This SBIR Insider issue has something for everyone. I guarantee that it will stimulate conversations in the SBIR and STTR arenas.
Much, but not all, of our coverage is about the Senate Committee on Small Business & Entrepreneurship (SBE) mark up session on the SBA Reauthorization Bill of 2006. The session, held Thursday, July 27, 2006 was very important but barely achieved a quorum. There were several hearings in other committees that also required the attention of several Senators on the SBE committee.
Most of the work on this bill was done in a very bi-partisan spirit, under the leadership of the committee Chair, Olympia Snowe (R-ME) and Ranking Member, John Kerry (D-MA). However, none of this work could have been done without the excellent staffs on both sides of the aisle.
No matter how bi-partisan this effort may have been, we can look back to a similar committee SBA mark up in 2003 where seven major acts or bills were later removed by Senate in a partisan manner. That being said, here are some of the areas of interest to the SBIR community.
This session was described by some SBIR Insider sources as having an "unusual" or even "weird" environment. It will be most interesting to see how the full Senate reacts to the bill, and even more interesting will be the reaction of the House.
SBIR Funding Increase: The committee voted to raise the SBIR set aside funding level, or cap from the current 2.5% of an agency’s extramural R&D budget, to 3.5% in FY-2007 and FY-2008, and to not less than 5% in FY-2009 and thereafter. Although much of the SBIR community will welcome this with glee, many of the agencies (who view this as a "tax increase") are ready to "take off the gloves" to fight against this.
Senator Evan Bayh (D-IN) proposed such an increase in his Small Business Growth Initiative Act of 2005, S 2111 back in December of 2005. His plan called for a slower graduated implementation of the increase, and the agencies howled. This time, look for them to bite.
STTR Funding Increase: Similar to the SBIR increase above, the STTR will be graduated from it’s current 0.3% to 0.5% for FY-2007 and thereafter.
Increase in SBIR and STTR Award Levels: Both SBIR and STTR Phase I awards will be raised from $100,000 to $150,000, and phase II will go from $750,000 to $1,250.000.
Much has been made about the NIH’s "Jumbo Awards," often far in excess of the original guidelines. However, awards exceeding the policy directive were not the exclusive domain of the NIH. The DoD had made larger awards as well, but not as routinely as NIH. The SBA policy directive allowed larger awards if justification was made at the end of the FY.
However, realizing that there are occasions when an agency may need to make a larger award in order to help insure a positive result, the committee has decided to include a provision allowing an agency to award up to 50% more than the recommended levels (i.e., $225,000 phase I and $1,875.000 for phase II).
We have not seen a provision to limit the number of times or the rules by which an agency may exceed the award base. In February of 2006, Congressman Bud Cramer (D-AL) introduced H.R.4684 that raised the SBIR award amounts to $145,000 in phase I and $1,010,000, but capped them at that level by using the verbiage "not to exceed," with no provision for exceptions. That bill was never acted on.
More Frequent Adjustment for Inflation: The SBA had the responsibility to adjust the award amounts every 5 years for inflation. Because the SBA has chosen not to perform that task, Congress is doing it for them, as shown above. However, from this point forward, the SBA is to reconsider award amounts every year and adjust to keep up with inflation.
Biotechs Saved from Destruction by Bond & BIO: The B&B boys are probably celebrating with B&B (Brandy and Benedictine), giving toasts to saving America’s Biotechs! The Bond/BIO amendment passed, thereby giving VC owned and controlled entities full access to SBIR, without regard to size of the owners. This had to be done because biotechs with promising life saving technologies were dropping like flies, or so the B&B’s would have you believe. Even at a recent SBE hearing on the subject, one biotech witness was complaining about not being eligible for NIH SBIR funding because he had accepted a mere $40 million in VC funding.
The good news is that this will only cost the SBIR program a scant 25% of the total SBIR award pot (that’s a safety net figure, not to exceed), and Johns Hopkins and MIT will sleep better knowing they don’t have to compete with these entities. Small biotechs will save money too, because they won’t have to bother to try and compete with these Goliath (funded) entities.
Seriously, I do want to acknowledge the hard work of several staffers who fought and to some degree, accomplished a compromise because this bill could have been 100% instead of the 25%.
Oh, by the way, one minor additional point. There is no mention of biotech nor NIH in Bond’s bill, so these VC controlled entities can play in all eleven SBIR agencies and in any topic. We will have the full details on the Bond amendment on the SBIR Gateway soon.
Intellectual Property Protections for Small Business Innovations: Known by some as the Jere Glover amendment, this reinforces data rights protection for SBIR and STTR awardees. Under this provision the Night Vision Case (see U.S. Court Decision) would be overturned because the Court of Federal Claims relied on FAR for data rights rather than the SBIR statute that excludes prototypes from FAR’s data rights protections.
Subcontracting with Federal Laboratories by SBIR Awardees: Do to some "unsavory" acts a few years ago at a couple of federal agencies, the SBA issued a policy to disallow a small business from using SBIR dollars to subcontract to a federal laboratory for a portion of their research work. This removed some world class research facilities from the reach of small businesses.
The new revision will allow a small business to subcontract with a federal laboratory without having to seek a wavier from the SBA. There will be appropriate protections to insure that the agencies are not requiring the small business to partner with one of their laboratories, and that the percentage of the subcontract is within a reasonable tolerance.
Reauthorization and Enhancement of FAST and ROP: This reauthorizes the Federal and State Program (FAST) Program and the Rural Outreach Program, and increases the authorization to $5,000,000. The Senate’s SBE committee fought for this before and the SBA just side stepped it. SBA has a new Administrator and perhaps he will be more responsive.
Encouraging Innovation in Energy Efficiency: Not unlike the President’s Executive Order 13329 Encouraging Innovation in Manufacturing, this SBE provision would instruct federal agencies to place a high priority on energy efficiency projects in SBIR.
This is only a thumbnail of the overall SBA reauthorization bill by the SBE. We will have additional in-depth coverage on the this bill when it becomes available.