SBIR Gateway

SBIR Insider Newsletter
Fudging Budgets, the New SBIR Black Book and How You May Become a Victim
September 9, 2013

Dear SBIR Insider,

There is some activity going on that could have major impact (mostly negative) on the small businesses that participate in the SBIR and STTR programs. A new commercialization benchmark could put you in an SBIR Black Book (perhaps better described as an SBIR Penalty Box). We'll explain.

There is also fallout for SBIR and STTR programs due to the condition of our country's budget, or lack thereof, and our elected officials being more interested in letting things crash, than trying to fix the situation.

Speaking of budgets, a recent GAO report shows that 9 out of 11 federal agencies with SBIR programs are not in compliance with their SBIR funding allocations.

In the mean time we are hearing from more and more companies that in spite of SBIR reauthorization, small businesses are questioning the value of continuing to participate in the program due to increased programmatic red tape, new burdensome regulations, and a perceived reduction in success rates.

In this issue:

SBA Publishes SBIR / STTR Commercialization Benchmark - Your Company's SBIR Future Could be in Peril

Did you know that a new statute in the SBIR reauthorization could send your company to the new SBIR / STTR "Penalty Box" that would make your company ineligible to participate in SBIR/STTR for 1 year, based retroactively on things you did (or in this case didn't do) up to 10 years ago?

On August 8, 2013 (the height of vacation time for many) the SBA "quietly" published their SBIR & STTR Commercialization Benchmark to become effective October 7, 2013. SBA allowed 30 days for comments which ends today September 9, 2013. I say "quietly published" because there was no mention on SBIR.GOV, nor the SBA.GOV press releases, nor the SBA Office of Innovation and SBIR pages.

Many of us (your Insider included) missed this, and that includes the well seasoned among us. Only 1 comment was given to SBA until a few days ago. It was eagle eye Jim Greenwood, of Greenwood Consulting who first noticed this a few weeks ago and sounded the alarm by spreading the word via his extensive email list. At the time of this writing only 6 comments have been made, and none of those are available for viewing.

In essence, this benchmark makes small businesses ineligible to participate in SBIR/STTR for 1 year, based upon your firm's rate of "commercialization" of your SBIR/STTR projects. Commercialization is in quotes because the SBA's definition of commercialization in this benchmark, differs from the definition in the law as stated by congress, as well as SBA's own policy directive.

Here are some of the major sticking points:

SBA has published this as if the commercialization rate for a company is measured across all the agencies that the company deals with. This is NOT what the law states! Your commercialization rate is measured on an agency by agency basis, i.e.:

15 USC 638 (qq) Minimum standards for participation,

(1) (B) Consequence of failure to meet minimum commercialization rate:

If the head of a Federal agency determines that a small business concern that received a Phase I SBIR or STTR award from the agency is not meeting the minimum performance standard established under subparagraph (A)(ii), such concern may not participate in Phase I (or Phase II if under the authority of subsection (cc)) of the SBIR or STTR program "OF THAT AGENCY" during the 1-year period beginning on the date on which such determination is made.

This is echoed in 15 USC 638 (qq)(2)(B).

However, there are some government folks who believe that since 15 USC 638 (qq)(3) Administration Oversight, is given to the SBA to track all agency commercialization rates, the minimum commercialization rate, and associated activity related to it are to be measured in the aggregate across all agencies.

SBA is making the rule retroactive in applying the benchmark to what a company did up to 10 years previous!

The SBA's notice didn't comply with the Regulatory Flexibility Act, or the Paperwork Reduction Act which is designed (amongst other things) to give the relevant parties (you) some input to the agency before the rule is even put out for comment. SBA should consider what additional burdens are being put on the small business and how can they be minimized.

There is no Appeal or Remedy process for a firm or agency in instances where the benchmark may be inappropriate. You get put in a "black book" for a year unable to compete in an SBIR/STTR program in spite of extenuating circumstances.

There are many more items beyond the scope of this Insider issue but suffice to say that at the very least the SBA should extend the comment period so this commercialization benchmark can be adequately discussed.

The comment period closes at 11:59pm edt Monday September 9, 2013. It would be helpful for you to comment (immediately) to SBA at:!documentDetail;D=SBA-2013-0008-0001 even if you just urge them to extend the comment period! You can alternatively send an email:

To: [email protected]

Subject: SBIR / STTR Commercialization Benchmark [Docket Number: 20130008]

(At a minimum I would suggest you say something like: )

Due to the complexities and extenuating circumstances surrounding the SBIR / STTR Commercialization Benchmark, please extend the comment period for an additional 30 days so as to accept additional informed comments from my company and other small businesses.

The SBA is not necessarily "the bad guy" in this. They have more work with limited resources than they can handle. That's why they need the small businesses help, and input. However, your input creates additional work for them. You need to show SBA that this extra work is necessary, and that you appreciate their efforts when they respond.

A note to some of our government insider readers: You may disagree with what is written here but keep in mind that you (the program PMs) know more of the intent behind the words because you've discussed it with SBA. But it is the content in the writing that counts. Administrations change and so does agency leadership (even at lower management levels), so we are very sensitive to the wording in these documents and the inclusion of intent, vis a vis an appeal process to the black book. Although some of you believe an appeal process to exist, most of us don't see it in the language.

If SBA chooses to ignore the pleas for extension of comment time, the benchmark becomes effective on October 7, 2013.

The Decline in SBIR Funding, Awards and Topics

There is no doubt about it, these tough financial times have taken their toll on everything including SBIR and it looks to get worse for FY-2014. At the DoD it has even affected the number of topics. For example, if we look at the DoD's current FY-13.3 SBIR we see about 36 topics, down from 71 from last year's FY-12.3.

The NIH was less severely hit than the DoD, nevertheless even with the increased SBIR allocation of 2.7%, FY-13 is down to $697M from $717M in FY-12.

In addition to the budget problems, we see that 8 of the 11 agencies have not been complying with spending requirements (the SBIR allocations) for fiscal years 2006 to 2011. This also includes 4 out of 5 in STTR.

The GAO reports:

In calculating their annual spending requirements for these programs, some agencies made improper exclusions from their extramural research and development (R&D) budgets and used differing methodologies. SBA, which oversees the programs, provided guidance in policy directives for agencies on calculating these requirements, but the directives do not provide guidance on calculating the requirements when appropriations are late and spending is delayed, resulting in agencies using differing methodologies.

I highlighted GAO's "when appropriations are late and spending is delayed" because these delayed appropriations, and/or continuing resolutions (CR) due to an inept congress and administration, have wreaked havoc on SBIR funding because some agencies believe SBIR funding is not included in a CR. After some internal fighting, we've seem some agencies relent, and begrudgingly restore a portion (not necessarily the full amount) of the SBIR funding out of the CR.

The full GAO report is available at

SBIR Gateway Opens NASA STTR Partnering Site

In the past we have experimented with a mechanism to help small businesses and research institutions such as universities FFRDCs and non-profits find each other to partner on a DoD STTR topic. Unfortunately the time is always too short (30 days) to make a good partnership.

NASA asked if we would be interested in trying this partnering mechanism for their upcoming NASA STTR expected to be released in November. NASA cannot pre-release their topics but they told me their STTR topics would be very similar to last year's, and perhaps the act of starting partnerships could be made on the basis of last years topics.

I told them I'd give it a try. So the ball is in your court. Small businesses, Universities, FFRDCs, and non-profits can go to and look at last year's NASA STTR topics, and register your organization's interest in partnering on a topic by topic basis. There are 20 topics to choose from. The mechanism is very simple.

This is not an official NASA effort, and as always, this is a free service (to everyone including the agency) from Zyn Systems. There is no advertising, tracking or costs to anyone. We just want these programs to be successful for you and the government.

Complete instructions are on the web site.

Closing Thoughts

The good news is that most of the agency SBIR leaders and staff are working harder than ever to keep the program strong as possible. My concern is that for FY-13 we had about $82B in sequester cuts and FY-14 is estimated to be about $109B. The government tried their creative financing in FY-13 by cutting programs, reducing staff, restricting other costs, and giving staff the gift of unpaid furloughs.

Congress needs to wake up. Just this morning, SBIR friend and champion, Max Kidalov from the Naval Post Graduate School (and former staffer to Senator Olympia Snowe) sent me a link to an article in yesterday's Defense News entitled "US Looking Overseas to Help Prop Up R&D". Max sent the link to us as an FYI and offered no commentary on the article.

The article opens with: "Facing budget pressures that could limit agency spending and industry reticence at investing company funds, the US Defense Department is looking at how it can join with overseas partners, both countries and companies, to support research and development (R&D)."

That should bring a chill to our ITAR community! The article is available at

Hopefully I can bring you some happy news in the next issue, but right now I'm fighting the urge to unsubscribe from my own publication ;)



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

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