Mass lawmakers: Don’t change small business awards

By Theo Emery, Globe Staff

WASHINGTON – Massachusetts lawmakers are defending a government set-aside program against accusations that it has unfairly benefitted Bay State companies in its distribution of billions of dollars for high-tech research.

The Small Business Innovation Research program has fallen into an unusual political cross-current in Congress as the program nears its expiration, with states that attract more grants arguing for the status quo against lawmakers of both parties who want grants spread more evenly across the country.

Four Massachusetts House members, along with about 20 other lawmakers from California and other states, wrote this past week to the Republican chairman of the House Small Business Committee, Sam Graves of Missouri, and the ranking Democrat, Nydia Velazquez of New York, saying proposed changes to the award process endangers the program.

“We need a long-term reauthorization of this program that brings certainty for the SBIR community while at the same time preserving the initial intent of the program - nurturing innovative small businesses,” Edward J. Markey, a Malden Democrat,said in a statement.

The 28-year-old program has faced expiration numerous times. Each time, Congress has temporarily extended the program, most recently last month as part of an end-of-year stopgap spending bill. It’s now set to expire in mid-November, and legislation is pending in both the House and Senate to extend it.

But the House bill makes several major changes, including capping the number of awards that individual companies can receive. Critics of the program say it’s unfair that just a handful of states receive such a huge portion of the funds, and that companies in those states attracting such large numbers of awards.

“Right now the funds are going to less businesses than they should,” said Margot Dorfman, chief executive of the US Women’s Chamber of Commerce. “That happens with a lot of federal programs where you have some folks who have broken the code, so that they can go after the awards over and over and over.”

The program, which requires federal agencies to set aside 2.5 percent of their research grants for small businesses, has benefited two states – Massachusetts and California -- far more than others. Another smaller program funds public-private partnerships between business and research institutions.

Since 1983, Massachusetts has received almost $4 billion out of the more than $28.1 billion that the program has distributed, and California has received $5.9 billion; together, the two states account for more than a third of all the grant funds given by the Department of Defense, the Department of Energy, NASA and the eight other agencies.

Velazquez wants to cap the number of grants to spread the awards among companies and states. Her office released a statement saying that “when a single company gets more grants than 11 states combined, there is a problem.”

“The SBIR program was created to help entrepreneurs launch their enterprises, while developing new technology and, although it has worked for many, there are increasingly a select few who game the system to the detriment of truly small entrepreneurs,” the statement said.

One of the companies often singled out as an example of a company adept at bringing in the awards is Physical Sciences Inc. of Andover, which has received over 600 grants since 1983 and received over 50 in 2010 alone, according to the Small Business Administration’s online grant database.

Company founder Robert F. Weiss, who is now chairman of a business group called the New England Innovation Alliance, was on Capitol Hill last month to lobby Congress to preserve the program. He defended how it operates now, saying that caps would amount to quotas that would ruin the merit-based aspects of the program.

“If you do anything to tamper with that, create quota systems… you’ll get second-rate research, and the program might as well might not exist,” he said.

And Weiss makes no apologies for the success of the company he founded, saying “we’ve done an incredibly good job of delivering value to our customers.”

“You compete, you win, you’re entitled to compete again, and you develop a great reputation,“ he said. “The fact that a company is successful should not be held against it.”

The House bill also proposes other changes, such as permitting companies owned by venture capital funds to qualify and allowing some companies to skip an early award phase and go directly to the higher-paying second award phase.

Niki S. Tsongas, a Lowell Democrat, said that the program shouldn’t be tampered with. Massachusetts gets more funds, she said, because companies in the state are innovative and successful, not because the system is tipped in their favor.

“It is a competitive process. To propose an arbitrary cap and rule out people who might have the better idea, or the better way of meeting the need, seems to me to make absolutely no sense at all,” she said.

Chairman Graves said he is aware of all the concerns over the program and believes a compromise can be worked out with the Senate version.

Theo Emery can be reached at temery@globe.com. Follow him on Twitter @temery.