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BIOGRAPHY FOR PHILLIP J. BOND
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Phillip J. Bond was sworn in as Under Secretary of Commerce for Technology on October 30, 2001. He was nominated by President George W. Bush on September 4, and confirmed by the United States Senate on October 23, 2001.
Secretary of Commerce Donald Evans announced on January 22, 2002, that he had selected Bond to serve concurrently as his Chief of Staff, replacing Laurie Fenton who would be returning to the private sector.
In making the announcement, Secretary Evans pointed to Bond's proven track record as an effective manager and strategic thinker, and a strong leader in crucially important technology policy. The Secretary added that he viewed technology policy as a top priority in his mission to advocate for American business at home and abroad, and that Bond's appointment ensures that the Department will continue to focus on technology as a vital component of our nation's economy.
Since October 2001, Under Secretary Bond has served as the principal advisor to Secretary Evans on science and technology policy to maximize technology's contribution to America's economic growth. In this context, Mr. Bond's primary responsibilities have been to supervise policy development and direction among the Office of Technology Policy (OTP), the National Institute of Standards and Technology (NIST), the National Technical Information Service (NTIS), the Office of Space Commercialization (OSC), and other areas within Commerce. He also serves on four committees of the President's National Science and Technology Council (NSTC), a Cabinet-level council established by the President to coordinate science, space, and technology policy within the Federal research and development enterprise.
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One of Mr. Bond's top priorities is to transform the Technology Administration into the pre-eminent portal to the Federal Government for the U.S. technology industry. In that regard, he directs efforts of TA to advocate on behalf of U.S. technology in the federal policy-making process.
His experience in the private sector includes serving as Director of Federal Public Policy for Hewlett-Packard Company, a position he held immediately before joining Commerce, and previously serving as Senior Vice President for Government Affairs and Treasurer of the Information Technology Industry Council.
From 1993 to 1998, Phil Bond served as Chief of Staff to Congresswoman Jennifer Dunn (R–WA). He was Principal Deputy Assistant Secretary of Defense for Legislative Affairs from 1992 to 1993 for then-Defense Secretary Dick Cheney. Earlier, he was Chief of Staff and Rules Committee Associate for Congressman Bob McEwen (R–OH) from 1990 to 1992. From 1987 to 1990, he served as Special Assistant to the Secretary of Defense for Legislative Affairs. He is a graduate of Linfield College in Oregon.
ANSWERS TO POST-HEARING QUESTIONS
Responses by Phillip J. Bond, Under Secretary of Commerce for Technology, and Chief of Staff to the Secretary of Commerce
Q1. Your testimony mentions that the Technology Administration is chairing an interagency group working to improve the implementation of technology transfer practices. What agencies are included in this working group, and what are its specific goals?
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A1. The Department of Commerce has played an important role in the development and evolution of federal technology transfer laws and that role is the basis for the work of the Interagency Committee and Working Group on Technology Transfer. The Interagency Working Group on Technology Transfer is composed of senior managers from the agencies and departments who are responsible for technology transfer. Ten federal departments (listed below) have activities that include significant federal lab operations with programs for transferring internally-generated technology. Each of these departments has at least one representative to the interagency working group.
Department of Agriculture (USDA)
Department of Commerce (DOC)
Department of Defense (DOD)
Department of Energy (DOE)
Environmental Protection Agency (EPA)
Department of Health and Human Services (HHS)
Department of the Interior (DOI)
National Aeronautics and Space Administration (NASA)
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Department of Transportation (DOT)
Department of Veterans Affairs (VA)
The goal of the interagency working group is to facilitate technology transfer from the federal laboratories and research organizations to the private sector by providing a mechanism to harmonize federal agency procedures and practices and by providing information and recommendations about federal technology transfer to Congress and the Administration.
The Interagency group was created following passage of the Federal Technology Transfer Act in 1986. Secretary Baldrige invited other agencies involved in research to become members of the Interagency Committee of Technology Transfer, a group created to carry out the Department's responsibilities under that law. The Committee is formed of Assistant Secretary-level representatives from the various agencies and departments and chaired by the Technology Administration's Assistant Secretary for Technology Policy. The work of the committee is generally done through the Interagency Working Group on Technology Transfer, which is composed of senior managers from the agencies and departments who are responsible for technology transfer.
Q2. Your testimony mentions that the Technology Administration is leading discussions with many parties on what issues and challenges the U.S. faces in trying to remain the global leader on technology development. Who is participating in these discussions and will Congress be involved in these discussions? How will the results from those discussions feed into new policies?
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A2. The Technology Administration regularly engages industry, academia and government on the issues and challenges the U.S. faces in maintaining global technology leadership. We do this by organizing meetings or seminars with key stakeholders, participating in conferences and meetings that others convene, and consulting with experts. For example, in 2002 the Technology Administration hosted a series of roundtables on ''Innovation in America'' to hear directly from corporate, university and federal research and development leaders about the strengths of the U.S. innovation system and areas that need improvement. The next step is to examine the results of the three roundtables and identify key or common issues that may require further analysis or policy change. The Technology Administration intends to consult with stakeholders, including Congress, on these issues.
Last fall and winter, the Technology Administration organized eight roundtables around the United States to discuss with information technology workers, employers, trainers and educators the challenges they face in meeting the Nation's demand for information technology workers. Findings from the roundtables will be incorporated in TA's upcoming report on the information technology workforce. Since the beginning of May 2002, Technology Administration officials have engaged industry and others on policy issues through speeches at five conferences dealing with U.S. innovation, nanotechnology, security, e-commerce, and convergence.
In addition, Technology Administration officials meet regularly with senior policy-makers from foreign governments concerned with developing technology and innovation in their countries. These meetings provide an important opportunity to learn what others are doing and to improve their technology competitiveness vis-à-vis the United States.
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Q3. In Chris Hill's testimony, he points out the merit of having universities lead Advanced Technology Program (ATP) grants, but also issues a warning that industry must continue to have substantial financial and technical participation. The report the Administration has put forward on the ATP reforms makes the same point. What is the best way to ensure this balance?
A3. The Advanced Technology Program was created to fund government-industry partnerships to support the development of new technologies with potential applications across the American economy. Since its establishment in 1988, the role of the University has evolved. American universities have become increasingly active in undertaking sophisticated commercially-focused, high-risk research and much research makes its way to the market through such diverse vehicles as incubation programs, spin-off companies, and technology transfer efforts.
While it is acknowledged that certain universities have the proven capacity to move fledgling technologies from the laboratory to the marketplace, it is critical that the ATP continues to be industry-driven. Research priorities of ATP must continue to be set by industry and it is critical that for-profit companies play a substantial role in conceiving, proposing, co-funding, and executing every ATP project based on their understanding of the marketplace and research opportunities. The proposal advanced in the reform package adequately maintains this delicate balance. It allows universities to lead joint ventures (universities as single applicant awardees would still be precluded), while requiring substantial industry involvement (i.e., two or more for-profit companies must also participate).
Q4. The Secretary of Commerce has proposed that ATP collect royalties on gross revenues from products or inventions developed with support of the program. What are some other examples where the Federal Government has collected royalties and how successful have these efforts been?
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A4. We are aware of two prominent programs operated by the Federal Government that have had collected royalties: the Department of Energy's Clean Coal Technology Program, which has included cost-recovery provisions in each of the five separate funding solicitations conducted from 1986 to the present; and the Department of Defense (DOD) that historically required recoupment of a proportionate amount of the non-recurring costs of research, development and production for major defense equipment exports. In 1995, the DOD recoupment charges, intended to reimburse the U.S. Government for a proportionate share of its investment in weapons sold, became subject to a statutory waiver on a case-by-case basis.
While the amount of financial reimbursement received under each of these programs is not readily available, a General Accounting Office (GAO) report entitled Opportunities Exist to Recover Federal Investment in Technology Development Projects, dated June 1996, found that as of the report date, DOE funded more than 40 projects associated with the clean coal technology program. Three of the projects with a Federal investment of about $36.2 million had progressed to the repayment phase and DOE had received payments totaling about $377 thousand for these projects.
Q5. To what extent is the Administration considering adding recoupment provisions to other federal programs, which have the potential to develop commercializable products such as the Small Business Innovative Research program on NIH funded research?
A5. Currently, the Department of Commerce has no plans to introduce recoupment provisions for any other program.
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Q6. In Chris Hill's testimony, he points out that the recoupment proposal would give the government the incentive to move away from high-risk projects into low-risk ones where the government could more easily recover its investment. How would the Administration ensure that this does not happen?
A6. The criteria for ATP awards are Scientific and Technological Merit, and Potential for Broad-Based Economic Benefits. The recoupment proposal advanced in the Secretary's reform package does not change either of these. Rather, the proposal simply asserts that if a firm is successful, then 5 percent of gross revenues derived from the product or invention should be paid as an annual royalty to ATP.
To maintain the integrity of the project selection process and adherence to the criteria, i.e., that all projects are high-risk, yet feasible, ATP will continue to rely on one of its hallmarks: the rigorous competitive peer-review process. This process has been hailed by the National Academy of Science as supporting ''its goal of helping advance promising new technologies that are unlikely to be funded through the normal operation of capital markets.'' Since the Program's inception in 1990, every dollar of ATP funding has been awarded through such a peer-review process and strictly on the basis of technical and business merit. Political considerations are not criteria of any sort in ATP awards and the recoupment reforms advanced in the Secretary's package will not change this.
Q7. What is the Administration's response to Mr. Wojcicki who states in his testimony that the state centers and the network may collapse without federal funding?
A7. MEP has been a very successful program and demand for its services continues to increase. We believe that many MEP centers will continue to exist in the absence of Federal funding because of the value of the program to the states and to the small manufacturer. As a result, small businesses will continue to receive the expertise and assistance from the centers. This continued assistance will help small manufacturers remain competitive. To offset the loss of Federal funding, centers could increase fees. Large manufacturers that depend on smaller companies may also wish to provide support to MEP centers to ensure the continuing success of their smaller suppliers. Given the centers' success in improving productivity and efficiency, increasing fees for service should be the direction in which the program heads.
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BIOGRAPHY FOR ARDEN L. BEMENT, JR.
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Arden L. Bement, Jr., was sworn in as the 12th director of NIST on Dec. 7, 2001. Bement oversees an agency with an annual budget of about $819 million and an onsite research and administrative staff of about 3,000, complemented by a NIST-sponsored network of 2,000 locally managed manufacturing and business specialists serving smaller manufacturers across the United States. Prior to his appointment as NIST director, Bement served as the David A. Ross Distinguished Professor of Nuclear Engineering and head of the School of Nuclear Engineering at Purdue University. He has held appointments at Purdue University in the schools of Nuclear Engineering, Materials Engineering, and Electrical and Computer Engineering, as well as a courtesy appointment in the Krannert School of Management. He was director of the Midwest Superconductivity Consortium and the Consortium for the Intelligent Management of the Electrical Power Grid.
Bement came to his position as NIST director well versed in the workings of the agency, having previously served as head of the Visiting Committee on Advanced Technology, the agency's primary private-sector policy adviser; as head of the advisory committee for NIST's Advanced Technology Program; and on the Board of Overseers for the Malcolm Baldrige National Quality Award.
Bement joined the Purdue faculty in 1992 after a 39-year career in industry, government, and academia. These positions included: vice president of technical resources and of science and technology for TRW Inc. (1980–1992); deputy under secretary of defense for research and engineering (1979–1980); director, Office of Materials Science, DARPA (1976–1979); professor of nuclear materials, MIT (1970–1976); manager, Fuels and Materials Department and the Metallurgy Research Department, Battelle Northwest Laboratories (1965–1970); and senior research associate, General Electric Co. (1954–1965).
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Along with his NIST advisory roles, Bement served as a member of the U.S. National Science Board, the governing board for the National Science Foundation, from 1989 to 1995. He also chaired the Commission for Engineering and Technical Studies and the National Materials Advisory Board of the National Research Council; was a member of the Space Station Utilization Advisory Subcommittee and the Commercialization and Technology Advisory Committee for NASA; and consulted for the Department of Energy's Argonne National Laboratory and Idaho Nuclear Energy and Environmental Laboratory.
He has been a director of Keithley Instruments Inc. and the Lord Corp. and was a member of the Science and Technology Advisory Committee for the Howmet Corp. (a division of ALCOA).
Bement holds an engineer of metallurgy degree from the Colorado School of Mines, a Master's degree in metallurgical engineering from the University of Idaho, a doctorate degree in metallurgical engineering from the University of Michigan, an honorary doctorate degree in engineering from Cleveland State University, and an honorary doctorate degree in science from Case Western Reserve University. He is a member of the U.S. National Academy of Engineering.
ANSWERS TO POST-HEARING QUESTIONS
Responses by Arden L. Bement, Jr., Director, National Institute of Standards and Technology
Q1. Your testimony states that NIST is playing a key role in preventing terrorism through more than 75 projects. What is the total cost of these projects? And to what extent does the Office of Management and Budget consider them homeland security initiatives?
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A1. A more comprehensive analysis of NIST's investment in Homeland Security shows approximately 120 ongoing and newly initiated research and standards development projects totaling approximately $60 million (approximately $40 million NIST direct-appropriated and $20 million funded by other agencies).
In addition, NIST has received $5 million as part of the FY02 Department of Defense and Emergency Supplemental appropriation (does not recur in the President's FY 2003 request), which is being used to develop and implement--
web-based system for integrating standardized sensor networks of remote monitoring, control, and communications.
new security systems for wireless networks.
new intrusion-detection technologies
new self-correcting repair technologies for systems compromised by cyber-attacks
IT security applications to protect electric power grids
Internet infrastructure protection technologies.
extensions to NIST-developed, industry-standard building control system architecture so that building supervisory security systems can detect, report, and if necessary, neutralize unauthorized tampering which could threaten the safety of building systems and occupants.
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In the Homeland Security Supplemental that the Congress is currently considering, NIST has proposed several homeland security initiatives. The proposals are: $1 million to develop a standard for biometric identification (U.S.A. Patriot Act); $2 million for security upgrades at NIST's Cold Neutron Research Facility; $1 million to develop measurements and standards for chemical, biological, radiological, nuclear, and explosive threat detection; and within FEMA's Disaster Relief Appropriation Account $16 million has been requested for transfer to NIST to fund the comprehensive investigation into the collapse of the World Trade Center Buildings.
NIST has Homeland Security initiatives proposed for FY03 as follows:
$2 million as part of a public/private partnership to develop the standards, technology, and practices to cost-effectively improve the safety of buildings, occupants, and emergency first responders;
$2 million to strengthen the security of critical infrastructures, including computer systems controlling utilities and building supervisory control systems; and
$1 million to fund program development and administrative costs for NIST's Computer Security Expert Assist Team (CSEAT) to help federal agencies identify and fix their information system vulnerabilities on a reimbursable basis.
Q2. How is NIST research and development on homeland security coordinated with other agencies? What mechanism does NIST use to ensure that intramural research is applied to homeland security efforts by other agencies?
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A2. NIST ensures that its homeland security research and measurement efforts are coordinated with other agencies through two main mechanisms:
a. NIST collaborates closely with other agencies to determine how NIST can best address the homeland security research and measurement needs of the agencies. This collaboration includes direct interactions with individual agencies on specific activities and participation in working groups, committees, and other groups. In both cases, NIST and the other agencies jointly discuss and prioritize how NIST research, measurements, and standards can best help the other agencies fulfill their homeland security missions.
Examples of NIST homeland security work conducted in collaboration with other agencies through direct consultation or through working groups:
With the Armed Forces Radiobiology Research Institute and the U.S. Postal Service, NIST is one of the three key agencies participating in the Office of Science & Technology Policy's Technical Task Force on Mail Decontamination. Through this coordination effort, roles appropriate to the expertise and resources available to each agency have been assigned. The results have enabled all potentially contaminated first class mail from the Trenton and Brentwood facilities to be sterilized and delivered. As of a recent count, 21 million pieces of first class mail addressed to sensitive DC area zip codes have been irradiated as part of an ongoing precautionary measure. NIST has been providing the U.S. Postal Service with technical assistance on the design for an accelerator for decontaminating mail in the DC area. And NIST has been involved in the quantitative analysis of volatile organic chemicals and other potential irritants produced in mail packages during irradiation processing.
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In conjunction with the Architect of the Capital and the Environmental Protection Agency (EPA) Emergency Response Team, NIST experts in ventilation systems and air quality used a sophisticated NIST-developed computer model to understand how anthrax spores propagated through the Hart Senate Office Building in October 2001. The results were used to plan sampling throughout the building and to plan decontamination strategies.
Through the ''USA Patriot Act'' (P.L. 107–56; 2) NIST will work with the Justice and State Departments to certify a technology standard to verify persons applying for visas and persons entering the U.S. using visas.
In October 1998, the Attorney General sanctioned the creation of an InterAgency Board (IAB) for Equipment Standardization and Interoperability to establish and coordinate federal, state, and local standardization/interoperability for responder safety and to prepare for, respond to, mitigate, and recover from CBRNE incidents by identifying requirements for incident response equipment. NIST's Office of Law Enforcement Standards is charged as the Executive Agent for the IAB. Through NIST's work on CBRNE equipment standards, NIST has established coordinating relationships with agencies including the National Institute for Occupational Safety and Health (NIOSH), the Occupational Safety and Health Administration (OSHA), the National Institute of Justice (NIJ), the Federal Emergency Management Agency (FEMA), the EPA, and the U.S. Army Soldier Biological and Chemical Command.
NIST serves as the Secretariat and participates in the Executive Branch Information Systems Security Committee. This committee is chaired by the Office of Management and Budget as part of the President's Critical Infrastructure Protection Board. The committee, which focuses on unclassified Federal systems security, is composed of representatives from the Federal security, program management, IG, financial, and CIO communities.
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In coordination with the National Security Agency, NIST develops and validates protection profiles that are used by independent laboratories to evaluate security products. Those evaluated products are listed on a NIST National Infrastructure Assurance Partnership (NIAP) website for Federal agencies to use in selecting security products.
NIST's Computer Security Expert Assist Team (CSEAT) has worked with the Federal Emergency Management Agency and the Department of Interior to review the maturity of their computer security efforts against a specific set of criteria. NIST provided these organizations with a prioritized action plan that they can use to improve their agency's computer security maturity level. The use of this NIST service is currently being contemplated by several other Federal agencies.
NIST provides numerous computer security guidelines that are available to other Federal agencies and briefed at meetings with computer security representatives. In addition, commercial cryptographic modules are validated to a NIST standard by independent laboratories. Validated modules are listed on a NIST website. Federal agencies can use this list to make informed choices when selecting such modules for use within the agencies.
NIST participates in numerous federal agency groups relevant to Homeland Security. Among them are the: Federal Public Key Infrastructure Steering Committee, Federal Computer Security Managers' Forum, Federal Chief Information Officers' Council, Department of Commerce's Homeland Security/Critical Infrastructure Protection Coordinating Group, and the Computer Systems Security & Privacy Advisory Board.
b. Other agencies contract with NIST to provide specific research, measurements, and standards the agencies need to fulfill their homeland security missions. Such NIST work is automatically aligned with the agency needs.
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Examples of NIST homeland security work conducted on contract to other agencies. In FY 2002, NIST expects to conduct approximately $20 million of homeland security on contract to other agencies, including:
NIST's Office of Law Enforcement Standards has a long-standing partnership with the National Institute of Justice. One of the efforts that is part of this partnership is the development of a series of Emergency First Responder Equipment Guides. These guides cover topics such as selection of personal protective equipment, selection of chemical agent and toxic industrial material detection equipment, and other areas particularly relevant to first responders. These guides are available at http://www.ojp.usdoj.gov/nij/new.htm (scroll down to the First Responder Equipment Guides).
FEMA has engaged NIST in a variety of efforts stemming from the World Trade Center collapse. Among those efforts have been NIST contributions to the building performance assessment report released at the end of April, as well as NIST work to compare the strictest building and fire codes among relevant local, state, and national codes. Currently FEMA and NIST are engaged in the planning for a full-scale investigation of the probable technical cause of the buildings collapse.
In October 2001, a NIST expert in building and fire research participated in an on-site survey of the Pentagon structural and fire damage as part of a team organized by the American Society of Civil Engineers and led by the U.S. Army Corps of Engineers. The Army Corps of Engineers subsequently funded a team of NIST experts to review and evaluate the performance of the Pentagon's structural system under fire, the ability of its heating and ventilating system to control smoke movement, and the response of its fire protection systems to the attack and subsequent fires. In early November, building and fire experts from NIST reported to the U.S. Army Corps of Engineers NIST's findings and recommendations for rebuilding and retrofitting the Pentagon.
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NIST experts in DNA analysis have worked with scientists from the Armed Forces Institute of Pathology (AFIP) to discuss details of a specialized DNA analysis technique that AFIP is using to identify remains of victims at the Pentagon and Pennsylvania crash sites. NIJ officials also contacted NIST scientists for consultation on DNA analysis of human remains from the World Trade Center. The large number of victims and degraded condition of tissue samples from the World Trade Center attack pose particular problems for forensic DNA typing, which is typically a slow, manual process. NIST is testing a new technique for using smaller portions of DNA at specific chromosome sites. The technique may allow many more tissue samples to be matched successfully against those of suspected victims than is currently possible.
At present, in the event of a chemical terrorism attack, urine and blood samples would be shipped to Centers for Disease Control and Prevention (CDC) for analysis to determine what agents were used, who was exposed, and how much exposure occurred. The CDC would not be able to handle so many samples in a short time and would need the assistance of other laboratories. NIST is working with the CDC toward the development of a Quality Assurance/Proficiency Assessment program for the ''Chemical Counter-Terrorism Laboratory Network'' which will initially be comprised of the state public health laboratories of VA, NY, NM, CA, and MI, as well as the CDC. In this program, NIST will work with CDC in the development and critical evaluation of reference methods for biomarkers of exposure to chemical agents. NIST will also develop urine and blood-based Standard Reference Materials and conduct Interlaboratory comparison exercises among CDC and the State Labs to assure that results from such analyses would be fit-for-purpose and their quality source-independent.
Matrix Assisted Laser Desorption Ionization followed by Time of Flight Mass Spectral analysis (MALDI–TOF) is a technique being developed for the rapid identification of biological agents (bacteria and viruses). At present these identifications require a high level of training and are subject to severe individual judgment error. In conjunction with NIST-performed MALDI–TOF development work funded by the Defense Threat Reduction Agency (DTRA), NIST has undertaken a project to develop and thoroughly test methods for automating the identification process. The results will be embedded into end-user packages that will allow users to take advantage of the full range of NIST technologies without specific training.
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Q3. How much funding has the Advanced Technology Program provided for what you would consider homeland security projects? And what technologies were the projects focused on developing?
A3. Since its inception, ATP has obligated approximately $244M (through April, 2002) for projects with primary commercial relevance to the detection of, protection from, preparation for, and response to potential terrorist threats against our Nation and its people. ATP has funded areas in technologies applicable to equipment for use in detecting and monitoring the release of biological, chemical, and radiological hazards.
We have funded projects for the development of technologies aligned with the critical protection of our civil and public health infrastructure, including data management infrastructure; modeling of the human immune system in animals; more efficient bioreactors; next generation vaccines; and technologies for the purification and transport of water. ATP has also funded research in technologies with application to cyber security and computer infrastructure protection; forgery antidotes for counterfeiting; fault tolerance; and a laser-based system that will authenticate product labels.
Q4. Why does the Administration's Budget assume only $30 million in new awards from the Advanced Technology Program for this fiscal year when Congress set aside $60 million for this purpose?
A4. The Advanced Technology Program announced its FY 2002 competition on April 18. ATP began accepting proposals on April 22, 2002. The ATP has established the following three due dates for submission of proposals: June 10, 2002; July 31, 2002; and September 30, 2002. To be considered for funding in fiscal year 2002, potential proposers must submit their proposals by the first due date of June 10, 2002.
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Congressional Fiscal Year 2002 appropriations included funds not to exceed $60.7 million for new awards. Because ATP is now funding applications on a rolling basis, some portion of this may be used for new awards submitted pursuant to the procedures established for the FY 2001 competition and similarly a portion may be used for applications submitted under FY 2003 competition.
Q5. Your testimony outlines the specific projects that are included in the $17 million request to upgrade NIST facilities at Boulder, Colorado. Beyond this request, what is NIST's long-term plan to modernize these facilities, and what projects are included in this plan?
A5. Elements of NIST's Boulder Construction Plan are reflected in the President's FY03 Budget submission to Congress. In particular, the budget requests $11.8M for the first phase of a new Central Utility Plant (CUP) as well as $5.5M for the installation of a new Primary Electrical Service. NIST's phase two plan for the CUP will cost approximately $22.6 million.
The current Boulder Renovation plan, subject to future budget priorities over the next ten years, calls for the renovation of Building 1 (multiple wings), Building 2, and Building 4.
Q6. How would NIST overcome the administration and accounting difficulties inherently associated with the recoupment provision that is part of the Administration reforms for the Advanced Technology Program? Based on past experience with ATP grants, how much funding would the ATP program receive if it was adopted? In the Department report, you list 168 technologies that have been commercialized through 2000. What is your estimate of the revenue that would have been generated from these projects? You also cite DOE's Clean Coal Technology Program as another federal program that requires recoupment. How much revenue has been recouped by DOE for this program?
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A6. The cost recovery reform provision advanced by the Secretary is expected to apply only to ATP projects funded after the legislation is passed and only after the ATP-funded technologies have completed their development phase, begun commercialization, and generated actual revenues. This will likely be several years off. By that time, NIST will need to have some additional infrastructure in place to monitor product revenues and enforce compliance with the cost recovery statute.
ATP lacks sufficient historical data on which to base revenue projections as a result of recoupment reform. Because ATP projects are unlikely to generate significant revenue until several years after completion, financial return on ATP investment estimates are just beginning to materialize. ATP does know, however, that of the 53 projects funded after 1993 and completed before December 31, 1997, 27 projects (slightly more than half) led to commercialized products, and that 35 out of the 65 participating firms reported receiving some revenues from their ATP-funded technologies. However, this does not take into consideration expected revenues in the near future. Furthermore, based on incomplete historical information, it is not possible to determine which technologies will be commercialized and generate revenue in the near future.
According to a General Accounting Office (GAO) report entitled, OPPORTUNITIES EXIST TO RECOVER FEDERAL INVESTMENT IN TECHNOLOGY DEVELOPMENT PROJECTS, dated June 1996, GAO found that as of the report date, DOE funded more than 40 projects associated with the clean coal technology program. Three of the projects with a Federal investment of about $36.2 million had progressed to the repayment phase and DOE had received payments totaling about $377 thousand for these projects.(see footnote 16)
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Q7. Given the significant reduction in funding for the MEP program, and the testimony of Mr. Wojcicki, which states that most centers would close and the remaining would see no need for Federal oversight, what would NIST's MEP office in Gaithersburg do?
A7. The NIST MEP staff in Gaithersburg would continue to provide central administration and coordination of the program and develop and disseminate products and services to MEP centers.
Q8. You cite that the original blueprint called for MEP to provide cost-share for centers during the crucial start-up and then centers would become self sufficient. However, in 1998 NIST issued a report: Review of Mission and Operation of Regional Centers of the MEP, which found that many states would terminate their funding without Federal funds. What impact will the elimination of Federal funds have on the types of services that MEP centers will provide?
A8. MEP has been a successful program, and demand for its services continues to increase. Increased fees receipts would be one way that centers could offset the loss of Federal funding. Given the centers' success in improving productivity and efficiency, assessing increased fees for service should be the direction in which the program heads. The benefits of seeking MEP assistance, such as improved productivity and efficiency, should increase profits sufficiently to justify firms' paying the increased fees.
Q9. Dr. Bement, what consultations have occurred so far about the Administration's decision to eliminate funding for MEP centers, as well as the future of the MEP program under the Administration's funding scenario?
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A9. We are a Nation that is fighting a war on terrorism, and difficult choices have to be made in terms of priorities within the Federal budget. MEP management plans to discuss the elimination of Federal funding to mature centers at the next roundtable meeting of state partners, which is to be held this fall.
BIOGRAPHY FOR MICHAEL J. WOJCICKI
Mike Wojcicki joined the Modernization Forum as President in March, 2000. In addition to overall leadership and management of the Forum, he is primarily responsible for the association's relations with federal and state governments, its Board of Directors, and partnering organizations. The Modernization Forum is the trade association of the MEP Centers providing advocacy, research, and best practice studies for the Centers.
Prior to joining the Forum, Mike was the Chief Operating Officer and Vice President of Research at the Kansas Technology Enterprise Corporation. His responsibilities there included management of research investments as well as legislative relations. He served on the Board of Directors of the Mid-America Manufacturing Technology Center—an MEP center.
His experience as a Senior Analyst in the Kansas Budget Office under two governors also provided valuable experience in financial and legislative matters. He holds a Master's degree in public administration from the University of Arizona and a Bachelor's degree from the University of Missouri.
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ANSWERS TO POST-HEARING QUESTIONS
Responses by Michael J. Wojcicki, President, The Modernization Forum
1. The Manufacturing Extension Partnership (MEP) is small relative to the number of small manufacturers in America—the program only serves about 10 percent of its potential pool of client companies. In comparison to the Cooperative Extension Service within the Department of Agriculture, MEP is very small relative to the employment base it serves. Assuming that Congress continues to support the MEP program, do you have any advice for us on what our ultimate goal should be for the size of the program?
For its size, MEP is a very efficient and productive program. The MEP centers' 2,000 support and field staff are stretched thin, however, to serve 355,500 small manufacturers with 11.3 million workers across the country and Puerto Rico. Compounding their challenge is the geographic dispersion of the states' many rural manufacturers. Lack of resources to fully meet customer demand has been a constant challenge to the centers.
To determine the optimal capacity for our national MEP system, the Modernization Forum has initiated research to quantify this unmet demand. Our research will provide an empirical basis to answer the question, and we anticipate completing the research in the fall of 2002. The Committee's schedule requires an earlier answer, however.
Federal funding for MEP has been relatively unchanged for four years and is currently $106.5 million. A funding level of $110 million in FY 2003 would allow MEP to maintain the same level of services and results as it currently delivers. An increase of $40 million over the following two years would permit the centers to add approximately 400 staff. Because the centers' infrastructure is already in place, a 20 percent increase in staff would result in disproportionately higher increases in the number of clients served and economic results generated.
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An authorization of $130 million in FY 2004 would allow MEP to concentrate additional resources on smaller manufacturers in the defense supply chain. Small manufacturers are a critical component of the defense supply chain, comprising 21 percent of prime contracts and 39 percent of the subcontracting activity of the Department of Defense. The funding increase would provide additional field staff to address defense production issues such as surge production capacity, supply chain management, development or retention of domestic suppliers for mission-critical components, and defense acquisition practices.
An authorization of $150 million in FY 2005 would allow MEP to expand coverage and increase market penetration in rural areas. Manufacturing's share of employment is higher in rural areas (15 percent) than in urban areas (11 percent). Its share of personal earnings is also higher in rural areas (21 percent) versus urban areas (15 percent). ''In fact, more rural counties today depend on manufacturing than on any other sector of the economy.''(see footnote 17) Small manufacturers in rural areas are more difficult to serve because of geographic scattering. The funding increase would provide additional field staff for the rapid introduction of manufacturing technologies such as computerized inventory management, automated production, and factory communication flows in rural areas.
2. You mentioned in your testimony that the Federal Government is the force behind ensuring that cooperation and quality of service standards among Manufacturing Extension Partnership (MEP) centers. You believe that this network would disintegrate if federal funding for this program was eliminated. Why is it necessary for the Federal Government to be the driving force for cooperation? Why wouldn't the remaining centers have an incentive to continue the MEP network, given the benefits centers get out of shared knowledge?
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First of all, the federal funding serves as a catalyst for the state funding, because of the incentive to leverage the state investment. In twelve states, the investment in MEP is contingent by statute or contract on the federal funding it leverages. Another twenty-two states confirm that this contingency is clearly understood although not defined in law. As many as two-thirds of the state governments could follow the federal lead either terminating or severely reducing their support. State governments are experiencing fiscal stress and replacing the federal dollars would require them to double their contributions.
While it is in the interests of the centers to cooperate, consistent and universal policy can best be accomplished through the authority that a funding relationship provides. The carrot and stick of federal funding enables NIST MEP leadership to enforce oversight and accountability, steer the program in a rationally consistent direction, and demand continuous performance improvement. In the absence of the policy direction and oversight that federal funding allows, the centers will be inclined to make decisions and form shifting coalitions based on their respective best interests on individual issues.
3. How reliable is your analysis that shows what would happen to the MEP Centers if federal funding for this program was eliminated? What data do you have to support your conclusion? How would you characterize the Administration's assumptions when it made a decision to cut funding to almost all of the state centers?
My testimony was based on research conducted by the Legislative and Executive branches as well as independent researchers. Those sources include the Government Accounting Office, the Department of Commerce, the National Research Council, Nexus Associates, and the Modernization Forum. They are described and footnoted in my testimony. After rigorous study, each of those reports reaches the same conclusions that MEP is a beneficial program and/or that MEP would not be able to maintain its public mission of serving small manufacturers without the federal funding.
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The Administration's position is well-intentioned but based on faulty assumptions. There is no evidence to support the belief that either the state governments or private industry would replace the loss of federal funding. Indeed, the research cited above indicates that they would not. Some centers would fold while the others would contract in size. Continuing centers would be forced to re-focus their service mix away from small manufacturers to larger manufacturers in order to survive financially. MEP centers would not be able to maintain the public mission for which they were created.
4. One of the arguments that some make [about] the MEP's federal funding is that the success of the MEP program has shown a market exists for the services offered by state centers and that businesses have an incentive to hire consultants for the type of work that centers do. What is your response to this argument?
Unquestionably, a market exists for the services offered by the MEP centers at the price charged by the MEP centers. We may not, however, assume that the demand would remain unchanged at higher prices or that MEP centers could financially continue to serve smaller manufacturers—rather than larger manufacturers—without the federal incentive. Smaller manufacturers are more difficult and expensive to reach and to serve. This is precisely why private consultants have been reluctant to serve small manufacturers and why Congress created MEP in 1988.
While the cost of actually providing the services is comparable whether the customer is a small or a large manufacturer, the cost of outreach to a small manufacturer is considerably greater. Three factors tend to increase the cost of outreach to small manufacturers. First, by the very nature of their relative size, small manufacturers will tend to contract for smaller projects than large manufacturers. As a result, the outreach and transaction costs of serving small manufacturers are multiplied. To illustrate, it takes considerably more marketing and sales effort for an MEP center to earn $150,000 from 30 projects at $5,000 each than it does from a single $150,000 project with a large manufacturer. Second, small manufacturers, again by their very nature, have few resources and are unaccustomed to using consultant services. Normally, they do one or two technical things very well but do not readily appreciate how improvements in other aspects of their business could make them more productive. In short, they are a hard-sell, unlike large manufacturers who are regular consumers of consulting services and often seek out consultants for projects which they themselves have already identified. Third, MEP centers have a mission to serve all corners of the state not just the more profitable areas where manufacturers are geographically concentrated. Serving manufacturers in smaller communities and rural areas is more time consuming and expensive.
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In an extensive 1997 study,(see footnote 18) private consultants cited several barriers to working with small manufacturers. Of the consultants surveyed, a majority identified the following barriers as ''moderately significant'' to ''very significant'':
Small firm inability to pay their standard rates (85 percent);
Small firm lack of knowledge of how to use consultants (78 percent);
Consultants' inability to recover marketing costs (56 percent); and
Consultants' inability to identify customers (55 percent).
Small manufacturers surveyed in the same study stated even more barriers to working with consultants. A majority identified the following barriers as ''moderately significant'' to ''very significant'':
Identifying consultants with the right expertise (83 percent);
Lack of information concerning consultant qualifications (80 percent);
Lack of consultant objectivity (79 percent);
Difficulty paying for consultants (69 percent);
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Difficulty identifying their own needs (69 percent); and
Inability to manage consultants effectively (63 percent).
In many instances, MEP centers serve in a broker capacity, helping manufacturers identify needs and secure assistance from private consultants. Fully 88 percent of the consultants surveyed stated that their relationship with the MEP center was collaborative rather than competitive.
A majority of the manufacturing firms surveyed stated that they would not have used consultant services without assistance from the MEP center. The factors cited above tend to raise the cost of serving the small manufacturer market to a price point that many small manufacturers are unable to pay. The public funds help to make those services affordable when providing universal coverage to this challenging and dispersed segment of manufacturers.
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ANSWERS TO POST-HEARING QUESTIONS
Responses by Birgit M. Klohs, President, The Right Place Program
Q1. What are some specific examples of how your center utilizes the Manufacturing Extension Partnership network?
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A1. Our MMTC West Michigan manager, Michelle Cleveland, has been a long-term asset on a state-wide and larger regional basis for the past 11 years, both in terms of strategic leadership for the various regions in Michigan and in formulating programmatic plans for the various centers. She has also provided leadership at the regional forums with the Small and Medium Enterprises (SME's). Mark Schmitt, MEP Regional Manager, has also facilitated contacts across MEP centers as we embark on new initiatives to foster cross-center learning and best practices.
The MEP network is the first place we turn to find unique expertise to address a sector or process issue.
We have shared and continue to share our expertise and best practices with our fellow MEP centers.
Q2a. Assuming that Congress was going to fully fund the Manufacturing Extension Partnership program this fiscal year, what are your plans for expanding both the numbers of services and The Right Place Program's customer base?
A2a. The growth of the MMTC West services is guided by our industry councils. The focus areas for 2002–03 are on continuously eliminating waste, supply chain management and value creation for the SME's.
The Manufacturers Council is focusing MMTC services around issues of value INNOVATION for SME's.
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The Office Furniture Industry Council is focusing on eliminating waste through: a) SUSTAINABLE DEVELOPMENT and b) enterprise wide integration of electronic commerce.
The Tooling Council is focusing on a series of business and technology recommendations from our August 2002 tooling assessment report. MMTC West services will focus on a NEW BUSINESS MODEL for tool, die and mold builders.
Q2b. How do you work with other regional centers to extend the center's reach?
A2b. Over the past 11 years as the MMTC West we have reached out to the region's economic development organizations as well as community colleges to share our knowledge of SME needs, technical assistance strategies and technology specialists to address needs. RPP/MMTC West has also worked collaboratively with the other regional centers to share best practices, new product development ideas and technical resources.
Q3. Some argue that the success of the MEP program has shown a market exists for the services offered by state centers and that business have an incentive to hire consultants for the type of work that centers do. What is your response to this argument?
A3. The MMTC West service model builds on real-time industry council input, supported by relationships with ''technical business and technology'' resources. Over the past 11 years, the Councils and MMTC West staff have developed a world-class manufacturing development system, including professional consultants, collaboration with universities and community colleges. As new needs are identified, MMTC West brings the professional resources, including consultants, to the table to strategize and deliver resources. We believe this dynamic resourcing strategy is of great value to the SME's in our region, which cannot be duplicated by individual consultants.
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SME's in today's globally-sourced marketplace are focusing their energies on staying alive. MMTC West provides a well-recognized resource for developing strategies for and with the SME's, as well as a resource for one-on-one services and inter-firm learning.
BIOGRAPHY FOR CHRISTOPHER T. HILL
Christopher Hill is Vice Provost for Research and Professor of Public Policy and Technology at George Mason University. As part of his duties at GMU, he serves as President of George Mason Intellectual Properties, Inc., a non-profit corporation established to commercialize GMU-based inventions. During the 1980s he served as Senior Specialist in Science and Technology Policy at the Congressional Research Service, where he participated in discussions leading up to establishment of the ATP. He is the author of a book chapter on ATP(see footnote 19) that was cited in the recent ''Evans report.'' Under a grant from NSF, he and his colleagues at GMU have been analyzing the participation of companies in university-based research consortia such as the NSF Engineering Research Centers. He has consulted extensively with Japanese government agencies on how the American R&D system encourages strong university-industry ties.
Dr. Hill was born and raised in Clarksburg, WV. He earned a B.S. from the Illinois Institute of Technology and an M.S. and Ph.D. from the University of Wisconsin, Madison, all in chemical engineering. After an initial engineering career at Uniroyal Corporation and Washington University, he turned his attention to science, technology and public policy. He has spent the past three decades in this field, holding positions at OTA, MIT, CRS, the National Academy of Engineering, RAND, and George Mason University.
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FINANCIAL DISCLOSURE FOR CHRISTOPHER T. HILL
In connection with my forthcoming March 14, 2002, testimony to the House Science Committee on the ATP Program, I have examined the Committee's ''Rules Governing Testimony'' insofar as they have to do with financial disclosure. The following MAY be relevant to the issue of financial disclosure. I would be pleased to provide further details should they be required.
1. I serve as vice provost for research at George Mason University. While I am not representing GMU in giving my testimony, I should note that GMU is the recipient of some $50 million annually in sponsored programs support, most of it for research. Approximately 700 of these funds originate with the federal government. GMU has received no funds from the ATP program.
2. In my capacity as a professor of public policy and technology and GMU, I am the principal investigator on a grant from NSF to study the determinants of industrial support for cooperative research at universities. This grant was made to GMU to support my work. The grant was for $335,000.
3. In my capacity as a private consultant, in partnership with several other independent individuals doing business as an unincorporated partnership, I have received personal income during the past two years totalling approximately $15,000 for consulting studies on U.S. technology policy conducted for the New Energy and Industrial Technology Development Organization and for the Japanese External Trade Research Organization, both of which are affiliates of the Government of Japan.
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ANSWERS TO POST-HEARING QUESTIONS
Responses by Christopher T. Hill, Vice Provost for Research and Professor of Public Policy and Technology, George Mason University
Q1. In your testimony, you mention that the Administration's second proposed reform to [the ATP]—which would permit universities to negotiate for rights in intellectual property resulting from ATP grants—isn't as far reaching as the Bayh-Dole provisions regarding intellectual property. What are your specific recommendations on strengthening this proposed reform?
A1. Bayh-Dole permits non-profit organizations, including universities, to retain title to inventions made with financial support from the Federal Government, such as those made under research grants, contracts or cooperative agreements. (The government retains certain march-in rights as well as a right to make use of such inventions under a perpetual, royalty-free license for government purposes. These government rights can be important, but they don't concern us here in the first instance.)
The proposed reform would simply permit universities to negotiate for such rights with other members of ATP consortia, including industrial members. As of now, university participants do not retain any rights to inventions made under ATP funding; all of which devolve to the industrial partners. The proposed reform does not give university inventors rights of ownership; rather, it would give them a right to negotiate for such rights, whereas they have no way to obtain such rights, which must remain with private sector partners under existing law.
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My comment on this matter in my testimony was made largely to highlight the subtle but important distinction detailed here. Speaking from a university perspective, I would prefer to see the rights under Bayh-Dole to ownership of university inventions by universities extended to ATP university partners. In the negotiations contemplated in the Evans report, my guess is that most universities would not successfully obtain ownership rights to their inventions from industry partners—the power differences in such negotiations are too great. Universities could be required to give first rights of refusal to licensing of such inventions to the industry partners, after which they could be made available for licensing to any person if industry partners were not interested in a license. In this way, use of such university inventions could be more assured than if title were to fall to the industry partners alone.
From a public policy perspective, however, my recommendation would be to adopt the proposed reform in essentially its current draft form. Such a change would allow universities to negotiate for partial rights as well as for shares in income, in addition to negotiation for full ownership rights. This greater flexibility than under Bayh-Dole might be a good balance between the desire of company partners to own all the property in whose invention or development they have cost shared, and the determination of university partners both to profit from and control the commercialization of their inventions. It is worth noting, of course, that under ATP awards, industry must pay a significant portion of the costs of a project, which in many cases may mean that some part of the university project leading to invention may be paid for by the industrial partners. They may reasonably expect to share in the ownership of such consortia projects.
Q2. In your testimony, you support the concept that universities should be able to lead join [sic] ventures. However, you believe that university-led ATP project[s] must include substantial financial and technical participation by industry. What criteria would you use to assess ''substantial financial and technical participation by industry?''
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A2. My major rationale for this recommendation is that it would help ensure that the industrial partners put enough resources at stake to assure the government that (1) the industrial partners are committed to the objectives of the project and (2) the industrial partners are not simply lending their names to efforts that are in essence serving university interests only.
Experience shows that industry commitment is best indicated by both money and commitment of technical staff effort to the project. It is easy enough to ''buy'' participation in a research project; it is quite another matter to engage in the work and to build the understanding of the project within the firm's employees that will facilitate subsequent applications of new developments.
In essence, I would recommend that ATP require the same level or proportion of industrial funding, as compared with government funding, for a university-led project as it would require for an industry-led project. The difference would be only in which organization would lead the formation and management of the project—industry or university. Because circumstances of different projects can differ widely, I would avoid any formulaic requirement for technical, non-financial participation by industry. Instead, project reviewers could be tasked with judging whether industry partners would, in fact, be technically involved.
Appendix 2:
Additional Material for the Record
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(Footnote 16 return)
GAO Report, ''Opportunities Exist to Recover Investment in Technology Development Projects,'' June 1996, page 3 and 4.
(Footnote 17 return)
Trends in Rural Manufacturing, December 2001, Federal Reserve Bank of Kansas City, Chad Wilkerson.
(Footnote 18 return)
The Modernization Forum and Nexus Associates, ''Competition or Collaboration: The Role of Manufacturing Extension Centers in the Private Consulting Market,'' Working with Consultants: A Tool Kit for Manufacturing Extension Centers, Volume 3, December 1997.
(Footnote 19 return)
Hill, Christopher T., ''The Advanced Technology Program: Opportunities for Enhancement,'' in Lewis Branscomb and James Keller, eds., Investing in Innovation: Creating a Research and Innovation Policy, Cambridge, MA: MIT Press, 1998, pp. 143–173. The chapter is on-line at www.ksg.harvard.edu/iip/techproj/chapter6.htm