Due to termination provisions in the Small Business Innovation Research and Small Business Technology Transfer programs, absent further legislative action, the programs will end at the end of this fiscal year.
SBIR and STTR—first enacted by the Small Business Innovation Development Act of 1982 and the Small Business Research and Development Improvement Act of 1992—create partnerships between federal agencies, public research institutions, and the nation’s best and brightest small businesses to develop important technology.
For this reason, their reauthorization is a top priority for the National Defense Industry Association. The programs accomplish their goals by leveraging a small percentage of extracurricular federal research and development expenditures through competitive awards.
For fiscal year 2020, the year with the most complete data, these programs resulted in nearly $3.9 billion in small high-tech companies. Such funding drives technological innovation to provide warfighters with a competitive edge in all domains.
These are not venture capital programs, but they are often referred to as the nation’s seed fund because the awards provide non-dilutable money for what may be early-stage projects and high-risk research critical to keeping the United States competitive internationally and meeting the needs of Americans.
The Small Business Innovation Research Program has been reauthorized on a bipartisan basis for more than 40 years, but Congress is currently debating its merits. This happens as time runs out. There are only 11 legislative days in September when both chambers are in session, and neither legislature will pass SBIR inclusion before it expires, barring the possibility of it being included in another continuing resolution.
Recently, to everyone’s surprise, there was discussion of a stand-alone bill being considered on an emergency basis, a process that depends on the unanimous consent of 100 senators – not an easy standard.
Expiration would not have happened for a lack of effort by individuals on the Hill, in industry, the Small Business Administration, and the Pentagon. The five-year extension is included in the House’s Creating Opportunities for Manufacturing, Superiority in Technology and Economic Strength (COMPETES) Act.
However, when the bill moved forward in the Senate as a watered-down version of the United States Innovation and Competition Act of 2021 into the CHIPS and Science Act of 2022, the committees gave up on the SBIR expansion because they could not reach an agreement .
The House Armed Services Committee added it as an amendment to the National Defense Authorization Act for fiscal year 2023. Its inclusion gives hope for continuing the program if stand-alone legislation or a continuing resolution does not reach the president’s desk before the programs expire on September 30. However, using the NDAA as a vehicle would mean a lapse in programs because Congress is unlikely to pass final legislation until October.
So the question must be asked: Why has reauthorization proven controversial? After all, the program is said to have a 22-to-1 return on investment within the Department of Defense.
Proven to bring innovation to the department and the other 10 agencies authorized to use it. However, it failed to pass Congress, despite broad bipartisan support.
Understanding what’s holding up reauthorization comes from looking at some little-known Senate procedural processes. Most references to the bill passing the Senate focus on the 50-50 vote being overcome. This was often mentioned last year when major legislative proposals were delayed because one or two members of the ruling party did not meet the minimum threshold. Or, as the filibuster debates gave Americans a civil-relations reminder, it takes a 60-40 vote to clear that hurdle. However, when it comes to the Small Business Innovation Survey, only a small number of elected members opt out of its reauthorization.
So why can such a small number of members prevent a program that has a record, with more than 40 years of success, from passing? This is a puzzle.
Procedurally, the competent committee passes the law and then moves on to a larger vote. When legislation relates to a larger legislative instrument, multiple jurisdictional committees are involved and are left to debate these issues internally before moving the provision forward. COMPETES had many provisions that were not included in the Law on Innovation and Market Competition, including SBIR, for which an official conference was convened. Negotiations continued for months, but as the law reached an impasse, anything without the approval of the “four corners” was dropped.
The “Four Corners” consist of the chairperson and ranking members of the relevant jurisdictional committee from each chamber. If one of them does not agree with a further provision, it is not included.
Further complicating matters, the Congress leadership is unwilling to reject the committee leadership’s position. Sometimes this is done through negotiation and trade, with a quid pro quo for something else the member may care more about. Other situations may require stronger action, such as the leader of the party in that chamber “breaking in” on a member or ignoring their objections and bypassing them. However, the latter option is not something either side likes to do from a precedential standpoint.
This brings us back to reauthorization and where it stands. A senior member of the Senate Small Business Committee’s Appropriations Committee has publicly expressed concern about the impact of SBIR. This member also cited multiple award winners or what are pejoratively called “SBIR Mills” — companies that win multiple contracts under the program without moving the technologies into procurement programs or operational use.
While conversations have focused on whether the program follows the intent of Congress’s bill, public debate has focused on securing the program from Chinese influence, something that is not limited to small business innovation research, but a known concern to protect all research and development. Small businesses that participate in government contracting do not want to undermine national security and put the warfighter at risk. They also don’t want to risk stealing their own intellectual property.
The parties continue negotiations, but have not been able to reach an agreement. Incorporating a program expansion or reauthorization into a permanent solution is the last hope of keeping the law in place without interruption if stand-alone legislation fails.
To understand why the impasse occurs, it is useful to examine the arguments on both sides. It is also important to examine the input for the customer, focusing here on defense.
Historically, there have been reauthorizations that went smoothly and were more like a rubber stamp, and others where the program appeared to be in jeopardy, but Congress eventually took action to ensure the program continued. For Small Business Innovation Research, the debate over the past few years has focused on making the program permanent, not whether it should cease to exist. Congress is doing its job when it examines the program’s effectiveness and whether it meets the intent of the law.
Much of the focus is mainly on Phase III and what is often referred to as “Death Valley”. This term refers to the failure to move technologies resulting from research efforts into operational use. This transition is not funded by program dollars and often a successful invention ends up in a waiting game to receive funding from other sources.
Such funding is based on the priorities of the service’s budgeting process and whether the service’s culture and plans are open to using the technology at that time. These new technologies often face pushback from entrenched industry interests, service bias, and congressional parochialism.
Regarding the Small Business Innovation Survey, one of the issues being debated is whether there should be a time limit on a company’s participation in the program or a limit on the maximum number of awards a company can win. However, some companies’ innovations wait “on the shelf” for more than a decade before the service is ready to be incorporated into their platforms or their respective technology arsenal.
It’s not the company’s fault. But they are often the ones who are left at a disadvantage, waiting for funding, while trying to keep their businesses alive.
Another point of discussion is commercialization and the merits of adding an assessment of a company’s ability to bring inventions to market as a metric for determining program eligibility. The Pentagon sees this as primarily making inventions available to the military for operational use since many weapons-related inventions will not have the ability to “spinoff.” From that perspective, commercial use in the private sector is of secondary importance and should not be a relevant threshold.
While there is a history of commercializing technology spinoffs, including LASIK and technologies that enable wireless connectivity, this is not and should not be the primary purpose of the defense program, especially when it comes to matters of national security. The focus should remain on the program’s high return on investment in enabling the transition of technological innovation into the hands of the warfighter.
Working with American entrepreneurs and with strict eligibility rules to limit participation to American companies, the program taps into the ingenuity of small businesses, strengthens the economy and improves the ability to move technologies from the lab to the market. Recently, the Office of the Undersecretary of Defense for Research and Development opposed changes to the program that would limit the number of awards. This is not a limitation for large companies, federally funded research and development laboratories and universities.
There may be areas of change that could improve the program and attract more participants as many independent observers are calling for. However, they should be discussed and analyzed without putting the program at risk of interruption.
As the clock ticks down, it seems more likely that some behind-the-scenes legislative trading will be required to keep the program alive. In classic Washington fashion, the trades may have nothing to do with the program in question.
When all is said and done, the question remains whether the party leadership will make an effort to overcome the objections at the committee level. This would ensure small innovative companies continue to work with the defense industry, bringing important new entrants into the competitive defense industrial base and keeping the United States at the forefront of technology against the growing threat from China.
Will there be an effort to ensure that nearly $4 billion in investment capital is available to small businesses to support the nation’s warfighters? The Small Business Innovation Research Program helps drive the innovation needed to maintain a decisive and competitive advantage over warfighters.
It would be a big mistake to lose that innovation just because of a failure in communication.
Kea Matory is Director of Legislative Policy at the NDIA.
