SBA to increase size limits for federal contracts to small firms - Dallas Business Journal: Washington Bureau - Sent Using Google Toolbar

SBA to increase size limits for federal contracts to small firms - Dallas Business Journal: Washington Bureau

March 31, 2008

SBA to increase size limits for federal contracts to small firms

Kent Hoover Washington Bureau Chief

The U.S. Small Business Administration plans to increase the size limits on federal research contracts made to small companies through the Small Business Innovative Research program.

Eleven federal agencies with outside research budgets of $100 million or more are required to award at least 2.5 percent of this R&D spending to small businesses through the SBIR program, which was created in 1982.

The awards are granted in phases, with up to $100,000 available to test the technical merit or feasibility of an idea or technology, and $750,000 available for additional research and development and evaluation of the technology's commercial potential.

In the third phase, the technology moves into the marketplace, and small business must find private-sector funding or other types of federal contracts.

SBA Administrator Steven Preston said the agency is working on rule changes that would increase the size limits on SBIR awards in the first two phases of the program.

"It's time for the size of the grants to increase," Preston told the House Small Business Committee at a March 13 hearing on the SBIR program.

The committee is working on legislation to overhaul the SBIR program. Its bill would double the size of awards available through the program.

VC ownership rules might be considered

The committee also wants to change the SBA's rules defining what types of companies qualify as a small business in order to allow small companies that are majority-owned by venture capital firms to receive SBIR awards.

These types of companies routinely received SBIR awards until 2003, when the SBA ruled that venture capital firms don't qualify as individuals under the agency's eligibility rules for the SBIR program.

To be eligible, companies must be majority-owned by individuals who are U.S. citizens or permanent alien residents, and they must employ 500 or fewer people, including their affiliates.

Many biotech companies contend the ruling ignores the realities of their industry, where small businesses must get outside capital in order to research and develop new drugs and other treatments.

The Biotechnology Industry Organization and the National Venture Capital Association have been lobbying Congress to overturn the SBA's ruling.

Small venture-owned companies "are among the most talent-rich entities in the United States, and they are focused on solving very important problems," said NVCA President Mark Heesen. "To preclude them (from SBIR awards) is a disservice to our country."

The House overwhelming passed legislation last September to allow small companies majority-owned by VC firms to be eligible for SBIR awards as long as no single VC owned more than 50 percent.

The Senate didn't act on the bill, so the House is taking another stab at it this year.

Opponents say change isn't needed

Not all small biotech companies support the legislation, however.

Many contend that VC-owned companies no longer are really small businesses anymore since ownership equals control.

They think VC-owned biotech firms should look to the other 97.5 percent of the federal R&D budget for contracts instead of the SBIR program.

The March 13 hearing was the third on the SBIR program held by the House Small Business Committee this year.

No opponents of opening the program to VC-owned companies have been invited to speak, other than Preston.

The SBA administrator noted that SBIR firms can receive venture funding as long as individuals retain majority ownership.

"There is a very important role for venture capital in this program," Preston said.

Molly Brogan, vice president of the National Small Business Association, said many SBIR recipients already get VC investments.

"This is a heavy-handed push to open the program up even more, and the myriad small businesses in opposition to the proposal have been completely shut out of the process," Brogan said. "If the committee's goal is to protect America's small businesses, you'd think our input would be important."

Written statements and video from the March 13 hearing are available at www.house.gov/smbiz/hearings/hearing-03-13-08-sbir/hearing-03-13-08-sbir.htm.