The Office of the Under Secretary of Defense for Research and Engineering oversees the Department of Defense Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. In September, Congress reauthorized the programs through 2025, and President Biden signed the SBIR and STTR Extension Act of 2022 (Act). SBIR/STTR programs present an opportunity for small business contractors in science and technology to assist the government with unique research and development needs. Below, PilieroMazza discusses the do’s and don’ts of SBIR/STTR program eligibility.

SBIR/STTR programs provide an avenue for small businesses and the federal government to jointly address the nation’s science and technology needs. SBIR/STTR programs compete for federal research funds in the form of federal contracts or grants and invest the funds to develop innovative projects. Final products and services may be commercialized and placed in the federal marketplace.

To participate in the SBIR/STTR programs, small businesses must be for-profit businesses located in the U.S., be majority owned and controlled by U.S. citizens or permanent legal residents and have no more than 500 employees (including any affiliates). Small businesses may be owned by another small business concern majority owned and controlled by U.S. citizens or permanent legal residents. The STTR program also requires small businesses to partner with a nonprofit college or university located in the U.S., a domestic nonprofit research organization, or a federally funded research and development center.

Small businesses participating in the SBIR/STTR programs may undergo the following three phases:

  • Phase I: the government evaluates the technical merit, feasibility, and commercial potential of the small business’ research and development efforts to determine whether further funding should be provided. If funding is to be awarded, the government typically allocates a sum amount between $50,000 and $250,000. SBIR awards usually extend for six months, and STTR awards usually extend for one year.
  • Phase II: depending on the results achieved during Phase I, the government may award small businesses an additional $750,000 as an investment for two more years of research and development.
  • Phase III: small businesses may pursue commercializing the products and services resulting from Phase I and Phase II activities.

To ensure proper management of SBIR/STTR programs and to protect against foreign influence and interference with domestic science and technological advancements, the Act imposes new reporting and due diligence requirements on agencies and the following changes:

  • The head of each federal agency administering SBIR/STTR programs must establish and implement a due diligence program to assess the security risks presented by the small businesses and to document and report their findings for the duration of the award;
  • Small businesses are to disclose any ties to a “foreign country of concern,” including the People’s Republic of China, the Democratic People’s Republic of Korea, the Russian Federation, the Islamic Republic of Iran, or any other country determined to be a country of concern by the Secretary of State. If a small business has ties to a “foreign country of concern,” the government has imposed award restrictions;
  • Small businesses that received awards but that are later determined to present a risk to national security will be required to repay the government; and
  • Small businesses that receive more than 50 Phase I awards in the preceding five fiscal years have a doubled minimum performance standard and face certain restrictions on future awards if they fail to meet those higher standards.

The reauthorization is beneficial to small businesses in the science and technology sectors because SBIR/STTR efforts contribute to establishing a strong national economy by innovating technology. Small businesses interested in participating in the SBIR/STTR programs should ensure they are not tied to any foreign countries of concern.

Attorneys in PilieroMazza’s Government Contracts Group are ready to assist small business contractors and subcontractors with the SBIR/STTR programs. If you have questions about participation in the SBIR/STTR programs or the Act, please contact Cy Alba, the author of this blog.

Special thanks to Ustina Ibrahim for her assistance with this blog.