Bipartisan Victory for Small Businesses and U.S. Competitiveness

Successful entrepreneurs know that changing business environments require changes to their businesses. With the president’s signature last week on the SBIR and STTR Extension Act of 2022, the federal government took an important step toward continuing and enhancing, through various changes, two programs that accelerate U.S. innovation and bolster economic competitiveness.

For decades, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs have fostered research and development of new technologies by U.S. small businesses. Billions of dollars flow each year from agencies like the Departments of Defense (DoD) and Energy to thousands of small businesses to pursue innovative solutions to government problems.

With authorization for SBIR and STTR set to expire on September 30, 2022, Small Business Committee leaders worked in bipartisan fashion to not only reauthorize the programs, but to also improve them. Chairman Ben Cardin, Ranking Member Rand Paul, Chairwoman Nydia Velázquez, and Ranking Member Blaine Luetkemeyer, as well as Senator Joni Ernst, deserve credit for their commitment to the long-term success of these programs.

Like congressional leaders, the Bipartisan Policy Center saw reauthorization as an opportunity to improve the programs and supported a number of provisions that strengthen SBIR and STTR. We are proud that several changes we supported were either included in the final agreement or reflected to a certain degree.

Improved Metrics, Stronger Benchmarks

Small businesses that win multiple SBIR or STTR awards presented congressional leaders with tough questions. How can the federal government know whether firms that win multiple awards are achieving desired commercialization outcomes? Are taxpayers getting a return, let alone a good one, on their investments in these small businesses? Should firms be limited to a certain number of awards?

For months, these and similar questions were at the forefront of reauthorization discussions. In the end, Congress agreed to several changes that will allow policymakers and program evaluators to better assess the value and impact of SBIR and STTR awards.

The reauthorization bill sets new minimum performance standards for multiple awardees, including:

• Small businesses that have recently won more than 50 Phase I awards must demonstrate a 50% success rate in advancing to Phase II or face limits on future awards.
• Small businesses that have won multiple awards will also have to demonstrate greater levels of commercial success than previously required. Firms that have won more than 50 Phase II awards in recent years must have an average of $250,000 of sales and/or investments per Phase II award, while small businesses that have recently won 100 or more Phase II awards must have an average of $450,000 of sales and/or investments per Phase II award.
• Patents had previously been one way in which the federal government measured the success of SBIR and STTR awards, despite research indicating that patents are a poor proxy for innovation. The reauthorization bill precludes patents from being used by small businesses to meet the new performance standards.

New Entrants & Stronger Commercialization Outcomes

Another way to address concerns about small businesses that win multiple SBIR and STTR awards is to increase the number of firms competing for funding by adopting reforms that make it easier for more small businesses to participate in the programs. Research has shown that when federal agencies hold open competitions that allow small businesses to propose projects not identified by the government, more new entrants win awards and there are stronger commercialization outcomes. The reauthorization bill requires DoD to conduct at least one open topic competition at each component of the agency per year. While this requirement is limited, for now, to Defense, forthcoming government reports may provide evidence about the effectiveness of the approach that could lead to more agencies using open competitions in the future.

Enhanced Competitiveness

Passage of the CHIPS and Science Act this summer was a significant accomplishment that will strengthen American economic competitiveness and leadership in global innovation. Yet, one bill—albeit an important one—will not secure American leadership. More work remains to be done.

The SBIR and STTR Extension Act of 2022 includes provisions to protect American intellectual property from foreign competitors. Many SBIR and STTR awards also support research and development of new technologies with national security implications. Protecting this work from malign foreign influence will help the United States maintain its competitive edge.

A History of Bipartisan Support Continues

There is a long history of bipartisan support for America’s small businesses and for programs like SBIR and STTR that bolster their innovative capacity. Passage of the SBIR and STTR Extension Act demonstrated again that Republicans and Democrats believe in the power of small businesses to grow our economy and innovate for the future. Maintaining that spirit of cooperation will ensure SBIR and STTR fulfill their purpose for years into the future.