sbir firms: the heroes behind the program a presentation to the navy opportunity forum june 2, 2015...
TRANSCRIPT
SBIR Firms: The Heroes Behind the Program
A Presentation to the Navy Opportunity Forum
June 2, 2015
Presented byDavid P. Metzger, Partner
Arnold & Porter LLPGovernment Contracts Group
© 2015David Metzger & Arnold & Porter LLP
All Rights Reserved
The Heroes Behind the SBIR Program
We will discuss today not just the SBIR Program and its mandates, but the firms that actually commercialize products under the program – the real heroes of the SBIR Program.
We will discuss things SBIR firms do that make the Government more effective, while carrying out the mandates of Congress, and what the Government can also do to assist in carrying out this mandate:
Marking SBIR Data Refraining from disclosing SBIR Data Know when a Phase III is present Protecting non-SBIR Data Keep the SBA SBIR Directive handy Keeping good records
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Disclaimer
The views expressed in this presentation are those of the author, and not those of Dawnbreaker, Inc., the Navy, or the author’s law firm
Total responsibility for these remarks rests with the author
That said, I want to thank Dawnbreaker and the Navy for the opportunity to express these views today
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Use of the term “Heroes”
We do not intend to minimize the role of our war fighters in service and theater by referring to SBIR entrepreneurs and employees as “heroes”
But rest assured, the entrepreneurs who own and operate innovative firms, including SBIR firms, fight a constant battle to take their ideas to products that will help our war fighters in the field and other government missions
These entrepreneurs and their employees must overcome all manner of obstacles along the way
Sometimes even doing battle with those who claim they are “here to help them”
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They Fight a Good Fight
Taking an idea all the way to product, through the innovation continuum, is a hard fought battle
It takes tenacity, persistence, courage, integrity and risk taking – traits our war fighters cherish
The SBIR firm has some weapons, and we will look at them, but sometimes they are not enough
Sometimes, good firms are lost in this noble endeavor
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SBIR Rights: The Weapons These Entrepreneur Warriors Have on Their Side
SBIR have the following “legal weapons” on their side:– The SBIR Reauthorization Act of 2011– The August 6, 2012 SBA SBIR Policy Directive, as amended
on January 8, 2014 (has the force of law)– FAR 27.709(h) (provides for extension of protection period)– FAR Clause 52.227-20,– DFARS 227.7104, and– DFARS clause 252.227-7018– 13 C.F.R. 121.702 (SBA’s SBIR eligibility rule)
Because the laws are so scattered, they can be confusing --yet protecting SBIR rights – and especially SBIR Data Rights -- is critical to staying in business during the long journey to product
I. Mark Your Data
SBCs must mark all SBIR data (generated under an SBIR contract) with the data rights legends contained in:– DFARS 252.227-7018 for defense agency contracts; and– FAR 52.227-20 for non-defense (civilian) agencies
Use the exact wording from those clauses "Mark it or lose it" when it comes to data rights – this
marking is the SBIR firm’s protective vest – wear it There is no deadline in the DFARS or FAR clause for
marking ‒ you can "cure" a failure to mark by re-submitting your deliverable with the SBIR marking on it– If any disclosure took place while it was unmarked, you have no
recourse, but no disclosure can be made after your re-submission
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II. Value of SBIR Data Rights Unlike non-SBIR data, the Government cannot disclose
SBIR Data to outside entities Disclosure destroys value – firms will not pay for some- thing
they can get for free; likewise, nondisclosure preserves value and creates wealth in your SBIR firm
Data rights protection periods can "roll over“ indefinitely, exceeding even the protection period for patents
If competitors wish to gain access to SBIR data, they have to either purchase the company or the technology line the data supports
The Government also benefits from these rights in the long run because these SBIR Data Rights keep encouraging new firms into the program and existing firms to keep innovating
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III. SBIR Data Rights Apply to All Phases
SBIR Data Rights apply to all SBIR funding agreements Phase I and II are obviously SBIR funding agreements and
invariably include SBIR data clauses: FAR clause 52.227-20 (non-military – four years of protection from the end of the contract) and 252.227-7018 (military awards – five years of protection from the end of the project)
After the protection period expires, the Government can disclose SBIR Data to private sector firms
SBIR Data Rights also apply to Phase III Identification of Phase IIIs is critical: it is the key to
preserving data rights in procurements that may not look like an SBIR but constitute Phase IIIs
Thus, step one in Data Rights protection is identification of a contract as a Phase III
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IV. Protect Non-SBIR Data
Place the legend on the title page -- state on following pages that they are covered by the title page legend
Identify technical data developed at private expense, developed outside of SBIR funding agreements, or brought to the contract, sufficiently so the Government can ascertain where data generated under the SBIR award starts and ends
If the Agency requests more than the title to the program or a general description, then you can provide it
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The High Ground SBIR firms have the law on their side in
identifying procurements as Phase IIIs The law requires a federal requirement or
contract that “derives from, extends, or completes” prior SBIR effort and is funded with non-SBIR funds to be recognized as a Phase III and accorded SBIR data rights
That is the law – it is Navy policy and guidance to recognize these as such and follow the law
You have the legal high ground in this
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V. SBIR Data Rights – What Are they?
Agencies have a broad duty to protect SBIR Data Agencies receive a royalty-free license in technical
data generated under SBIR awards "for Government use," but may not disclose SBIR technical data "outside the Government" – especially to the SBC's competitors -- during the protection period
Under the DFARS clause, DOD may disclose SBIR technical data to support contractors – those firms that signed a nondisclosure agreement with DOD and cannot bid on contracts involving the technology or data
SBIR firm retains ownership rights to data generated by the SBC in the performance of an SBIR award
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VII. Do Not Disclose SBIR Data Yourself
The Government’s nondisclosure obligation can be waived -- you waive that obligation when you voluntarily disclose your own SBIR Data
Train employees in protecting SBIR Data SBIR Data are any data generated under an SBIR contact – but this does not
include cost or pricing data (which may be proprietary), general needs statements, mere instructions on how to use a product or prototype, and other incidental information – SBIR Data is “technical data” – code, sketches, drawings, formulae, equations, analyses, etc.
SBIR Data can be included, however, in any deliverable to the government – power point slides, papers, etc. – always mark these
When presenting to the Government, make certain there are no non-Government personnel/non-support contractors in the room ,and do not let Federal employees disclose your SBIR Data to large firms or other private entities
Prevent premature disclosure by enforcing the “roll-over” provision
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VIII. SBIR "Roll-Over” Rights
"Roll-over" rights are vital to long-term data protection SBIR data rights "roll over" to the end of the protection
period of the latest SBIR contract The SBIR Data protection period can be perpetual – it
can keep extending with new SBIR Phase III contracts Because of the "roll-over" clause contained in Section 8
of the Directive, provide written notice of subsequent awards to agencies from which you have received prior SBIR funding agreements, and the new protection period, to indicate that your prior protection periods have "rolled over“ to the new date
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VIII. For Military Contracts, Add Language to the SBIR Clause
The Defense SBIR Clause – DFARS 252.227-7018 – requests the date when the protection period ends
Because of the “roll-over,” the date could be extended – the “roll-over” provision in § 8 of the Directive provides an extension of the protection period to five years after the end of the project of the latest Phase III funding agreement
At the end of the required date, add: “subject to section 8 of the SBA SBIR Policy Directive”
This puts defense officials on notice that the data could be extended
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VIII. SBIR Data Rights Are Non-Negotiable
Agencies must insert the SBIR technical data rights clause in every SBIR award, including Phase IIIs
SBIR technical data rights are non-negotiable Agencies may not condition, in any way issuance of an
SBIR award, including a Phase III, on SBIR Data rights Agencies may not diminish or remove SBIR Phase III
technical data rights during contract administration Transfer of technical data rights to the agency or any
other party must be in a writing that can only be executed after the SBIR award is signed
SBA must immediately report to Congress any attempt or action by an agency to condition, exclude or diminish SBIR data rights
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VIII. Preserve Non-SBIR Data Rights
SBC's must affirmatively act to preserve rights in non-SBIR data − most commonly developed at private expense
Such data receives rights more restrictive than SBIR rights:– IDENTIFY data developed at private expense and not developed
under the SBIR contract that the SBC may bring to the contract– ASSERT rights to the data– Describe the BASIS for the assertion– Provide the NAME/COMPANY asserting rights
This four-column chart appears in the SBIR DFARS clause –the FAR clause instructs not to submit proprietary data
Failure to identify and assert rights to non-SBIR technical data submitted under a contract can result in forfeiture of rights in privately developed (non-SBIR) data
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IX. Know When You Have a Phase III
Phase III offers:– SBIR Data protection from disclosure of data generated in Phase III
awards, and "roll-over" of those SBIR Data Rights– Sole source federal contracts, sparing federal agencies and prime
contractors the burdens of competitions and protests– Agencies “shall” award Phase III contracts, including on a sole
source basis, to the “greatest extent practicable” – This establishes opportunities for SBCs to establish markets
Phase IIIs “derive from, extend, or complete” prior SBIR effort and are funded with non-SBIR funds (that is, non-Phase I or II funds)
The new statute (2011 Re-Authorization Act) contains for the first time this Phase III mandate with the narrow exception
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The “Stackley Memo”
The Navy’s commitment to SBIR, at the highest levels, and recognition of these rights, is unprecedented and far-reaching
The “Stackley Memo” acknowledges the importance of SBIR at the Undersecretary of the Navy level, and encourages buying offices to use the sole source SBIR rights
No other agency, military or otherwise, has gone this far to encourage use of SBIR
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Navy Guidance
The Navy has also issued a Guidance document on Phase III, describing Phase IIIs so that Navy personnel in the field know the law
It has also included a reference to SBIR in the “Better Buyer Power/Version 3.0” document
At the highest levels, the Navy could not do more to assist SBIR warriors in their fight to get from ideas to the product stage – to create useful products for the Navy and the military
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IX. Identification of Phase IIIs
Phase III SBIRs are defined as:
• Work that "derives from, extends, or completes effort(s) performed under prior SBIR funding agreements" and is funded by other than SBIR (Phase I or II) funds (Directive at § 4(c))
The SBIR Policy Directive does not apply to non-federally funded SBIR firm efforts – but a commercial contract can be a Phase III – which is critical for purposes of the “roll-over” provision
This definition is very broad, is not limited to an agency, size of firm, type of contract, or research – its focus is on 1) prior SBIR work and 2) non-SBIR funds
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IX. Identification of Phase IIIs "Derives from" is a very broad test that refers to work that
traces back to SBIR efforts performed under prior SBIR funding agreements– These prior SBIR agreements can be prior Phase I, II, or III
contracts, grants, or any other type of funding vehicles– "Derives from” refers to all of the prior SBIR work combined – not
just in one Phase, or one application, one piece of data, or a report, but all of the prior SBIR efforts starting with Phase I
"Extends" means the work can be for other applications not researched or performed in prior SBIR efforts
"Completes" means commercialization of the prior SBIR research into a commercial product or application
These are three different tests because of the word "or"
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IX. Identification of Phase IIIs
"[B]ut is funded by sources other than the SBIR Program" means that funds from the agency set aside for the SBIR Program (used for Phases I and II) cannot be the source of Phase III funding
Thus, a Phase III many times looks like a regular procurement:– A Phase III can be funded by procurement, O&M, construction,
research, or any other type of agency funds (except SBIR Program funds)
– It can be any type of contract, including a subcontract (Directive, § 4(c)(5), and may result from competition (§ 4(c)(2))
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IX. Identification of Phase IIIs This concept can be confusing For instance, contracting officials are conditioned that the
nature of a contract dictates its funding:– A construction contract is funded by construction funds– An operation and maintenance contract is funded by O&M funds– A research contract is funded by research funds
For Phase IIIs, the CO is asked to accept that a Phase III SBIR contract is funded by non-SBIR funds
Many acquisition officials conclude that because the requirement is not funded by the SBIR Program (set aside) funds, it cannot be an SBIR Phase III – which is simply wrong
The very fact that the requirement is not funded by SBIR Program funds makes it a Phase III, if it meets one of the other elements of the test
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IX. Identification: Phase IIIs Can Be of Any Type
A Phase III can be for any type of activity A Phase III can be for non-research work The Directive states that: "Phase III work may be for
products, production, services, R/R&D, or any such combination." (Sec. 4(c)(4))
A subcontract can be a Phase III and a Phase III can be a subcontract (Sec. 4(c)(5) states this expressly)– In fact, a Phase III can be any type of funding vehicle– It can be a purchase order under an IDIQ or GSA Schedule
contract, a grant, a subgrant, a subcontract, or any other type of funding agreement
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IX. Identification: Competition Can Result in a Phase III
If an SBC wins a competition for work that "derives from, extends, or completes efforts made under prior SBIR funding agreements, then the funding agreement for the new work Phase III and must be accorded all SBIR Phase III status and data rights." (Sec. 4(c)(2))
If an SBC offers its SBIR technology in a Broad Agency Announcement (“BAA”) competition, and wins, the resulting contract award is a Phase III (Sec. 4(c)(2))
In that case, the solicitation may not call for Phase III work but simply requests solutions to a generally described problem – but the award is a Phase III
Conversely, if the solicitation specifically incorporates SBIR Data, then the solicitation itself is a Phase III
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X. The Effect of Phase III Status
Once a Phase III is identified, the law requires that it be provided SBIR rights
The Directive states: "A Phase III award is, by its nature, an SBIR award, has SBIR status, and must be accorded SBIR data rights." (Directive, Sec. 4(c)(2))
Upon identification of the work as a Phase III, the law requires SBIR rights and obligations for the award
Thus, once a Phase III is identified, the law "kicks in" and SBIR rights and obligations flow from there
Agencies must insert the SBIR clause in Phases I, II, or IIIs; prime contractors must insert it into subcontracts (not flow it down – it is not in their prime contract)
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X. Phase III Sole-Source Rights
The Phase III sole-source rights are the Government’s – it does not have to issue a Phase III – if it does, however, then the law applies and provides SBIR Phase III rights
The Government has the absolute right to issue Phase III sole-source contracts (Directive, Sec. 4(c)(3))
The Justification and Approval (J&A) merely needs to state that the work "derives from, extends, or completes prior SBIR efforts and is funded with non-SBIR funds"
This saves countless hours of competitive procurement time and needless protest time and effort – Phase III awards cannot be successfully protested
Prime contractors also can award Phase III subcontracts on a sole-source basis
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X. Additional Benefits of a Phase III A Phase I can go straight to a Phase III A Phase III can follow another Phase III A Phase III can be for any amount A Phase II and a Phase III can be awarded at the same
time, but from different funds A Phase III can modify a Phase I or II contract – the
modification funded with non-SBIR funds is a Phase III A Phase III can be awarded by other than the agency
that awarded the prior SBIR Phase I, II, or III Size standards do not apply to Phase IIIs – Phase IIIs
are exempt from the 500 employee size standard and SBA’s affiliation rule (13 C.F.R. § 121.103)
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Keep the Directive Handy The SBIR data rights clauses, FAR 52.227-20 and DFARS
252.227-7018, have not been conformed to the Directive For instance:
– The clauses do not acknowledge the "roll-over" provision– The DFARS clause does not:
• specifically reference Phase III SBIR contracts or define them• prohibit negotiation of SBIR data rights• state that subcontracts can be Phase IIIs• prohibit conditioning or diminishing SBIR Data Rights in Phase IIIs• require Phase III awards to the “greatest extent practicable”• Require written justification if this mandate is not followed
These protections and others are only in the Directive Keep the Directive handy to protect SBIR Data Rights
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SBIR Data Rights Are Good Sometimes, you hear that SBIR Data Rights are bad for the
Government It ties hands, makes things inflexible, leads to higher prices,
and all manner of other arguments But the facts are that small firms deliver products and
solutions that are many times cheaper, and/or most times better than their larger counterparts
And if the small firm is delivering on time, within budget, and in compliance with the contract – what is wrong with that?
Small firms integrate their SBIR Data into larger systems smoothly and efficiently every day – with no problems – and the SBIR policies encourage small firms to participate in this program
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Commercialize
Agencies are now under pressure from Congress to turn SBIR research into usable products
Agencies track commercialization "Research for research sake" is not an option Be vigilant for applications of your technology – mention
as many federal programs it will apply to as you can in your proposals and watch for commercial applications
Private sector sales count as commercialization, as do licenses, leases and rentals of your technology
Find several agency customers – not just one
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SBIR Helps in the Fight to Commercialize
SBIR is a great aid in this fight So are Navy higher level policies But sometimes, in the trenches with the program
and acquisition offices, things aren’t always as supportive
Program officials and acquisition office personnel sometimes forget a major fact about small businesses:
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Small Businesses Are Small
They are small…
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Small Businesses Need Help in the Trenches
Small firms don’t have a lot of money to fight battles, put up with process, draft reports, submit documentation, defend themselves, or even enforce the SBIR laws – process costs money
Wouldn’t it be nice once in a while to hear from your government customers:– “Well, it looks like you’re struggling with that, so let me
help.”– “I think you missed a step here, let’s fill it in together.”– “That’s probably a mistake – let’s correct it together.”
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Small Businesses Need Help
– “Hey, I’m not sure of the law here. Help me understand it.”– “My bosses want every right possible to data, but you
have SBIR Data Rights. Let me talk to them for you.”– “Could you clarify for me why you think you have SBIR
Data Rights here?”– “Are you sure this is a Phase III? Looks like a regular
procurement to me. Let’s discuss this over the phone to avoid a lot of unnecessary paperwork for you on this.”
– “Have you got time to explain that to me? I’m still missing it.”
– “Thanks for all the work you’re doing to get this to product. The Navy really appreciates it.”
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A Salute to Heroes
I want to conclude with a salute, thank you and tribute to every American that is serving in our Armed Forces, whether in uniform or not
“Thank you” Second, I want to thank every one of the SBIR
firms that has launched a small boat, and is seemingly crossing an ocean in it to take an idea to the product stage to help these brave war fighters
“Thank you – to every SBIR entrepreneur and their employees – especially Navy SBIR firms”
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SBIR Firms: The Heroes Behind the Program
Please send questions or comments to:
David P. Metzger, Esq.(202) 942-6755
Arnold & Porter LLP 555 Twelfth Street, N.W.Washington, D.C. 2004