SBIR reduction at DOE

The U.S. Department of Energy (DOE) has reduced its funding for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The cut at the Office of Science—the agency’s primary program administrator—appears to be about 35%. The change resulted from congressional direction that the agency had miscalculated its SBIR set-aside and is intended to make the Office of Science’s calculation more consistent with that of the other programs in DOE. The reduction will likely result in tougher competition for SBIR/STTR awards at the agency in the foreseeable future.

Congress directed the department to make this change in its FY 2022 appropriations bill. The text of the congressional instruction,[1] the “Department is directed to use the definition of research” from the SBIR legislation, seems innocuous. However, it appears that this instruction was included because DOE had been including activity in its calculation of its extramural research budget that the appropriations committee does not believe belongs there. This recalculation of extramural research is what is driving the cuts.

The calculation of extramural research is critical because SBIR/STTR funding derives from a share of each agency’s research funding. By statute and policy directive, extramural research is calculated by taking an agency’s total research funding and then subtracting costs for the agency, for government-owned and -contracted facilities, and, for DOE, for atomic energy defense programs. If the remaining research funding is greater than $100 million, 3.2% is set aside for SBIR, and if the remaining research funding is greater than $1 billion, an additional 0.45% is set aside for STTR.

While the exact method the agency was using previously is not clear at this time, it appears that DOE’s Office of Science was including a substantial amount of federal agency or research plant activity in its extramural budget.

In its FY 2024 Congressional Request, the office reports an FY 2022 enacted SBIR funding level of $172 million, but only $101 million for FY 2023 and requested $111 million for FY 2024—despite seeing its R&D funding levels increase from $7.3 billion to $7.9 billion and $8.4 billion across the three years. STTR decreased from $24 million in FY 2022 to $14 million in FY 2023 and $16 million in FY 2024.

Other components of the DOE appear to be less affected by the rule. In a summary table from another part of the agency’s budget justification, only two additional accounts of the nine that contribute to the SBIR/STTR program saw reductions (Defense Nuclear Nonproliferation and Nuclear Energy), and these totaled less than $2 million.