WASHINGTON — With a small business innovation grant program favored by the Pentagon set to expire this month, Congress is racing to draft compromise reauthorization legislation that addresses concerns about companies abusing the awards process.

Democrats and Republicans on the Small Business committees in both the House and Senate convened a so-called four corners meeting this week to negotiate draft legislation, which is in its final stages.

Rep. Blaine Luetkemeyer, R-Mo., the ranking member on the House Small Business Committee, said Thursday that the committees hope to finish drafting legislation that reauthorizes the Small Business Administration’s Innovation Research and Technology Transfer awards — which are made jointly with 11 federal agencies — by the end of the week.

“We’ve got a general agreement already with the four corners on this, but the devil’s always in the details,” he told Defense News. “We want to make sure that what comes out in text is what we agreed to in concept.”

“We’re knocking out the text as we speak, so everyone can see it today or tomorrow,” Luetkemeyer added. “Hopefully next week we can our side of the bill firmed it up and get it through.”

Both Rep. Nydia Velazquez, D-N.Y., and Sen. Ben Cardin, D-Md., who chair the Small Business Committee in their respective chambers, noted that negotiators have made “a lot of progress” on the compromise reauthorization.

Velazquez told Defense News that she feels “optimistic” and that she expects final legislation “soon.”

Sen. Rand Paul, R-Ky., the ranking member on the Senate Small Business Committee, downplayed the negotiations on Wednesday and told Defense News that they have not assuaged his concerns.

Paul has argued that the program lacks protections against ties between program awardees and China, and that some companies rely entirely on SBIR grants to sustain themselves without spinning off new businesses or products.

“Dr. Paul will not reauthorize this program without reforms to strengthen research security and stop abusive behavior by bad actors lining their pockets with taxpayer dollars at the expense of new small businesses with emerging technologies being able to access SBIR awards,” a spokesperson for the senator told Defense News in June.

Reauthorization of the program was originally included in an earlier version of the CHIPS and Science bill, but the provision was not included in the final version of the legislation that passed in July.

The total budget for the 40-year-old program ballooned to nearly $3.3 billion in 2019, with the Department of Defense accounting for the majority of the awards. Individual grants range from tens of thousands of dollars to more than a million for a two-year grant.

SBIR provides funding in three phases, with grant amounts typically increasing throughout each stage. For defense SBIR awards, companies are eligible to submit multiple project ideas, which some say leads to companies applying for multiple Phase I awards without ever maturing the proposed technology.

“We’re trying to find ways to incentivize and do the work yet provide the oversight to continue to do the work ― not just ripping off the program to continue to get these grants and at the end of the day they’re just making money, but they’re not actually producing products,” said Luetkemeyer.

“For some entities, for some different departments, there aren’t that many alternatives to go to…to be able to produce or develop a particular product or service for the Defense Department‚” he added. “We’ve got to be very careful that we don’t preclude the ability of companies to be able to meet our defense needs by hamstringing this bill.”

Contrasting standards for large, small companies

Kea Matory, director of legislative policy at the National Defense Industrial Association trade group, said in an interview that criticisms of awarding companies too many Phase I grants signal contrasting standards for small and large companies.

“Lots of our bigs get multiple awards,” she said. “We would never tell one of our large primes ‘oh, you’ve had too many, you need to sit down.’”

Matory added that delays in reauthorizing the program are already impacting small businesses.

“A lot of them are already hearing that SBIR could go away,” she said. “It’s like a game of telephone as it gets passed along to each person; it sounds more doomsday.”

When it comes to innovation, small businesses frequently bring new ideas to the table that could help the Pentagon with its modernization goals, she said. Without SBIR, many of those companies would be disincentivized to want to do business in the government and defense sectors.

The Pentagon will not award new SBIR grants starting Oct. 1 if the legislators fail to reauthorize the program. Ongoing contracts may continue but will not receive further SBIR/STTR funding.

If the draft legislation wins over Paul, the House and Senate could reauthorize SBIR as stand-alone legislation by the end of the month.

And if that doesn’t work, Senate Armed Services Committee Chairman Jack Reed, D-R.I., told the Defense News conference that negotiations are also underway to include SBIR reauthorization in the continuing resolution that Congress needs to pass by the end of the month in order to fund the government and avoid a shutdown.

“I would prefer that we get reauthorization as a stand-alone bill versus just a straight reauthorization where we stick it into a [continuing resolution],” said Luetkemeyer. “That really doesn’t solve problems. It extends the same problems that we have now.”

As a last resort, Congress could reauthorize the program in the Fiscal 2023 National Defense Authorization Act — although Congress is unlikely to finalize that legislation until after the SBIR/STTR grants expire.

The House NDAA, which passed 329-101 in July, has a provision that reauthorizes the program without any changes. The Senate must still pass its version of the bill before both chambers agree on final legislation — a process that usually takes several weeks.

Bryant Harris is the Congress reporter for Defense News. He has covered U.S. foreign policy, national security, international affairs and politics in Washington since 2014. He has also written for Foreign Policy, Al-Monitor, Al Jazeera English and IPS News.

Catherine Buchaniec is a reporter at C4ISRNET, where she covers artificial intelligence, cyber warfare and uncrewed technologies.

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