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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: December 3, 2004

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

SOURCE: Federal Register, December 3, 2004, Vol. 69, No. 232, page 70180

AGENCIES: Small Business Administration (SBA)

ACTION: Final Rule

SYNOPSIS: SBA is revising its small business size regulations pertaining to the SBIR program to allow a small business that is 51% owned and controlled by another business to be eligible for SBIR funding agreements.

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 more on the proposed rule, see the June 4, 2003, FEDERAL CONTRACTS DISPATCH "Small Business Administration; Small Business Size Standard for Small Business Innovation Research (SBIR) Program."

For more on additional comments sought by SBA on SBIR ownership issues involving venture capital companies, see today's

FEDERAL CONTRACTS DISPATCH

"Small Business Administration; Small Business Size Standards Issues."

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.

EFFECTIVE DATE: January 3, 2005.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Office of Size Standards, 202-205-6618, or Edsel Brown, Assistant Administrator for Technology, 202-205-6540.

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 contain small business eligibility criteria for awards under the SBIR Program. Paragraph (a) of Section 121.702, What size standards are applicable to the SBIR program?, stated 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 was not eligible for an SBIR award if it was more than 50% owned and controlled by another business concern, such as a corporation or partnership, even if that concern was 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 led it to believe it should reconsider its policy on this eligibility restriction, particularly since a parent company with a wholly-owned subsidiary could compete as an eligible small business for SBIR funding but its wholly subsidiary could not compete in its own name. Therefore, SBA published a proposed rule on June 4, 2003, to revise Section 121.702, to allow an SBIR funding awardee to be either: (1) a 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) a 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 was to remain unchanged.

Also, SBA proposed 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 that 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.

The SBA received 164 comments on the proposed rule. Based on the comments, SBA has decided to adopt the proposed rule as final with the following changes:

The final rule adopts the proposed revision to the first sentence ("To be eligible for award..."), and retains the requirement that "an SBIR awardee, together with its affiliates, not have more than 500 employees."

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953.

Copyright 2004 by Panoptic Enterprises. All Rights Reserved.

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