Proceedings of
Advanced Technology Program (ATP)

JOINT VENTURE WORKSHOP
May 22, 1996

Introduction

The National Institute of Standards and Technology (NIST), Advanced Technology Program (ATP) held a workshop on May 22, 1996, at NIST in Gaithersburg, MD, to explore "lessons learned" from joint R&D ventures funded by the ATP. A copy of the agenda is attached.

This document summarizes the principal points discussed during the workshop. The attendees agreed that creating and managing a successful joint venture (JV) ATP project is more difficult than creating and managing a single company ATP project, but if it is well done, the rewards can be significant.

Factors that Contribute to Joint Venture Success

Many different approaches to JV organization and management can work if the factors noted in this section are in place. At this workshop, we heard from JVs that are horizontally organized (direct competitors), vertically organized (suppliers, OEMs, and users) and those with mixed modes. All can be successful if the companies are committed to making them so.

Listed below are factors contributing to joint venture success that were proposed by workshop attendees. (With the constraints of time, we did not attempt to poll the entire audience on each point. In some cases, a factor listed may have been viewed as important by one or two individuals whereas in other cases, there may have been near unanimity that the factor was important.)

• Clearly defined, mutually agreed-upon technical and business goals to which the partners all commit. Measures of success are agreed upon; progress toward the objectives is quantified and continuously monitored.
• Top management is committed.
• JV members stay focused on commercial opportunities. Project leadership features the perspective of the cognizant business units as well as strong technical leadership. (ATP does not fund product development, but unless the JV members "keep their eye on the ball" with regard to the ultimate commercial success, the project may suffer.)
• JV members strive to maintain a unified vision as the project evolves. (Note that there were two different feasible models identified for JV leadership: the "board of directors" model and the "strong leader" model. While maintaining a common vision is important for either model, consensus building is particularly important for the first model in order to get buy-in for changes when circumstances require change.)
• JVs should be structured so that every member has a "win" if the project is successful.
• Open information exchange is fostered throughout the project. Problems are shared.
  Many JVs reported that regular electronic mail interchanges and conference calls among the key people are necessary to keep information flowing. Some JVs find that a shared World Wide Web page with password protection can aid in exchanging data rapidly among the JV participants, and can facilitate the more rapid generation of quarterly reports in which various participants are responsible for different sections.
• Trust among the JV members is established early in the project and continues to build throughout the project.
  (If the JV can begin working together and can build trust even before the ATP-funded work begins, this enhances the chance of success during the ATP-funded phase. Some attendees suggested that in JVs where the partners have not worked together previously, opportunities to socialize during the proposal preparation phase should be sought.)
• Intellectual property is handled consistent with the commercialization goals and strategies;
• Legal counsel is sought and engaged early in the proposal preparation phase. (But, getting top management buy-in prior to seeking legal review is important. Lawyers are less likely to quibble about details if they know that their corporation's top management agrees with the general principles of the JV agreement.)

  It is common in JVs to find situations where the technical people agree quickly, but when the companies' legal departments are brought in, the agreement begins to unravel. ATP recommends that company lawyers review the ATP rules and regulations and the sample JV agreement in the ATP proposal preparation kit before a lot of work is invested in writing a proposal. There have been cases where a JV has successfully competed for an ATP award only to find that the lawyers cannot agree on the terms of the JV agreement, and so the project never gets underway.

  Some JVs reported that it can help to reach agreement in two steps. First, agree on an "executive summary" of the JV agreement in which key points (such as defining the scope of the JV, who is in charge, etc.) are defined. Get top management to concur. Then, the details can be worked out as a second step.

Suggestions to ATP from Industry

Below are listed the suggestions we heard from the workshop participants. In each case, brief comments by ATP are provided.

• Pay attention to the unique demands on small companies

  ATP is reviewing the specific points noted at this meeting to see how we can change our mode of operation to be more user-friendly to small companies. While small companies have done very well in ATP competitions, we are continuing our search for ways to further improve the climate for the participation of small companies in ATP. One way we have responded already is to offer the possibility of monthly reimbursement instead of quarterly reimbursement for small firms for which cash flow is a problem.

  Another example of how we are responding: In the past, ATP bidder conferences were held only in Gaithersburg, MD. Minimizing travel costs is a concern for firms of all sizes, but traveling to Gaithersburg may be a particular burden for small start-up firms in the western part of the U.S. This year, ATP will hold bidder conferences in six cities across the U. S.

• Be willing to move closer to early stage product development

  While we can understand why companies would like us to do so, it is unrealistic to think that ATP would or could move in that direction. There are several reasons for this. First, Federal cost-sharing of product development is inconsistent with the GATT agreements, to which the U.S. is fully committed. Second, barring a radical change in the current political landscape, the Congress and the Administration would not agree to such a change. The Administration is deeply committed to maintaining the ATP for supporting cost-shared high-risk R&D projects with broad economic benefits to the U.S., but has emphasized that the ATP should not fund product development. Members of Congress who are philosophically opposed to the ATP even in its present form would be even more opposed were the ATP to move toward product development.

• Broaden the global perspective of ATP

  ATP recognizes the global nature of today's business world. While companies should (in fact, must) think globally, ATP is spending U.S. tax dollars, and so ATP must "think U.S." That is, we must always strive to maximize the favorable economic impact of each project within the U.S. What is best for a given company may not always be in the best interests of the nation. The ATP legislation requires that projects

  "be in the economic interest of the United States, as evidenced by investments in the United States in research, development, and manufacturing, (including, for example, the manufacture of major components or subassemblies in the United States); significant contributions to employment in the United States, and agreement with respect to any technology arising from assistance provided under this section to promote the manufacture within the United States of products resulting from that technology..."

  ATP has funded many foreign-owned companies operating in the U.S., but in each case, we must verify that the conditions above have been met. Spending money outside the U.S., while it might make sense to the companies involved, would be difficult to reconcile with the use of tax dollars to stimulate economic growth in the U.S.

• Tune ATP solicitations to match JV formation time

  Here the concern was that it takes a long time for most JVs to form and organize -- often six months or more. The typical time between ATP announcement of a competition and the proposal due date may not allow sufficient time for JVs to form.

  (Note that the period between the May announcement of the most recent competition, Competition 96-01, and the proposal due date of September 18, was considerably longer than the corresponding period in most past competitions.)

  Some members of the audience pointed out that having longer periods of time between the competition announcement and the due date would not necessarily ease the problem. Deadlines are important to create an incentive to complete the proposal in a timely fashion and obtain the required sign offs without having the proposal preparation process drag on interminably. (One participant said, "The single most valuable function of ATP is to require deadlines.")

  If ATP were operating in a steady-state mode, with competitions held at regular, predictable intervals, companies could plan ahead and have a JV proposal ready in the appropriate time window. The problem has recently been that the budget uncertainty has resulted in start/stop, ramp-up/ramp-down, modes of operation for ATP in which companies (as well as ATP) have difficulty anticipating future proposal due dates. If ATP can ever get into the mode of having predictable future competitions, this problem will likely disappear.

  Another point is that JVs can continue to tie up loose ends during the time between proposal submission and the ATP oral review. If a proposal scores sufficiently well, the proposers will be called in for an oral review and given an opportunity to update the ATP on any changes since the proposal was written.

• Bring universities (and nonprofit organizations) into the ATP fold legislatively and promote more flexibility in intellectual property (IP) ownership

  Approximately 70 percent of ATP projects involve the participation of a university or nonprofit. Universities and non-profits are already participating actively in the ATP. A number of major programs in the Federal government are intended exclusively or largely for universities. Examples include the National Science Foundation, the National Institutes of Health, the Air Force Office of Scientific Research, the Office of Naval Research, the Army Research Office, and others. Congress clearly intended that the ATP be aimed principally at companies rather than universities or non-profits. Nevertheless, Congress did want companies to team with universities or non-profits where it made sense to do so.

  One specific concern of many universities regarding their involvement in ATP is the intellectual property (IP) provision of the ATP legislation, which requires that "title to any intellectual property arising from assistance provided under this section shall vest in a company or companies incorporated in the United States." This provision of the ATP law contradicts the Bayh-Dole Act, which allows universities to keep the patent rights from Federally-funded projects. ATP has verified that it was the intent of Congress in writing the ATP law to supersede the Bayh-Dole Act with regard to this program. However, Congress seems sympathetic, as is ATP, to changing the law to permit companies working with universities to have more flexibility in deciding who may have title to patent rights. More than a year ago, an ATP authorization bill contained a provision that would have changed the IP language of the current law so as to permit this flexibility. However, this bill did not pass. Until a change is made to the legislation, ATP has no choice but to continue the current policy.

• Have more flexibility in budget and technical management;

  ATP has considerable flexibility already. There are some areas where ATP does not have flexibility because the ATP legislation or other Federal laws and regulations limit our options. But in most cases, we can be flexible, subject to the constraints noted below.

  We recognize that in high risk R&D unexpected things can happen. Some tasks may prove more time-consuming and expensive than anticipated whereas others may prove easier and less expensive than anticipated. Some tasks may prove unnecessary and new tasks deemed necessary may be discovered along the way. The NIST Grants Officer, based on recommendations from the ATP, can authorize changes in budgets and task statements at any time during the project if the changes are justified. When the awardee determines that a change in task structure and/or budget is necessary, the change should be proposed to ATP as soon as possible and the rationale for the change documented. If the rationale for the change is deemed reasonable, the change will be authorized. (The terms and conditions of ATP awards require that companies seek permission to transfer funds among direct cost categories when such transfers exceed 10% of the total budget.) Our advice is for an awardee to contact ATP as soon as possible when a change is being considered in order to assess whether the change is likely to trigger any concerns. As a policy matter, ATP will permit decreases in funds requested from ATP, but will not increase the total ATP project award.

  In deciding whether or not to authorize a proposed change, ATP asks questions such as the following:

  • Does the ATP legislation or other Federal laws and regulations prohibit the proposed change? (For example, by law, we cannot fund a JV for more than five years.)
  • If the change were approved, would the project still be consistent with the ATP criteria (e.g., is it still high-risk R&D with broad economic benefits to the U.S., and not product development)?
  • Would the revised proposal likely have ranked approximately the same as the original had it been submitted during the competition to which the original was submitted?
  • Has the company or JV made a good case for requesting the change? Relative to the original, does the proposed change enhance the chances that project will meet its objectives and does it make good technical and business sense?

  We must temper the need to be flexible with the need to ensure that the taxpayers' dollars entrusted to ATP are being spent wisely. (Generally, task statement changes and budgetary changes requested of ATP are approved.)

• Clarify audit policies and improve the information flow in the audit process--what, when, how, how much, etc.

  We recognize the need to do better in this regard. ATP has been working with the Office of the Inspector General to develop new audit guidelines, and we hope to publish them soon.

• Prepare sample packages--e.g., JV agreements, records, time-keeping

  This appears to be a good suggestion. We plan to follow up on it. Note that there is a sample JV agreement in the current ATP proposal preparation kit.

• Provide a single point of contact into ATP--no, provide multiple points of contact (the attendees did not agree on this point)

  ATP is looking into this suggestion, however, at a minimum there needs to be a project manager and a grants specialist for each project. Each has different expertise, and each performs different functions.

  Provide administrative procedure training to ATP award winners

  This is a good suggestion, and we will look into doing so. ATP is now in the midst of a full review of all procedures and policies, including training requirements, so this suggestion is very timely.

• Anticipate JV partner turnover and be flexible

  When the ATP first began, we assumed that JVs would form and not change over the life of the project. Experience has shown that this is often not the case. Especially in large JVs, companies may drop out part way through the project and other companies may seek to join. ATP has been rather flexible in accommodating such changes. In each case, ATP must ask the following questions:

  • Is the project still viable with the proposed change in membership? Would all the skills required for success still be in place with the proposed change (both technical skills and business acumen.)?
  • Would the proposal still have ranked within the awarded group of proposals if the revised proposal had been submitted instead of the original proposal?

  If a key company, essential to the project, drops out of a JV and another comparable company cannot be found to take their place, then ATP has no choice but to phase out the project.

• Consider dual use strategy

  It is unlikely that ATP would place increased emphasis on dual use in the future. ATP does not wish to duplicate DARPA's approach to R&D. The intent of ATP is to stimulate civilian technology. A strong civilian technology base will help our nation's defense posture.

• Promote flexibility in advance payments

  NIST can provide advance payments if the circumstances justify it. Contact the NIST Grants Office if you have a specific situation in which you feel that an advance payment is necessary and justified.

• Modify audits of companies that only provide cost share

  Presumably the intent of the comment was to urge that companies not receiving ATP funds but only contributing cost share not undergo rigorous audits. By law, ATP must ensure that the JV is providing more than 50 percent of the project cost. Audits are required to ensure that all project costs are properly accounted for and allowable under the regulations that apply to the ATP. Note that most routine audits can be done by a company's CPA firm.

• Share best and worst JV practices. Help JVs assess their program management skills.

  This workshop is one step in that direction. We will undoubtedly hold similar workshops from time to time, publish the results, and include the "gems" of advice in future ATP proposal preparation kits and bidder conferences. We encourage companies who have been involved in JVs to present talks or papers at national meetings to share experiences (good and bad) with their peers. (Please send us a copy of any such papers.)

  ATP, at kick off meetings, can help the JV by asking the right questions -- questions such as, "Is it clear who has responsibility and authority for each aspect of this project? How will the JV communicate internally? What are the milestones? Do you have a Gantt chart?

• Provide applicants with a list of deliverables to ATP and summarize expectations for JV partners

  Perhaps this information needs to be highlighted more. The deliverables are spelled out in the sample terms and conditions document provided to all semifinalist. We intend to put the sample terms and conditions document on the World Wide Web. (The deliverables are quite simple: Quarterly technical progress reports, periodic business reports, quarterly financial reports, final reports, invoices, and follow-up information on progress after the project ends.)

• Conduct early dialogue on the ATP evaluation program with the JV administrator.

  This should be done at the kickoff meeting so that the administrator understands clearly what ATP's data requirements are. ATP will strive to do better in this regard.

Return to Joint Venture Workshop Cover Letter

Date created: May 30, 1996
Last updated: April 29, 2003