U.S. Small Business Administration

Statement of Administrator Steven C. Preston

House Small Business Committee

Reauthorization of the Small Business Innovation Research Program

March 13, 2008

Chairwoman Velazquez, Ranking Member Chabot and members of the Committee, the Small Business Innovation Research (SBIR) Program has helped small business to access federal research and development funding.

The SBIR Program was created in 1982 and has been used by small firms to fund research that has fostered technological innovation and commercialization of products. Every federal department with an extramural research and development budget of $100 million or more participates in the SBIR Program. There are currently eleven federal departments that participate including Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Transportation, the Environmental Protection Agency, NASA and the National Science Foundation. SBA is responsible for promulgating regulations and policy directives to govern the program, while other federal agencies utilize the program to foster innovation.

Eligibility Rules

As a brief background, for a business to be eligible for participation in the SBIR Program, on the date of award they must (1) be organized for profit; (2) be at least 51 percent owned and controlled by one or more individuals who are citizens of, or permanent resident aliens in, the United States or at least 51 percent owned and controlled by one other for-profit business that is itself at least 51 percent owned and controlled by individuals who are citizens of, or permanent resident aliens in, the United States; and (3) have, including its affiliates, not more than 500 employees. The purpose of these requirements is to ensure that benefits reach only the small business entrepreneurs and that the research and development advances resulting from the SBIR Program remain in this country and benefit the United States.

In 2003, SBA proposed a rulemaking to modify the ownership requirement for SBIR awardees. The Proposed Rule was to add a specific flexibility in the requirements to allow SBIR awardees the option of conducting their innovative SBIR work through a wholly owned and controlled subsidiary. Cases had been brought to SBA’s attention where small businesses formed research and development subsidiaries to pursue innovative research with SBIR funding. However, the subsidiaries were unable to receive the funds directly because they were more than 49 percent owned and controlled by another firm. The Proposed Rule was open to public comment from June 4, 2003 to July 7, 2003. Most of the comments were in favor of the proposed change. Some comments argued that the rule need not require 100 percent ownership and control—that less than 100 percent ownership and control by another concern should be allowed.

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