Small Business Innovation Research Grants Program; Administrative Provisions

SUMMARY: The Cooperative State Research, Education, and Extension

Service (CSREES) is amending its regulations relating to the

administration of the Small Business Innovation Research (SBIR) Grants

Program, which prescribe the procedures to be followed annually in the

solicitation of research grant proposals, the evaluation of such

proposals, and the award of competitive research grants under this

program. This rule amends those regulations by identifying information

that will be specified in the annual solicitation as opposed to this

rule. CSREES is republishing these regulations in their entirety with

the proposed amendments in order to enhance their use by the public and

to ensure expeditious submission and processing of grant proposals.

DATES: Effective May 12, 1997.

FOR FURTHER INFORMATION CONTACT: Louise Ebaugh; Director; Office of

Extramural Programs; Cooperative State Research, Education, and

Extension Service; U.S. Department of Agriculture; Washington, DC

20250. Telephone: (202) 720-9181.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction

Under the provisions of the Paperwork Reduction Act of 1980 (44

U.S.C. Chapter 35), the collection of information requirements

contained in this rule have been approved under the Office of

Management and Budget (OMB) Document Nos. 0524-0022, 0524-0025, and

0524-0026.

Classification

This rule has been reviewed under Executive Order 12866, and it has

been determined that it is not a ``significant regulatory action'' rule

because it will not have an annual effect on the economy of $100

million or more or adversely and materially affect a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities. This rule will not create any serious inconsistencies or

otherwise interfere with any actions taken or planned by another

agency. It will not materially alter the budgetary impact of

entitlements, grants, user fees or loan programs and does not raise

novel legal or policy issues arising out of legal mandates, the

President's priorities, or principles set forth in Executive Order No.

12866. In addition, the Department certifies that the rule will not

have a significant impact on a substantial number of small entities as

defined in the Regulatory Flexibility Act, Pub. L. No. 96-534 (5 U.S.C.

601 et seq.).

Regulatory Analysis

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. All State and local laws and regulations that are in

conflict with this rule are preempted. No retroactive effect is to be

given to this rule. This rule does not require administrative

proceedings before parties may file suit in court.

Environmental Impact Statement

This regulation does not significantly affect the environment.

Therefore, an environmental impact statement is not required under the

National Environmental Policy Act of 1969, as amended.

Catalog of Federal Domestic Assistance

This program is listed in the Catalog of Federal Domestic

Assistance under No. 10.212, Small Business Innovation Research (SBIR

Program). For the reasons set forth in the Final Rule-related Notice to

7 CFR Part 3015, Subpart V, 48 FR 29115, June 24, 1983, and pursuant to

the Notice found at 52 FR 22831, June 16, 1987, this program is

excluded from the scope of Executive Order 12372 which requires

intergovernmental consultation with State and local officials.

Background and Purpose

On June 10, 1988, the Department published a Final Rule in the

Federal Register (53 FR 21966-21972), which established Part 3403 of

Title 7, Subtitle B, Chapter XXXIV of the Code of Federal Regulations,

for the purpose of administering the U.S. Department of Agriculture's

Small Business Innovation Research (SBIR) Grants Program conducted

under the authority of the Small Business Innovation Development Act of

1982, as amended (15 U.S.C. 638) and section 630 of the Act making

appropriations for Agriculture, Rural Development, and Related

Agencies' programs for fiscal year ending September 30, 1987, and for

other purposes, as made applicable by section 101(a) of Public Law 99-

591, 100 Stat. 3341. This rule established and codified the procedures

to be followed in the solicitation of competitive small business

innovation research proposals, the evaluation of such proposals, and

the award of grants under this program. On September 20, 1991, the

Department published a Final Rule in the Federal Register (56 FR 47882-

47889), which amended the Cooperative State Research Service (CSRS)

regulations relating to the Small Business Innovation Research Grants

Program. On December 30, 1994, the Department published a Final Rule in

the Federal Register (59 FR 68072) which amended 7 CFR Chapter XXXIV to

reflect the abolishment of CSRS and the establishment of CSREES. On May

15, 1996, the Department published a Final Rule in the Federal Register

(61 FR 25366) amending 7 CFR Chapter XXXIV by encouraging individuals

who are principally responsible for the scientific or technical

direction of the proposed work to be designated as the principal

investigator, making it a condition that Federal funds remain for an

extension of a Phase I grant and that an extension will not normally

exceed 12 months, requiring that when purchasing equipment or products

with agreement funds that only American-made items are purchased to the

extent possible, and making a few additional changes. On March 11,

1997, the Department published a Notice in the Federal Register (62 FR

11256-11263) proposing the amendment of this rule and inviting comments

from interested individuals and organizations. Written comments were

requested by April 10, 1997. No comments were received.

List of Subjects in 7 CFR Part 3403

Grant programs--Agriculture, Grant administration.

For the reasons set out in the preamble, Title 7, Subtitle B,

Chapter XXXIV, Part 3403 of the Code of Federal Regulations is revised

to read as follows:

PART 3403--SMALL BUSINESS INNOVATION RESEARCH GRANTS PROGRAM

Subpart A--General Information

Sec.

3403.1 Applicability of regulations.

3403.2 Definitions.

3403.3 Eligibility requirements.

Subpart B--Program Description

3403.4 Three-phase program.

[[Page 26169]]

Subpart C--Preparation and Submission of Proposals

3403.5 Requests for proposals

3403.6 General content of proposals.

3403.7 Proposal format for phase I applications.

3403.8 Proposal format for phase II applications.

3403.9 Submission of proposals.

Subpart D--Proposal Review and Evaluation

3403.10 Proposal review

3403.11 Availability of information.

Subpart E--Supplementary Information

3403.12 Terms and conditions of grant awards

3403.13 Notice of grant awards.

3403.14 Use of funds; changes.

3403.15 Other Federal statutes and regulations that apply.

3403.16 Other conditions.

Authority: 15 U.S.C. 638.

Subpart A--General Information

Sec. 3403.1 Applicability of regulations.

(a) The regulations of this part apply to small business innovation

research grants awarded under the general authority of section 630 of

the Act making appropriations for Agriculture, Rural Development, and

Related Agencies' programs for fiscal year ending September 30, 1987,

and for other purposes, as made applicable by section 101(a) of Public

Law 99-591, 100 Stat. 3341, and the provisions of the Small Business

Innovation Development Act of 1982, as amended (15 U.S.C. 638). The

Small Business Innovation Development Act of 1982, as amended, mandates

that each Federal agency with an annual extramural budget for research

or research and development in excess of $100 million participate in a

Small Business Innovation Research (SBIR) program by reserving a

statutory percentage of its annual extramural budget for award to small

business concerns for research or research and development in order to

stimulate technological innovation, use small business to meet Federal

research and development needs, increase private sector

commercialization of innovations derived from Federal research and

development, and foster and encourage the participation of socially and

economically disadvantaged small business concerns and women-owned

small business concerns in technological innovation. The U.S.

Department of Agriculture (USDA) will participate in this program

through the issuance of competitive research grants which will be

administered by the Office of Competitive Research Grants and Awards

Management, Cooperative State Research, Education, and Extension

Service (CSREES).

(b) The regulations of this part do not apply to research grants

awarded by the Department of Agriculture under any other authority.

Sec. 3403.2 Definitions.

As used in this part:

Ad hoc reviewers means experts or consultants, qualified by

training and experience in particular scientific or technical fields to

render expert advice on the scientific or technical merit of grant

applications in those fields, who review on an individual basis one or

several of the eligible proposals submitted to this program in their

area of expertise and who submit to the Department written evaluations

of such proposals.

Awarding official means any officer or employee of the Department

who has the authority to issue or modify research project grant

instruments on behalf of the Department.

Budget period means the interval of time into which the project

period is divided for budgetary and reporting purposes.

Commercialization means the process of developing markets and

producing and delivering products or services for sale (whether by the

originating party or by others); as used here, commercialization

includes both government and commercial markets.

Department means the Department of Agriculture.

Funding agreement is any contract, grant, or cooperative agreement

entered into between any Federal agency and any small business concern

for the performance of experimental, developmental, or research work

funded in whole or in part by the Federal Government.

Grantee means the small business concern designated in the grant

award document as the responsible legal entity to whom a grant is

awarded under this part.

Peer review group means experts or consultants, qualified by

training and experience in particular scientific or technical fields to

give expert advice on the scientific and technical merit of grant

applications in those fields, who assemble as a group to discuss and

evaluate all of the eligible proposals submitted to this program in

their area of expertise.

Principal investigator means a single individual designated by the

grantee in the grant application and approved by the Department who is

responsible for the scientific or technical direction of the project.

Therefore, the individual should have a scientific and technical

background.

Program solicitation is a formal request for proposals whereby an

agency notifies the small business community of its research or

research and development needs and interests in selected areas and

invites proposals from small business concerns in response to those

needs.

Project means the particular activity within the scope of one of

the research topic areas identified in the annual solicitation of

applications, which is supported by a grant award under this part.

Project period means the total length of time that is approved by

the Department for conducting the research project as outlined in an

approved grant application.

Research or research and development (R&D) means any activity which

is:

(1) A systematic, intensive study directed toward greater knowledge

or understanding of the subject studied;

(2) A systematic study directed specifically toward applying new

knowledge to meet a recognized need; or

(3) A systematic application of knowledge toward the production of

useful materials, devices, and systems or methods, including design,

development, and improvement of prototypes and new processes to meet

specific requirements.

Research project grant means the award by the Department of funds

to a grantee to assist in meeting the costs of conducting for the

benefit of the public an identified project which is intended and

designed to establish, discover, elucidate, or confirm information or

the underlying mechanisms relating to a research topic area identified

in the annual solicitation of applications.

Small business concern means a concern which at the time of award

of phase I and phase II funding agreements meets the following

criteria:

(1) Is organized for profit, independently owned or operated, is

not dominant in the field in which it is proposing, has its principal

place of business located in the United States, has a number of

employees not exceeding 500 (full-time, part-time, temporary, or other)

in all affiliated concerns owned or controlled by a single parent

concern, and meets the other regulatory requirements outlined in 13 CFR

Part 121. Business concerns, other than licensed investment companies,

or State development companies qualifying under the Small Business

Investment Act of 1958, 15 U.S.C. 661, et seq., are affiliates of one

[[Page 26170]]

another when directly or indirectly one concern controls or has the

power to control the other or third parties (or party) control or have

the power to control both. Control can be exercised through common

ownership, common management, and contractual relationships. The term

``affiliates'' is defined in greater detail in 13 CFR 121.401(a)

through (m). The term ``number of employees'' is defined in 13 CFR

121.407. Business concerns include, but are not limited to, any

individual, partnership, corporation, joint venture, association, or

cooperative.

(2) Is at least 51 percent owned, or in the case of a publicly

owned business at least 51 percent of its voting stock is owned, by

United States citizens or lawfully admitted permanent resident aliens.

Socially and economically disadvantaged individual is a member of

any of the following groups: Black Americans, Hispanic Americans,

Native Americans, Asian-Pacific Americans, Subcontinent Asian

Americans, other groups designated from time to time by the Small

Business Administration (SBA) to be socially disadvantaged, or any

other individual found to be socially and economically disadvantaged by

the SBA pursuant to section 8(a) of the Small Business Act, 15 U.S.C.

637(a).

Socially and economically disadvantaged small business concern is

one that is:

(1) At least 51 percent owned by

(i) An Indian tribe or a native Hawaiian organization, or

(ii) One or more socially and economically disadvantaged

individuals; and

(2) Whose management and daily business operations are controlled

by one or more socially and economically disadvantaged individuals.

Subcontract is any agreement, other than one involving an employer-

employee relationship, entered into by a Federal Government funding

agreement awardee requesting supplies or services required solely for

the performance of the funding agreement.

United States means the fifty States, the territories and

possessions of the United States, the Commonwealth of Puerto Rico, the

Trust Territory of the Pacific Islands, and the District of Columbia.

Women-owned small business concern means a small business concern

that is at least 51 percent owned by a woman or women who also control

and operate it. ``Control'' as used in this context means exercising

the power to make policy decisions. ``Operate'' as used in this context

means being actively involved in the day-to-day management of the

concern.

Sec. 3403.3 Eligibility requirements.

(a) Eligibility of organization. (1) Each organization submitting a

proposal must qualify as a small business concern for research

purposes, as defined in Sec. 3403.2. Joint ventures and limited

partnerships are eligible to apply for and to receive research grants

under this program, provided that the entity created qualifies as a

small business concern in accordance with section 2(3) of the Small

Business Act (15 U.S.C. 632) and as defined in Sec. 3403.2. For both

phase I and phase II the research must be performed in the United

States.

(2) A minimum of two-thirds of the research or analytical work, as

determined by budget expenditures, must be performed by the proposing

organization under phase I grants. For phase II awards, a minimum of

one-half of the research or analytical effort must be conducted by the

proposing organization. The space used by the SBIR awardee to conduct

the research must be space over which it has exclusive control for the

period of the grant.

(b) Eligibility of principal investigator. (1) It is strongly

suggested that the individual responsible for the scientific or

technical direction of the project be designated as the principal

investigator. In addition, the primary employment of the principal

investigator must be with the proposing small business concern at the

time of award and during the conduct of the proposed research. Primary

employment means that more than one-half of the principal

investigator's time is spent in the employ of the small business

concern. Primary employment with the small business applicant precludes

full-time employment with another organization.

(2) If the proposed principal investigator is employed by another

organization (e.g., university or another company) at the time of

submission of the application, documentation must be submitted with the

proposal from the principal investigator's current employer verifying

that, in the event of an SBIR award, he/she will become a less-than

half-time employee of such organization and will remain so for the

duration of the SBIR project.

Subpart B--Program Description

Sec. 3403.4 Three-phase program.

The Small Business Innovation Research Grants Program will be

carried out in three separate phases described in this section. The

first two phases are designed to assist USDA in meeting its research

and development objectives and will be supported with SBIR funds. The

purpose of the third phase is to pursue the commercial applications or

objectives of the research carried out in phases I and II through the

use of private or Federal non-SBIR funds.

(a) Phase I is the initial stage in which the scientific and

technical merit and feasibility of an idea related to one of the

research areas described in the program solicitation is evaluated,

normally for a period not to exceed 6 months. In special cases,

however, where a proposed research project requires more than 6 months

to complete, a longer grant period may be considered. A proposer of a

phase I project with an anticipated duration beyond 6 months should

specify the length and duration in the proposal at the time of its

submission to USDA in order for it to be considered at the time of

award. (See Sec. 3403.14(c) for changes in project period subsequent to

award).

(b) Phase II is the principal research or research and development

effort in which the results from Phase I are expanded upon and further

pursued, normally for a period not to exceed 24 months. Only those

small businesses previously receiving phase I awards are eligible to

submit phase II proposals. For each phase I project funded the awardee

may apply for a phase II award only once. Phase I awardees who for

valid reasons cannot apply for phase II support in the next fiscal year

funding cycle may apply for support not later than the second fiscal

year funding cycle.

(c) Phase III is to stimulate technological innovation and the

national return on investment from research through the pursuit of

commercial objectives resulting from the work supported by SBIR funding

carried out in phases I and II. This portion of the project is

performed by the small business concern and privately funded or

Federally funded by a non-SBIR source through the use of a follow-on

funding commitment. A follow-on funding commitment is an agreement

between the small business concern and a provider of follow-on capital

for a specified amount of funds to be made available to the small

business concern for further development of their effort upon achieving

certain mutually agreed upon technical objectives during phase II.

[[Page 26171]]

Subpart C--Preparation and Submission of Proposals

Sec. 3403.5 Requests for proposals.

(a) Phase I. A program solicitation requesting phase I proposals

will be prepared each fiscal year in which funds are made available for

this purpose. The solicitation will contain information sufficient to

enable eligible applicants to prepare grant proposals and will include

descriptions of specific research topic areas which the Department will

support during the fiscal year involved, forms to be completed and

submitted with proposals, and special requirements. A notice will be

published in the Federal Register informing the public of the

availability of the program solicitation.

(b) Phase II. For each fiscal year in which funds are made

available for this purpose, the Department will send a letter

requesting phase II proposals from the phase I grantees eligible to

apply for phase II funding in that fiscal year. The letter will be

accompanied by the solicitation which contains information sufficient

to enable eligible applicants to prepare grant proposals and includes

forms to be submitted with proposals as well as special requirements.

Sec. 3403.6 General content of proposals.

(a) The proposed research must be responsive to one of the USDA

program interests stated in the research topic descriptions of the

program solicitation.

(b) Proposals must cover only scientific/technological research

activities. A small business concern must not propose product

development, technical assistance, demonstration projects, classified

research, or patent applications. Many of the research projects

supported by the SBIR program lead to the development of new products

based upon the research results obtained during the project. However,

projects that seek funding solely for product development where no

research is involved, i.e. the funds are needed to permit the

development of a project based on previously completed research, will

not be accepted. Literature surveys should be conducted prior to

preparing proposals for submission and must not be proposed as a part

of the SBIR phase I or phase II effort. Proposals principally for the

development of proven concepts toward commercialization or for market

research should not be submitted since such efforts are considered the

responsibility of the private sector and therefore are not supported by

USDA.

(c) A proposal must be limited to only one topic. The same proposal

may not be submitted under more than one topic. However, an

organization may submit separate proposals on the same topic. Where

similar research is discussed under more than one topic, the proposer

should choose that topic whose description appears most relevant to the

proposer's research concept. Duplicate proposals will be returned to

the applicant without review.

(d) The limitation on the length of phase I and phase II proposals,

text instructions, and the formatting instructions will be identified

in the annual solicitation.

Sec. 3403.7 Proposal format for phase I applications.

(a) The following items relate to phase I applications. Further

instructions or descriptions for these items as well as any additional

items to be included will be provided in the annual solicitation, as

necessary.

(1) Proposal cover sheet. Photocopy and complete Form CSREES-667 in

the program solicitation. The original of the proposal cover sheet must

at a minimum contain the pen-and-ink signatures of the proposed

principal investigator(s) and the authorized organizational official.

(2) Project summary. Photocopy and complete Form CSREES-668 in the

program solicitation. The technical abstract should include a brief

description of the problem or opportunity, project objectives, and a

description of the effort. Anticipated results and potential commercial

applications of the proposed research also should be summarized in the

space provided. Keywords, to be provided in the last block on the page,

should characterize the most important aspects of the project. The

project summary of successful proposals may be published by USDA and,

therefore, should not contain proprietary information.

(3) Technical content. The main body of the proposal should

include:

(i) Identification and significance of the problem or opportunity.

(ii) Background and rationale.

(iii) Relationship with future research or research and

development.

(iv) Phase I technical objectives.

(v) Phase I work plan.

(vi) Related research or research and development.

(4) Key personnel and bibliography. Identify key personnel involved

in the effort, including information on their directly related

education and experience.

(5) Facilities and equipment. Describe the types, location, and

availability of instrumentation and physical facilities necessary to

carry out the work proposed. Items of equipment to be purchased must be

fully justified under this section.

(6) Consultants. Involvement of university or other consultants in

the planning and research stages of the project is permitted and may be

particularly helpful to small firms which have not previously received

Federal research awards. If such involvement is intended, it should be

described in detail.

(7) Potential post application. Briefly describe:

(i) Whether and by what means the proposed research appears to have

potential commercial application;

(ii) Whether and by what means the proposed research appears to

have potential use by the Federal Government; and

(iii) Whether and by what means the proposed research will satisfy

the public interest.

(8) Current and pending support. If a proposal, substantially the

same as the one being submitted, has been previously funded or is

currently funded, pending, or about to be submitted to another Federal

agency or to USDA in a separate action, the proposer must provide the

following information:

(i) Name and address of the agency(s) to which a proposal was

submitted, or will be submitted, or from which an award is expected or

has been received.

(ii) Date of actual or anticipated proposal submission or date of

award, as appropriate.

(iii) Title of proposal or award, identifying number assigned by

the agency involved, and the date of program solicitation under which

the proposal was submitted or the award was received.

(iv) Applicable research topic area for each proposal submitted or

award received.

(v) Title of research project.

(vi) Name and title of principal investigator for each proposal

submitted or award received. USDA will not make awards that duplicate

research funded (or to be funded) by other Federal agencies.

(9) Cost breakdown on proposal budget. Photocopy and complete the

budget form in the program solicitation only for the phase under which

you are currently applying. (An applicant for phase I funding should

not submit both phase I and II budgets.)

(10) Research involving special considerations. If the proposed

research will involve recombinant DNA molecules, human subjects at

risk, or laboratory animal care, the proposal must so indicate and

include an

[[Page 26172]]

assurance statement (Form CSREES-662) as the last page of the proposal.

The original of the assurance statement must at a minimum contain the

pen-and-ink signature of the authorized organizational official. In

order to complete the assurance statement, the proposer may be required

to have the research plan reviewed and approved by an appropriate

``Institutional Review Board'' (IRB) prior to commencing actual

substantive work. If an IRB review is required, USDA will not release

funds for an award until proper documentation of the IRB approval is

submitted to and accepted by USDA. It is suggested that proposers

contact local universities, colleges, or nonprofit research

organizations which have established such reviewing mechanisms to have

this service performed.

(11) Proprietary information. (i) If a proposal contains

proprietary information that constitutes a trade secret, proprietary

commercial or financial information, confidential personal information,

or data affecting the national security, it will be treated in

confidence to the extent permitted by law, provided the information is

clearly marked by the proposer with the term ``confidential proprietary

information'' and provided the following legend appears in the

designated area at the bottom of the proposal cover sheet (Form CSREES-

667):

The following pages (specify) contain proprietary information

which (name of proposing organization) requests not be released to

persons outside the Government, except for purposes of evaluation.

(ii) USDA by law is required to make the final decision as to

whether the information is required to be kept in confidence.

Information contained in unsuccessful proposals will remain the

property of the proposer. However, USDA will retain for one year one

file copy of all proposals received; extra copies will be destroyed.

Public release of information for any proposal submitted will be

subject to existing statutory and regulatory requirements. Any proposal

which is funded will be considered an integral part of the award and

normally will be made available to the public upon request except for

designated proprietary information that is determined by USDA to be

proprietary information.

(iii) The inclusion of proprietary information is discouraged

unless it is necessary for the proper evaluation of the proposal. If

proprietary information is to be included, it should be limited, set

apart from other text on a separate page, and keyed to the text by

numbers. It should be confined to a few critical technical items which,

if disclosed, could jeopardize the obtaining of foreign or domestic

patents. Trade secrets, salaries, or other information which could

jeopardize commercial competitiveness should be similarly keyed and

presented on a separate page. Proposals or reports which attempt to

restrict dissemination of large amounts of information may be found

unacceptable by USDA. Any other legend than that listed in paragraph

(a)(11)(i) of this section may be unacceptable to USDA and may

constitute grounds for return of the proposal without further

consideration. Without assuming any liability for inadvertent

disclosure, USDA will limit dissemination of such information to its

employees and, where necessary for the evaluation of the proposal, to

outside reviewers on a confidential basis.

(12) Rights in data developed under SBIR funding agreement. The

SBIR legislation provides for ``retention of rights in data generated

in the performance of the contract by the small business concern.''

(i) The legislative history clarifies that the intent of the

statute is to provide authority for the participating agency to protect

technical data generated under the funding agreement, and to refrain

from disclosing such data to competitors of the small business concern

or from using the information to produce future technical procurement

specifications that could harm the small business concern that

discovered and developed the innovation until the small business

concern has a reasonable chance to seek patent protection, if

appropriate.

(ii) Therefore, except for program evaluation, participating

agencies shall protect such technical data for a period of not less

than 4 years from the completion of the project from which the data

were generated unless the agencies obtain permission to disclose such

data from the contractor or grantee. The government shall retain a

royalty-free license for government use of any technical data delivered

under an SBIR funding agreement whether patented or not.

(13) Organizational management information. Before the award of an

SBIR funding agreement, USDA requires the submission of certain

organizational management, personnel and financial information to

assure the responsibility of the proposer. This information is not

required unless a project is recommended for funding, and then it is

submitted on a one-time basis only. However, new information should be

submitted if a small business concern has undergone significant changes

in organization, personnel, finance, or policies including those

relating to civil rights.

(b) Reserved.

Sec. 3403.8(b) Reserved Proposal format for phase II applications.

(a) The following items relate to phase II applications. Further

instructions or descriptions for these items as well as any additional

items to be included will be identified in the annual solicitation, as

necessary.

(1) Proposal cover sheet. Follow instructions found in

Sec. 3403.7(a)(1).

(2) Project summary. Follow instructions found in

Sec. 3403.7(a)(2).

(3) Phase I results. The proposal should contain an extensive

section that lists the phase I objectives and makes detailed

presentation of the phase I results. This section should establish the

degree to which phase I objectives were met and feasibility of the

proposed research project was established.

(4) Proposal. Since phase II is the principal research and

development effort, proposals should be more comprehensive than those

submitted under phase I. However, the outline contained in

Sec. 3403.7(a)(3) should be followed, tailoring the information

requested to the phase II project.

(5) Cost breakdown on proposal budget. For phase II, a detailed

budget is required for each year of requested support. In addition, a

summary budget is required detailing the requested support for the

overall project period.

(6) Organizational management information. Each phase II awardee

will be asked to submit an updated statement of financial condition

(such as the latest audit report, financial statements or balance

sheet).

(7) Follow-on funding commitment. If the proposer has obtained a

contingent commitment for phase III follow-on funding, it should be

forwarded with the phase II application.

(8) Documentation of multiple phase II awards. (i) An applicant

that submits a proposal for a funding agreement for phase I and has

received more than 15 phase II awards during the preceding 5 fiscal

years, must document the extent to which it was able to secure phase

III funding to develop concepts resulting from previous phase II

awards. This documentation should include the name of the awarding

agency, date of award, funding agreement number, topic or subtopic

title, amount and date of phase II funding and commercialization status

for each phase II award.

(ii) USDA shall collect and retain the information submitted under

paragraph (a)(8)(i) of this section at least until the General

Accounting Office submits the report required under section 106 of the

[[Page 26173]]

Small Business Research and Development Enhancement Act of 1992.

(b) Reserved.

Sec. 3403.9(b) Submission of proposals.

The program solicitation for phase I proposals and the letter

requesting phase II proposals will provide the deadline date for

submitting proposals, the number of copies to be submitted, and the

address where proposals should be mailed or delivered.

Subpart D--Proposal Review and Evaluation

Sec. 3403.10 Proposal review.

(a) All research grant applications will be acknowledged.

(b) Phase I and phase II proposals will be judged competitively in

a two-stage process, based primarily upon scientific or technical

merit. First, each proposal will be screened by USDA scientists to

ensure that it is responsive to stated requirements contained in the

program solicitation. Proposals found to be responsive will be

technically evaluated by peer scientists knowledgeable in the

appropriate scientific field using the criteria identified in the

annual solicitation, as appropriate. Proposals found to be

nonresponsive will be returned to the proposing firm without review.

(c) Both internal and external peer reviewers may be used during

the technical evaluation stage of this process. Selections will be made

from among recognized specialists who are uniquely qualified by

training and experience in their respective fields to render expert

advice on the merit of proposals received. It is anticipated that such

experts will include those located in universities, Government, and

non-profit research organizations. If possible, USDA intends that peer

review groups shall be balanced with minority and female representation

and with an equitable age distribution.

(d) Technical reviewers will base their conclusions and

recommendations on information contained in the phase I or phase II

proposal. It cannot be assumed that reviewers are acquainted with any

experiments referred to within a proposal, with key individuals, or

with the firm itself. Therefore, the proposal should be self-contained

and written with the care and thoroughness accorded papers for

publication.

(e) Final decisions will be made by USDA based upon the ratings

assigned by reviewers and consideration of other factors, including the

potential commercial application, possible duplication of other

research, any critical USDA requirements, and budget limitation. In

addition, the follow-on funding commitment will be a consideration for

phase II proposals. In the event that two or more phase II proposals

are of approximately equal technical merit, the follow-on funding

commitment for continued development in phase III will be an important

consideration. The value of the commitment will depend upon the degree

of commitment made by non-Federal investors, with the maximum value

resulting from a signed agreement with reasonable terms for an amount

at least equal to the funding requested from USDA in phase II.

Sec. 3403.11 Availability of information.

Information regarding the peer review process will be made

available to the extent permitted under the Freedom of Information Act

(5 U.S.C. 552), the Privacy Act (5 U.S.C. 552a), the SBIR Policy

Directive, and implementing Departmental and other Federal regulations.

Implementing Departmental regulations are found at 7 CFR part 1.

Subpart E--Supplementary Information

Sec. 3403.12 Terms and conditions of grant awards.

Within the limit of funds available for such purpose, the awarding

official shall make research project grants to those responsible,

eligible applicants whose proposals are judged most meritorious in the

announced program areas under the evaluation criteria and procedures

set forth in the annual solicitation. The beginning of the project

period shall be no later than September 30 of the Federal fiscal year

in which the project is approved for support. All funds granted under

this part shall be expended solely for the purpose for which the funds

are granted in accordance with the approved application and budget, the

regulations of this part, the terms and conditions of the award, the

Federal Acquisition Regulation (48 CFR part 31), and the Department's

Uniform Federal Assistance Regulations (7 CFR part 3015).

Sec. 3403.13 Notice of grant awards.

(a) The grant award document shall include, at a minimum, the

following:

(1) Legal name and address of performing organization.

(2) Title of project.

(3) Name(s) and address(es) of the Principal Investigator(s).

(4) Identifying grant number assigned by the Department.

(5) Project period, which specifies how long the Department intends

to support the effort.

(6) Total amount of Federal financial assistance approved for the

project period.

(7) Legal authorities under which the grant is awarded.

(8) Approved budget plan for categorizing project funds to

accomplish the stated purpose of the grant award.

(9) Other information or provisions deemed necessary by the

Department to carry out its granting activities or to accomplish the

purpose of a particular research project grant.

(b) The notice of grant award, in the form of a letter, will

provide pertinent instructions and information to the grantee which are

not included in the grant award document described in paragraph (a) of

this section.

Sec. 3403.14 Use of funds; changes.

(a) Delegation of fiscal responsibility. The grantee may not in

whole or in part delegate or transfer to another person, institution,

or organization the responsibility for use or expenditure of grant

funds.

(b) Change in project plans. (1) The permissible changes by the

grantee, principal investigator(s), or other key project personnel in

the approved research project grant shall be limited to changes in

methodology, techniques, or other aspects of the project to expedite

achievement of the project's approved goals. If the grantee and/or the

principal investigator(s) are uncertain as to whether a change complies

with this paragraph, the question must be referred to the Authorized

Departmental Officer (ADO) for a final determination.

(2) Changes in approved goals, or objectives, shall be requested by

the grantee and approved in writing by the ADO prior to effecting such

changes. In no event shall requests for such changes be approved which

are outside the scope of the original approved project.

(3) Changes in approved project leadership or the replacement or

reassignment of other key project personnel shall be requested by the

grantee and approved in writing by the ADO prior to effecting such

changes.

(4) Transfers of actual performance of the substantive programmatic

work in whole or in part and provisions for payment of funds, whether

or not Federal funds are involved, shall be requested by the grantee

and approved in writing by the ADO prior to effecting such transfers.

(c) Changes in project period. The project period may be extended

by the ADO to complete or fulfill the purposes of an approved project

provided Federal funds remain. The extension shall be conditioned upon

a prior request by the grantee and approval in writing by the

[[Page 26174]]

ADO. In such cases the extension will not normally exceed 12 months,

the phase I award will still be limited to the approved award amount,

and the submission of a Phase II proposal will be delayed by one year.

The extension allows the grantee to continue expending the remaining

Federal funds for the intended purpose over the extension period. In

instances where no Federal funds remain, it is unnecessary to approve

an extension since the purpose of the extension is to continue using

Federal funds. The grantee may opt to continue the Phase I project

after the grant's termination and closeout, however, the grantee would

have to do so without additional Federal funds. In the latter case, no

communication with USDA is necessary. However, the maximum delay for

submission of a Phase II proposal remains as specified in

Sec. 3403.4(b).

(d) Changes in approved budget. Changes in an approved budget shall

be requested by the grantee and approved in writing by the ADO prior to

instituting such changes if the revision will:

(1) Involve transfers of amounts budgeted for indirect costs to

absorb an increase in direct costs;

(2) Involve transfers of amounts budgeted for direct costs to

accommodate changes in indirect cost rates negotiated during a budget

period and not approved when a grant was awarded;

(3) Result in a need or claim for the award of additional funds; or

(4) Involve transfers or expenditures of amounts requiring prior

approval as set forth in the Departmental regulations or in the grant

award.

Sec. 3403.15 Other Federal statutes and regulations that apply.

Several other Federal statutes and/or regulations apply to grant

proposals considered for review or to research project grants awarded

under this part. These include but are not limited to:

7 CFR Part 1--USDA implementation of Freedom of Information Act.

7 CFR Part 1c--USDA implementation of the Federal Policy for the

Protection of Human Subjects;

7 CFR Part 3--USDA implementation of OMB Circular A-129,

Managing Federal Credit Programs.

7 CFR Part 15, Subpart A--USDA implementation of Title VI of the

Civil Rights Act of 1964, as amended.

7 CFR Part 3015--USDA Uniform Federal Assistance Regulations,

implementing OMB directives where applicable (i.e., Circular Nos. A-

102, A-110, A-87, A-21, and A-122) and incorporating the Federal

Grant and Cooperative Agreement Act of 1977, Pub. L. 95-224), as

well as general policy requirements applicable to recipients of

Departmental financial assistance.

7 CFR Part 3017, as amended--USDA implementation of

Governmentwide Debarment and Suspension (Nonprocurement) and

Governmentwide Requirements for Drug-free Workplace (Grants), as

amended.

7 CFR Part 3018--USDA implementation of New Restrictions on

Lobbying. Imposes new prohibitions and requirements for disclosure

and certification related to lobbying on recipients of Federal

contracts, grants, cooperative agreements, and loans.

7 CFR Part 3407--CSREES procedures to implement the National

Environmental Policy Act;

9 CFR Parts 1, 2, 3, and 4--USDA implementation of the Act of

August 24, 1966, Public Law 89-544, as amended (commonly known as

the Laboratory Animal Welfare Act).

48 CFR Part 31--Contract Cost Principles and Procedures of the

Federal Acquisition Regulation.

29 U.S.C. 794, section 504--Rehabiliation Act of 1973, and 7 CFR

Part 15B (USDA implementation of statute), prohibiting

discrimination based upon physical or mental handicap in Federally

assisted programs.

35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of

rights to inventions made by employees of small business firms and

domestic nonprofit organizations, including universities, in

Federally assisted programs (implementing regulations are contained

in 37 CFR Part 401).

Sec. 3403.16 Other conditions.

The Department may, with respect to any research project grant,

impose additional conditions prior to or at the time of any award when,

in the Department's judgment, such conditions are necessary to assure

or protect advancement of the approved project, the interests of the

public, or the conservation of grant funds.

Done at Washington, D.C., this 5th day of May 1997.

Colien Hefferan,

Associate Administrator, Cooperative State Research, Education, and

Extension Service

[FR Doc. 97-12153 Filed 5-9-97; 8:45 am]

BILLING CODE 3410-22-P