SBIR Gateway

SBIR Insider Newsletter
SBIR Reauthorization

July, 31, 2008 Edition



Dear SBIR Gateway Insider,

There is some important news on the SBIR Reauthorization front. The word for this bill is COMPROMISE, and lots of it. The good news about compromise is that it may allow reauthorization to become a reality, the bad news is that nobody gets fully satisfied.

Unlike the House's myopic reauthorization effort which can best be described as a "High Wire Act at Low Altitude," the Senate's actions took many diverse views and needs into account in hammering out a compromise.

This will not be an exhaustive report, but we will cover the items of greatest interest to the SBIR community.

If you like what you see, I've been advised to urge you to contact your Senators and ask them to cosponsor S. 3362, the SBIR/STTR Reauthorization Act of 2008. Many cosponsors will increase the likelihood of passage in the Senate AND apply leverage for conferencing with the House.

In this issue:

SBIR Reauthorization, Senate SBE Style

The Senate Committee on Small Business and Entrepreneurship (SBE) passed by a vote of 19 to 0, their 'SBIR/STTR Reauthorization Act of 2008'' aka S. 3362. This is a completely new bill and not related to H.R. 5819, the House's SBIR/STTR Reauthorization Act passed in the House, April 2008.

In what can be described as a Herculean effort on the part of some SBE Senators and their staffers to create a new, reasonable and workable bill, and the willingness of Senator Kerry to reach out directly to Senator Bond to strike a livable if unsatisfying compromise, S. 3362 came to fruition and was passed in a brief markup session held Wednesday morning, July 30, 2008.

Don't let the 19/0 vote mislead you. Due to all the competition for Senators' time, only slightly more than half the committee (10) were able to attend, but that constituted the needed quorum for the vote. Nine votes were by proxy, resulting in a unanimous "yea" vote for the bill.

Mindful of the full schedules of his committee members, Kerry wasted no time calling the session to order. Only two Senators voiced objections to the bill, Kit Bond (R-MO) and Maria Cantwell (D-WA), both BIO supporters targeting the VC and NIH issues. In spite of their reservations, they voted in the affirmative for the bill.

Regardless of the outcome of this legislation, in the eyes of this reporter, one person stands above the rest. Ms. Kevin Wheeler of Senator Kerry's SBE committee staff performed gallantly, above and beyond the call of duty. This is not to diminish the contributions of many Senators and their staff in this reauthorization effort.

It is unlikely that the full Senate will take up passage of the bill prior to returning from their recess September 8. At the time of this writing the bill wasn't on Thomas, but we have a copy for you at www.zyn.com/sbir/insider/s3362_bill.pdf

Some of the Details

Here are some of the major points of the bill, with "unofficial" perspectives from some insiders concerning the bill's rationale. Also listed are some of the House's more contentious provisions that the Senate "frowned" on. The items are listed in the order of most interest as expressed by our reader's questions:
  1. Award Amounts - Both SBIR and STTR raised to $150k phase I, and $1m phase II, with the ability to exceed the guidelines by a maximum of 50%. The agencies must report and justify all awards exceeding the guidelines.

    [ This action is to limit the use of "Jumbo Awards" that were never intended to be a part of the SBIR program. However, it is expected that BIO will fight this provision.]

  2. Increase in SBIR/STTR Cap (allocation) - SBIR will be increased from 2.5% to 3.5% at a rate of .1% over 10 years, EXCEPT for NIH, which will stay at 2.5%. STTR will double from 0.3% to 0.6% over 6 years.

    [ Aside from the agencies, academia was the main objector to an increase in the cap. Universities believe that the additional funding for SBIR would be taken from their resource pool. Most of this was NIH related and hence the NIH is exempted from the increase. Will this satisfy the AAU? In STTR, the university sector is a major beneficiary and it is thought that academia's objections to an increase would be limited. Most of our insiders are not so sure. Nevertheless, the SBE is striving for a reasonable compromise here.]

  3. VC Eligibility - A "small business" that is majority owned and controlled by multiple VCs will be eligible to participate in the SBIR program under certain conditions: No single VC can own more than 49% of the small business entity; the VC must be a United States Venture Capital Company; the VC owned small business must register with the SBA when they submit an SBIR proposal. The NIH will be limited to awarding not more than 18% of their SBIR award funding to such VC owned small businesses, and the remaining 10 agencies are limited to 8%.

    [ This is a valiant attempt to offer both sides some win and protection. However, this provision, coupled with the restricted award amounts is a bitter pill to the BIO/VC community who desperately want their "Jumbo Awards".]

  4. Length of Reauthorization - 14 years, resulting in new sunset dates of September 30, 2022, for SBIR and September 30, 2023, for STTR.

    [ Unlikely to stand, but since adjustments to SBIR/STTR legislation can be done at any time, this may be agreed to.]

  5. Agency Administrative Funding - Not mentioned. [The agencies really want some relief on their admin costs, but if the only way to accomplish this is to raise the cap, it is basically out of one pocket into the other. There is not much chance for additional admin funding coming directly from the SBIR award pool.]

  6. Direct Access to Phase II (bypassing phase I) - A defiant "no no"

  7. Crossover between agencies - A phase I at one agency becoming a phase II at another is permitted.

  8. Crossover between SBIR and STTR - A phase I of SBIR can become a Phase II of STTR, or vice versa.

  9. Commercialization Pilot Program (DoD) - Is supported.

    [ This is a complex and often misunderstood program that requires expert analysis, not within the scope of this report. We hope to have follow up for you soon.]

  10. Commercialization Pilot Program (Civilian Agencies) - A new pilot program that requires expert analysis, not within the scope of this report. We hope to have follow up for you soon.]

  11. FAST/ROP - A refocusing of the Federal & State Technology Partnership Program, and the Rural Outreach Program, that the SBA Administrator may fund up to $5m per year, sans any new appropriation.

  12. Ability of a small business to partner/subcontract or enter into a CRADA with a federal laboratory or FFRDC without the need of an SBA waiver.

    [ In the interest of full disclosure, my company has a working relationship with many of the federal labs, and I'm a supporter of this section. However, there were some abuses in the past that led the SBA in 2002 to disallow subcontracting back to federal facilities, but SBA did create a method by which an agency could submit a waiver for the small business to work with a federal lab. The use of a federal lab on an SBIR project should be for a unique resource.]

Other S. 3362 Items

There are many other items (mostly good) included in this bill. One of the more important is section 102, calling for a reorganization of the SBA's Office of Technology (OT), whose primary responsibilities are the SBIR and STTR programs. Over the years this office has suffered major cuts in budget and staff, was intentionally neutered and rendered ineffective. This bill aims to restore some of the importance and relevance to this office by moving it out from under the contracts department, and making it answerable directly to the SBA Administrator. I only hope they can provide additional funding and resources.

Congresswoman Mary Landrieu (D-LA) recognized the SBA problem and dropped a bill of her own on July 26, 2008, the "Rural Small Business Enhancement Act of 2008", S. 3342. Several of her concerns were picked up in the SBIR reauthorization

Support Comments From SBTC's Jere Glover

"The Senate Small Business and Entrepreneurship Committee has worked hard to come up with a compromise bill that insures this important program continues. Unlike the House bill that makes significant and unnecessary changes to a proven program, S 3362 preserves the basic character and fundamentals of the SBIR."

"As a small firm that has benefited from the SBIR, I urge that you cosponsor S 3362 to reauthorize the SBIR. This is too important a program to let expire."

The SBTC is hosting a reauthorization conference call Thursday July 31, 2008 at 3:00pm edt. Non members are also invited to join us on this call. The phone number is 616-712-8000, and the access code is 727524#.

You can visit the SBTC's newly redesigned web site at www.sbtc.org

Opposition From ASBL's Lloyd Chapman

In a conversation with the American Small Business League President, Lloyd Chapman, he voiced his organization's strong opposition to the passage of S 3362. Mr. Chapman's chief concern is that the bill's compromise on allowing VC ownership and control of a small business establishes a dangerous precedent that BIO, NVCA and others could try to exploit in other areas of federal small business contracting.

Chapman came out in strong opposition to the House's SBIR bill H.R. 5819 for the same reasons, even more so. He told the SBIR Insider not to believe that BIO/NVCA and others only have their sites set on SBIR.

He cited last year's House Small Business Committee bill H.R. 3567, Small Business Investment Act of 1958, which according to former House SBC chair and small business champion, Donald Manzullo (R-IL) "would allow large businesses and universities that establish a VC to potentially game the system to benefit from not just various SBA technology programs but every other SBA loan and procurement assistance program."

You can get more information from the ASBL's web site at www.asbl.com

An Independent View

I appreciate and respect both Glover's and Chapman's view on this bill. However, as strongly opposed as some are (including myself) to BIO's strong armed tactics, you should be aware that without compromise you will have no reauthorization.

The Senate SBE gave NIH almost everything it could ask for, it gave BIO and Bond a lot, but still not enough to satisfy them. I can promise you, without compromise there will be no SBIR program. Several have told me that they would rather see the program end than cut a deal with "those guys."

If the SBIR program is of vital importance to you and your business, please..PLEASE.. talk to your Senators and ask them to cosponsor and support S 3362. Go to www.senate.gov/general/contact_information/senators_cfm.cfm choose your state from the dropdown window on the left, and click on your Senators' name. This will take you to their web site where you can find the contact information for their local or regional offices. I suggest you use the local one because they will be working your districts for much of the month of August (except convention week).

I'm not asking you to do this for me, this is for you and thousands of other small businesses who depend on this program. If SBIR goes away, I'll miss many of you, but I won't miss composing a newsletter such as this at 3:00am.

2008 SBIR Beyond Phase II Conference Extends Hotel Registration Deadline

The DoD, host of the SBIR Beyond Phase II Conference to be held September 2-5, 2008 at the Desert Springs, JW Marriott Resort & Conference Center, Palm Desert, CA, has announced that they have arranged an extension to their Hotel registration room block.

The special rate of $112 for feds and $122 for non-government is good through August 8, or until full, whichever comes first. This block is available on a first come first serve basis, so don't be late in making your reservation.

Some of the speakers include Dr. James Finley, Deputy Under Secretary of Defense for A&T (and a big supporter of CPP), Ms. Sue Payton, Assistant Secretary of the Air Force for Acquisition, Mr. John S. Thackrah, Acting Assistant Secretary of the Navy, Dr. Thomas Killion, Deputy Assistant Secretary of Army for Research and Technology, Mr. Victor W. Hwang, Managing Director, T2 Venture Capital & Director Larta, and Mr. Thomas A. Celucci, Chief Commercialization Officer, United States Department of Homeland Security.

This year's Conference and Exhibition will bring together recent SBIR Phase II award recipients, large Federal contractors, other middle market companies and systems developers, investment firms and companies providing services, products and technology to Phase II awardees.

There will also be a session on reauthorization where you can hear the latest and ask questions.

Check the conference web site for details at: www.beyondphaseii.com

It's very late and I may not be making much sense. Nevertheless, I appreciate your taking the time to read these "SBIR Insiders", and I enjoy, as well as benefit from hearing from 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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