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The U.S. Government is not known for being agile or innovative.  Its procurement processes and programs are complex with legal requirements that are difficult to identify, understand and follow.  And, generally speaking, the Government has the reputation for not necessarily being interested in innovative ideas.  So, many small, agile, innovative businesses don’t ever think about pursuing government contracts because the costs and risks associated with pursuing and executing a government contract are not worth it.

The Government knows this.  It also knows that small, agile, innovative businesses may have solutions that would benefit the Government and industry more broadly.

So – what is a Government to do?  The answer is the Small Business Innovation Research program – SBIR.

What is SBIR?

SBIR is the Government version of seed money.  Since its inception in 1982, through a competitive process, SBIR has awarded qualified small businesses with government funded contracts to encourage private sector commercialization of technological innovation.  SBIR seeks to foster and stimulate innovation through a focus on, and funding of, research and development. The goal is to turn this R&D into useful solutions for the Government and also for commercial enterprise.

Through SBIR funded contracts, which are awarded in phases, qualified small U.S. businesses have a chance to flex their entrepreneurial muscle with R&D, prototype development, and then commercialization – even before venture capital or banks may be willing to support the small businesses’ idea.

SBIR, also called America’s Seed Fund, has allowed many companies to grow their R&D into created significant opportunities and to advance their technological innovations.

Jere W. Glover, Executive Director Small Business Technology Council Washington, DC May 13, 2021 testimony before the House of Representative’s Committee on Small Businessincludes some impressive facts about SBIR:

  • 10% of all venture capital investments go to SBIR firms
  • 829 SBIR related firms have gone public
  • 2120 SBIR firms have been acquired
  • Defense giants L3 Com, GE, SAIC, BAE, Lockheed Martin, Raytheon, Gen Dynamics, and others have each acquired 10 or more SBIR Firms

Which small businesses may participate?

U.S. businesses operating for profit with fewer than 500 employees are eligible for SBIR awards. The SBIR program also encourages participation by women and socially or economically disadvantaged U.S. businesses.

For business with SBIR contracts looking to get acquired, your potential purchasers will no doubt conduct due diligence to determine if your SBIR contracts will survive acquisition… but that is a blog for another day.

What are the three phases of funding agreements?

The SBIR program is organized into three phases with contracts being awarded in each phase:

Phase I:  Contracts awarded in the first phase of the SBIR program are generally for the purpose of funding the business’ proposed R&D. The proposed R&D should show that it may result in innovative solutions that have technical merit, are feasible and have a commercial potential.  Awards typically range from $50,000 to $275,000, roughly and last for 6 months.

Phase II:  Phase II SBIR contracts continue the work started in Phase I which is often continuing the R&D efforts and developing a workable prototype of the technology.   Phase II contracts may be up to $1,800,000 for 2 years.

*Note: Agencies have discretion to issue awards for less than the maximum amount and may seek approval by the Small Business Administration for awards exceeding such maximum amounts in Phase I and II.

Phase III:  Phase III SBIR contracts require small businesses to work toward commercializing their R&D as a result of their Phase I and Phase II contract work.

And, for all  small businesses out there holding off on pursuing a SBIR contract because you’re worried about complying with the FAR and/or DFAR or other agency regulations – take heart because SBIR contracts often do not include the whole array of FAR and DFAR normally included in other government contracts.

Which government agencies participate?

Each Federal agency unilaterally determines the categories of projects and R&D topics within its SBIR program.  There are currently eleven U.S. agencies participating in the program including:

  • Department of Agriculture
  • Department of Commerce
  • Department of Defense
  • Department of Education
  • Department of Energy
  • Department of Health and Human Services
  • Department of Homeland Security
  • Department of Transportation
  • Environmental Protection Agency
  • National Aeronautics and Space Administration
  • National Science Foundation

Will SBIR Survive?

Right now, SBIR is on the chopping block and is set to expire on September 30, 2022 unless funded by Congress.

Although SBIR has a worthy mission, the program is criticized as being susceptible to fraud, waste, and abuse.  Such concerns stem from the fact that many awardees do not realize profits from commercializing their research and development; from the notion that companies develop a business model to rely solely on SBIR award money as a means of profit – thereby, stifling the realization and push for commercialization of technological innovations; and finally foreign investment in small businesses risking theft of U.S. technology.  Unfortunately, the not uncommon fraud of large businesses or wealthy investors secretively backing a small business in order to get government contracts set aside for small businesses is a reason for concern as well.

The House and Senate Business Committees have brought forth several proposals to address these concerns by restricting eligibility and limiting the scope of the awards. Congress’ most recent reauthorization bill added provisions addressing the primary concerns of the program by including performance benchmarks and the risk of Chinese involved with SBIR businesses.

After passing the reauthorization bill in the Senate, it appears the revised bill will pass without opposition in the House. The SBIR program is set to be reauthorized for another three years – just in the nick of time.

Minimizing potential waste, fraud and abuse is crucial to maintain the integrity of the SBIR program. At the same time, small businesses need to have the flexibility and the funding to develop their R&D into useable technology and products for government and commercial purpose.

From my perspective, SBIR is a worthwhile investment of federal funds so that small businesses continue working on creative solutions to both government and commercial challenges.  This is especially true as many of our adversaries continue increasing their government investment in innovative technology.  U.S. small businesses need the funding and support to continue with development.

What’s a small agile, innovative business to do?

  • Let Congress know an investment in small business through a SBIR contract is worth it.
  • Check out the agencies listed above for current SBIR opportunities that may be a fit with your company.
  • Keep on dreaming and innovating whether you get government contracts or not.

“If I had asked the public what they wanted, they would have said a faster horse.” Henry Ford

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