SBIR Insider Newsletter
June 26, 2006 Edition
Dear SBIR Gateway Insider,
I've had several inquires as to why we have provided so much coverage on
the SBA, when this is really an SBIR oriented newsletter. The SBA
has the legislative mandate to provide policy, guidance and oversight to
the 11 federal agencies participating in the SBIR/STTR programs.
This is administered from the SBA's Office of Technology (OT). The
OT is responsible for the creation, periodic updating and publishing of
the SBIR and STTR Policy Directives that are supposed to guide the
agencies in their implementation and administration of the
Many feel that the SBA has abdicated its responsibility in the SBIR/STTR
programs and perhaps more strongly has been derelict in its support of
the OT, thereby rendering it virtually irrelevant to its programs.
SBIR/STTR needs a strong and informed SBA OT in order to help carry out
the legislative mandates to serve the small business community, as well
as the interests/needs of the agencies that are funding the
program. Both the House and Senate are currently working on SBA
In this issue:
Senate Small Business Committee to hold Hearing on Contracting and
Innovation Research Programs
The Senate Committee on Small Business and Entrepreneurship (SBE)
will hold a hearing titled Strengthening Participation Of Small
Businesses In Federal Contracting And Innovation Research
Programs. It will be held in Room 428A of Russell Senate Office
SBA to get New Administrator: Welcome Steven Preston, Good Bye
Wednesday, June 28 [Cancelled - Waiting for new date]. The witness list has not yet been
formulated. You can check the SBE's web site for further
http://sbc.senate.gov/ or send us an email at
and we will update you.
On April 25, 2006 SBA Administrator Hector Barreto tendered his
resignation to President Bush, who quickly accepted it and before the ink
was dry nominated Steven Preston, executive vice president of
ServiceMaster of Chicago, IL as his replacement. In light of
Barreto's dismal SBA management record, a new face is very much welcome
by many. Is Preston the right man for the job? Insiders say
he is a "shoo-in" to get confirmed. Let's give him the
benefit of the doubt and welcome him to what will probably be the biggest
professional challenge of his life, the SBA.
Farewell Administrator Barreto
The Skinny on Preston - Steven Preston is currently an executive
vice president of ServiceMaster Corp, a Fortune 500 organization ($3
billion in sales) based in Chicago with more than 39,000 employees across
the country. ServiceMaster is also a major franchiser with
thousands of small business franchisees. The 45 year old Preston
has been with ServiceMaster since 1997 and has a solid background in
finance. He has helped ServiceMaster in various projects ranging from
strategic planning and mergers to outright major acquisitions.
Preston is not well known in the DC political scene or small business
circles, which made some wonder how he popped up on the President's radar
screen. Speculation is that some years ago, Preston became friends
with former ServiceMaster VP, Claire Buchan, who is currently Chief of
Staff to Commerce Secretary Carlos Gutierrez.
Word on the Street - To date there has been little criticism of
Preston himself, and he has been lauded for excellent work at
ServiceMaster. Preston's supporters say that his financial and
managerial experience is just what the SBA needs. Congressman
Donald Manzullo (R-IL.), chairman of the House Small Business Committee,
said "After speaking with Mr. Preston, I am confident he will meet
and exceed the many challenges he will encounter at the helm of the
By the same token, critics cite his lack of direct experience in small
business and entrepreneurship. Some question whether he can be a
true small business advocate when most of his professional life has been
in the "big leagues" where small business set asides are
generally viewed in negative terms. This fact has not gone
unnoticed by Lloyd Chapman of the American Small Business League who
believes Preston is being brought in by the administration to complete
the shutdown of the SBA that Barreto had been working on.
Senate Small Business Committee Holds Hearing on Steven Preston -
On June 21, 2006 the Senate SBE held a hearing on the nomination of
Steven Preston to be the next SBA administrator. SBE Committee
Chair, Olympia Snowe (R-ME) ran the hearing and was very cordial, but not
short on some tough questions concerning major issues that the SBA is
going through such as the loan problems and assistance to small
businesses obliterated by Katrina.
Although the SBIR program was not a high priority topic at this hearing,
it did come up. Senator Snowe started by allowing Senator Kit Bond
(R-MO) to speak out of turn because he had commitments and could not stay
for the hearing. Bond commenced with a litany of compliments for
Preston, then stated he had something to ask of him. Bond started
in on the SBIR VC eligibility issue and how a recent letter from the NIH
assistant director made a compelling argument for a change in SBA's SBIR
size standard eligibility, and Bond hoped that Preston would address that
issue quickly. (The NIH letter is covered in a separate article
Senator Kerry, ranking member of the SBE committee asked questions
pertinent to Preston's stand on issues that affected small businesses'
ability to compete with large businesses for federal contracting, as well
as eligibility for small business loans and set asides for small
businesses that were franchisees. Kerry probed to try and get an
idea of Preston's methodology but it became apparent that Preston was not
yet ready. Kerry was interested in how Preston would react if a
ruling had to be made in an area that could be construed as a conflict of
interest for Preston (i.e., ServiceMaster and the Comp-Demo program, and
ServiceMaster's lobbying efforts to end small business set-asides in the
areas of landscaping and pest control for DoD contracts). Preston
stated he would abide by SBA counsel's guidance if he had to recuse
Senator David Vitter (R-LA), brought up the SBIR program and stated that
he would like to see the 2.5% R&D fee raised to 5%, as Congress works
for reauthorization of the SBIR. Vitter asked Preston for his
view. Preston said that he has been approached about various issues
concerning SBIR, including the amount that goes into the program,
ownership of the companies, and the geographic focus of the
program. Preston responded, "One message I've gotten very
strongly from members of this committee is: that is something I need to
give my attention to and help understand really how to serve the needs of
the small business community most effectively in this
Preston did a good job of representing himself at this hearing and was
treated very cordially. The majority of the committee is optimistic
about his leadership of the SBA upon confirmation.
For years the SBIR Gateway has been critical of Barreto's decimation
of the SBA's Office of Technology (OT) that oversees the SBIR/STTR
programs. However, the OT is only a small part of SBA, so perhaps
the Gateway was overly critical. Not so, according to other news
sources. In a February 2006, INC magazine article entitled,
"With Friends Like These…," INC referred to Barreto as
"The Disappointment," and the Washington Post
once dubbed him as "the next Michael Brown."
NIH Issues Additional Comments on GAO Report - Expanded VC Eligibility
is Sought After
In defense of Barreto, one of the longest serving SBA administrators, he
was on the receiving end of budget cutbacks of almost 40% over the last
five years. However, in spite of those cuts, Barreto side stepped
much of the desperately needed budgetary help that the Senate SBE
committee tried to give him. Berreto's lack of initiative and
desire to fight for his budget infuriated the SBE committee chair Olympia
Snowe (R-ME) who boldly disagreed with the Administration on the SBA
budget requests,. She worked in a true bipartisan effort with the
committee's ranking member, John Kerry (D-MA), who has been fighting the
Administration's SBA budget cutbacks for years.
Barreto held fast to the mantra of "Doing more with
Less," without regard to overworking and depleting the moral of
the SBA employees. He exhibited no concern for "The Straw
that Broke the Camel's Back," and his agency sank to the point
of having the lowest employee moral of 30 major agencies and departments
within the federal government. As a consequence, the SBA
experienced a mass exodus of valuable senior and middle level personnel,
thereby creating a great additional burden on those who have stayed, not
to mention the tremendous loss of corporate memory.
Barreto is leaving the SBA to become national chairman of The Latino
Coalition, an advocacy group based in Washington, D.C.
On June 16, 2006, Dr. Norka Ruiz Bravo, deputy director for
Extramural Research at the NIH sent GAO a letter with additional comments
on SBA's small business size standard eligibility issue.
DHS's HSARPA SBIR Program Manager Announces Retirement
Dr. Bravo's letter stated that the GAO report did not address NIH's
central concern, that the Small Business Administration's (SBA)
eligibility rules for Small Business Innovation Research (SBIR) are
unduly restrictive and still exclude some business concerns that may
contribute to important medical research, particularly in the
biotechnology sector. Bravo's letter goes on to say, "Although
the GAO report provided data on the role of venture capital investments
in the SBIR program, it did not make recommendations concerning
eligibility for SBIR awards vis-a-vis venture capital
Dr. Bravo and NIH seem to miss the point that Congress ordered the GAO
report to obtain information on awards made by NIH and DoD in fiscal
years 2002 through 2004 and the relationship to the awardees' company
structure/ownership. This was not a request for GAO to provide an
opinion/determination on small business size standards; that's the job of
BIO echos NIH, or is it the other way around? - Contrary to BIO's
claims, the GAO did find that VC backed small businesses do participate
in NIH's SBIR program and that award amounts to these VC backed firms
have increased by 70% from 2001 to 2004. Also firms that had
received venture capital investment, were more likely than firms that had
not received such investment to receive the largest NIH awards (NIH SBIR
awards routinely exceed the amounts specified in the SBA's Policy
Directive, which is allowable under certain circumstances).
GAO also found that firms that had received venture capital investment
were added to the program at a significantly higher rate than those that
had not. For example, at NIH, over the 4-year period, they noted that
participation by firms that had received venture capital investment grew
at a rate of 42 percent, compared to 19 percent for those that had not
received this type of investment. In light of the information
contained in the GAO report, it's hard to buy into Dr. Zerhouni's claim
that the SBA's eligibility policy "substantially damages the
NIH's SBIR program." (Zerhouni letter to H. Barreto, SBA, June
The SBIR Gateway has always supported talks concerning a compromise on
the VC issue. However, BIO, the large special interest big pharma
funded organization that gets big time political access as well as top
NIH access, was not interested in compromise.
Last month, things did not appear to be going BIO's way and they
consented to have talks with the Small Business Technology Council
(SBTC), [with a little arm twisting from some congressional
staffers]. However, just before the meeting, BIO sensed a shift in
their momentum and they called off the talks. Shortly thereafter,
the momentum shifted the other way and suddenly BIO wanted to talk
again. You can't work that way and retain any negotiatory
We will have more on the NIH and the VC issue in a special Insider later
Tim Sharp, the HSARPA SBIR/STTR program manager, has announced that
he will be retiring effective June 30, 2006. Tim seems too young to
retire, but he has over 33 years of government civil service under his
belt. Actually I wouldn't be surprised to see Tim pop up in the
private sector. Keep that in mind if you're looking for a seasoned
veteran of SBIR and DoD Technology Transfer. Sharp ran the Air
Force's Technology Transfer program for many years prior to moving to
HSARPA to set up their SBIR/STTR program.
Tibbetts Award Nominations Close July 15, 2006
There is a major reorganization going on at DHS and HSARPA, and it is
unknown what direction the SBIR/STTR program will take. Over the
past few months, sources have reported that DHS may close down HSARPA and
move it to ORD. Then we heard ORD would close and move its programs
to HSARPA. We are not sure how this will affect HSARPA's 06.2 SBIR
solicitation which should be almost ready for prerelease. We'll
find out and report back.
Nominations are still open for the 2006 Tibbetts Awards.
Nomination packages and complete information is available on their web
www.tibbettsawards.org The Tibbetts Awards program will be held
September 26, 2006 at the Wyndham Washington, DC.
Thank you for your interest and I look forward to your comments.
40 Alderwood Dr.
Sequim, WA 98382
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