SBIR Gateway

SBIR Insider Newsletter
January 11, 2010 Edition



Dear SBIR Gateway Insider,

I hope you had a good holiday season and here's to 2010 being a great year for you.

You haven't heard from the SBIR Insider for quite a while because sometimes it is better to keep quiet and stay out of the way. We have respected that in regards to the ongoing SBIR reauthorization efforts (or lack thereof) but now it's time for you to know what's really going on, and for you to evaluate what you may want to do about it.

Although there's a lot of politics you will read about here, this is not a partisan issue. We simply want to inform you about the sad state of affairs in SBIR legislation. Tea Party, Grass Roots, Astroturf, are nothing but labels used by the news media to try to create news and influence you to their political leanings. On the Right we have people like Sean Insanity, Bill OhReally? and Glen Dreck, while on the Left we have Keith Oderman, Chris Math-EEW, and Rachel Madcow.

Take from this what you will. If you sense some anger and frustration in this issue, you are properly "tuned in."

Truth is stranger than fiction, and in SBIR there are several high powered "bad actors" in the House of Representatives that make the vampires in Twilight look angelic. Their actions have put great strain on the agencies, small businesses, the SBA and others working in the SBIR & STTR programs.

The current status of SBIR/STTR remains the same as our November report in that the DoD's SBIR/STTR program is authorized and running through September 30, 2010. The remaining 10 agencies' SBIR/STTR programs will expire on January 31, 2010 unless reauthorization is reached or another CR (continuing resolution) is made. More on that condition later.

In this issue:

The Health Care Bill & SBIR Reauthorization

Due to its importance and potential impact on the country, the news media is doing its best to make you aware of the legislative process to pass a law whereby the House and Senate have extremely different versions of their bills. This is not dissimilar to our SBIR reauthorization process.

Under Article I Section 7 of the Constitution, a bill must pass both the House and Senate with the exact same wording before it may be sent to the president for final approval to become public law.

The House and Senate have passed their own vastly different health care bills and are trying to work out the differences in order to enroll (agree to by both House & Senate) one bill to be sent to the President for signature to become law. Your SBIR program is going through a similar process.

Just like the health care bills, the House and Senate SBIR bills are vastly different from each other and much work, cooperation and compromise is necessary in order to come up with one bill that can be passed by both bodies, and acceptable to the President. This process is known as conferencing.

In important high profile legislation such as health care, the House Speaker and the Senate's Presiding Officer appoint Representatives and Senators to be part of the conference committee, and these conferees run the show. But in lessor cases such as SBIR, the conference committee work is done by the staffers rather than the elected officials from the relevant committees. Needless to say, the staffers represent and act on behalf of their bosses.

The State Of SBIR Reauthorization

We are no closer today to SBIR reauthorization than we were when the House and Senate SBIR legislation was passed back in July of 2009 with conference talks starting in August.

The staffers on both sides kept their negotiations quiet but after many months of frustration from lack of progress, the walls on Capitol Hill started to echo disparaging vibratory effects.

It seemed that the more the Senate was willing to compromise, the more the House wanted! Eventually, after a very generous Senate compromise was offered back in October, the House didn't even bother to respond. In essence, the House Small Business Committee under the leadership of Nydia Velazquez and her staffer Michael Day wanted to hold the SBIR program hostage. But why?

The Issues Contributing To Delay

The Senate has offered many compromises, these include:
1. Length of Reauthorization(For Stability):
  • 8 years (Senate wanted 14 House stood firm on 2)

2. Venture Capital Participation in SBIR(preserve the small business focus of the program):

  • HHS (NIH), NSF, DoE – higher percent for majority-owned and controlled VC firms.
  • Remaining agencies – set percent for some small businesses majority-owned and controlled VC firms.

3. Award Levels(Increase without drastically reducing awards or harming low-participation states with jumbo awards):

  • Senate bill awards sizes ($150,000 for Phase I; $1 million for Phase II).
  • Senate bill limitation of increasing award levels by 50 percent ($225,000 for Phase I, $1.5 million for Phase II)
  • House provision of annual increases for inflation.

4. Sequential Phase II Award:

  • Allow for one sequential phase II award as called for in the House legislation.

5. Retention of Phase I Requirement:

  • No authority to skip Phase I

6. Allocation Increase

  • SBIR: 1 percent allocation increase over 10 years (bringing it to 3.5%).
  • STTR: .3 percent allocation increase over 6 years (bringing it to .6%).

7. Administrative Funds(addresses needs by agencies as well as oversight):

  • House provision to allow funding for administrative, oversight and processing costs, modified to take the funding from a portion of the allocation (up to 3 percent) if there is an increase.
  • Three-year pilot, with its continuation tied to metrics.

8. Rural and State Outreach:

  • Changes to make it fairer to states with low-participation and rural areas.

Most of the issues (listed above) separating the two bills can legitimately be debated as to the merits, except one issue, and this is key: The Senate wanted a 14 year reauthorization while the House wanted no more than 2 years.

Regardless of compromises made in the other issues, the agencies could barely (if at all) get these changes implemented in 2 years, let alone measure the effectiveness of the changes for consideration in the future reauthorization. Why only 2 years? The Senate was willing to come down to 8 years (standard for SBIR reauth), but why the House was steadfast on 2 years?

The answer is simple. What happens every 2 years in the House. It's called ELECTIONS!! What is needed for elections? The Answer is MONEY!! Who is providing great sums of money to the candidates, especially Velazquez, the House Small Business Committee Chair? How about the National Venture Capital Association (NVCA) and the Wall street BIO-tech investors that want (and would receive under the House bill) virtually unlimited access to SBIR, the ability to bypass phase I, and, oh yes, SBIR award amount "guidelines" tripled, with no actual ceiling limits, and sequential phase II awards (making $10m, $20m, perhaps $30m awards possible).

The House Small Biz Committee Roadblock – Pay To Play?

Nydia Velazquez and her senior staffer Michael Day rule the committee with an iron fist, and they have not allowed any testimony in all their SBIR hearings from small businesses opposed to the VC ownership and control change, or the major changes the Wall Street benefactors wanted.

Is the SBIR Insider paranoid? Consider this:

As of this date, January 11, 2010 the Center for Responsive Politics (OpenSecrets.org) shows the NVCA to be one of the top 5 contributors to Nydia M Velazquez's 2009-2010 campaign committee, and Securities & Investment, Commercial Banks, Health Professionals, and Lobbyists to be among the top 5 industries contributing to her campaign. Only 15% of her contributors are individuals the rest are in forms of PACs. Over 60% of her contributions come from out of state, with Washington DC being the largest metro area.

Under Velazquez's leadership (or lack thereof) many important small business programs including SBIR have been on life support via short string continuing resolutions (CRs). There are currently several other small business program linked to the CR that supports SBIR, and those will expire on January 31, 2010 unless something is done.

Can you believe that the SBIR program and others have been running on 5 successive CRs since their authorization expired back in September of 2008? The Senate wanted to make the CRs for a longer period of time so there could be some stability but the House Small Biz wouldn't hear of it.

Here's the CR schedule SBIR has been living on for the last 16 months:

1. 9/30/08 through 3/20/09 –Kerry
2. 3/20/09 through 7/31/09 - Landrieu
3. 7/31/09 through 9/30/09 - Velazquez
4. 9/30/09 through 10/31/09 - Velazquez
5. 10/31/09 through 1/31/10 – Velazquez (Landrieu wanted 6 months)

Some Insiders voice belief that Velazquez couldn't do all this stonewalling on her own without support of the House leadership, in this case that's the House Speaker, Nancy Pelosi. There have been some strong democratic leaders (quietly) unhappy with Velazquez's performance in small business issues but Pelosi continues to support her.

I've also had several SBIR companies in, or close to Pelosi's district tell me that they met with some of her staffers on the SBIR problems and were met with arrogance and a degree of indignation. Did I mention that the top 5 industry contributors to Pelosi included Securities & Investment, and Misc Finance.

Conversely I had several companies in Maryland tell me they talked with Steny Hoyer (D-MD) and some of his staffers, and although they received no promises, they were treated with respect by staffers who were aware of many of the issues.

On the other hand we have some republicans that work hand in hand with Velazquez in the House Small Biz Committee to protect the big guys. This includes Sam Graves, the committee's ranking member.

House & Senate Armed Services Committees Take Control Of The DoD SBIR

In what must have been total lack of confidence in the House Small Biz Committee's ability or desire to get SBIR legislation done, the Senate Armed Services Committee (SASC) led by Carl Levin (D-MI) started to search for a way get SBIR back on the legislative track.

Levin, one of the few senior level Senators that serve on the Senate Small Biz Committee, is also the Chair of the SASC, and knows how important SBIR is to the country and to the DoD. Levin's staffer, Arun Seraphin went to work on the issue and worked closely and harmoniously with the Senate's Small Biz Committee staffers to incorporate SBIR reauthorization into the DoD's FY-2010 Authorization bill.

This required the House Armed Services Committee (HASC) and its chair, Ike Skelton (D-MO) to be on board in principle to stand a chance to get SBIR reauthorized. Skelton's staffer on this project was Timothy McClees. The HASC had to apply more finesse than the Senate because Skelton knew there would be some pushback from the House Small Biz.

There was pushback but Skelton was able to reach a compromise with House S&T subcommittee chair, David Wu (D-OR), and Skelton received quite a bit of support from companies in his state of Missouri.

The compromise was that the SBIR language to be inserted into the Defense bill would be specifically DoD only and for a 1 year duration ending September 30, 2010.

Those of you who deal in DoD SBIR owe a debt of gratitude not only to Chairmen Skelton and Levin, but also their ranking members, HASC: Buck McKeon (R-CA) and SASC: John McCain (R-AZ). Let's don't forget those folk in the trenches that made this possible, HASC: Timothy McClees, SASC: Arun Seraphin.

It's bittersweet to report that Arun has now left the SASC and has moved to DARPA to handle some new career challenges. I can tell you that SBIR in the SASC was greatly enriched by Arun's work and he will be missed.

DoD Plays Strong Role Working With HASC & SASC

With all due respect to the HASC & SASC, another important component of the DoD SBIR reauthorization was the DoD's Office of Small Business Programs (OSBP), which, among many other things, manages the DoD's SBIR Program.

The participation of Linda Oliver, acting Director of the DoD's OSBP, and Joseph Misanin, Deputy Director, Program Operations, OSBP was invaluable in assisting the HASC and SASC in their DoD SBIR project.

If you consider that SBIR occupies about $1.5b in award dollars, but the overall DoD small business programs cover more than $70-$80b, you see that SBIR is but a small portion of what the DoD's OSBP does. Nevertheless Ms. Oliver who is a veteran of the DoD, and Mr. Misanin who is relatively new, have done an excellent job in working with congress and keeping them informed about the program, its value to the DoD and its needs for the future.

Rinaldi Named New DoD SBIR/STTR Program Administrator

The DoD Office of Small Business Programs has announced that Mr. Christopher S. Rinaldi, P.E. is the new DOD SBIR/STTR Program Administrator, filling the position that has been vacant since Michael Caccuitto moved on to the Army Research Office back in May of 2009.

Rinaldi has spent many years (as a civilian) with the Army and has served as the Army's SBIR/STTR program manager since 2008. He quickly became fluent in SBIR and has applied his vast knowledge and experience to become an important part of DoD's SBIR program. He is working with the other DoD SBIR program managers on updating the DoD's SBIR program.

DHS's Lisa Sobolewski Recovering From Major Surgery

Popular DHS SBIR Program Manager Lisa Sobolewski had major surgery on Christmas Eve but is home now and recovering slowly but surely.

If all goes well she may be "teleworking from home" in the next few weeks. I know she's doing ok because she's already playing with her blackberry. Friends can feel free to contact her via email Elissa.Sobolewski@dhs.gov Lisa will appreciate thoughts, prayers, and well wishes from those of us in the SBIR community.

Get well soon Lisa!

In Memoriam – Jim Chern

The SBIR community lost one of it's great troupers last month. Jim Chern, SBIR program manager from NASA Goddard Space Flight Center passed away quietly in his sleep, December 1, 2009 while attending an SBIR conference in Morgantown, WV.

Engmin James Chern was born October 1, 1951, in Taichung Taiwan. Jim, as he was known to most of us, was always the NASA "Can Do" person, with a smile on his face and a great sense of humor that always had you smiling with him. If a NASA speaker was needed for an SBIR conference, you'd just call Jim and he'd do his best to be there for you.

Such was the case at the Mid-Atlantic SBIR conference in Morgantown. Jim came to display and speak. We all went out to dinner on November 30, and all parted company in good spirits. Somehow, during the night Jim went to sleep and slipped away from us.

Jim was a loving husband of 30 years, to Shao-Hwa Chern, and devoted father of Bobbie Chern. He attended William an Mary College, where he received his Doctorate degree. He was a Physicist at NASA Goddard and led their SBIR/STTR Program.

A comment I received from NIH's Jo Anne Goodnight says it best, "Jim was a terrific guy- always upbeat and a fantastic program director of NASA's SBIR program. He will be sorely missed."

I'm sorry there was so much politics in this issue, and I suspect there will be more as we continue our quest for SBIR reauthorization. It is likely that our politicos will be feeling "uneasy" in this election year. Is the anger in the country mainly directed toward the democrats, or is it against incumbents? Will the republicans gain control over the House or mainly make gains in numbers?

Here's a thought from George Will on ABC's "This Week" that may shed some light on that question: "In the last 4 election cycles, because we now have redistricting, we've reversed the system. It used to be voters picked their candidates, now the candidates pick their voters. And that's why we had in the last 4 cycles a 95% reelection rate among incumbents, and that's very hard to overcome.

There are some great friends of SBIR on both sides of the aisle and we will be identifying them for you.

Sincerely,

Rick

Rick Shindell
SBIR Gateway
Zyn Systems
40 Alderwood Dr.
Sequim, WA 98382
360-681-4123
rick@zyn.com
www.zyn.com/sbir

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