PUBLIC LAW 102-564—OCT. 28, 1992 106 STAT. 4251

"(B) a second phase, to further develop proposals which
meet particular program needs, in which awards shall be
made based on the scientific and technical merit and fea-
sibility of the proposals, as evidenced by the first phase,
considering, among other things, the proposal's commercial
potential, as evidenced by—

"(i) the small business concern's record of success-
fully commercializing SBIR or other research;

"(ii) the existence of second phase funding commit-
ments from private sector or non-SBIR funding sources;
"(iii) the existence of third phase, follow-on commit-
ments for the subject of the research; and

"(iv) the presence of other indicators of the com-
mercial potential of the idea; and
"(C) where appropriate, a third phase—

"(i) in which commercial applications of SBIR-
funded research or research and development are
funded by non-Federal sources of capital or, for prod-
ucts or services intended for use by the Federal Govern-
ment, by follow-on non-SBIR Federal funding awards;
and

"(ii) for which awards from non-SBIR Federal fund-
ing sources are used for the continuation of research
or research and development that has been competi-
tively selected using peer review or scientific review
criteria; and".

(b) REQUIRED EXPENDITURES FOR SBIR BY FEDERAL AGEN-
CIES.—Section 9(f) of the Small Business Act (15 U.S.C. 638(f))
is amended to read as follows:

"(f) FEDERAL AGENCY EXPENDITURES FOR THE SBIR PROGRAM.—
"(1) REQUIRED EXPENDITURE AMOUNTS.—Each Federal
agency which has an extramural budget for research or research
and development in excess of $100,000,000 for fiscal year 1992,
or any fiscal year thereafter, shall expend with small business
concerns—

"(A) not less than 1.5 percent of such budget in each
of fiscal years 1993 and 1994;

"(B) not less than 2.0 percent of such budget in each
of fiscal years 1995 and 1996; and

"(C) not less than 2.5 percent of such budget in each
fiscal year thereafter,

specifically in connection with SBIR programs which meet the
requirements of this section, policy directives, and regulations
issued under this section.

"(2) LIMITATIONS.—A Federal agency shall not—

"(A) use any of its SBIR budget established pursuant
to paragraph (1) for the purpose of funding administrative
costs of the program, including costs associated with sala-
ries and expenses; or

"(B) make available for the purpose of meeting the
requirements of paragraph (1) an amount of its extramural
budget for basic research which exceeds the percentages
specified in paragraph (1).

"(3) EXCLUSION OF CERTAIN FUNDING AGREEMENTS.—Fund-
ing agreements with small business concerns for research or
research and development which result from competitive or
single source selections other than an SBIR program shall