Small Businesses Are The Pentagon’s Engine Of Innovation

“NATIONAL DEFENSE MAGAZINE” By Jere Glover

“With an allocation of only 3.65 percent of federal extramural research funding, there is a wealth of objective, data-driven evidence to support the success of the SBIR and STTR program at the Defense Department over the 40-plus years of its existence.”

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A recent article in National Defense reported on a white paper released by the Greg and Camille Baroni Center for Government Contracting at George Mason University investigating the Defense Department’s contracting industrial base.

The article noted that the paper questioned the effectiveness of the federal government’s Small Business Innovation Research and Small Business Technology Transfer programs, and that “objective evidence of their benefits are difficult to find and most analyses of their effectiveness are merely anecdotal.”

In fact, there is a wealth of objective, data-driven evidence to support the success of the SBIR program at the Defense Department over the 40-plus years of its existence.

In 2019, the department published a comprehensive economic analysis of all of its SBIR Phase II awards over a 23-year period. This study surveyed 4,400 companies and followed up on over 17,000 Phase II SBIR awards.

Titled “National Economic Impacts from the DoD SBIR/STTR Program,” the study found that Defense Department SBIR Phase II awards on the whole generated a 22-to-1 return on investment. It also found that for every dollar invested by the government in the SBIR program, there were nearly $3 returned in tax revenue.

Examples of Defense Department SBIR success include camera and GPS on cell phones, unmanned aerial and surface vehicle technologies and major improvements on the operation of Virginia-class submarines. The department has been using SBIR research and development to drive innovation and new concepts into large defense systems, including substantial unmanned aerial vehicle advances and helping generate $500 million in F-35 cost savings.

A similar review conducted by the National Cancer Institute surveyed 690 SBIR Phase II awards and found a rate of return of 33-to-1.

SBIR has been so successful at producing technology needed for Defense Department programs that the Pentagon is now investing in the aggregate more money in follow-on contracts to SBIR awardees annually than it spends on the entire SBIR program. These post-SBIR contracts are referred to as “Phase III” and are funded outside the SBIR program to transition SBIR-developed technology into systems and programs of record.

Phase III investments demonstrate in actual dollars the successful transition of SBIR-funded research into practical technological applications. The table below shows the Phase III contract dollars each service spent going back to 2018.

Other evidence of the success of the SBIR program is the number of SBIR companies that have been acquired by large firms. The 10 largest defense contractors acquired over 135 SBIR firms. Most of these SBIR firms were winners of a significant number of Defense Department SBIR awards.

Some have recently criticized multiple award-winning SBIR firms for a perceived lack of commercialization of their research. As a group, the multiple award winners have an average of one dollar of follow-on government contracts for every SBIR dollar. Since 2020, the top 25 multiple award winners have received a total of $1.5 billion in follow-on Phase III commercialization contracts, and many multiple award-winning companies have been acquired by larger firms, showing that the private sector values their commercial potential.

Here are a few of the multiple award winners that have been acquired in recent years:

The success of SBIR has also been validated repeatedly by academic research. In total, there have been at least 18 National Academy of Sciences studies of the SBIR program, and each has shown that the program is effective in meeting its mission to provide the federal agencies with research and technology that they need.

The most recent National Academy of Sciences study at the National Institutes of Health showed that SBIR/STTR awardees generated 12 percent of all new drugs approved, and 16 percent of “priority review” new drugs approved.

With an allocation of only 3.65 percent of federal extramural research funding, the SBIR and STTR programs have long produced outsized results, both in the innovative technologies that have been generated for government use and the commercial returns on the taxpayer dollar.

Over the decades, the SBIR and STTR programs have proven time and time again to be the most innovative programs in government. Both Congress and the administration would be wise to double down on them to further unleash small businesses’ potential for the benefit of both the warfighter and the taxpayer.”

Small Businesses Are the Pentagon’s Engine of Innovation

ABOUT THE AUTHOR:

Jere Glover is the executive director of the Small Business Technology Council, a non-partisan, non-profit industry association dedicated to promoting the creation and growth of research-intensive, technology-based U.S. small businesses. As counsel to the House Small Business Committee, he led a series of hearings on innovation in 1978 that laid the groundwork for the passage of the SBIR Act in 1982, and has been actively involved in SBIR policy and legislation ever since.