBIR Data. With respect to those third party entities, the SBIR Data is proprietary, and the SBIR DFARS Clause does not apply.
Conclusion
Marking SBIR Data
SBIR Data can take many forms, but the data must be generated under an SBIR funding agreement, and be “recorded information,” that is, something that can be read, in order to constitute SBIR Data. Visible objects are by definition not “recorded information,” do not rise to the level of SBIR Data, and, therefore, are not subject to the Government’s nondisclosure obligation. SBIR Data delivered to any defense agency should be marked in every case with the SBIR Data Rights legend prescribed in the SBIR DFARS Clause. The end date for the Data protection period should be amended as noted above to provide for the “roll-over" provision. Data delivered to third parties (except under Phase III subcontracts) should be marked proprietary, and not with the SBIR Data Rights legend.
The best way to protect SBIR Data with respect to the Government is to mark it properly. The SBIR DFARS Clause prescribes exactly how SBIR Data are to be marked when delivered to the Government.19 SBIR contractors with Defense agency contracts, including Navy contracts, should mark recorded information generated under the contracts and to be delivered to the Government with the SBIR legend the Clause prescribes. Changing the legend in any way is not advisable.20
The federal data rights clauses prescribed in the DFARS are some of the most complex clauses in all of Government contracting. The above is intended to be a helpful guide for the SBIR DFARS Clause, but is not legal advice on any given situation. If you encounter questions in this complex area, it is best to consult with a professional to ensure that the SBIR firm does not sacrifice value, and ultimately, future wealth for its owners.
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Endnotes David P. Metzger is a Partner in the Government Contracts Group of Arnold & Porter LLP. He has lectured and written on Small Business Innovation Research (“SBIR”) data rights since 1982, the year the first SBIR act, the Small Business Innovation Development Act, was enacted. Kristen Riemenschneider is a senior associate in the Intellectual Property Group of Arnold & Porter LLP, a licensed patent attorney and an electrical engineer, and has assisted numerous clients on SBIR technical data issues. 2 See National Defense Authorization Act for Fiscal Year 2012, P.L. 112-81, 125 Stat. 1298, § 5001 (Division E), the SBIR Re-Authorization Act of 2011, signed by the President on December 31, 2011. 3 See 77 Fed. Reg. 46806, August 6, 2012. 4 See SBIR Data Rights: A Path to Wealth for SBIR Firms, presented to the 2013 National SBIR Conference, on May 16, 2013, Gaylord Hotel, Maryland, by David P. Metzger, Esquire. 5 See, e.g., Directive, § 3 Definitions. 6 Id. § 8(b). 7 DFARS clause 252.227-7018 -- “Rights in Noncommercial Technical Data and Computer Software -- Small Business Innovation Research (SBIR) Program (May 2013) (“SBIR DFARS Clause” or the “Clause”). 8 See id. at § (b)(4), stating that “the Government shall have SBIR data rights in technical data or computer software generated under [the SBIR] contract during the period commencing with contract award and ending upon the date and ending upon the date five years from the end of the project … ” 9 SBIR DFARS Clause, § (a)(20). The Directive does not contain a definition of “technical data” or “data.” See, e.g., Directive, § 3 Definitions. However, Section 8(b) of the Directive, Terms of Agreement Under SBIR Awards, takes a very broad definition of data, without defining it, from the SBIR Act (“The Act provides for “retention by an SBC of the rights to data generated by the concern in the performance of an SBIR award.”). This implies that SBIR Data need not be technical nor scientific in nature. That said, Section 8 refers several times to “technical data.” See, e.g., § 8b(2) (“SBIR agencies must protect from disclosure and non-governmental use SBIR technical data developed from work performed under an SBIR funding agreement.”). 10 The SBIR DFARS Clause expressly defines a “computer program” as “a set of instructions, rule, or routines, recorded in a form that is capable of causing a computer to perform a specific operation or series of operations.” Id. § (a)(3). 11 The term “computer database” is defined as “a collection of recorded data in a form capable of being processed by a computer. The term does not include computer software.” Id. § (a)(2). 12 The term “computer software documentation” is defined as “owner’s manuals, user’s manuals, installation instructions, operating instructions, and other similar items, regardless of storage medium, that explain the capabilities of the computer software or provide instructions for using the software.” Id. § (a)(5). 13 Id. § (a)(4). 14 Id. § (b)(4). 15 Id. 16 See Id. §§ (b)(3) and (4). See Id. §§ (a)(15) and (18) for definitions of “limited rights” and “restricted rights.” While SBIR Data is treated more favorably than other forms of federally-funded data, it is important to note that SBIR Data Rights still give the Government unlimited rights in the SBIR Data five years after the expiration of the SBIR contract. See Id. at § (b)(1). 17 Id. 18 See Night Vision Corp. v. United States, 68 Fed. Cl. 368, (re-issued) Nov. 8, 2005 at n. 16. 19 Id. § (f)(4). 20 We note that some defense agencies have included instructions on how to fill out the SBIR Data Clause. These instructions should be followed, even if they add some features to the Clause, but not to the extent that they omit any of the Clause’s material provisions. 21 Id. § (b)(4). 22 See Directive § 8(b)(2) (“… except that any such data must remain protected through the protection period of that subsequent SBIR award.”). This “roll-over” provision of SBIR Data Rights appears only in the Directive, and not in either the DFARS SBIR Clause, or the civilian agency SBIR Clause (FAR 52.227-20). The Directive, however, issued pursuant to notice and comment rulemaking procedures, has the force of law, and thus, the Directive supplements both the FAR and DFARS SBIR clauses. 23 This paragraph does not refer to the situation where an SBIR firm is delivering SBIR data to a prime contractor as the prime’s subcontractor. In such a case, the SBIR firms still marks the data with the SBIR legend. 24 Some agencies discourage use of the term “Confidential” in such a legend because they feel it confuses such protections with data to be treated at the classified level of “Confidential.” Omitting it will not change the level of protection to be accorded the data. 25 For instance, see Commonwealth of Virginia Trade secrets Act, Tile 59.1, Trade and Commerce, Ch. 26, Uniform Trade Secrets Act. This Act is typical of statutes in many of the states that have adopted the Uniform Trade Secrets Act, or have similar statutes. 1
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2014 NAVY OPPORTUNITY FORUM J U N E 2 – 4 , 2 0 1 4 | H YA T T R E G E N C Y, C R Y S T A L C I T Y, VA
W H E R E
N AV Y
N E E D S
A N D
S M A L L
B U S I N E S S
S O L U T I O N S
M E E T
UPCOMING EVENTS
CONTRIBUTORS
SBIR/STTR Workshop - DOD and NSF Concentration
TRANSITION ASSISTANCE PROGRAM & STTR PROGRAM MANAGER
October 15th, 2013 Omaha, Nebraska www.sbir.gov/events/sbirsttr-workshop-dod-and-nsf-concentration
15th Annual NIH SBIR/STTR Conference in 2013 October 28-30th, 2013 Sioux Falls, South Dakota www.sbir.gov/events/15th-annual-nih-sbirsttr-conference-2013-registration-now-open
Defense Energy Summit November 11-13th, 2013 Austin Texas www.defenseenergy.com
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Steve Sullivan
EXECUTIVE EDITOR Jenny C. Servo
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