Friday, March 6, 2009

SBIR Exclusion From NIH Stimulus was even more underhanded than we thought!


The campaign is working folks! Everyone is incredulous that such a counter-productive restriction would have been made in these politically charged times, effectively excluding ARRA Stimulus money from small business, the ONLY sector of the economy that's currently creating jobs! And they're angry that it was intentionally done in such a manner as to escape scrutiny.

But you haven't heard anything yet. My original posting on this only scratched the surface of the underhandedness. It was even worse than we thought. I suggest that you take your blood pressure meds before reading any further.....

I gleaned a very disturbing fact today: The version of the ARRA Stimulus Bill that was engrossed (that's the term for being voted on and passed to the next step in the process) by the House, and the version that was amended and engrossed by the Senate, DID NOT CONTAIN THE NIH SBIR EXCLUSION CLAUSE! That means that when your Representative and Senators voted on this bill, SBIR and STTR were, as they should have been, a part of the NIH's Stimulus funding to the tune of some hundreds of millions of dollars in new projects for worthy small businesses.

The engrossed Bills differed in some minor elements, including the amount of money that the NIH was to receive, so they were sent to a Conference Committee (five Members each from the House and the Senate) to have the differences resolved. The Committee did its business and produced the final copy of the now enrolled Bill for the President's signature. Guess what!

AND ONLY THAT FINAL COPY, DOES CONTAIN THE NIH SBIR EXCLUSION CLAUSE, and the President signed it into law, thereby taking away, without a vote, the money for those SBIR and STTR projects that effectively had been authorized by your legislators.

Check it out for yourself. All of the versions of the Bill can be found at: Look at each version. (To find the pertinent section, search for "HIV". It turns out that that term only appears in the same paragraph as the one that contains (or doesn't yet contain) the SBIR exclusion clause.)

When I was alerted to this, I was momentarily speehless. (Those of you who know me know how unusual that is!) I couldn't believe that anyone would have the guts to try such skulduggery and that the rulebook would allow this. So I did some research. They did; I'm not sure if it does; but that's indeed where and when they did it!

What about the Rulebook? According to the official government document "How Our Laws Are Made", Conferees are limited in their authority to make substantive changes: "Furthermore, they may not insert new matter that is not germane to or that is beyond the scope of the differences between the two Houses." Does this exclusion clause qualify as being germane or within scope? I'll leave it up to the legal eagles among you to weigh in on that. But what's done is done. The question now is how to best undo it, or at least undo the effects of it.

The legal eagles can advise us on what would need to happen to get this exclusion lifted, either by an action of the Congress with some sort of Bill, or by the President himself with an Executive Order. I just don't know what our next step should be in a procedural sense (someone please help me on this), only that we shall not sit by and let this stand unchallenged.

Of course, the NIH can choose to unilaterally undo this injustice and do the right thing by simply deciding to add an equivalent amount to what would have been newly authorized funds to their regular Allocation Base for SBIR and STTR, dust off those projects that scored well in recent evaluations but just missed the pay-line due to lack of funds, call up the companies, and issue the grants! VOILĂ€! Instant stimulus. Shovel-ready job creation, as they say. What about it NIH, y'all up to doing the right thing? Legally you can do it. So please just do it!

OK, the list of suspects in our whodunit has suddenly gotten much shorter. Call in CSI. The ONLY people who could have introduced that clause into the bill were in that Conference Committee room. Who were the Conferees? Here's a source of that information: [Hmmm.... Seems that Senator Specter wasn't on that Conference Committee, so our previous information may have been incorrect, and, if it turns out that we were wrong, and he had nothing to do with this, we hereby apologize to the Senator for that.]

All right, will the real culprit please fess up? Unlikely. Probably not even CSI can solve this crime. These sneaky-snakes tend to cover their tracks too well and close ranks when challenged. But someone in that Committee room did this, probably at the request of some misguided individual high up in HHS/NIH who thought they were doing something in the best interests of their Agency. At least I certainly hope it wasn't done maliciously. Frankly, at this point, I don't care who did it, just that the effects of it be undone.

I've been receiving lots of emails from people who want to know what they can do to help. Hits on this Blog and on my website's SBIR Reauthorization section are up more than tenfold from before this story broke. At least a dozen other Blogs and News sites have picked up the story and spread the word. It's almost viral!

So, let's keep up the pressure. Send out links to this Blog posting, including to other media. Send letters. Make phone calls. Armed with these new revelations we might get some attention from the right people, either in the White House, in the Congress or at the NIH, and turn this around.

And, one final word. That Continuing Resolution must still be secured. SBIR expiration is only two weeks away without it. The House Small Business Committee is the one that will introduce it, so focus on them. We hear rumors of a CR bill being prepared there, but nothing official has surfaced yet. I know it's a lot to ask, but please keep that pressure on too.

We shall persevere.

UPDATE - Sunday, March 8, 2009, 2:00 PM CDT:

An email letter addressed to the "Small Business Research Community" was sent out today by Jo Anne Goodnight, NIH's SBIR/STTR Program Coordinator, wherein the opportunity for small businesses to apply for grants in a new ARRA funded opportunity called "NIH Challenge Grants in Health and Science Research" was touted with the statement in bold face:
Small businesses are eligible to apply for grants under this program.

Yes, Jo Anne, eligible, but competing with who else? You have to drill into the announcements a ways to see the list. Here's a
shortcut. Among others, the eligible organizations include Public and Private Institutes of Higher Education, For-Profit Organizations (Other than Small Businesses), Not-for-profits of all types, and City, County, and State Governments. Hardly a level playing field! Good try NIH, but no cigar.

If you didn't get the NIH's email letter and would like a copy, write to me and I'll forward it.



carl nelson said...


Skulduggery it may be, but it's hardly new or unknown. And the Constitution clearly says that the Congress shall make its own rules. The only requirement for enactment is that the same bill is approved by both houses. Any penalty will be purely political, and if you want to make a political enemy, go to great lengths to out the culprit.

If and when Congress really wants SBIR, it will do something. Meanwhile, do you think that the apparent lack of enthusiasm says anything about Congress's opinion of SBIR's merits? Even when it is passing out huge hunks of money in crisis mode. Perhaps it is time for SBIR to make some credible and accountable claims of its value, not just hand waving about the inherent merits of small business. It might start with what I think is a decent track record of SBIR investment at NIH as measured by the amount of public capital that has been subsequently invested in still risky companies. By all means stay away from trying to prove that DOD invested well.

Those with a sense of history will remember 1992 when Congress could not do enough to push money towards SBIR after the Cold War collapsed. But that was when SBIR was still too young to be asked for an accounting. Now, seventeen years later, an even worse case of job loss panic hasn't stirred Congress to look to SBIR as part of the solution. I wonder why.

In any event, good luck in stirring the distracted elephant to action.

- Fred Patterson - said...

Your logic is irrefutable, Carl. However, I do believe that there has been a measurable value in terms of return on investment for the taxpayers' money in SBIR, but that we haven't had a realistic way of measuring it. Neither the Federal agencies nor the SBA have been allowed to expend any administrative effort to either gather such data nor analyze it. I'd like to see the re-authorization legislation include such provisions.

And, you're absolutely right about the political consequences of making a powerful enemy, so I really have no desire to publicly "out" the culprit. All I really want is for the effect of the exclusion to be nullified in some way.

carl nelson said...

Fred, as for the agencies' not collecting data, it's because they don't want to, not because they are barred. If it were in the agencies' interest, you can bet they would find a way to show any picture that would increase their budgets or scope. I had no great trouble collecting and displaying such data for papers presented to professional societies. No, the data were not as complete as an academic economist would call sufficient for a full evaluation, but they were enough to show that enough of the projects were doing what would produce meaningful ROI. Every company that gets a Phase II has an incentive to impress the agency decider(s) wanting to see downstream success and the companies seemed anxious to supply it to me since they knew that their business attitude was a key criterion for my evaluating their likelihood of future downstream success. I also had the incentive of co-investment as a competitive factor for Phase 2. No partners, no credibility. Perhaps the biggest barriers to SBIR continuation are the agencies' disdain for an intrusive social program and the lack of any lobbying organization (think tank) to do some respectable effort to show at least a partial picture of investment success. It's also partly a case that the beneficiaries don't want to invest real money in making a case for the program beyond platitudes. To make real money, you have to invest something valuable.

- Fred Patterson - said...

I didn't mean to imply that the agencies were barred from collecting and analyzing data, but rather that they're not allowed to use SBIR allocated funds for such purposes. The funds for that must come out of some other budget, and you're right, they're not invested in doing it.

You took your role very seriously, Carl. I remember very well, as my companies were both the beneficiaries of your investor-like pressure. We hated it at the time, but we were certainly better off for it. Unfortunately, not all SBIR Program Managers perceive their role the same way as you did. More's the pity.

I do believe that we can improve the SBIR payoff by focusing on what it takes to get beyond Phase II, not on merely winning Phase I and II awards.

There have been some recent Phase III support initiatives in a few of the agencies that are showing promise. We have to expand their resources and give them a chance to effect some culture change. That's one of my primary priorities for the re-authorization discussions, hopefully, yet to come.

Christopher said...

Carl - these are great points - but what about the performance of the public sector these days? I guess the stock market is the perfect indicator you are looking for. How about pointing towards the hedge funds and Fortune 500 companies? Before getting too high minded in your commentary on small business, what about the gross mismanagment at large business in the last few years, and, as it's turned out, the poor financial performance.

Christopher said...

I also have to add - what about this analysis by the National Academy of Sciences on the SBIR program:

This was very positive about the role of SBIR in technology innovation. Looks like that one cost real money, right?

Christopher said...

Here is a link to the 2008 report on SBIR from NAS:

carl nelson said...


Interesting comments but not quite relevant to a debate on how SBIR should be managed to get a respectable ROI.
1. If government is a poor performer, don't let it manage investment in private firms. Kill SBIR as beyond government's capability.
2. The stock market is not the ROI objective, although it is one possible indicator of ROI. I would settle for any reasonable ROI measures, but I would require that program success be defined as exceeding some minimum ROI level. Or I would simply make prospective ROI a high-weight competitive criterion and let the companies compete for investment. But that's not what happens in the largest agencies with most of the money.
3. Quality of management at large companies has no bearing on SBIR.
4. The NRC papers are lemonade reports that say that the agencies made a little lemonade from the lemon they made out of SBIR.

No one has yet shown that SBIR is better than letting the agencies manage their R&D programs as they and the Congress see fit. We might also note that America became the world champ at innovation with neither government funding of innovation nor SBIR.

There are a lot of good imaginative companies and ideas out there that have great potential for innovation payoff. But SBIR isn't organized to find and invest in the most promising candidates. SBIR might be a worthwhile program, but only with a different management scheme. We'll probably never know, and the program will live or die on its political appeal. If you want SBIR, get out there and flail your arms with the cheerleaders.

- Fred Patterson - said...

OK guys... this debate is good. You're both scoring points. But could we please also focus on the issue of this Blog posting - reversing the exclusion of small business from the NIH's stimulus funding. Whether we think SBIR is being ROI effective or not, this sneak attack was wrong wrong wrong!

And the rest of you out there...let's hear from you too!

carl nelson said...

Good idea, Fred. My ideas for a perfect SBIR are not politically tenable anyway.

Jonathan Pearl said...

Fred, I think your retort to Jo Anne Goodnight is dead on ("eligible, but competing with who else?"). I think of the recent Obama administration's plan to incentivize mortgage loan processors to renegotiate loans rather than foreclose on them.

What was recognized is that the processors need incentives to do what's desired by the administration, to keep people in their homes. The same thing has to happen with these federal agencies.

The evaluators at NIH for example seem to have little if any incentive to value a thousand small fish proposals against a dozen whales.

If they are asked to divvy out $7.4 billion dollars, why waste time with fifty thousand proposals around $150k, when they can simply evaluate 150 in the range of $50 million.

The evaluators clearly have a big job. It's human nature for them to seek the most efficient means to do their job. What they need is incentives in line with their expenditure of time and effort, not their expenditure of dollars.

The question is what is the goal of the government in making the $7.4 billion available? We're really talking a sum of $185 million (2.5% of the $7.4 billion). What's saying some small portion of that amount can't go to allay any possibly higher administrative costs for handling a greater number of small awards?

Is there any stipulation that none of the Base Allocation for SBIR can be used for administration? If not, then the administrative argument is moot.