DOD’s New SBIR/STTR Due Diligence Program

In mid-May 2024, the Office of the Under Secretary of Defense for Research and Engineering (OUSD(R&E)) announced the creation of a new risk-based Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Due Diligence Program. The intent of the program, which the OUSD (R&E) developed in collaboration with Department of Defense components and the Small Business Administration, is “to assess security risks presented by small business concerns (SBCs) seeking an SBIR or STTR award from the DOD.”

Two attachments to the memo outline the new program’s major parts: Attachment 1: Defense SBIR and STTR Due Diligence Program Implementation Policy and Attachment 2: Defense SBIR and STTR Due Diligence Program Common Risk Matrix.

Defense SBIR and STTR Due Diligence Program Implementation Policy

At issue for the DOD is determining the risk posed by small businesses that work with the DOD, but which also might conduct business with foreign companies and governments, or which might be owned by foreign nationals. To determine the level of risk, any SBC seeking an SBIR/STTR contracts valued at $5M or higher must disclose extraterritorial business relationships/ownership using an SBA-approved form.

Following this, the Air Force’s Office of Commercial and Economic Analysis will review all of the publicly available information and commercially available information on every SBC that “submits an SBIR or STTR proposal to identify potential security risk indicators.” More in-depth reviews by Risk Mitigation Review Boards at relevant DOD components then follow to determine the extent to which an SBC might be owned, controlled, or influenced by a foreign national or foreign interests. SBCs identified as potential risks are then subjected to a final counterintelligence review before a final contract decision is made.

Defense SBIR and STTR Due Diligence Program Common Risk Matrix

Attachment 2 creates a “Due Diligence Review Decision Matrix to Inform SBIR/STTR Award Eligibility Decisions.” It lists five factors used to determine risk:

• Factor 1: Foreign Talent Recruitment Program
• Factor 2: Foreign Ownership/Control
• Factor 3: Foreign Patents, Intellectual Property, and Technology Transfers
• Factor 4: Financial Obligations
• Factor 5: Foreign Affiliations

Based on these factors, an SBC applicant is placed on a spectrum running from low, medium, high, and very high risk, to prohibited from entering into an SBIR/STTR contract.

Analyst Comment

These measures, while intended to reduce the risk of U.S.-based technology being stolen and/or transferred to adversarial nations, place a reporting burden on small businesses by requiring them to ensure their ownership and business relationships are transparent. It therefore behooves any SBC intending to apply for an SBIR/STTR award to have the required paperwork and accounting records readily available to the DOD offices completing the various stages of the due diligence review.

Companies that offer the greatest transparency could receive awards more quickly by inspiring confidence in the DOD and SBA that they are trusted partners. With the DOD also intending to create a cloud-based database containing the collected risk information, the flagging of an SBC as trusted could also offer long term benefits in the form of additional future SBIR/STTR contract awards.

Much like the TSA-PreCheck program identifies trusted flyers, and speeds them through airport security, the DOD’s new SBIR/STTR Due Diligence Program will do the same for trusted SBCs.

Small businesses seeking SBIR/STTR opportunities can now find them easily in the GovWinIQ database by selecting “Other Procurement Notices” in the “Opportunity Type” field of the IQ Advanced Search. Click on “SBIR/STTR Procurement Notices” in the “Procurement Notice Type” field that appears below the “Opportunity Type” field and the available opportunities will pop up in your search.