Friday, December 23, 2011

SBIR reauthorization (six years!)

The old news by now is that the House has finally accepted most of the Senate's long-fought compromise language for SBIR reauthorization. Behind the scenes it was some great staffers on the Senate side, Kevin Wheeler (Sen. Landrieu) and Chris Averill (Sen. Snowe), as well as the herculean efforts especially of Sens. Landrieu and Snowe that made the difference. That along with over 1000 small business representatives who signed a letter urging the House to accept the Senate's compromise.

Multiple attempts have been made over the past several years (long-term authorization ran out in 2008), that failed to make it. SBIR has been kept alive by a series of (what is it? 14) short-term Continuing Resolutions, ranging from one-year to a mere few months at a time. Late 2009, the House & Senate Armed Services committees gave up waiting and inserted a one-year reauthorization for DoD SBIR in the Fiscal Yearl 2010 National Defense Authorization Act (NDAA).

This time round, Sens. Landrieu and Snowe were able to insert reauthorization language of SBIR for all agencies in the Senate version of the current NDAA (S.1867). The Senate passed this bill at the end of November. The House had already passed their version (H.R.1540) without any such SBIR language. As per rules, a Conference Committee was established to reconcile the bills.

With much grumbling, and a few not-so-beneficial tweaks on the House side, and the impetus driven by those 1000+ small businesses, SBIR language for a six year renewal was included, and accepted by both houses. Now, we still wait for the President's signature. But the previous veto threat from the White House (because of terrorism suspect detention language) has been recanted due to changes in that language.

The most counter-productive tweak from my viewpoint is Sec. 5106, which allows for bypass of Phase I at the discretion of "the head of the applicable agency", whoever that means, essentially permitting the government to leapfrog feasibility studies, and award a ~$1m Phase II on a project right from the start, possibly reducing the number of Phase I awards and thus consolidating the governments money in fewer bets, in effect steering SBIR more towards later stage development and away from early stage Research and R&D.

The issue is principally that SBIR remains one of the few significant sources for seed capital to support the high-risk/high-reward endeavors by America's small businesses that potentially lead to transformative technological advances. Without such seed capital, most small businesses will not be able to pursue novel and yet-unproven avenues of R/R&D. Large corporations are increasingly inclined to buy up innovative startups rather than funding high-risk R&D internally.

Without small businesses, and without significant investment in R&D by large corporations, universities remain the sole potential source for such research. But evidence suggests that small businesses are far more productive and cost-effective than large corporations (5x) or universities (20x) in transforming ideas from the lab into products in the marketplace. Why then would we shift the focus of the SBIR program, which has proven itself time and again for a quarter century, away from its role as a driver of innovation toward funding primarily later stage development of already proven ideas?

The only consolation I take from this, at the moment, is the word of Jere Glover, intrepid Executive Director of the Small Business Technology Council (SBTC) of the National Small Business Association (NSBA). SBTC serves in effect as the principal industry association for SBIR firms. Jere recently commented that the indications he's received are that despite Rep. Sam Graves insistence on including Sec. 5106 in the SBIR reauthorization language, agency program managers have no interest in bypassing Phase I.

Innovation holds inherent risks. Not every idea will make it. But if Thomas Edison had given up after his first hundred failures, or worse had avoided attempting something so risky as electric lighting, we'd all be in the dark. The metrics we should use are longer-term ones that show a notable success rate and return on investment from SBIR. But the pressure to reduce risks and focus on short-term commercialization metrics has already begun to take its toll. I don't speak merely of the inclusion of Sec. 5165 in H.R. 1540, which addresses the establishment of "minimum performance standards for small business concerns with respect to the receipt of Phase II SBIR or STTR awards". The fear I have is not that the high-standards and expectations of the SBIR program will be maintained. It is already (and appropriately) a highly competitive program in which proposals and projects are subject to a great deal of oversight and review of technical and scientific merit.

It is rather that there is a drive away from high-risk, early stage innovation, toward short-term later-stage development. At the DoD-sponsored Beyond Phase II conference that took place in September 2011, the closing keynote by Christopher Rinaldi, DoD SBIR Program Administrator, indicated that in response to such pressures from Congress, he was urging DoD topic authors to preference topics closer to commercialization over promising earlier stage efforts. In private conversation following his keynote, he said that he understood my concern, and that others share it. Although there would be guidance to focus on time to commercialization and commercialization success, a portion of topics would still be reserved for early-stage efforts.

What remains to be seen is how these incipient changes will affect the overall program, and whether they might impact its proven ability to identify intractable problems, and unleash innovative small businesses and entrepreneurs on the path to resolution. Let's hope only for the best!

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