Congress advances three-year SBIR/STTR reauthorization

On Tuesday, the Senate passed a bill to extend the SBIR, STTR and related pilot programs through Sept. 30, 2025. The House is expected to act on the legislation next week, just ahead of the current expiration at the end of this month. In addition to reauthorizing the programs, the legislation makes changes to performance standards for companies with numerous awards, foreign risk management, topic solicitations, and requires several new reports by SBA and the Government Accountability Office (GAO).

Program extension

The bill extends all existing authorities and sets a new expiration date of Sept. 30, 2025. In addition to the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, the pilots extended are:

• Phase Flexibility – allows the National Institutes of Health (NIH), Department of Defense (DOD) and Department of Education to make Phase II awards without an initial Phase I award;
• Civilian Agency Commercialization Readiness – enables agencies to use a portion of their funds to further support promising Phase II technologies;
• NIH Phase 0 Proof of Concept Partnership – allows NIH to fund research institutions for grants supporting researchers on proof of concept and commercialization mentoring;
• Commercialization Assistance – requires agencies to have a program offering continued support to companies, which can mean a third Phase II award;
• Accelerate DOD Awards – pilot requiring DOD to make faster award decisions and disbursements, including through process standardization; and,
• Assistance for Administrative, Oversight and Contract Processing Costs – allows agencies to use a portion of their funds to improve program operations, marketing and reporting.

Additional performance standards

The authorization adds new tiers of performance standards for companies with multiple awards.

The first new standard assesses Phase I to Phase II transition success for companies with more than 50 Phase I awards over five fiscal years (before the most recent fiscal year). The legislation requires these companies to have a rate of Phase II awards over the period that is double the base standard (for companies with 21+ awards) set by SBA. The current rate is 0.25 Phase II awards for every Phase I award, which means that the statute will effectively set the new benchmark at a rate of 0.50.

To assess success at translating Phase II awards into commercial products, the legislation sets two new standards. For companies with more than 50 Phase II awards over 10 fiscal years (before the two most recent fiscal years), companies must average $250,000 of sales and investments per Phase II award received over the period. This required average increases to $450,000 for companies with more than 100 Phase II awards. For comparison, the current standard set by SBA is for companies with 16+ awards over the period, which are required to have an average of $100,000 in sales/investments — or patents related to funded work on at least 15 percent of projects (this metric is not applicable to the new standards).

Businesses reporting sales for the Phase II-related standard must document that the sales being counted toward the standard are attributable to an SBIR/STTR award, and that no federal funds were used for payment. Further, the company must document both the sales that are being counted toward the standard and all sales in the five preceding fiscal years. SBA’s Inspector General will audit these submissions.

Under the new legislation, businesses that miss either standard will be prohibited from receiving more than 20 total awards (Phase I and II) per agency for the next year. There is a waiver process that would enable an agency to ask SBA to deem a topic competition critical to the agency or national security and allow any company to be selected for an award.

These new standards will go into effect April 2023, and by July 1, 2023, SBA will produce a list of companies that do not meet the performance standards.

GAO will conduct a study on the impact of companies with 50+ Phase II awards on the SBIR and STTR programs. This report will document how well these companies commercialize funded technologies, their impact on the ability of new companies to enter these markets, and how different standards or restrictions may improve SBIR/STTR impact in the future.

Foreign risk management

A new section in the SBIR/STTR authorization will require agencies to establish a due diligence program assessing potential risks due to foreign connections or obligations. Procedures for these assessments will need to be in place within 270 days of enactment, and SBA will work with the White House Office of Science and Technology Policy and the Committee on Foreign Investment in the U.S. to recommend best practices.

Pending SBA’s recommendations and agency decisions, the foreign risk assessments may include: cybersecurity practices, patent and employee analyses, and any financial ties or obligations related to the business ownership. Further, agencies are directed to attempt to use independent processes to assess applications for nondisclosures of risks related to “countries of concern,” namely: China, Iran, North Korea, Russia and any other countries identified by the Secretary of State.

Businesses with connections to a country of concern may be prohibited, depending on the nature of the relationship, from receiving an SBIR/STTR award, particularly if the connection poses a conflict of interest or national security risk, or was not disclosed. Agencies will also be required to recoup award funds if companies are found either to have made a “material misstatement” about their connections or to have entered into a new relationship that constitutes a risk, which businesses will also be required to disclose.

Agencies are permitted to use up to two percent of their SBIR funds to cover the costs of these assessments (note: this is above the administrative cost allowance). Reporting on these provisions will be conducted by SBA, GAO, DOD, Department of Energy, Department of Health and Human Services and the National Science Foundation.

Topic solicitations

Two sections of the legislation would affect agency solicitations.

First, DOD will be required to have at least one “open topic” announcement at each component of the agency each fiscal year. While the legislation does not appear to define how these announcements must differ from a conventional announcement, “open topic” is the term the Air Force uses to explain its solicitations run by AFWERX, which do not specify technologies sought.

The frequency of open topics and how participants and awards made under this model differ from conventional solicitations will be the subject of SBA and GAO reports.

Second, all participating agencies are required to use a “multi-level” process that confirms all SBIR/STTR solicitations ensure adequate competition and that no private entities shaped eligibility criteria.

Next steps

The current SBIR/STTR authorization expires on Sept. 30, 2022. The House is expected to pick up the Senate’s legislation next week, and the president will need to sign the bill before it goes into effect.