Legislation aimed at expanding contracting opportunities for small businesses by updating and expanding existing programs passed the Senate Small Business Committee Wednesday.

Similar legislation passed the House last week.

The Small Business Contracting Revitalization Act (S. 2300) was drafted by Sens. John Kerry, D-Mass., and Olympia Snow, R-Maine, the chairman and ranking member of the committee. It includes provisions to unbundle contracts, enforce protections for subcontractors and expand opportunities for minority, women and service-disabled veteran owners of small businesses. Many of the provisions were taken directly from legislation that passed the committee last year but did not reach a vote in the full Senate.

A key provision aims to reduce contract bundling, in which several contracts are consolidated into one offering, by improving reporting and oversight. Lawmakers and small business advocates have argued that bundling creates a disadvantage for small businesses in competing for awards.

Like the House bill (H.R. 3867), the Senate legislation would mandate the implementation of existing programs and augment them, not create new ones. Small business contracting goals are already well defined and promoted through several programs, but agencies are by and large failing to meet them.

"Currently, small businesses are eligible for $340 billion in federal contracting dollars, yet they receive only $77 billion," Snowe said in a statement.

The Senate bill mandates that the Small Business Administration implement the women's procurement program within 90 days. The program, created by Congress seven years ago to help agencies award 5 percent of contracting dollars to women-owned small businesses, still has not been fully implemented and has been the subject of renewed scrutiny recently. In announcing passage of the House legislation, Rep. Nydia Velazquez, D-N.Y., said the women's program has "languished in the current administration's endless delays" and urged immediate implementation.

In early October, lawmakers and the Women's Chamber of Commerce criticized SBA for initiating a new round of rulemaking for the program. The SBA defended that decision in a U.S. District Court of the District of Columbia status hearing Wednesday, arguing that further interagency review was necessary to ensure all aspects were legal and could be practically implemented. The Women's Chamber, however, maintains that the latest regulatory step was an unnecessary delaying tactic. The court ruled against the SBA in a 2005 case brought by the Women's Chamber, calling the program delay "unreasonable" and ordering the agency to develop and meet deadlines for implementation.

Judge Reggie B. Walton said he was "not happy with the pace of how the program has proceeded" and scheduled a follow-up hearing in late January. Walton said he hoped by that time the Office of Management and Budget will have finished the review process and the SBA could report on implementation.

Small business advocates, including the American Small Business League, lauded the recent legislation.

"I am pleased to see that S. 2300 includes all of the changes that have been recommended by the ASBL since 2002," ASBL President Lloyd Chapman said in a statement. "Every small business in the country needs to realize that they owe Senators Kerry and Snowe a debt of gratitude for drafting this legislation."

The ASBL has launched a national campaign in support of the Senate bill, asking its members and all small business owners to encourage their representatives to vote in favor of the legislation.

Kerry spokeswoman Kathryn Seck said it is unclear when the legislation will be considered. "Sen. Kerry is working with members who still have concerns about the bill and will address them before bringing the bill up for full Senate consideration," she said. She said a vote is extremely unlikely before Thanksgiving recess but that Kerry is hopeful the legislation will be considered before the end of the year.

Source: http://www.govexec.com/dailyfed/1107/110707e1.htm

WASHINGTON, Oct. 24 — Representative Jason Altmire, a Pennsylvania Democrat, says he was just trying to help the small technology companies blossoming in his district, just north of Pittsburgh.

So when two of his constituents argued that small businesses should be able to qualify for federal research grants without being penalized for accepting venture capital money, he agreed to introduce legislation that would help them.

His bill, the Small Business Expansion Act of 2007, sailed through the Small Business Committee and then the full House of Representatives on a 325-to-73 vote last month. But the House adopted an important change as the measure came up for a vote — it specified that a small business could not give up an ownership stake of “50 percent or more” to a venture capital firm.

The amendment was meant to satisfy critics, among them officials of the Small Business Administration who argued that allowing venture capitalists to pour unlimited amounts of money into these fledgling businesses would fundamentally alter the concept of a small — and independent — business.

But as the legislation awaits Senate action, opponents argue that the amendment did not resolve their concerns. The S.B.A., they say, has long had discretion in determining whether venture capital’s support of a small business represents an investment or whether it crosses the line into control of the company. The legislation, they say, takes away that discretion by spelling out a particular percentage.

In addition, the critics say they fear that the bill will clear the way for venture capital firms to use their investment to take a controlling stake, giving them the potential to masquerade as small firms and tap into billions of dollars in federal research grants and contracts.

That is an important and sensitive argument at a time when the government has been criticized for awarding contracts to large corporations operating under the guise of small businesses. Edsel M. Brown Jr., assistant director for S.B.A.’s office of technology, said the legislation was unnecessary because “a venture capital company already can invest more than 49 percent as long as it doesn’t have ownership and control.”

The White House also opposes the measure. “The provision would allow large businesses, not-for-profit organizations, and colleges and universities,” a White House statement said, “to own and control small businesses and benefit from programs designed for independent small businesses.”

Quite the contrary, Representative Altmire insists, saying that his bill “does not favor any small business over another, but it also does not automatically disqualify a small business either.”

He argues that the legislation is needed because many tech start-ups are “told by the Small Business Administration that they are ineligible for government money because they got venture capital money — and that doesn’t make any sense.”

Companies doing research in biomedical and military fields say they should receive government research funds on the basis of the quality of their work, not on how they are financed.

Biotechnology companies, for example, typically take years to generate revenues, which means they often have difficulty getting bank loans. So they turn to venture capital to survive, Scott Koenig, president and chief executive of MacroGenics, told the House Small Business Committee at a hearing in September on the measure.

The bill “would modernize the S.B.A.’s rules defining a small business so that small biotechnology firms are not prevented from accessing assistance and grants simply because venture capital is part of the business model,” Mr. Koenig said.

But Giovanni Coratolo, the small-business director at the United States Chamber of Commerce, said the bill created “a loophole that would allow large businesses, colleges and universities to own an unlimited number of small businesses, but still fall under the definition of small business to access government resources and programs.”

Once a business passes S.B.A. muster as a small business, it can qualify for certain federal programs. For example, biotechnology firms are eligible for grants from the National Institutes of Health, which parcels out more than $22 billion annually to small and big businesses. Other government agencies also award research money, with the largest being the Defense Department, which has about $1 billion a year for small-business research.

Gerard J. McGarrity said his former firm, Intronn, in Gaithersburg, Md., now owned by the Virxsys Corporation, ended up shutting down promising cystic fibrosis research in 2003 when the federal government cut off funds because Intronn had accepted venture capital investment.

“The private money was needed to keep going,” he said, “but the cutoff of federal funds wiped out our research team.”

The biotechnology industry said N.I.H. statistics showed how the current classification system was squeezing research. Since 2004, there has been a 25 percent decline in the number of applications for its research funds, according to Congressional testimony by N.I.H. last June. And last year, only 26 percent of the applicants were new, the lowest percentage ever recorded for new research applications.

But the National Small Business Association, which opposes the legislation, maintained that small businesses financed with venture capital were faring well under government medical grants. An April 2006 report from the Government Accountability Office found that the percentage of N.I.H. research dollars awarded to these companies had risen to 21 percent in 2004 from 14 percent in 2001, the association said.

The American Small Business League and other foes have also questioned how the legislation would affect eligibility for government contracts. By law, about 23 percent of government contracts are supposed to go to small businesses.

“Our concern is that changing the definition of a small business would offset the progress the agency has made,” said Charles E. Rowe, the S.B.A.’s assistant administrator for Congressional affairs.