A few important announcements before my open letter to SBA. The SBA's SBIR and STTR Policy Directive (PD) should be released Thursday or Friday of this week. It is supposed to become effective immediately but the agencies will have to see how things "fit"
before they jump in. Most of the agencies have been planning for PD adoption based on the last draft, but most have not seen the interim final product. Once it is released, we'll have to study it for a few days before we can discuss the details. Expect a 60 day public comment period, and there will be many!
The Army's goals of the RIF reflect DoD's emphasis on rapid, responsive acquisition and the engagement of small, innovative businesses in solving defense needs.
Dear Ms. Mills, top level bureaucrats, the good people in the SBA trenches, and my valued readers:
I offer this open letter to you because the regulations.gov web site failed to take my comments on the SBA's proposed rule, RIN: 3245-AG46 (I received many complaints from my readers with similar experience). Consequently, I am writing this to you in a manner by which it will get read, even if not considered by SBA as a comment.
The SBA has been serving the U.S. small business community for more than 59 years, many of which were of supreme importance to the growth and well being of our American small businesses.
The ebb and flow of SBA's effectiveness has varied throughout the years, often affected by the mood and wishes of congress, the administration, the President and his appointees who lead the SBA. I have been a supporter of SBA for more than 25 years, even during the "dark periods" of the SBA's Hector Barreto administration. You may remember that the Washington Post once called Barreto "the next Michael Brown."
That being said, the SBA is now proposing something so bad and harmful, that they are making Barreto look good!. Of course you know I'm referencing the complex, obfuscating and unnecessary language in your proposed rule that defines a "domestic business concern." This is done in such a manner that would allow a Creaton such as Iran's Ahmadinejad to easily establish a U.S. domestic business concern and structure it in a way that you wouldn't even know it was allowing him to get SBIR business.
Admittedly that example is melodramatic, but can you explain to our community why you even brought this "ill defined" term "domestic business concern" into the SBIR program? The SBIR program has always had its own size standard rules (see 13 CFR 121.701 through 13 CFR 121.705) and the term "domestic" has never been used!
SBA brings up 13 CFR 121.103 "How does SBA determine affiliation?" which is appropriate as the code defines this as "Provisions of General Applicability", (to all SBA programs) and again there is no "domestic business concern" but there is a mention of determining the concern's size (not overall eligibility) by counting receipts and number of employees of domestic and foreign affiliates.
To add insult to injury, the same loophole that could be used by a foreign concern, could be used by a large U.S. concern thereby allowing them "hidden" majority ownership of a small business that is still eligible for SBIR/STTR awards, and not be counted against the 25%/15% VC, Hedge Fund, Private Equity ownership allowance (winning SBIR awards).
In spite of congressional language that states: " the SBIR program is "… a program for small business concerns in the United States by prohibiting large businesses or large entities or foreign-owned entities from participation in the program., " the SBA language enables the opposite.
In a recent NY Times article, journalist Robb Mandelbaum interviewed an SBA official, Sean Greene, who commented: "As for domestic business concerns, Mr. Greene said the agency had to make an exception to the ban on majority foreign ownership so funds with overseas investors could participate under the new law."
I've lauded Mr. Greene in the past but if the quote is accurate (Mandelbaum is an excellent reporter), Greene is dead wrong and in my opinion, out of line on this action. This is contrary to the 59 year mission and goals of the once proud Small Business Administration. I see no directive that gives SBA (or anyone else) the statutory authority to make a company that is majority owned by a foreign entity, to be eligible for SBIR.
On the other hand, SBA has one big supporter who thinks they've done a marvelous job with the language changes. Yes, the Biotechnology Industry Organization (BIO) lauds SBA's efforts in their 17 page diatribe. Why shouldn't they? SBA's language gives them most of what they wanted for years, unlimited large business access to small business SBIR funding, not to mention the foreign ownership angle as well. Many of BIO's largest members (their version of "one percenters") are international companies who sell their drugs at big time prices in the states, while at reduced prices in the rest of the world.
Some in the small biz community have been asked by SBA how to fix what they don't like. The fact is that they shouldn't have to fix what congress didn't give SBA the authority to change. Many of us have fought long and hard, in and out of congress (more than 6 years) to get a reauthorization that we all (small biz, VCs primes and universities) could live with.
That was accomplished, but now the SBA is acting like legislators rather than an agency governed by legislators. Unfortunately the SBA proposed rule obliterates the most important compromises (creating an easy work around to the 25% and 15% VC ceilings) while adding provisions totally contrary to the mission of SBIR/STTR.
The SBA's Chief Counsel for Advocacy, Dr. Winslow Sargeant, who once built and owned an SBIR small business, was an SBIR program manager at NSF, and later became a VC, has a unique perspective on these issues. He gave comments on 3 items: For Eligibility, and Domestic Business Concern, he advised "SBA give full consideration to reviewing the comments of the stakeholders…." For Size Protest he suggested greater clarity for the final rule, and for size eligibility, a return to the current SBA standard (eligibility at time of award) .
In closing, my language is very strong in this letter because I (and others) have reason to believe that SBA will do what they want, and only listen to comments that reinforce some of SBA's desires. I hope I'm wrong and we can work together to make SBIR/STTR a continued success for our small businesses, the agencies, universities, the investment community, and last but not least, our country.