WASHINGTON — Congress on Thursday renewed a small business innovation grant program heavily favored by the Pentagon with a series of reforms meant to address Republican skepticism, mere days before it was set to expire at the end of the fiscal year.
The reauthorization follows months of uncertainty about the program’s future amid slow-moving negotiations to assuage concerns over abuse of the rewards process.
The 415-9 House vote to extend the Small Business Administration’s Small Business Innovation Research and Small Business Technology Transfer awards came after the Senate passed the reauthorization bill by unanimous consent last week.
The SBIR and STTR programs are meant to incentivize small businesses to engage in early-stage research and development for technologies and products that companies might otherwise shy away from given uncertain returns on investments.
“This bipartisan bill reauthorizes the SBIR and STTR programs for three years and addresses major concerns by establishing research security measures, increasing transparency and oversight and focusing on commercialization,” Rep. Blaine Luetkemeyer, R-Mo., the ranking member on the House Small Business Committee, told Defense News in a statement.
“After discovering China’s influence in the programs, it was vital for Congress to make the national security reforms necessary to protect American small businesses and intellectual property,” he added. “In addition to combatting malign foreign influence, the legislation also strengthens oversight, increases public transparency and safeguards taxpayer dollars.”
Chinese state-sponsored companies have targeted U.S. firms that receive the SBIR and STTR grants, which are awarded jointly by 11 federal agencies and ballooned to nearly $3.3 billion in 2011. The Defense Department accounts for the majority of these awards, which range from tens of thousands of dollars to more than $1 million for a two-year grant.
A 2021 Pentagon report on a small sample of SBIR awardees found China was the ultimate beneficiary of the grants, not the United States.
This discovery was part of what prompted Rand Paul of Kentucky, the top Republican on the Senate Small Business Committee, to hold up reauthorization in order to legislate reforms curbing Chinese influence on the program alongside Luetkemeyer and Sen. Joni Ernst, R-Iowa.
Ernst accused government agencies of allowing “double-crossing companies to take your money and run off to China with the breakthroughs that rightfully belong to the U.S.” in a statement touting her work on SBIR reform.
The reauthorization bill, introduced by Senate Small Business Chairman Ben Cardin, D-Md., and Ernst, requires SBIR or STTR applicants to disclose whether the company has ties to “any foreign country of concern, including the People’s Republic of China.”
The Defense Department and other agencies must then deny awards to applicants that have ties to Chinese companies or have high-level employees that are part of “a malign foreign talent recruitment program.”
The bill requires each federal agency that awards the grants to coordinate with the Small Business Administration in the creation of “a due diligence program to assess security risks presented by small business concerns seeking a federally funded award.”
The Small Business Administration and the White House’s Office of Science and Technology must also consult with the Committee on Foreign Investment in the United States to establish best practices to guide these due diligence programs.
The grants have spurred the development of new weapons systems in some cases, giving Congress more incentive to take measures against China’s exploitation of the program.
SBIR grants awarded by the Air Force to AeroVironment, for example, led to the development of the small, kamikaze Switchblade drones, which the United States has sent to Ukraine as it fends off Russia’s invasion. The Pentagon also relies on SBIR and STTR grants to generate technologies in fields such as artificial intelligence, data processing and munitions development.
But Paul and other Republicans had also voiced concerns that some companies rely entirely on grants to sustain themselves without spinning off new businesses or products.
To that end, the reauthorization bill contains enhanced performance benchmarks that differentiate between Phase I and Phase II SBIR and STRR grants. Under the program, Phase I awards range from $50,000 to $250,000 for six to 12 months. Phase II awards range from $750,000 to nearly $2 million for two years. There are also direct to Phase II awards, which allow companies to receive Phase II grants without first competing Phase I research.
The new legislation doubles the minimum performance standards for each small business that receives more than 50 Phase I grants within five years.
Additionally, a small business that has received more than 50 Phase II awards within the past 12 years must garner “an average of $250,000 of aggregate sales and investments” for each of those awards. And a company with more than 100 Phase II awards within the past 12 years must earn an average of $450,000 in aggregate sales and investments.
If a company does not meet these standards, then it may not receive more than 20 total SBIR and STTR Phase I and direct to Phase II awards for one year per agency. They may still receive unlimited Phase II awards.
President Joe Biden is expected to sign the bill before the end of the week, securing the program’s future through 2025.
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.