SBIR Gateway

SBIR Insider Newsletter
May 19, 2011

Dear SBIR Insider,

Welcome to Déjà vu land as we once again engage our Continuing Resolution (CR) merry-go-round, but this time with a twist. It's complicated but hopefully you'll understand what is going on.

In brief – At 6:35pm today, May 19, the Senate passed (by unanimous consent) a continuing resolution that would keep the SBIR, STTR and CPP programs going "as is" for 12 months. The House is in recess (on their district work period) and won't attend to this until next week. This CR is significantly different from the previous ones and the House will have several options at their disposal. Let's not count our chickens before they hatch.

There's quite a bit of SBIR material to cover, some of which may be considered salacious, so keep some Dramamine handy in case of nausea.

In this issue:

Senate SBIR Reauthorization Falters but Passes 1 Year SBIR CR

As reported above, the Senate passed S.990, to provide for a additional temporary extension of programs under the Small Business Act and the Small Business Investment Act of 1958, and for other purposes.

However, this CR, the twelfth in a series of SBIR CRs since 2008, is a little different and required more work. You may not be aware but these CRs relate to more SBA programs than just SBIR. The first version of the bill met with resistance that would kill it. The Senate Committee on Small Business & Entrepreneurship chair Mary Landrieu (D-LA) and ranking member Olympia Snowe (R-ME) worked together to address the concerns on the right side of the aisle, mainly Senator Tom Coburn. With some hard work by staffers, Coburn's concerns were addressed and an amendment in the nature of a substitute was accepted and S.990 was passed by unanimous consent.

The bill extends SBIR/STTR/CPP through May 31, 2012 "as is" and reinforces that all awards must be pursuant to competitive and merit-based selection procedures (a major concern of Coburn). There were some other SBA programs not as fortunate as SBIR in this CR.

Meanwhile the Senate's SBIR Reauthorization bill S.493, got bogged down with over 120 non-SBIR related amendments, and a great deal of friction ensued. Ultimately majority leader Harry Reid and Olympia Snowe crossed swords over some issues and it got very ugly. Snowe withdrew her support for what became a behemoth SBIR reauthorization bill which is now most likely dead.

Although it's easy to try and place blame, your SBIR Insider was not going to criticize Snowe because we didn't have all the facts, and you don't turn your back on someone who has strongly supported and fought for the SBIR program from the beginning. There's a good chance that the SBIR program may have lapsed several years ago had it not been for Snowe's cooperation.

All of this has created a less than perfect atmosphere between Snowe and Senator Landrieu, but they did come together for this CR. Few people have worked harder than Landrieu in fighting for SBIR small businesses and we hope the common ground and friendly relationship once forged between Landrieu and Snowe are restored.

House SBIR Reauthorization to be a Non-Starter in Senate and to Many Small Businesses

The House Committee on Science, Space & Technology and the House Small Business Committee are the two House committees with oversight on SBIR/STTR programs. Their SBIR Reauthorization bill H.R.1425 entitled Creating Jobs Through Small Business Innovation Act of 2011 really out to be called Bailing out Billionaires as it attempts to give 45% or more of the SBIR award funds to organizations owned by large Venture Capital Firms, Hedge Funds, and Private Equity Investment Organizations.

VCs are well known to you and the SBIR community, and they have played and continue to play an important role in SBIR (but not in majority ownership). Hedge funds are another matter. Remember last week when oil prices dropped significantly in two days, some hedge fund managers complained that they lost over $400m in those two days, "It's bad for the country" they claimed. Now let's look at private equity funds. The best example I can think of in that realm is Bernie Madoff. In SBIR, the more the Senate gives to the House committees, the more they want, and often get.

To accommodate the House, the Senate raised its compromise for VC majority ownership from 18% for NIH to 25% for NIH, DOE NSF and 15% for the others. Not good enough for Wall Street and the House as they want a minimum of 45% for NIH, DOE NSF & NASA, and 35% for everyone else.

Even at 45% the House bill isn't good enough for Nydia Velazquez, the ranking member of the small business committee, as she wants it unlimited for all VCs. Wait, she does want a limitation, and that is for small businesses that have been very successful in SBIR to be barred from future competition.

Ms. Velazquez offered up amendment #13 Sec. 505. Ensuring Equity In SBIR and STTR Awards to Individual Companies. She's returned to the claim of "Award Hogs" / "Prop Mills", a claim which has been disputed in papers and testimony by Dr. Charles Wessner of the National Academies. In Dr. Wessner's testimony (earlier this year) to the Senate's Committee on Small Business, he stated the following in relation to Mills and Award Hogs:

"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."

There are a number of items in the House legislation that are troubling. It is estimated that the 45% VC allowance could siphon off $886m from SBIR small businesses. There's also an amendment to direct 13% of NIH STTR award dollars to National Labs (Government owned but contractor operated) and Universities for a proof of concept pilot program. The house doesn't want to raise the SBIR allocation, but does want to give the agencies 3% administrative money out of the current 2.5%, estimated to be about $68m. The House retains its direct to phase II awards (phase I not needed, although their bill states "Phase I required"). The house wants a maximum of 3 years for reauthorization, while the Senate wants 8 (down from 14).

On the subject of reauthorization in the House, Velazquez indicated she would push the democrats to vote against the House bill H.R.1425, and her anger is targeted at setting limits such as 45% for her favorite supporters, the VCs. She wants unlimited participation for these Wall Street entities.

Graves is no slouch in his support for his Wall St. interests over that of small businesses. You may recall for several years in a row he authored unsuccessful bills to let VCs have majority ownership in SBIR companies. His attempts included H. R. 4149 in 2004, his famous SABIR Act, H.R. 2943 (Save America's Biotechnology Innovative Research Act of 2005). In a 2008 SBIR reauthorization effort (H.R. 5819), Mr. Graves offered an amendment to make a "slight technical correction" to section 210 of the bill, which was the VC inclusion. His idea of a slight technical correction was to double all provisions for the VCs in section 210.

For all Mr. Graves' Wall street antics (which delighted and were supported by Velazquez and Pelosi when she was Speaker), current Speaker John Boehner (R-OH) always voted on the side of small business in SBIR, all of which were contrary to Graves' votes. Will Speaker Boehner now choose to vote with Graves, Velazquez and Pelosi?

The negatives cited are just the tip of the iceberg. As usual the small business community is getting the "short end" from our congress. Stay tuned and we'll have more in the next week or so.

House Receives Senate SBIR CR

By the time you read this, the House will have received the Senate's 1 year extension to SBIR. The two committees will not be amused as each of these committees want everything in short duration.

These short term CRs have wreaked havoc on the SBIR program. Many companies are being told by the agencies that they like their proposals and would like to fund them, but there is no money currently available. Between the late FY-2011 appropriations, and the uncertainty of SBIR reauthorization, many agency comptrollers have been overly cautious (we're being polite) in releasing SBIR funds. Although the FY-2011 funding faucet is supposed to be turned on, it is still barely dripping, but indicators suggest it's getting better.

If the House tries to make the CR into something short (Velazquez would like to measure in nanoseconds), the funding of the program will again be stressed and small businesses will be put in jeopardy.

Closing Thoughts

The problems with getting SBIR reauthorization is not a partisan issue. It's a funding issue, and these Wall St. interests carry a lot more clout (money to contribute) than the small business community.

In the Senate, a single freshman senator has some clout to block items, but in the House, a freshman has little to none, especially if they don't follow their party lines. For this reason you may have a representative that agrees with you, but if their party leadership wants them to vote in a different direction, guess who wins?

Let's look at Nydia Velazquez. She's not an unintelligent woman, but if her passion is for serving her constituents, (largely an economically poor group of predominately Puerto Ricans) why do they take a back seat to her Wall Street interests? How about Nydia's advocating for women and other minorities? Just what do these Wall street interests do for her constituents? How much VC activity is available to woman, Hispanics, and other minorities?

I'll tell you what these Wall street people do for her, they contribute money, big amounts. Nydia doesn't need the money for her reelection because thanks to Gerrymandering, she will not lose an election. So why is the money important? Because the party needs the money to shore up weak candidates they have in other districts. In turn she (or anyone else in similar circumstances) is given an important position or assignment to a committee.

That's the battle our small businesses are having in reauthorization. One of the few things that can trump (pardon the expression) money, is large scale unfavorable press. The small biz community needs to stay united and involved. The sheer threat of that unfavorable press could yield positive results.

Thanks for your time and I look forward to hearing from you. It does take me some time to get back to you because of the sheer volume of mail, but I'll always try.



Rick Shindell
SBIR Gateway
Zyn Systems
40 Alderwood Dr.
Sequim, WA 98382
[email protected]

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