Congress recently passed the SBIR and STTR Extension Act of 2022 in overwhelmingly bipartisan fashion, and President Biden signed the bill into law on Sep. 30th, one day before programs were set to lapse. The bill includes a three-year extension of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, as well as reforms; these include stricter reporting and scrutiny for foreign-linked firms and “experienced” businesses that have won more than 50 awards. Read CEBN’s statement about the reauthorization here.
Background: The SBIR program has a successful 40-year track record of supporting the U.S. innovation ecosystem. Eleven federal agencies with research and development (R&D) budgets over $100 million participate in SBIR. These agencies set aside 3.2% of R&D funds to support small businesses with cutting-edge technologies on the path to commercialization across all sectors, including clean energy. Five agencies also participate in the STTR program, which allocates 0.45% of R&D funds to facilitate the transfer of technology developed by research institutions into the commercial market. Since 1982, SBIR/STTR grants have resulted in nearly 700 public companies and approximately $41 billion in venture capital investments.
The next SBIR solicitation at the Department of Energy is approaching! Click here to find out more.
In addition to extending the programs through September 2025, the SBIR and STTR Extension Act of 2022 makes several small changes to the program outlined below:
Foreign Risk: Every participating agency must establish a due diligence program by June 27th, 2023 to assess the potential risk posed by firms with foreign ties. Small businesses will be required to disclose business and financial relationships. Agencies will assess whether a firm poses a national security risk before an award is made. Awardees must report throughout the duration of an award any changes in ownership or changes in the structure of a business. Agencies will assess these updates and may rescind funds should a national security risk arise.
These policies will be developed in coordination with the Small Business Administration, White House Office of Science Technology and Policy, and Committee on Foreign Investment in the United States. These offices will assist participating agencies in sharing best practices. By March 29th, 2023, the Departments of Defense (DOD), Energy (DOE), Health & Human Services (HHS), and National Science Foundation (NSF) must provide a report on the national security risks of SBIR/STTR and participating agencies’ ability to identify and mitigate these risks. HHS will issue a separate report on adversarial military and foreign influence in the National Institutes of Health’s program.
Increased Standards for Experienced Firms: This bill establishes new standards for businesses with extensive experience securing SBIR awards, which will go into effect by April 1, 2023. The law defines “experienced firms” through different standards relative to SBIR phases. Phase I awards range from $50,000-$250,000, run from 6 months to a year, and are intended to establish the technical merit and commercial potential of a technology or innovation. Phase II awards are approximately $750,000 over two years and enable successful Phase I awardees to further commercialize their work (in rare circumstances direct to Phase II awards are granted). A limited number of Phase III awards are granted in the form of direct procurement by federal agencies.
- Progress to Phase II Standards: Under the new standards, firms that have won more than 50 Phase I awards during the last five fiscal years the most recent year must meet stricter “transition rate” requirements. Under the old standard, these experienced firms were required to secure at least one Phase II award for every four Phase I awards. Under the new law, experienced firms must secure two Phase II awards for every four Phase I awards.
- Progress to Phase III Standards: There are two tiers of performance standards for progress to Phase III awards. Tier one standards apply to firms that have won more than 50 Phase II awards in the ten fiscal years preceding the two most recent years. The new standard requires firms to have an average of $250,000 in sales and/or investments per Phase II award during the covered period. Tier two standards apply to firms that have won more than 100 Phase II awards during the ten fiscal years preceding the most recent two years. The tier two standard now requires an average of $450,000 of sales and/or investments per Phase II award during the covered period.
The new law codifies the current practice that sales and/or investments qualify as pathways for meeting these standards. While the previous law enabled firms to use patents to meet commercialization standards, under the new law, this pathway is removed. Should a firm fail to meet any of the above-mentioned performance standards, it may not receive more than 20 Phase I or Direct to Phase II awards at each agency in the following year (though agencies may set stricter limits).
If a topic is deemed critical to an agency’s mission or relates to national security, SBA may grant a waiver that removes performance standards to allow all firms to compete. SBA is required to report annually on the number of firms receiving awards under waivers that do not meet these standards. The SBA Inspector General will also conduct audits of firms with more than 50 Phase II awards over the covered period.
Reporting on SBIR/STTR Performance: The new law requires the Government Accountability Office (GAO) to produce several reports examining the performance of the SBIR/STTR programs covering the following topics.
- “Open” Solicitation Topics: Agencies typically issue funding opportunities through technology prescriptive topics, with detailed criteria that narrow the scope of potential awards. Occasionally agencies will offer “open” topics, which provide much looser criteria. Each participating military branch of the DOD is now required to issue at least one open topic annually. GAO will also publish an annual report that analyzes the performance of open topics versus conventional topics on several metrics related to inclusivity; these include rates of awards made to first-time applicants, first-time awardees, and businesses represented by those in underserved demographics.
- Multiple Award Winners: Within 18 months of passage of the law, GAO will issue a report on businesses that have won more than 50 Phase II awards. This report will examine how successful these firms are at commercializing technologies, how they impact new entrants to the market, and whether minimum performance standards should be adjusted.
- Subcontracting in SBIR and STTR Programs: GAO will produce a report on subcontracting practices and evaluate whether agreements comply with the Federal Funding Accountability and Transparency Act.
NOTE: This blog post is intended for educational purposes only. SBIR applicants may consider consulting legal counsel should any questions arise in adhering to the requirements of SBIR rules.