Services Business Heats UpLarge primes are teaming up to integrate developed prototypes By Robert Deller, Contributing Writer The Clinton administration is bullish on research and develop

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Services Business Heats Up

Large primes are teaming up to integrate developed prototypes

By Robert Deller, Contributing Writer

The Clinton administration is bullish on research and development. It actively promotes R&D as a necessary federal
program, and budget dollars appear to support campaign promises by the administration.

In his budget message last year, President Clinton reminded the nation that at least half of the country's productivity growth over the last 50 years was directly attributable to scientific and technology advancement, implying growth from research and development. All areas of research and development will not receive increases in funding. The defense agencies and military services have seen R&D budgets level off over the last three years. Other areas will experience spending growth to represent a program priority shift to civilian agencies, particularly in health and law enforcement. Growth over the past three years is not dramatic (see accompanying chart), but shifts in emphasis between agencies show where the Clinton administration believes that growth should occur.

University R&D business has grown to $12 billion, an increase of 8 percent since 1993. The annual growth rate for information technology over the same period has declined from 6 percent to 4 percent. This increase in university R&D could represent competition for infotech vendors and for federally funded research and development centers if the university community opportunity addresses developmental needs.

The research centers have been very active in the federal government R&D market for more than 50 years. However, competition for services business is increasing with large prime contractors offering research or teaming relationships to integrate developed prototypes. Lobbying pressures are forcing federal agencies, particularly within defense environments, to openly compete R&D work. Congress has taken up the issue under the aegis of reduced spending and research centers; winners of a great deal of sole-source business in the past must now compete on price points, as well as value.

Most defense R&D programs are located in military laboratories. The business focus of military laboratories is changing. Many are maintaining a commercial profile to be competitive with the private sector, both for products and for services.

Contractors interested in supporting R&D requirements within the Defense Department have several different business areas to address. These areas are highly publicized, and specific information on any of them can be found on DoD electronic bulletin boards or on DoD's Internet site. Most important among these areas are the Technology Reinvestment Project, the Small Business Technology Transfer Program and the Small Business Innovation Research Program.

The DoD announced in spring 1996 that through the Small Business Innovation Research Program, it was offering $450 million in contract funds to conduct R&D projects that would have the potential for commercialization in the private sector or in military markets. Two solicitations will be released each year through a streamlined procurement process. Small companies will be invited to apply for a $100,000 short-term feasibility phase, followed by up to $750,000 to develop an accepted concept through a prototype phase.

Congress has been supportive of the R&D tax credit program. The House Committee on Science promised incentives to industry to participate in government R&D activities. While pure research should be supported by government, industry could benefit from a reuse program and commercializing technologies developed in support of government programs.

The present politics in this country appear to favor continued growth in R&D spending. Without strong lobbying by the R&D community at the congressional level, healthy growth in the market is unlikely to continue.

Robert Deller is an industry analyst with Global Systems & Strategies Inc., Vienna, Va. He can be reached at bdeller@gss-inc.com

President's Fiscal 1997 Budget Authority for R&D Spending

(in billions)

FY95 FY96 FY97
Defense 35.4 35.4 35.5
HHS 11.5 12.1 12.6
NASA 9.4 9.3 9.4
Energy 6.5 6.7 6.3
NSF 2.4 2.4 2.5
USDA 1.5 1.5 1.5
Commerce 1.2 1.1 1.3
Interior 0.7 0.6 0.6
Transportation 0.7 0.6 0.7
EPA 0.6 0.5 0.6
Other 1.3 1.1 1.8
Total 71.1 71.5 72.7
Source: President's Budget for 1997

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