SBIR Gateway

SBIR Insider Newsletter
February 28, 2011



Dear SBIR Insider,

We have some important ground to cover, some good and some not so good. Lots of information you may want to pass on to your representatives to get the House to support a reasonable SBIR reauthorization. The Senate is well on it's way as you will see.

In this issue:

The Potential Consequences of a Government Shutdown to SBIR companies

A simple equation here is that most government contracts and grants (including SBIR/STTR) are subject to the availability of funds. If the government is shutdown, your federal money spigot gets turned off and you will most likely receive a type of stop work order. Usually your award funding will be continued once congress restores the government funding, depending on the agency and type of award. You should receive notification from the agency to continue.

At the time of this writing, nobody can tell for certain if we will have a federal government shutdown in the near future. As we speak, congress is working on a 2 week continuing resolution (CR) to keep the government funded. The caveat here is that the 2 week CR may have a $4 billion reduction attached to it. Our two parties, both houses of congress and the President must come to a decision this week or the government will have a temporary shutdown starting March 4 (considered unlikely but possible).

How/if these budget cuts for the current fiscal year may affect federal extramural R&D, will determine adjustments to SBIR/STTR program funds. This makes it tough for the agencies and tough for you.

Other factors for potential shutdown if the 2 week CR is enacted, includes a budget for the remainder of the fiscal year (perhaps more CRs..) and the agreement to raise the debt ceiling when we reach it (should be soon). There may be a fight over this as well.

In all likelihood, federal R&D budgets should be ok for now, so you should be safe. But look for agencies to be very cautious in their future budgeting. Once our illustrious congress finishes the remainder of the FY-2011 budget (which was supposed to be enacted October 1, 2010), they will start working on the FY-2012 budget.

Senate Committee on Small Business & Entrepreneurship Holds SBIR/STTR Reauthorization Hearing

On February 17, 2011 the Senate Committee on Small Business & Entrepreneurship (SBE) held what had to be one of the finest SBIR/STTR hearings in many years. Committee chair, Mary Landrieu (D-LA), and ranking member Olympia Snowe (R-ME) lined up a balanced group of witnesses who gave insightful testimony.

It was a great 2 hour hearing with excellent testimony and the SBIR Insider is making it available to you in segments so you can easily view and hear the portions you are interested in. Go to our SBIR video site at www.sbir.tv You must be able to access Youtube in order to watch the videos. The video of entire hearing and copies of testimony are available from the SBE's web site at http://sbc.senate.gov/public/index.cfm?p=Hearings

Witnesses included Dr. Charles Wessner of the National Academies, Dr. Irwin Jacobs, co-founder of Qualcomm, Dr. Matthew Silver, Cambrian Innovation, Mr. Joe Hernandez, Signal Genetics (on behalf of BIO), and Mr. Jere Glover, SBTC.

It certainly appears that the BIO/SBTC VC compromise that the committee hammered out last year, is again agreed to. This removes one of the biggest obstacles to SBIR/STTR reauthorization. The question in the SBIR Insider's mind is if will hold up in the House.

Although he has been a witness several times in the past, Dr. Charles Wessner of the National Academies, was never better. He led the most comprehensive study the SBIR program has ever known. The research included more than 7,000 projects including 100 case studies by 30 reviewers, 20 people on the research team and 20 people on the committee.

Here are a few of Wessner's statements and his committee findings:

"The rest of the world thinks the SBIR program is the greatest thing since sliced bread. I could put up a list of 10 countries that have copied this program. And there's a source of dismay to us, the rest of the world is copying it, putting it on steroids, while we're debating it."

"The program brings in over a third new companies every year. This is really extraordinary, it is not captured by a small group."

"20% of the companies are created because of the awards bringing things out of the research community into the market.... It encourages partnering with the university community."

"Almost 50% of the firms that get awards reach the market and those numbers are going up."

"Should we put more money into it? This is the academy finding...... We can tell you that if you put more money in this program it will be used effectively."

"Let me close by Saying that SBIRs are an outstanding innovation program. And I would urge you with all my heart and all our expertise to reauthorize this program and to get this on the president's desk for a sustained period of time, that stability is very important."

The passion that Dr. Wessner puts in this testimony is extraordinary. It really should be viewed (see www.sbir.tv)

Here are some important statements by Dr. Irwin Jacobs, co-founder of Qualcomm, an early and great SBIR Success Story

"As I will discuss further in my testimony, the SBIR program was among the critical factors that contributed to Qualcomm’s early success – those factors that took us from a small startup a quarter century ago with a group of employees that could fit in a den to the Qualcomm of today, the world’s largest fabless semiconductor company with over 17,500 employees in offices around the world and annual revenues of $11 billion."

"Qualcomm began with a meeting of our seven founders in my den in San Diego in July 1985. We started small and without any specific product in mind, but with the determination to innovate in digital wireless communications."

"The value and importance of SBIR funding at a critical point in Qualcomm’s earliest days should not be underestimated. Cutting-edge research leads to breakthrough discoveries, but in order for companies to attract private funding, they need support to prove the feasibility of new and often risky and unproven technologies. For Qualcomm, SBIR provided one source of that critical start-up funding. And while it was not the only source of funding for us at the time, it was one of the critical "stamps of approval" that allowed us to successfully pursue sources of private capital."

"By any measure, those SBIR investments by the federal government have paid enormous dividends to the taxpayers. Qualcomm paid federal income tax of $1.4 billion in FY 2010 alone, and this does not include the personal federal income taxes paid by the thousands of Qualcomm employees."

Jere Glover's testimony for the SBTC and NSBA is rich in statistics. It is 26 pages long, 14 of which are footnotes and appendices. Some highlights include:

Why can’t small business obtain a larger share of the Federal R&D funds without an "allocation" program? This is a great question that was answered in the 1978 Senate-House joint hearings referenced above and the Senate hearings of 1982. What Congress found were the following market structural problems that prohibited a "freemarket" competition for Federal R&D funds:

a. Small businesses were always at a disadvantage when competing with large companies or universities for research projects – because Federal Program Managers and Contracting Officers would always take the safe bet for their careers – the large companies or universities. Who could criticize a career civil servant for choosing MIT or IBM over "Jane and Joe Smith’s 5-person R&D shop?"

b. Universities had an "inside track" for almost all Federal R&D contracts because many of the decision makers and peer-review panels were staffed with university employees on loan to the agencies conducting the research. These individuals have a bias toward their fellow academics.

c. Universities and large businesses have dedicated marketing organizations that are often larger than the entire technical staffs of the competing small companies and therefore are able to obtain "inside tracks" on procurements. For these reasons, Congress in 1982 and 1992, with a strong history of full and open hearings going back to 1978, and with great bipartisan support passed and enlarged the SBIR program to correct this distortion in the Federal R&D funding market.

Go to www.sbir.tv for all the videos or go to http://sbc.senate.gov/public/index.cfm?p=Hearings for the uncut 2 hour version and the written testimony.

Issues From the Hearing – University Opposition to Increase Allocation

A significant portion of the university community is gearing up for intense opposition to the SBIR reauthorization including the Senate's proposed SBIR increase from 2.5% to 3.5% over 10 years, and STTR from 0.3% to 0.6% over 10 years. This is in spite of the fact that there has not been an increase in allocation since 1996.

The university community was at war against the SBIR and STTR programs from the beginning. Their major lobbying efforts were to try and paint a picture of greedy small businesses taking away the universities research dollars, thereby preventing solutions to important problems.

Note from the SBIR Insider's secret squirrel: "So irate and threatened were these university leaders (in the early days) that they engaged in the underhanded tactic to try to get Roland Tibbetts (the architect and father of the SBIR program) fired from the NSF!" Tibbetts initial SBIR proposal called for a 5% allocation which the universities played a major role in reducing to 1.5% at that time.

These university tactics have not changed much since the beginning, as noted by Senator Ben Cardin (D-MD) at this hearing:

"If you don't think the universities and large tech firms have some sway here, take a look at the recovery act and see the exemption that was put in for the SBIR programs. That was a major disappointment and it came out ... were still wondering to this day how that came about."

Furthering their claims of greedy small businesses, the universities complained about what they termed "Proposal Mills" later modifying that term to "Award Hogs" meaning multiple award winners. Three of the five witnesses were from private sector businesses and they all (including Qualcomm) talked favorably about the importance of winning multiple awards.

Then Dr. Wessner, who authored the report "The Myth of the Mills" went on to say about the claims: "Basically this is an urban myth. There are a very limited number of high volume multiple awardees. Keep in mind as the program goes past 25 years it should not be a real surprise that there are more and more companies with more and more awards."

"When MIT gets a large number of awards, this is good, just and right, and indeed it probably is. When Lockheed Martin gets lots of major contracts this is good, just and right. When a small company gets a number of …awards…there is something wrong."

Dr. Wessner was asked about his views on the University Pushback to a rise in the SBIR allocation:

"I think we have to remember that old adage of what you see depends on where you sit. When you ask the vice provost for research in a major university, he will explain that SBIR takes his money from his programs. Then walk down the hall to the vice provost for commercialization and he will explain to you that SBIR is one of the most valuable tools we have to convert our research into products for the marketplace."

"The universities are a little bit schizophrenic. On the one hand they value it [SBIR] for the commercialization, and on the other hand they obviously want more funds for their research. What I would suggest you point out to them .. what is the most compelling story to a senator or a congressman... that there is a brand new publication in a peer reviewed journal, or that there are 25 people working in a new company called Qualcomm in their district. I think that latter story is the most effective. It shows how we convert research into jobs and into growth and into technological capacity and indeed into national security."

The bottom line here is that the universities and SBIR can and often do work well together, and indeed need each other. Not all universities are against the proposed increase, but on the basis of skewed data, many universities jump on the anti-increase bandwagon.

It should be noted that several House staffers were in the audience at this hearing and one can only hope they take some of the good testimony and ideas back with them to the House.

SBA's 2011 SBIR Tibbetts Awards & Hall of Fame

A small and dedicated staff under the direction of Sean Greene pulled off a near miracle by facilitating the 2011 SBIR Tibbetts Awards on a very short time leash.

This is the first time since 2002 that the SBA hosted this award program and they made awards to 44 small businesses and 8 individuals. Everything went well and it was a nice piece of work.

Also, new to the scene was the founding of an SBIR Hall of Fame, a vision crafted by Greene. I will admit to you that I was "tepid" on the vision that Mr. Greene had but the concept and event (held at the White House) was excellent! I was wrong and Sean was right, in showing me the eggs can be smarter than the chickens (somewhat lame but pertinent inside joke).

You can view the winners on the SBA web site at: www.sba.gov/content/sba-announces-winners-2011-tibbetts-awards

Congratulations to the SBA and staff who worked very hard to make this possible.

Waste, Fraud & Abuse Update

This is such an important topic that it will require a special issue of the SBIR Insider. You may not think this as of importance to you, but I guarantee you it is. This week we have reports of two cases, one in Florida and one in Arizona.

In one case the evidence was pretty straight forward against the small business and the government prevailed. Yes, we want them to get the bad guys!

In the other case (this one part of the False Claims Act), the evidence was weak to nonexistent because there was no fraud, but the government for reasons unknown, decided to keep pursuing the case, trying to run the company and its owners out of business, in spite of the fact they had not committed fraud, and the government clients were very satisfied with their work and outcomes of their SBIRs.

In what could best be described as "excessive use of force" by the government, this company fought back. Although the government lost against them in the debarment case, the government continued to try and pull legal maneuvers to bury the company. A full 2 week trial ensued and in less than 2 hours the jury returned with unanimous not guilty verdicts on all counts.

Yes, the company won, but at what cost? There is no recourse to recoup legal fees, and nothing that can be done to the individuals in the government who appeared to be, at the least, guilty of malfeasance.

The damage done to these owners is no less than when a policeman goes berserk and beats the "tar" out someone he considers to be a "perp". In those cases there is a path to recourse for excessive use of force. Why is their no such remedy for judicial excessive use of force?

We'll have details for you in the next issue.

SBIR Gateway's DoD STTR Partnering

There is still a little time to try and find a research partner for the DoD's FY-11A STTR solicitation which closes March 30. You'll find it at www.zyn.com/sbir/sttr_partnering.htm

National SBIR Spring Conference – April 10-13, Madison, WI

Don't forget about this important National SBIR conference, "Growing the Innovation Ecosystem." You'll find complete details on their web site at http://conferencing.uwex.edu/conferences/sbir2011

We hear that Wisconsin will be back to normal by then!

Many of you asked for this so we are trying it. This issue is in HTML format so it may be easier to read. However, I'm not crazy about it because there is too much possibility for malware transmission, but the print and formatting are better than just text. So let's see how this works 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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