Prospects brighten for endangered U.S. small business

The U.S. government’s Small Business Innovation Research (SBIR) program is a major source of funding for academic and industry scientists seeking to commercialize discoveries. But it has had numerous near-death experiences since it was launched in 1982. This year is no exception, courtesy of Senator Rand Paul (KY), ranking Republican on the Senate’s small business committee.

Paul, who thinks SBIR grants are often wasteful and possibly even a threat to national security, derailed what was expected to be a routine renewal of the $4-billion-a-year program by proposing numerous changes that advocates say would hamstring, if not cripple it. But key lawmakers say they are closing in on a compromise that would extend the program beyond its current expiration date of 30 September, spurred by strong pleas from the Department of Defense (DOD), the largest provider of SBIR grants.

“The small businesses that participate [in SBIR] are a vital part of the DoD R&D enterprise,” Heidi Shyu, DOD’s undersecretary for research, wrote on 12 July in the second of two recent letters to leaders of the small business committees in the Senate and U.S. House of Representatives. “The Department is concerned that any gaps or delays in reauthorization will cause irreparable harm to the small business community and have an adverse effect on national security,” Shyu explained. In 2021, DOD granted almost 3500 SBIR awards totaling $1.7 billion.

Higher education lobbyists are also pushing for an extension. “SBIR has become very important to university commercialization efforts, so it’s critical that Congress reauthorize it,” says one, Tobin Smith of the Association of American Universities.

The appeals seem to have brought the two sides closer together in addressing Paul’s biggest concerns. “I will continue working in good faith with my colleagues to reach a bipartisan compromise that will reauthorize SBIR … before it expires while protecting our national security and bringing more of the programs’ technologies to market,” said Senator Ben Cardin (D–MD), who chairs the panel, in a 15 July statement to ScienceInsider. The same day, Paul’s communications director, Kelsey Cooper, told ScienceInsider: “We have seen progress and are hopeful that we will reach a resolution.”

Eleven federal agencies operate SBIR programs, funded through a mandated 3.2% allocation of their research budgets. A companion program for academic spinoff companies, called the Small Business Technology Transfer (STTR) program, receives an additional 0.45% slice of the research budgets of the five largest agencies: DOD; the Department of Health and Human Services, which houses the National Institutes of Health (NIH); the Department of Energy; NASA; and the National Science Foundation (NSF).

The programs, coordinated by the Small Business Administration but managed by each agency, have been reauthorized several times by Congress but never made permanent. The most recent extension, for 6 years, came in 2016 as part of legislation providing annual guidance to DOD.

Last year, Paul signaled his opposition to another extension. At a September 2021 hearing, he argued that SBIR investments often fail to result in a marketable product and asked “whether taxpayers should continue to fund the folly [of funding companies] without any expectation of a return on investment.” He also complained that some SBIR grants have ended up aiding China, noting a DOD report that flagged a handful of cases in which U.S.-based scientists funded by SBIR relocated to China.

SBIR advocates say those objections don’t hold water. At the September 2021 hearing, for example, Jere Glover of the Small Business Technology Council noted that some two dozen studies of SBIR by the National Academies of Sciences, Engineering, and Medicine have found high rates of commercializing important technologies.

Advocates have also argued against the additional security requirements Paul is seeking. In a 2 June letter, Shyu warned they could place an “undue burden” on researchers doing unclassified research.

Others have argued that any new requirements would be premature, given that the White House Office of Science and Technology Policy is still fleshing out a governmentwide directive on research security issued in January 2021 by then-President Donald Trump. In addition, several agencies increased their monitoring of foreign collaborations as part of the controversial China Initiative, now ended, that the Trump administration launched in 2018.

But Paul and Blaine Luetkemeyer (MO), ranking Republican on the House small business committee, still believe safeguards are needed to combat what they call “malign” foreign influences. “We don’t think the government is doing enough” to prevent countries from stealing federal-funded research, says a House committee staffer. One proposal is for Congress to require SBIR grantees to return their money if their ties to China are deemed to be a threat to national security.

Paul’s position has evolved over the past several weeks. For example, he’s dropped a demand for a cap of three awards per recipient (there is no current limit, and some companies have dozens of awards) after Shyu wrote on 2 June that the proposed caps “will reduce competition and inhibit innovation.”

Paul is now focusing on provisions that would set commercial benchmarks for grant recipients, such as requiring that they draw a preponderance of their revenues from sales rather than from SBIR grants. The measure targets what critics call SBIR “mills.”

But Shyu says it’s not that simple. “Benchmarks that go too far … [could] impact the department’s ability to meet warfighter needs,” she wrote last week. She argued that any new benchmarks should be tested in a 2-year pilot designed “to understand the full consequences and impact on small businesses.”

With time running short and a crowded legislative calendar, SBIR advocates are hoping Congress will find a way to keep the program alive even if it can’t pass a stand-alone extension. One option is to add an extension to the annual defense authorization bill, which is typically a sure bet to pass.

The House included a 2-year SBIR extension in the version it passed last week, with the White House signaling its support before the vote. But it’s not clear whether the Senate can do the same, and then reconcile any differences with the House, before 30 September.

Another potential vehicle is the spending bill for the 2023 fiscal year that begins on 1 October. Congress is likely to postpone final action until after November’s midterm elections, but it is expected to pass an interim measure that freezes spending at current levels. That short-term fix, called a continuing resolution, could also include a simple provision extending the SBIR and STTR programs.

It’s not clear what would happen if Congress doesn’t reauthorize the SBIR program by 30 September. DOD officials say they won’t make any new awards or accept proposals after that date, and last month a Navy component of the program took the preemptive step of dropping out of a current solicitation.

But NIH, which runs the second biggest SBIR program, says it plans to continue to solicit and fund SBIR and STTR proposals “even if there is no legislative requirement.” NSF officials declined to comment on their plans, although some observers speculate that it and other agencies might choose to operate SBIR-like programs with existing funds. And today NSF sent out an email touting its pilot project that launched the program and proclaiming: “Happy 40th birthday to the SBIR program.”