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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: June 4, 2003

SUBJECT: Small Business Administration; Small Business Size Standard for Small Business Innovation Research (SBIR) Program

SOURCE: Federal Register, June 4, 2003, Vol. 68, No. 107 page 33412

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: SBA is proposing to revise its small business size regulations pertaining to the SBIR program to allow a small business that is owned and controlled by another business to be eligible for SBIR funding agreements. The proposed rule would not change the requirement that a small business, with its affiliates, have no more than 500 employees to be eligible to participate in the SBIR program.

EDITOR'S NOTE: For more on the SBIR program, see the September 24, 2002, FEDERAL CONTRACTS DISPATCH "Small Business Administration; Small Business Innovation Research Program."

For the text of the Small Business Innovation Development Act of 1982 (SBIDA) (Public Law 97-219), which established the SBIR program, go to http://thomas.loc.gov/bss/d097/d097laws.html.

The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR). The SBA small business size regulations are in Chapter 1, Small Business Administration; Part 121, Small Business Size Regulations.

DATES: Comments must be received on or before July 7, 2003.

ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator for Size Standards, Office of Size Standards, 409 Third Street, SW, Washington, DC 20416; or by e-mail to sizestandards@sba.gov; by facsimile at 202-205-6390; or at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Office of Size Standards, 202-25-6618, or Maurice Swinton, Assistant Administrator for Technology, 202-01-6365.

SUPPLEMENTAL INFORMATION: SBIR was created to (1) increase the rate of productivity in the United States by increasing technological innovations, especially those innovations of small concerns; (2) increase the efficiency of federally funded research and development (R&D) by providing a mechanism to tap the resources of small, innovative firms; (3) facilitate the conversion of federally funded research results into commercially viable products and services; and (4) increase the share of the federal R&D budget awarded to small businesses.

SBA's small business size regulations at 13 CFR 121.701 through 121.703 establish small business eligibility criteria for awards under the SBIR Program. Section 121.702(a) states that, to be eligible to compete for award of an SBIR funding agreement, a business concern must "be at least 51% owned and controlled by one or more individuals who are citizens of, or permanent resident aliens in, the United States..." A concern may not receive an SBIR award if it is more than 50% owned and controlled by another business concern, such as a corporation or partnership, even if that concern is at least 51% owned and controlled by citizens of, or permanent resident aliens in, the United States.

SBA's experience over the last several years has led it to believe it should reconsider its policy on this eligibility restriction, particularly since, under its current regulations, a parent company with a wholly-owned subsidiary can compete as an eligible small business for SBIR funding, but its wholly subsidiary cannot compete in its own name. Therefore, SBA proposes to revise Section 121.702, What size standards are applicable to the SBIR program?, to allow an SBIR funding awardee to be either a: (1) for-profit business that is at least 51% owned and controlled by one or more individuals who are citizens of the United States, or permanent resident aliens in the United States; or, (2) for-profit business that is 100% owned by another for-profit business that is itself at least 51% owned and controlled by one or more individuals who are citizens of the United States, or permanent resident aliens in the United States. The size standard requiring that a concern, together with its affiliates, may have no more than 500 employees to be eligible for SBIR funding would remain unchanged.

Also, SBA proposes to revise the first sentence of Section 121.702 by changing "To be eligible to compete for award..." to "To be eligible for award..." Under this proposed change, an applicant for an SBIR award would not need to meet the eligibility requirements when it submits its proposal. Rather, the applicant would have to be eligible at the time of the award.

SBA is seeking comments on this proposed rule, and requests specific comments on at least the following:

  1. Whether a business concern owned by another business concern should be eligible for SBIR funding;

  2. Whether ownership of the SBIR awardee should be limited to only one other concern, or whether the awardee could be owned by more than one business concern;

  3. If the SBIR awardee could be owned by more than one other concern, how SBIR program managers could be assured that the ultimate ownership of the awardee is "at least 51% owned and controlled by one or more individuals who are citizens of, or permanent resident aliens in, the United States";

  4. How many firms may become eligible for SBIR awards under this proposed rule if adopted by SBA;

  5. Whether the increased number of eligible businesses would create additional competition that would adversely affect R&D concerns that meet the current ownership requirement; and

  6. Whether permitting a R&D concern owned and controlled by another for-profit business concern that is itself "at least 51% owned and controlled by one or more individuals who are citizens of, or permanent resident aliens in, the United States" is consistent with the congressional intent that the SBIR program benefit small U.S. business concerns.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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