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Majority of participating agencies non-compliant with SBIR spending requirements

May 06, 2021

The most recent annual report from the Small Business Administration (SBA) concludes that a majority of participating federal agencies did not comply with the mandated minimum spending requirements for the Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs.

The SBA’s 2018 Annual Report provides a robust analysis of the award data for that year. While SSTI frequently examines the SBA’s publicly available and regularly updated award data — recent articles include analyses on the distribution of agency SBIR/STTR awards by state from 2009 to 2019 and the rate of SBIR awards per 1,000 innovative companies by state in 2019 — SBA’s annual report provides additional insights that cannot be gleaned from the publicly available data.

One such insight outlines which agencies complied with the minimum program spending requirement, which for SBIR is 3.2 percent of each agency’s annual extramural R&D obligations. There must also be less than 15 percent variance between agency extramural spending as reported to SBA and as separately reported to the National Science Foundation (NSF). The report shows that six of the 10 participating civilian agencies were not compliant with minimum SBIR spending requirement in 2018. These non-compliant agencies were the Department of Health and Human Services (HHS, 3.18 percent), the Department of Agriculture (USDA, 3.15 percent), NASA (more than 15 percent variance between numbers reported to SBA and NSF), the Department of Education (ED, 3.16 percent), the Department of Transportation (DOT, 1.75 percent), and the Environmental Protection Agency (EPA, more than 15 percent variance between numbers reported to SBA and NSF).

The agencies that did comply with the minimum spending requirement were the Department of Energy (DOE), the National Science Foundation (NSF), the Department of Homeland Security (DHS), and the Department of Commerce (DOC).

Since the Department of Defense (DoD) accounts for the lion’s share of total SBIR/STTR funding (more than 42 percent of total SBIR/STTR spending in 2018), SBA provides a similar compliance analysis on each of the participating components of DoD. The report shows that the non-compliant DoD components in 2018 were the Air Force, Army, Missile Defense Agency (MDA), Defense Health Agency (DHA), Joint Task Force on Chemical and Biological Defense (CBD), and the Office of the Secretary of Defense (OSD). SBA could not determine compliance for the Navy and National Geospatial-Intelligence Agency (NGA).

The components that did comply with the minimum spending requirement were DARPA, Special Operations Command (SOCOM), Defense Threat Reduction Agency (DTRA), and the Defense Logistics Agency and Defense Microelectronics Activity (DLA/DMEA).

SBA provides non-compliant agencies with the opportunity to submit an explanation for the shortfall and includes these, when available, in the annual report. While SBA may not agree with agencies’ reasons for non-compliance, the report includes a discussion of the five primary challenges to agency reporting and spending compliance, acknowledging that it will continue to take work to resolve these disagreements in navigating the complicated minutia of federal budgeting. These challenges are:

  • The first challenge is identifying a common and transparent accounting of agency extramural R&D obligations. The congressional intent in using extramural R&D as the basis is that this portion of an agency’s total R&D budget performed by non-federal employees and may therefore be performed by small businesses.
  • The second challenge stems from the statutory definition of extramural budget, which looks to the amount that an agency “obligated” during the fiscal year. Most agencies report extramural R&D funding obligations, the DoD continues to report extramural R&D budget appropriations rather than the actual amount of funding obligated during the fiscal year.
  • The third challenge is that agencies cannot account for all obligations for SBIR/STTR awards or extramural R&D spending until the fiscal year is over. Agencies must estimate these amounts and make minor adjustments when possible during the year.
  • The fourth challenge involves delays in the contracting process, especially for agencies with multi-year budget authority. Agencies may plan to obligate funds during the fiscal year to meet the SBIR spending requirement, but delays may prevent those awards from being issued in that fiscal year.
  • The fifth challenge is that some agencies are authorized for no-year or two-year funding, which allows the agency to obligate those secured funds in future years. The DoD has two-year funding and much of its funding is obligated in the second year. SBA measures what was obligated in the current year regardless of the year the funds were set aside.
sbir, report