With the authorization of the Small Business Innovation Research (SBIR) program set to expire in just over twenty weeks, the U.S. House Committee on Small Business has passed an SBIR Reauthorization bill. Having yesterday made it through the Rules Committee, the bill is scheduled to be considered by the full U.S. House of Representatives today.

The Committee on Small Business marked-up and adopted (in a unanimous vote) The SBIR/STTR Reauthorization Act (H.R. 5819) on April 17, 2008—one day after it was introduced. The bill reflected the legislation that emerged on the previous day from a markup in the Subcommittee on Technology and Innovation of the Committee on Science and Technology.

In short, H.R. 5819 was introduced, considered by three committees, and is slated to be considered on the floor of the House of Representatives in a matter of one week. Such speed is rarely a good thing and this occasion is no different.

In keeping with the Small Business Committee’s focus during the three SBIR hearings it held this year, the bill includes a number of provisions favorable to the biotechnology and venture capital communities and at odds with the interests of small business.

Most significantly, the bill removes critical participation restrictions from the SBIR program, all but eliminating “Small Business” from the Small Business Innovation Research program. While Section 201 of H.R. 5819 would continue the prohibition of allowing larger venture capital (VC) firms to own a controlling interest in an SBIR awardee business, it would allow two or more VC firms (syndicates) to own the entire firm. Such syndicates easily could assume de facto control over SBIR companies through joint ownership, control or operation agreements or third party control of multiple VCs.

By eliminating the Small Business Administration’s affiliation rule, Section 201 of H.R. 5819 also would prohibit the SBA from classifying any VC company as a large business as long as the firm had fewer than 500 employees—no matter how many “small” businesses the VC firm controlled. This raises the specter of a competition for funding between actual small businesses and “small businesses” owned by a VC syndicate that controls 1,000 small companies, employees 100,000 people, and generates billions in revenue.

A provision in the bill that would allow companies to apply for phase two awards without having already received phase one funding also is highly problematic; as is a provision that would increase federal awards for each phase of the programs, from $100,000 to $300,000 for phase one projects and from $750,000 to $2.2 million for phase two projects, without a commiserate increase in the overall set-aside. Using conservative estimates, more than half the companies currently in the SBIR Program would be purged if this provision was enacted.

The bill also would increase the required set-aside funding for the programs, from 2.5 percent to 3 percent for SBIR and from 0.3 percent to 0.6 percent for Small Business Technology Transfer (STTR) and only would reauthorize SBIR and the STTR program for two years.

NSBA and the Small Business Technology Council (SBTC) have been working with Members of Congress that would like to preserve the roll of small business in this small-business program and hope to eliminate or counteract the most egregious of these provisions.