Following a five-month funding lapse, the President signed the Small Business Innovation and Economic Security Act (S. 3971) reauthorizing the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs for five years, ensuring more than $4B in annual funding for federal small business research and development and technological innovation.

The legislation strengthens the nation’s research and development security posture, creates pathways for innovative small businesses to enter and remain in the federal marketplace and improves programmatic processes.This article provides an overview of program changes and key small business contractor benefits and a snapshot of the top five participating agencies based on program budgets.

SECTION 2: BOLSTERING RESEARCH SECURITY OF SBIR AND STTR AWARDS

S. 3971 protects American research and development by identifying and mitigating potential security risks through small business connections to foreign entities. Under this section, agencies must adhere to stringent foreign risk and national security framework processes, including:

• Checking applicants against eight federal watchlists
• Conducting expanded due diligence on foreign ownership, affiliations and investment relationships, patent and employee analysis, technical licensing agreements and joint ventures with foreign countries of concern
• Coordinating applicant evaluation and processing with the intelligence community and federal law enforcement
• Notifying denied applicants of the basis of denial, including a primary source that is classified or other federal agency security risk. (Note: Denial in one program cycle does not prohibit future eligibility.)

The Act also extends the Government Accountability review cycle from three years to eight, providing increased stability for agencies and small businesses for long-term projects.

SECTION 3: PHASE II STRATEGIC BREAKTHROUGH FUNDING

The addition of Strategic Breakthrough Funding (SBF) provides one of the most beneficial changes for federal contractors. The SBIR program caps Phase I awards at $150,000 to $275,000 and Phase II between $750,000 and $1.75M, based on the participating agency. Between Phase II and commercialization, firms can find themselves in a funding gap, referred to as the “Valley of Death." The SBF bridges this gap by enabling agencies to allocate up to $30M for post-Phase II projects for up to 48 months; awards are limited to one-half of a percent of an agency’s external research budget. Companies holding only Phase I awards are not eligible. Eligibility requirements include:

• Previous Phase II Awards: A firm must hold at least one active or completed Phase II SBIR or STTR award.
• Proof of Matching Funds: Firms must provide proof of 100% commitment to new matching funds from either private investments, other non-SBIR government contracts or commercial sources.
• Demonstrated Effectiveness: The proposed project must demonstrate through market research a technology that provides an effective solution.
• Expedited Award Schedule: Agencies must award contracts under the program within 90 days from receiving a proposal from a small business.
• Selection Criteria: Agencies must evaluate each project under specific selection questions relevant to advancing national security, providing a new technology, process or a new application of existing technology that will enable new alternatives to existing programs, intent from a federal agency to purchase and integrate the technology and determine whether the technology area is undercapitalized by private investment.
• Additional Defense Requirements: Defense projects must meet three additional criteria:
  • Demonstrate their product, process or technology meets specified readiness levels and requires a commitment for inclusion in a program objective memorandum from an official with the rank of program acquisition executive or higher.
  • Provide a minimum of 20% of matching funds from non-SBIR DoD sources such as contracts, Other Transaction Agreements or other defense-related funding pathways.
  • Ensure the product, process or technology meets high-priority requirements or military operational needs.

SECTION 4: REDUCING ADMINISTRATIVE BURDEN

Beginning in FY 2027, SBIR/STTR Program Directors must set a limit on the number of proposals a small business may submit for Phase I and Phase II solicitations. These limits may be based on a fiscal year, solicitation, or topic basis. Program directors may grant waivers on a topic-by-topic basis at the time of the solicitation but must provide written justification to the SBA Administrator and the agency Undersecretary that the project is time-sensitive or meets an urgent mission need. Agencies may not grant waivers for more than 5% of the SBIR/STTR program topics in any fiscal year. Waivers must be approved or disapproved within 15 days of the request.

SECTIONS 5 & 6: PHASE III AWARD EDUCATION AND IMPROVEMENTS

Under Section 5, program administrators must provide training for contracting officers and procurement officers to include program missions, goals and authorities, the use of Phase III agreements and data rights, and the execution of Phase III sole source awards. Section 6 requires the procurement workforce to advocate for technology transition of programs through Phase III awards. Agencies must also develop simplified and standardized procedures and model contracts for all three SBIR award phases and report progress on these activities to the SBA Administrator.

SECTION 7: TECHNICAL AND BUSINESS ASSISTANCE IMPROVEMENTS

SBIR and STTR award recipients may obtain technical and business assistance, including cybersecurity and intellectual property protections under Section 7 guidelines. Funds may be included within or added to the award amount at the agency's discretion and may be used for screening for potential foreign involvement in technology or commercialization activities. Phase I recipients may use up to $6,500 for staffing and training purposes per project under this section. Phase II recipients may use up to $50,000 per project. The section also establishes guidelines for reviews and participation in Innovation Corps (I-Corps) programs.

SECTION 8: IMPROVING SBIR AND STTR DATA COLLECTION

Section 8 creates additional data fields in the SBIR database and requires the General Services Administration to update the Federal Procurement Data System (now on SAM.gov) to enable program contract activity and spending tracking. New fields are:

• Direct to Phase II
• Subsequent to Phase II
• Strategic Breakthrough Award
• Phase III Prime Contract Award
• Phase III Subcontract Award.

Additionally, contracting officers must reference previous SBIR/STTR contract numbers when reporting follow-on Phase II or Phase III contracts.

SECTIONS 9 AND 10: EXTENDING AUTHORIZATION AND EXTENDING PROGRAMS AND ACTIVITIES

The legislation extends program authorizations through September 30, 2031. This includes Phase Flexibility, Commercialization Readiness (civilian agencies), Accelerated Awards, Phase 0 Pilot, Administrative Assistance, Minimum Performance Standards, Commercialization Assistance Pilots, Due Diligence Program, STTR Military/Educational Institutions Pilot, Budget Calculation Pilot, and the SOCOM Pilot programs. The Act also allows agencies to use FY 2026 carryover funding to FY 2027. Finally, the authorization sunsets the mandate for GAO oversight from the FY 2012 NDAA.

KEY TAKEAWAYS

The revised program prioritizes research and development security while increasing incentives for small innovative businesses to move projects from concept, prototype and development stages to commercialization and federal integration. The most significant small business benefits are new bridge funding for projects transitioning from Phase II to commercialization. Phase III process simplification and standardization, coupled with procurement workforce advocacy and training, expedite awards and technology transition. The extended GAO review cycle also provides stability for long-term projects. Finally, the ability to carry over unspent FY 2026 funds into FY 2027 to offset gaps created during the five-month lapse creates potential opportunities for increased award activity in FY 2027.

Eleven agencies participate in one or both of the programs with the top five shown in the figure below. A full list is available on here:

• Small Business Administration (SBA) – Administers the overall SBIR/STTR policy and coordinates with participating agencies.
• U.S. Department of Agriculture (USDA): both
• U.S. Department of Commerce (DOC): SBIR only
• U.S. Department of Defense (DoD): (both)
• U.S. Department of Education: SBIR only
• U.S. Department of Energy (DOE): both
• U.S. Department of Health and Human Services (HHS): both
• U.S. Department of Homeland Security (DHS): SBIR only
• U.S. Department of Transportation (DOT): SBIR only
• Environmental Protection Agency (EPA): SBIR only
• National Aeronautics and Space Administration (NASA): both
• National Science Foundation (NSF); both.

 

 

 

 

 

 

 

 

 

 

 

 

Watch for an upcoming blog on historical program performance, impacts from the funding gap, and potential growth areas for FY 2027.