Small Business Research Programs Prove Their Worth

“NATIONAL DEFENSE MAGAZINE” By  Michael Seeds

“Congressional small business leaders came to an agreement in March with the passage of S.3971, the “Small Business Innovation and Economic Security Act.” The bill reauthorizes the two programs through Sept. 30, 2031, and includes several proposals to build on previous reauthorizations.”

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“When the federal government shut down on Oct. 1, contractors across the U.S. defense industrial base were facing severe challenges. However, many small businesses were also facing a second headwind as the authorization lapsed on the same day for the Small Business Innovation Research and Small Business Technology Transfer programs.

In February, defense programs received funding for the rest of the fiscal year, but small businesses and their government partners were still facing a “small business shutdown,” since the two programs were still not authorized. However, congressional small business leaders were able to come to an agreement in March with the passage of S.3971, the “Small Business Innovation and Economic Security Act.”

The bill reauthorizes the two programs through Sept. 30, 2031, and includes several proposals to build on previous reauthorizations.

This includes creating a clear, consistent baseline for the foreign ties due diligence programs with minimum standards for denial and establishing a process to communicate the reason for a foreign risk denial to small businesses.

The legislation establishes the new Phase II Strategic Breakthrough Awards process, which allows agencies with the largest SBIR programs to utilize existing funds to award sequential Phase II awards of up to $30 million with required matching funds from private capital or non-SBIR government contracts.

The agreement also implements Phase III improvements that align with the National Defense Industrial Association’s recommendations in “Vital Signs 2025,” the annual snapshot of the health of the U.S. defense industrial base.

This includes establishing training activities to ensure federal agency acquisition and contracting officers are fully aware of the processes and intent of awarding follow-on contracts for SBIR awarded technologies. The bill also instructs agencies to develop simplified and standardized procedures and model contracts for Phase III awards that mirror previous protections for agencies to establish standardized data rights frameworks for its awardees.

Overall, the two programs are effective tools for bringing cost-effective and valuable innovations to the Defense Department and, ultimately, to warfighters. They are also essential programs in attracting and retaining small business innovators in the defense ecosystem.

Both the programs have three phases. Phase I funds feasibility-related research and development corresponding to the participating federal departments’ and agencies’ requirements.

Phase II supports additional research-and-development efforts initiated under Phase I, with a focus on prototyping specific program requirements and exhibiting potential for commercial application.

Finally, Phase III focuses on the commercialization of the results of Phase I and Phase II grants. It is important to note that neither program provides funding under Phase III, and that not every Phase II results in a prototype that is ready for Phase III commercialization.

The two programs have a proven track record as a pipeline for ingenuity and advancements in the defense sector. Their goals are to encourage competitive small businesses to work in coordination with the federal government on agency research-and-development needs, and to expand private sector commercialization of the innovations stemming from this research.

By supporting small business competition for these contracts, the programs inspire technical innovation and inject an important sense of entrepreneurship into the defense enterprise. Speeding innovations and advanced capabilities to our warfighters is critical to the department’s efforts to outpace the People’s Republic of China and other potential competitors in this era of great power competition. The two programs have also had a significant impact on the U.S. economy.

According to the Small Business Administration, through fiscal year 2019, the SBIR program has provided over 179,000 awards totaling over $54.3 billion to small businesses.

According to the Pentagon’s latest economic impact report released in 2019, the two programs have generated a 22:1 return on investment within the Defense Department. They have also had a significant economic impact with the creation or sustainment of 1,508,295 jobs, a total labor income of $111 billion and over $39 billion in combined federal, state and local tax revenues.

The National Science Foundation has also done extensive work tracking the trends in research-and-development expenditures. Over the last 60 years, there has been a significant shift in such investments made by the federal government and the private sector. In 1964, federal R&D expenditures accounted for 67 percent of all domestic R&D investment, and private sector business accounted for 31 percent of the investments.

By 2020, the roles had reversed, with private sector business accounting for 73 percent of domestic research and development and federal government investment accounting for 21 percent. This change further highlights the importance of the two programs as an established pathway to enable small business innovators to meet federal R&D requirements.

Overall, the Small Business Innovation Research and Small Business Technology Transfer programs provide a purposeful focus on strengthening high-tech innovators’ abilities to effectively engage with the Defense Department with cutting-edge technologies.

NDIA and its member companies appreciate the effort of congressional leaders and other stakeholders to reauthorize the programs, which bridge a key gap in the national innovation ecosystem by enabling small businesses to deliver innovation critical to the wide-ranging needs of national security.”

GOVERNMENT POLICY Small Business Research Programs Prove Their Worth

Michael Seeds is NDIA’s senior director of strategy and policy.