BMDO End-run Costs SBIR $73.8M

While 2002 marks the 20th anniversary of the creation of the Small Business Innovation Research (SBIR) Program, it also may be remembered as the first time an agency successfully finagled its way out of SBIR's requirement that 2.5 percent of extramural R&D be awarded to small technology companies.

SSTI sources report the Ballistic Missile Defense Organization (BMDO) managed to insert in the FY 2002 Defense Appropriations Act language rescinding 49.6 percent — $73.8 million — of the agency's SBIR obligation for FY 2002.

The SBIR program typically awards up to $750,000 directly to small firms for research and development leading to the commercialization of new technologies. BMDO is one of eight defense components required to participate in the small-business set-aside.

Newly renamed the Missile Defense Agency, BMDO received a substantial increase in its overall research, development, test and evaluation line item, which would have resulted in the organization's SBIR program growing from approximately $80 million in FY 2001 to $148.8 million for the current fiscal year. With the rescission, the program will have $75 million available in FY 2002, a decline of $5 million over FY 2001.

Based on past BMDO SBIR activities, the impact of the $73.8 million cut will be felt across much of the U.S, as companies in 34 states received Phase I awards from BMDO in FY 2001 (complete statistics and lists of winners are available on the BMDO SBIR website: http://www.winbmdo.com/). Proposals for the FY 2002 Phase I solicitation are due next Wednesday, Jan. 15.

The long-term impact from the economic development resulting from commercialization of SBIR funded technologies would be much larger and broader than the SBIR awards, alone.

The stealth manuveur through the conference committee on the final days of the 2001 session caught proponents of the SBIR program, as well as the Small Business Administration and House and Senate Small Business Committees, completely off guard. Most were not aware of the clause until after New Year's Day.

While disturbing to much of the SBIR community, sources tell SSTI that say BMDO's move is not altogether surprising. Similar attempts to excuse the Department of Commerce, National Science Foundation, and National Institutes of Health from SBIR responsibilities were thwarted in 1999, 1998 and 1996, respectively.

Many program supporters report BMDO's rescission provides only the latest evidence of the strong dislike for the SBIR program that exists within most of the federal agencies — with the exception of the individual agency SBIR program offices.

Ironically, BMDO's own economic analysis of its SBIR investments said, "The return on investment of BMDO SBIR compares to that of a venture capitalist. In this study, we calculate an annualized internal rate of return (IRR) of roughly 46 percent had BMDO hypothetically taken an equity investment in the few BMDO SBIR-funded firms that went public after at least one BMDO SBIR award." [Source: Can SBIR Measure Up? on the BMDO SBIR website under Reports.]

President Bush signed the Defense Appropriations Act yesterday. At Digest press time, there remains no official recognition or notice of the rescission on the BMDO, Defense or SBA SBIR websites.