Congress and the nation’s military leaders have perennially expressed frustration with the “valley of death,” the abyss where promising new technologies too often meet their demise before they can be transitioned into major defense programs.
The competitively awarded Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, signed into law by President Ronald Reagan in 1982 and recently reauthorized by Congress, can play a greater role in bridging that gap.
As the Pentagon’s recently published Small Business Strategy makes clear, small companies are key to helping the U.S. ensure its technological superiority over China and other potential adversaries.
“Despite their significance to the defense mission, the Department of Defense has yet to utilize the full potential of small businesses,” Defense Secretary Lloyd Austin wrote. The document singles out the SBIR and STTR programs as key entry points for small businesses into the broader defense-industrial base.
The DoD’s own review of the economic impacts of the SBIR program reported a 22-to-1 return on its investment and $28 billion in sales of new technology to the military. In her testimony to Congress in support of reauthorization of the program, the undersecretary for research and engineering, Heidi Shyu, said the “SBIR/STTR programs play a vital role in enabling the U.S. to maintain technological dominance and provide the innovation to allow the U.S. to remain ahead of our adversaries.”
At our company, Physical Sciences, SBIR-funded research and development has enabled us to provide advanced technology to a range of DoD programs. Key SBIR-developed technology, for instance, has allowed us to domestically produce specialized battery systems meant to improve the safety and performance of unmanned underwater vehicles.
This is one example of technology needed for national defense, but so focused it has very limited markets. These kinds of technologies take a long time to mature and face multiple barriers to entry in the cumbersome DoD acquisition processes — what Austin called “a complex web of entry points and intricate regulations.”
Earlier reauthorizations of the SBIR/STTR programs have increased technology transition success by creating pathways to provide the additional funding necessary to successful mature technologies, including the Commercialization Readiness Program and the Rapid Innovation Fund. Acquisition authorities are becoming more adept at recognizing and applying additional SBIR funds to technologies with merit. Congress in September reauthorized the programs for three years, including with some welcome reforms to ensure oversight.
Now, they can be strengthened even further by the Biden administration and Congress.
One of the most persistent questions we get from prime contractors is about our ability to scale production to become a reliable supplier of our own technology. The production of many of these items is capital-intensive, and subject to extensive and expensive qualification requirements without parallel in the commercial world.
The Pentagon has sought a variety of novel ways to encourage sufficient investment to make the leap from prototype to production and supply chain viability — most recently setting up the Office of Strategic Capital to help small businesses secure venture capital and loans. But the lack of venture interest in many of these markets limits the impact of that approach. Any small business contemplating borrowing to fund expansion, at levels approaching its entity value, would be very reluctant to do so considering the high degree of uncertainty in the budgets of its sole customer.
There are some immediate ways the Biden administration and Congress can double down on success. In Executive Order 14017, the president directed the DoD to deploy incentives through the Defense Production Act “to support sustainably-produced strategic and critical materials, including scaling proven research and development (R&D) concepts and emerging technologies from other programs such as the Small Business Innovation Research awardees.”
Congress can provide more effective pathways to implement that policy. It can appropriate additional funding for the Defense Production Act as well as for the Industrial Base Analysis and Sustainment Program, intended in part to cultivate emerging defense sectors and invest in greater partnerships across the industrial base. As it considers these programs, Congress should directly fund and improve access to these funds for SBIR-developed technologies.
Finally, Congress needs to provide additional stability to the SBIR/STTR programs. Its recent reauthorization came down to the wire, delayed key awards, had the potential to exclude many successful performers from the program, and in the end was only for three years. Few would risk making investment decisions supporting acquisition cycles that last over a decade in that climate. It is time to permanently authorize the program.
The Department of Defense is rightly pursuing a host of investment strategies and incentives to help ensure next-generation technologies reach our troops. But while building new bridges, it should also strengthen those that exist. The alternative is squandering investments across the entire defense R&D spectrum and relinquishing technology leadership to our adversaries.
Bill Marinelli is chief executive of Physical Sciences, a U.S.-based company that develops electro-optical/infrared sensing systems and technologies for the defense, homeland security, medical and energy sectors.