July 10, 2002

Jim and Gail:

I have read your note regarding the draft SBIR Policy Directive (PD) and its treatment of SBIR subawards to federal agencies. I strongly SUPPORT the present draft PD language on this subject, and DISAGREE with your objections.

I addressed this issue in my comments on the draft PD on 4 June 2001.

My view remains essentially as I stated it in my 4 June 2001 comments regarding the initial draft PD. The gut issue is real and apparent risk of conflict of interest in SBIR proposal evaluation and selection. In the case of DOE (as well as other agencies, e.g., DOD and NASA), the risk is too high. At DOE, the FFRDC's often play an integral role in topic definition as well as proposal evaluation and award selection. Person benefiting from subawards to federal agencies also may play a key role in deciding award winners. The risk of COI is too high to allow subawards to federal agencies.

In some cases, it MAY BE (although I am far from certain of it) that an agency can clearly establish and demonstrate a "firewall" between agency subawards and the proposal evaluation and selection process - in that case, subawards back to the agency might be okay. I believe this is not possible at DOE, nor at some other agencies (e.g., DOD and NASA).

Clearly, DOE and its FFRDC's have a vested interest in being allowed to receive SBIR subawards - the SBIR Program monies are now significant - even to the agencies. Indeed, it is clear that some agencies view SBIR resources as a potential mechanism to fund agency lab operations if subawards could be made allowable.

I strongly believe the best interests of small businesses and the SBIR Program will be served by restricting subawards back to the agencies as prescribed in the present draft PD language. The SBIR Program is for small businesses, not the federal agencies. We need to keep it that way.

Let me address your specific comments:

1. Restricting SBIR subawards to federal agencies DOES NOT AFFECT the ability of small businesses to work with agency laboratories through CRADA and similar arrangements. In fact, the CRADA path is better for small businesses because precious SBIR resources remain with the small businesses while still providing access to federal agency resources. The primary beneficiaries of subawards to agencies are the agencies themselves. Since the DOE lab budgets are orders of magnitude larger ($25B???) than the SBIR Program ($1B), it seems reasonable that DOE and other federal agencies support small businesses through CRADA arrangements rather than recapturing SBIR resources through subawards.

2. The waiver system is indeed cumbersome - as it should be. I hope that waivers are only very rarely granted. My concern is that waivers will become routine, as is now the case in granting awards with funding substantially above the statutory funding ceilings.

3. Small businesses are clearly on record in favor of NOT allowing subawards back to the agencies. My understanding is that primary objections to restrictions on subawards back to agencies are coming from those with vested interests in federal agencies, especially the DOE labs. I am not aware of any objections from small businesses to the proposed restrictions.

4. Cross-agency subawards have the same problems as intra-agency subawards, and could be approved under the proposed SBA waiver system.

5. There is no meaningful comparison between the role of universities and federal agencies in the SBIR process. Federal agencies define topics, evaluate proposals and select awards. Universities at most support peer proposal review in the SBIR competition process. The federal agencies are the customers, universities are technology resources only. There is no inherent conflict in subawards to universities, while there is clear potential conflict in subawards to federal agencies.

6. I agree that inconsistencies should be ironed out.

7. The draft PD was first published in the Federal Register on 18 May 2001, and has been widely discussed in SBIR circles since then. There has been more than enough time for public comment.

In summary, small businesses and the SBIR Program will be served best by restricting subawards to federal agencies. This restriction in no way limits the ability of small businesses to benefit from federal agency and laboratory resources through CRADAs and similar vehicles.

Sincerely,

Chris Busch