WASHINGTON — Santanu K. Baruah, a former Commerce Department official, began serving this week as acting administrator of the Small Business Administration.

President Bush appointed Mr. Baruah on Aug. 15 as acting administrator under the Federal Vacancies Reform Act of 1998, which allows him to remain in the post through the end of the current administration.

He was nominated on June 26 but his confirmation ran into bipartisan concerns over several issues at the agency, particularly a multimillion-dollar provision for government contracts for female-owned businesses.

Last December, the agency issued a rule narrowly defining the women’s government contracting program, which set off protests on Capitol Hill and among women’s groups.

Senator John F. Kerry, Democrat of Massachusetts, who is chairman of the Senate Committee on Small Business and Entrepreneurship, accused President Bush on Thursday of circumventing the confirmation process and of undercutting efforts to open government contracting opportunities for women.

“This nominee and the administration know that I am vehemently opposed to them moving forward with the unconstitutional women’s procurement rule that makes it harder for women to access federal contracts,” Mr. Kerry said.

Lawmakers were further irked because the Small Business Administration sent a final draft of the women’s contracting rule to the Office of Budget and Management. Its contents will not be officially released until October.

Opponents fear that despite having received some 1,600 comments since the rule was published in the Federal Register earlier this year, the agency has retained the narrow definition that elicited the protests in the first place. Critics say they believe that would flout Congress’s 2000 mandate that female-owned businesses receive at least 5 percent of the $435 billion in annual government contracts.

Senator Olympia J. Snowe, Republican of Maine, who is the ranking minority member on the committee, tried to extract a pledge from Mr. Baruah on the issue at a meeting last month. Ms. Snowe said she “demanded Mr. Baruah make a commitment to either withdraw this proposed rule or defer action on this issue until the next administration.”

Mr. Baruah, who was assistant secretary for economic development at the Commerce Department, did not make a commitment. Even so, Ms. Snowe this week issued a statement welcoming his designation but urging him to “rectify the administration’s recent failure to implement a meaningful women’s contracting rule.”

Although little known in the small-business community, Mr. Baruah spent more than two years at the Economic Development Administration, which gives development grants to communities that have suffered job losses for reasons like the movement of manufacturing overseas. Before joining the Bush administration, he worked for seven years as a senior consultant at the Performance Consulting Group in Portland, Ore., which had some big-name clients like Walt Disney and Intel. The firm closed in 2000.

Mr. Baruah, 43, also served in the administration of George H. W. Bush, working as a legislative affairs officer in the Labor Department and as a confidential assistant for the Interior secretary.

Several small-business groups said it was beneficial to have an administration-selected agency head because the hurricane season was beginning, and a firm hand was needed to oversee the agency’s disaster loan program. The program was overwhelmed after Hurricane Katrina, and the former administrator, Steven C. Preston, made overhauling the program a top priority.

Karen A. Kerrigan, president and chief executive of the Small Business and Entrepreneurship Council, a small-business association, said Mr. Baruah’s appointment would put the agency on solid footing.

Ms. Kerrigan also said Mr. Baruah’s economic development service gave him experience “working with local communities and local businesses so he understands government interaction with communities.”

The American Small Business League, which has locked horns with the Small Business Administration over the awards of small-business contracts to large corporations, has been critical. Its president, Lloyd Chapman, has publicly worried that Mr. Baruah’s goal is to either eliminate the Small Business Administration or fold it into the Commerce Department.

Mr. Chapman also said Mr. Baruah’s lack of small-business experience meant he was not qualified for the job.

When he took up the post last week, Mr. Baruah said in a statement that he planned to “help S.B.A. carry on its mission as it navigates the height of hurricane season and deals with the current economic challenges and tightening credit opportunities for small business.”

He said, through a spokeswoman, that he was too busy learning his new job for an interview, but the S.B.A.’s announcement emphasized that he “has worked for small businesses, helped small businesses grow, and was raised by a mother who ran her own small business.”

That would be Ranee Baruah, who owned Ranee’s Imported and Domestic Foods, a coffee, tea and spices store in Salem, Ore. It closed in the early 1990s, Mr. Baruah said.

Source:  www.nytimes.com

Over the last few weeks, there have been a smattering of reports about a modern-day David vs. Goliath struggle in federal contracting. In this saga, large government contractors are winning bids for contracts that are designated by the government for small businesses. At the end of July, the Small Business Administration (SBA) Inspector General released a report that found Blackwater USA may have won numerous contracts (39 in fact) set aside for small businesses. This report is the result of a request and investigation of Blackwater launched by House Oversight and Government Reform Committee Chairman Henry Waxman (D-CA) back in March. What might be the worst part of this is the SBA has repeatedly tried to hide the fact that huge companies were winning small business contracts.

The Blackwater case is not an isolated incident either, nor is this restricted to the SBA. According to Chris Gunn with the American Small Business League (ASBL), there have been more than a dozen federal investigations since 2003, all of which have concluded that Fortune 500 companies and other large businesses are winning contracts designated for small businesses. News reports, government investigations, and additional evidence make a pretty convincing case that Goliath is winning this battle despite government's efforts to the contrary, and has been for a while.

That's why I was surprised today when I got a press release from the ASBL warning about a new Bush administration policy that would make the reporting of annual revenue and number of employees optional for contractors when they register with the Central Contracting Registration (CCR) system (see CCR notice). That's right - this change would make it more difficult for the government to award small business contracts to small businesses. Past investigations have concluded that even when required to report this information, contractors deliberately mislead government officials, information that was provided was poor, and worst of all, government employees did not consider the poor quality of the information in making contracting decisions.

Well, then, what makes the administration think that this situation will be improved by having less information about whether companies are small or not? Granted there is more than one problem with the current system, but having too much information is not one of them. Once this rule is implemented, it will be that much harder for the government to award small business contracts to the right entities - something it is already having a very difficult time doing. Doesn't President Bush know that David is supposed to win?

Source:  www.ombwatch.org

America's small-business owners are pretty unhappy these days, according to a leading organization that represents these enterprises that are the backbone of the national economy.

The National Federation of Independent Business reported recently its monthly survey of entrepreneurs' optimism fell in July to its lowest level since the early 1980s. Within the index, capital spending plans fell to their lowest level since 1975.

Other indicators of weakness: Average employment declined, inventories were reduced and prices rose. The net percentage of owners reporting earnings improvements (i.e., those reporting higher earnings minus those reporting lower earnings) fell to a negative 37 percent.

Small-business owners surveyed by NFIB named price inflation as their No. 1 problem. They saw no problem with credit availability, prompting the organization to comment, "For the 11th straight month since the Federal Reserve declared the existence of a 'credit crunch,' no evidence of serious credit problems has appeared on Main Street. It is a Wall Street issue."

Events on Pennsylvania Avenue may be adding to small-business owners' frustration. The American Small Business League, issued a blast last week against U.S. House Speaker Nancy Pelosi (D-Calif.) and the House Committee on Small Business for backing bills passed by the full House it characterized as requiring "the average American small business to compete head-to-head with firms owned and controlled by the nation's wealthiest investors for even the smallest federal small-business contracts."

The two bills allow companies to continue to be classified as small businesses after they have been acquired by multibillion-dollar venture capital funds. The Senate is scheduled to consider equivalent legislation.

The ASBL has been fighting against what it considers unrealistic Small Business Administration size standards for small businesses. It notes "over a dozen federal investigations and hundreds of newspaper stories ... have all found Fortune 1000 firms have received billions of dollars in federal small-business contract awards" since 1995. The SBA's highly convoluted size policies are laid out at www.sba.gov; in the "SBA Programs" drop-down menu on the left, click on "Size Standards."

Source:  www.charleston.net

WASHINGTON — The St. Louis biotech firm Kereos Inc. might seem an ideal
candidate to receive a special federal grant designed to encourage small
businesses to pursue cutting-edge research.

The 15-employee company is studying promising new methods to detect and treat
cancer.

But Kereos is excluded from the innovation-grant program. That's because the
firm has raised $22 million in venture capital, making it about 70 percent
controlled by outside investors — and such firms are barred from getting the
small-business grant money.

Congress is on the cusp of loosening that requirement, a move critics have
blasted as a potential boon to multimillion-dollar venture-capital companies.
Small- business advocates say the proposal could squeeze out fledgling startup
firms that can't attract big-dollar investors.

At the center of the legislative storm is Sen. Christopher "Kit" Bond, R-Mo.,
who is pushing the measure to open the small-business grant program to firms
that are majority owned by multiple venture-capital companies.

Bond and other proponents say the move will give a vital boost to small
businesses, especially biotech companies that can't get regular bank loans for
early stage research.

"Our best hope for lifesaving cures and medicines is biotechnology," Bond said
in a written response to questions about the issue. "We should be encouraging
our nation's small businesses to develop these breakthroughs and to take these
breakthroughs from the lab to patients, not throwing up roadblocks."

Robert "Al" Beardsley, CEO of Kereos, said making the grants available to firms
like his could break open new avenues of research for top-notch scientists, who
otherwise may be hamstrung by restrictions that come with venture-capital
backing.

While $22 million might sound like a lot, Beardsley said, it is a fraction of
the cost of developing a new drug therapy. "It sounds ridiculous, but I'm
scraping by by the skin of my teeth to make it to the next milestone," he said.

"There's no room for mistakes and if you have a second idea, you have to put it
on the shelf," he said. "Having that (extra federal grant money) would allow us
to pursue some very exciting parallel paths."

But other small-business advocates say Bond's proposal would hurt nascent firms
engaged in high-risk innovation, benefiting well-heeled investors instead.

"It would allow venture capital firms to participate in a program that was not
intended for them," said Chris Gunn, a spokesman for the American Small
Business League. "It could be very bad for small businesses."

The stakes are high. The program steers more than $2 billion annually in
federal grants to small businesses. And at a time of heightened concern about
America's place in the global economy, the grants are designed to bolster U.S.
innovation, funding front-line research to cure chronic diseases, developing
new defense applications and bolstering alternative energy sources, among other
things.

CLOCK IS TICKING

With the program set to expire on Sept. 30, the clock is ticking for lawmakers
to reach an agreement.

After months of delicate closed-door negotiations, Bond and Sen. John Kerry,
chairman of the Senate Committee on Small Business and Entrepreneurship,
reached a compromise on a bill to reauthorize and expand the grant program just
two days before lawmakers left Washington for the August break.

On July 30, the small-business committee approved the measure, which would
reauthorize the Small Business Innovation Research program and a second
technology grant program. But the fate of that deal remains in limbo.

The innovation research grant program was started more than two decades ago in
an effort to channel precious federal research dollars to small businesses for
vanguard projects, at a time when the bulk of federal contracting dollars was
going to universities or big corporations.

The current program mandates that any federal agency with more than $100
million external R&D budget has to direct at least 2.5 percent of those dollars
to the innovation research grants.

The Kerry-Bond compromise would increase the allocations, steering more money
to small businesses. The more contentious element, pushed by Bond, would allow
firms that are majority owned and controlled by multiple venture-capital
companies to compete for a chunk of the small-business grant money — 18 percent
from the National Institutes of Health and 8 percent from other agencies.

WHO WON?

At the July 30 committee meeting, Kerry, D-Mass., was decidedly lukewarm about
the agreement. "Neither of us really like it … and everyone is still trying to
figure out who won," Kerry said. "I am told that is the sign of a good
compromise."

Kerry initially did not want any set-asides for majority-backed venture capital
firms, arguing that it puts entrepreneurs who are pursuing truly high-risk
ideas at a disadvantage and changes the nature of innovation, forcing small
firms to go after bigger market shares and faster returns.

"Venture capitalists have told us that they don't invest in early stage
research because it is too high risk," Kerry said in a statement to the
Post-Dispatch.

If government grants are going to small businesses with significant
venture-capital backing, Kerry said, it may steer the program away from
cutting-edge research and toward projects that are designed more to attract
investors than to meet military, medical or energy needs.

"Furthermore," Kerry said, "research from high-tech firms and start-up firms in
rural states, like Missouri, where there is very little venture-capital
activity, could also suffer."

Bond disputes that assessment, and he's been adamant about his position.

SBA's current rule "excludes too many small businesses from competing for funds
to develop life-saving cures and medicines," Bond said. "Everyone will be a
winner when one of these companies finds a breakthrough to curing cancer,
Parkinson's or other life-threatening and debilitating diseases."

LOBBYING

The venture-capital provision has been the target of an intense, years-long
lobbying campaign by the Biotechnology Industry Organization and the National
Venture Capital Association.

Biotechnology and venture capital lobbyists argue that current restrictions
hamper innovation and direct money to wasteful projects that will never get off
the ground.

Under the program now, small businesses that have minority venture capital
investment are eligible for the grants; the program only excludes small
businesses that are majority-owned, 51 percent or more, by multiple venture
capital companies.

Alan Eisenberg, an executive vice president at BIO, said it can take 10 to 15
years, and $1 billion, to turn a scientific concept into a commercial product.

"During that time, a company can't go to a bank for a normal small-business
loan. These are not normal small businesses . . . because there's no revenue
coming in," Eisenberg said. "So small businesses have to turn to investors,
selling parts of the company, to raise the funds they need. That's why venture
capital is so important."

He also said small businesses often get venture-capital investment for
mid-stage projects but need government assistance for other nascent initiatives.

MISCONCEPTIONS

And Mark Heesen, president of the venture-capital association, said there are
misconceptions about what venture-capital backing means.

"The premise that you cannot be a small company if you're receiving venture
capital is just ridiculous," Heesen said. "We fund a huge number of small
companies all across the United States, and simply because a company receives
venture capital doesn't mean they're rolling in the dough."

If a small business hasn't secured venture investment, Heesen said, it's
probably for good reason. Investors have decided that "the science is not good,
the management team is not good, or a combination of that," Heesen said, so the
government probably shouldn't invest, either.

Beardsley, of Kereos, said the restrictions "are like saying we're only going
to support people who haven't won the gold medal in the Olympics."

PRAISE FOR BOND

Both BIO and the NCVA heaped praise on Bond for pressing the issue so hard.

"We love him. He really carried our water here," said Ellen Dadisman, a BIO
spokeswoman.

The groups have contributed to Bond's campaign, but only small amounts. BIO's
political action committee donated $1,000 to Bond in 2004, when he last ran for
re-election. And the venture-capital group gave him $8,000 that cycle. In
addition, a former legislative aide to Bond, Brent Franzel, is a top lobbyist
for the Missouri Biotechnology Association, an affiliate of the national
group.

Still, neither group has endorsed the deal. That's because the House bill goes
even further, with almost no restrictions on the ability of venture
capital-backed firms to win small-business grant money.

Officials with the American Small Business League say both proposals will tilt
the playing field toward well-heeled firms.

In the current economic slump, small businesses need as much help as they can
get, said Lloyd Chapman, ASBL's president, in a release after the Senate
committee vote. But the House and Senate bills are "pandering to wealthy
venture capitalists."

The House has passed its version of the legislation. The Senate has yet to take
up the Kerry-Bond bill.

It will compete for time on a crowded and short legislative calendar when
lawmakers return next month. With only a few weeks remaining in this
congressional session to secure final passage, lawmakers may opt for a
short-term renewal of the current program, leaving the venture-capital
restrictions in place.

But both Bond and Kerry said they are committed to pushing through the
compromise.

dshesgreen@post-dispatch.com

202-298-6880

Source:  www.stltoday.com