SBIR Gateway

SBIR Insider Newsletter
June 26, 2006 Edition



Dear SBIR Gateway Insider,

I've had several inquires as to why we have provided so much coverage on the SBA, when this is really an SBIR oriented newsletter.  The SBA has the legislative mandate to provide policy, guidance and oversight to the 11 federal agencies participating in the SBIR/STTR programs.  This is administered from the SBA's Office of Technology (OT).  The OT is responsible for the creation, periodic updating and publishing of the SBIR and STTR Policy Directives that are supposed to guide the agencies in their implementation and administration of the programs. 

Many feel that the SBA has abdicated its responsibility in the SBIR/STTR programs and perhaps more strongly has been derelict in its support of the OT, thereby rendering it virtually irrelevant to its programs.  SBIR/STTR needs a strong and informed SBA OT in order to help carry out the legislative mandates to serve the small business community, as well as the interests/needs of the agencies that are funding the program.  Both the House and Senate are currently working on SBA reauthorization bills.   

In this issue:

Senate Small Business Committee to hold Hearing on Contracting and Innovation Research Programs

The Senate Committee on Small Business and Entrepreneurship (SBE) will hold a hearing titled Strengthening Participation Of Small Businesses In Federal Contracting And Innovation Research Programs.  It will be held in Room 428A of Russell Senate Office Building on Wednesday, June 28 [Cancelled - Waiting for new date].  The witness list has not yet been formulated.  You can check the SBE's web site for further information at http://sbc.senate.gov/ or send us an email at insider2006@zyn.com and we will update you. 

SBA to get New Administrator:  Welcome Steven Preston, Good Bye Hector Barreto
On April 25, 2006 SBA Administrator Hector Barreto tendered his resignation to President Bush, who quickly accepted it and before the ink was dry nominated Steven Preston, executive vice president of ServiceMaster of Chicago, IL as his replacement.  In light of Barreto's dismal SBA management record, a new face is very much welcome by many.  Is Preston the right man for the job?  Insiders say he is a "shoo-in" to get confirmed.  Let's give him the benefit of the doubt and welcome him to what will probably be the biggest professional challenge of his life, the SBA. 

The Skinny on Preston - Steven Preston is currently an executive vice president of ServiceMaster Corp, a Fortune 500 organization ($3 billion in sales) based in Chicago with more than 39,000 employees across the country.  ServiceMaster is also a major franchiser with thousands of small business franchisees.  The 45 year old Preston has been with ServiceMaster since 1997 and has a solid background in finance. He has helped ServiceMaster in various projects ranging from strategic planning and mergers to outright major acquisitions. 

Preston is not well known in the DC political scene or small business circles, which made some wonder how he popped up on the President's radar screen.  Speculation is that some years ago, Preston became friends with former ServiceMaster VP, Claire Buchan, who is currently Chief of Staff to Commerce Secretary Carlos Gutierrez. 

Word on the Street - To date there has been little criticism of Preston himself, and he has been lauded for excellent work at ServiceMaster.  Preston's supporters say that his financial and managerial experience is just what the SBA needs.  Congressman Donald Manzullo (R-IL.), chairman of the House Small Business Committee, said "After speaking with Mr. Preston, I am confident he will meet and exceed the many challenges he will encounter at the helm of the SBA."

By the same token, critics cite his lack of direct experience in small business and entrepreneurship.  Some question whether he can be a true small business advocate when most of his professional life has been in the "big leagues" where small business set asides are generally viewed in negative terms.  This fact has not gone unnoticed by Lloyd Chapman of the American Small Business League who believes Preston is being brought in by the administration to complete the shutdown of the SBA that Barreto had been working on. 

Senate Small Business Committee Holds Hearing on Steven Preston - On June 21, 2006 the Senate SBE held a hearing on the nomination of Steven Preston to be the next SBA administrator.  SBE Committee Chair, Olympia Snowe (R-ME) ran the hearing and was very cordial, but not short on some tough questions concerning major issues that the SBA is going through such as the loan problems and assistance to small businesses obliterated by Katrina.

Although the SBIR program was not a high priority topic at this hearing, it did come up.  Senator Snowe started by allowing Senator Kit Bond (R-MO) to speak out of turn because he had commitments and could not stay for the hearing.  Bond commenced with a litany of compliments for Preston, then stated he had something to ask of him.  Bond started in on the SBIR VC eligibility issue and how a recent letter from the NIH assistant director made a compelling argument for a change in SBA's SBIR size standard eligibility, and Bond hoped that Preston would address that issue quickly.  (The NIH letter is covered in a separate article below).

Senator Kerry, ranking member of the SBE committee asked questions pertinent to Preston's stand on issues that affected small businesses' ability to compete with large businesses for federal contracting, as well as eligibility for small business loans and set asides for small businesses that were franchisees.  Kerry probed to try and get an idea of Preston's methodology but it became apparent that Preston was not yet ready.  Kerry was interested in how Preston would react if a ruling had to be made in an area that could be construed as a conflict of interest for Preston (i.e., ServiceMaster and the Comp-Demo program, and ServiceMaster's lobbying efforts to end small business set-asides in the areas of landscaping and pest control for DoD contracts).  Preston stated he would abide by SBA counsel's guidance if he had to recuse himself. 

Senator David Vitter (R-LA), brought up the SBIR program and stated that he would like to see the 2.5% R&D fee raised to 5%, as Congress works for reauthorization of the SBIR.  Vitter asked Preston for his view.  Preston said that he has been approached about various issues concerning SBIR, including the amount that goes into the program, ownership of the companies, and the geographic focus of the program.  Preston responded, "One message I've gotten very strongly from members of this committee is: that is something I need to give my attention to and help understand really how to serve the needs of the small business community most effectively in this program." 

Preston did a good job of representing himself at this hearing and was treated very cordially.  The majority of the committee is optimistic about his leadership of the SBA upon confirmation. 

Farewell Administrator Barreto
For years the SBIR Gateway has been critical of Barreto's decimation of the SBA's Office of Technology (OT) that oversees the SBIR/STTR programs.  However, the OT is only a small part of SBA, so perhaps the Gateway was overly critical.  Not so, according to other news sources.  In a February 2006, INC magazine article entitled, "With Friends Like These…," INC referred to Barreto as "The Disappointment," and the Washington Post once dubbed him as "the next Michael Brown." 

In defense of Barreto, one of the longest serving SBA administrators, he was on the receiving end of budget cutbacks of almost 40% over the last five years.  However, in spite of those cuts, Barreto side stepped much of the desperately needed budgetary help that the Senate SBE committee tried to give him.  Berreto's lack of initiative and desire to fight for his budget infuriated the SBE committee chair Olympia Snowe (R-ME) who boldly disagreed with the Administration on the SBA budget requests,.  She worked in a true bipartisan effort with the committee's ranking member, John Kerry (D-MA), who has been fighting the Administration's SBA budget cutbacks for years.

Barreto held fast to the mantra of "Doing more with Less," without regard to overworking and depleting the moral of the SBA employees.  He exhibited no concern for "The Straw that Broke the Camel's Back," and his agency sank to the point of having the lowest employee moral of 30 major agencies and departments within the federal government.  As a consequence, the SBA experienced a mass exodus of valuable senior and middle level personnel, thereby creating a great additional burden on those who have stayed, not to mention the tremendous loss of corporate memory.

Barreto is leaving the SBA to become national chairman of The Latino Coalition, an advocacy group based in Washington, D.C. 

NIH Issues Additional Comments on GAO Report - Expanded VC Eligibility is Sought After
On June 16, 2006, Dr. Norka Ruiz Bravo, deputy director for Extramural Research at the NIH sent GAO a letter with additional comments on SBA's small business size standard eligibility issue. 

Dr. Bravo's letter stated that the GAO report did not address NIH's central concern, that the Small Business Administration's (SBA) eligibility rules for Small Business Innovation Research (SBIR) are unduly restrictive and still exclude some business concerns that may contribute to important medical research, particularly in the biotechnology sector. Bravo's letter goes on to say, "Although the GAO report provided data on the role of venture capital investments in the SBIR program, it did not make recommendations concerning eligibility for SBIR awards vis-a-vis venture capital ownership."

Dr. Bravo and NIH seem to miss the point that Congress ordered the GAO report to obtain information on awards made by NIH and DoD in fiscal years 2002 through 2004 and the relationship to the awardees' company structure/ownership.  This was not a request for GAO to provide an opinion/determination on small business size standards; that's the job of SBA.

BIO echos NIH, or is it the other way around? - Contrary to BIO's claims, the GAO did find that VC backed small businesses do participate in NIH's SBIR program and that award amounts to these VC backed firms have increased by 70% from 2001 to 2004.  Also firms that had received venture capital investment, were more likely than firms that had not received such investment to receive the largest NIH awards (NIH SBIR awards routinely exceed the amounts specified in the SBA's Policy Directive, which is allowable under certain circumstances). 

GAO also found that firms that had received venture capital investment were added to the program at a significantly higher rate than those that had not. For example, at NIH, over the 4-year period, they noted that participation by firms that had received venture capital investment grew at a rate of 42 percent, compared to 19 percent for those that had not received this type of investment.  In light of the information contained in the GAO report, it's hard to buy into Dr. Zerhouni's claim that the SBA's eligibility policy "substantially damages the NIH's SBIR program." (Zerhouni letter to H. Barreto, SBA, June 28, 2005)

The SBIR Gateway has always supported talks concerning a compromise on the VC issue.  However, BIO, the large special interest big pharma funded organization that gets big time political access as well as top NIH access, was not interested in compromise. 

Last month, things did not appear to be going BIO's way and they consented to have talks with the Small Business Technology Council (SBTC), [with a little arm twisting from some congressional staffers].  However, just before the meeting, BIO sensed a shift in their momentum and they called off the talks.  Shortly thereafter, the momentum shifted the other way and suddenly BIO wanted to talk again.  You can't work that way and retain any negotiatory credibility. 

We will have more on the NIH and the VC issue in a special Insider later this week. 

DHS's HSARPA SBIR Program Manager Announces Retirement
Tim Sharp, the HSARPA SBIR/STTR program manager, has announced that he will be retiring effective June 30, 2006.  Tim seems too young to retire, but he has over 33 years of government civil service under his belt.  Actually I wouldn't be surprised to see Tim pop up in the private sector.  Keep that in mind if you're looking for a seasoned veteran of SBIR and DoD Technology Transfer.  Sharp ran the Air Force's Technology Transfer program for many years prior to moving to HSARPA to set up their SBIR/STTR program.

There is a major reorganization going on at DHS and HSARPA, and it is unknown what direction the SBIR/STTR program will take.  Over the past few months, sources have reported that DHS may close down HSARPA and move it to ORD.  Then we heard ORD would close and move its programs to HSARPA.  We are not sure how this will affect HSARPA's 06.2 SBIR solicitation which should be almost ready for prerelease.  We'll find out and report back.

Tibbetts Award Nominations Close July 15, 2006
Nominations are still open for the 2006 Tibbetts Awards.  Nomination packages and complete information is available on their web site at www.tibbettsawards.org  The Tibbetts Awards program will be held September 26, 2006 at the Wyndham Washington, DC.

Thank you for your interest and I look forward to your comments. 

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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