SBIR, An 8(a) Survival Strategy

SBIR: An Important Survival Strategy for 8(a) Enterprises

by John Davis, 12 April 2005

Little known, but, strategically important provisions Congress included in the law authorizing SBIR* & STTR* allow products and services that have been developed under the SBIR and STTR programs to be procured on a sole source basis by US government agencies. Of course, there is no "requirement" that they be procured this way but it allows government procuring officials to avoid costly competitive procurements by "down selecting" SBIR technologies for large follow on contracts. This is, at least partially, based upon the justification that the government has already invested in the technology (SBIR/STTR Phases I and II) making the technology to be the least costly, latest and best available. But it is also there because Congress intended that the small business participating in these programs have some level of “built in” business base to encourage the commercialization of these technologies and increase the survivability of the small enterprise. So, what appears to some to be the low value of SBIR is not so small after all. It's not just the $60 - $100,000 available in Phase I, or even the up to $750,000 available in Phase II that is the real incentive to pursue SBIR financing. It is the potential millions (or even, theoretically, billions), available on a sole source basis in what is being called "Phase III" that is the real incentive. This is potentially important part of any long term technology business strategy.

Small minority business enterprises often can gain certification under the SBA (Small Business Administration) 8(a) program which affords them some significant marketing advantages when dealing with the Federal Government. However, those advantages are limited in value (typically several million dollars per year) and in time ("graduation" from the program after 8 years). Losing these advantages often results in the failure of the minority enterprise shortly after graduation. The SBIR/STTR advantages suffer no such limitations, either in contract amounts or time. As long as the firm survives it will carry these advantages with it.

For the 8(a) company, already well versed at marketing to the Government through the bid-advantaged, sole source approach, SBIR/STTR could well be the primary survival strategy that brings them through the post graduation period. And, for the small, non-8(a) small business, it is a ticket to taking part in 8(a)-like sole source procurements which can stabilize them and foster predictable growth. What’s more, sole source purchases under these provisions do NOT run into the problems/issues surrounding the Adarand decision (the Supreme Court case, Adarand Constructors, Inc. v. Peña, 63 U.S.L.W. 4523 (U.S. June 12, 1995), which held that federal affirmative action programs that use racial and ethnic criteria as a basis for decision making are subject to strict judicial scrutiny).

SURPRISE, this potentially lucrative way of doing business has been available for years (the law creating the SBIR Program was enacted in 1982). However, it has also been one of the best kept secrets in government contracting. Apparently the small businesses that use these programs have no reason to tout it to others (increasing competition for the limited pot of money) and the Government Program Managers at the SBA and the 11 agencies that fund and operate SBIR/STTR programs either do not recognize the importance of this provision or are afraid to say it “too loudly” in fear of some activist on The Hill (US Congress) will think this is another of those “welfare programs for industry” and try to shoot it down. This leaves it to the very few who make a living by helping small businesses to succed in the SBIR/STTR programs to spread the word. By the way, neither the SBIR nor the STTR programs qualify as “welfare to industry”, but that is the subject for another column which we will tackle here in the near future -- stay tuned.

* SBIR is an acronym for Small Business Innovative Research and
* STTR is an acronym for Small business Technology TRansfer

SBIR/STTR are two related programs operated via 11 agencies of the Federal government that pay out over $2 billion each year to small enterprises to investigate potentially commercializable technologies of interest to the agency. NOTE: Neither the SBIR nor the STTR program can qualify as “welfare to industry” since all the work funded must, in some way, further the mission of the funding agency.

John Davis is General Manager of the SBIR Resource Center(R) , providers of custom software, proposal development tools and consulting resources to support the SBIR/STTR community. He can be reached at (410) 315-8101, via E-mail at SBIR@sbir.us or via the Center's Website at http://sbir.us.

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