Wholly New SBIR Program Passes House, 368-43

To paraphrase an old automobile ad campaign, the SBIR program reauthorized for two years by the U.S. House of Representatives on Wednesday is not your father’s SBIR program as it was created and sustained for the past 25 years. Nor would it be the same, smaller STTR program if the bill becomes law.
 
H.R. 5819 means bigger awards, but fewer awards. It means more flexibility as to when research projects can enter the SBIR/STTR process. It clarifies and expands eligibility to include companies owned by venture capital firms. It opens up significant subcontracting opportunities. It has, for the first time, requirements to give preferences in SBIR/STTR awards to companies based on geographic and demographic considerations.
 
Also reauthorized in the bill is a dramatically changed Federal and State Technology Partnership (FAST). FAST would make two-year matching grants of up to $250,000 to support state SBIR/STTR outreach and proposal assistance. An amendment introduced by Rep Carney (R-PA) that was passed by voice vote, requires the Small Business Administration (SBA) to give preference in making FAST awards to proposals involving Small Business Development Centers that are certified by the SBA to assist technology companies (SBTDCs).
 
Whether or not the program is improved or impaired by all of the proposed changes is a matter of debate among members of Congress, the broader SBIR community, and other entities serving as champions and opponents on specific elements of the bill. Whether it means more innovation or less remains to be seen over the two years of its authorization.
 
Regardless of one’s opinion of the changes, SSTI believes the result, if H.R. 5819 in its current form is also approved by the Senate and signed by the president, should lead state and local TBED organizations to reassess and revise their strategies to assist prospective SBIR and STTR applicants.
 
Bigger SBIR/STTR Awards
H.R. 5819, as amended and passed by the House, loosens many long-standing structural elements of the SBIR program and its award process. First, H.R. 5819 triples the sizes of SBIR and STTR Phase I and Phase II awards to $300,000 and $2.2 million, respectively. This marks the first official increase in the award sizes in 15 years, although the National Institutes of Health (NIH) and components of the Department of Defense have exceeded the limits on some individual awards for several years.
 
The bill also requires agencies to issue at least two solicitations for proposals each year.
 
Larger award sizes and more solicitation cycles should make the program attractive to more companies and researchers, potentially increasing the number of SBIR and STTR applications submitted and demand for state Phase 0 grants to develop proposals. 
 
Drastic Reduction in Total Number of Awards
The bill also will result in far fewer awards – perhaps less than 40 percent of the current number of awards – since the House also turned down an attempt to increase the 2.5 percent set-aside requirement that funds the individual federal agencies’ SBIR programs and the 0.5 percent STTR set-aside.
 
Opposition to the larger pools of SBIR/STTR funding was raised by NIH and several associations serving universities, medical research hospitals and related institutions. Rep. Ehlers (R-MI) amendment to eliminate proposed increases of 0.5 percent for SBIR and 0.1 percent for STTR passed on a voice vote.
 
A significant drop in the number of awards is likely to create challenges for small businesses that have utilized SBIR awards as seed funding. State Phase 0 awards may then go for naught, unless states also consider developing alternative mechanisms to SBIR for those projects found to be of scientific or technological merit but not funded by the federal agencies. The number of SBIR Phase I proposals should gradually decline as the odds of winning an award become less desirable.
 
More Flexibility for When Research Projects Enter SBIR/STTR Programs
Both SBIR and STTR program grants have traditionally followed a rigid two-phase cycle. All companies entered the program through short-term Phase I grants for proof-of-concept research. Only Phase I awardees are eligible to compete for the larger, longer-term Phase II grants. That changes dramatically with the House-passed bill. 
 
H.R. 5819 grants considerable flexibility to the award structure for both STTR and SBIR such that it: 1.) allows companies to enter the program at either Phase I or Phase II; 2.) allows companies to win Phase II awards in an agency different than the one that funded the Phase I;  3.) allows companies to win sequential Phase II awards for the same project; 4.) allows companies to win Phase II awards as quickly as possible when the agency deems appropriate, including at the beginning of the Phase I; and 5.) allows agencies to waive the minimum work requirements for small business concern or research institution participation.
 
First-ever Requirements to Skew Competition toward Rural Areas, Depressed Areas, Vets and Energy-efficient Companies
For 25 years, SBIR has managed to remain a grant program based entirely on open competition to make award decisions. Over those years, there has been concern about the distribution of awards geographically and demographically. The House heard those concerns and included language in the bill that states, “Federal agencies shall give priority to applications so as to increase the number of SBIR and STTR award recipients from rural areas.’’
 
In addition, Rep. Boswell (D-IA) and Rep. Sutton (D-OH) introduced an amendment that passed by voice vote and states, “Federal agencies shall give priority to applications from companies located in geographic areas that, as determined by the Administrator, have lost a major source of employment.”
 
Another amendment introduced by Rep. Sutton and passed on voice vote states, “Federal agencies shall give priority to applications from veterans … so as to increase the number of SBIR and STTR award recipients who are veterans.”
 
The fourth preference in SBIR/STTR award selection, added by an amendment from Rep. Matheson (D-UT), also applies to FAST recipients. The language requires federal agencies to give priority to applications “from organizations that are making significant contributions towards energy efficiency, including organizations that are making efforts to reduce their carbon footprint or are carbon neutral.”
 
What’s Next?
Without some form of reauthorization passing before Sept. 30, 2008, the SBIR program expires. The program's reauthorization is uncertain with the White House issuing a veto threat, according to the April 22 Congressional Quarterly Today. CSPAN reported in a voice over during the floor action on SBIR that the White House considers SBIR a tax or budget cut on the R&D budgets of the 11 participating federal agencies.
 
H.R. 5819 now moves to the Senate for its consideration, where it is likely to move to the Senate Committee on Small Business and Entrepreneurship.
 
H.R. 5819, as passed, will be available by searching the bill number at: http://thomas.loc.gov/