There are many federal contracting opportunities specifically designed to support and benefit small businesses. Most people are already familiar with small business set-aside competitions and direct awards, SBA’s Mentor-Protégé Program, and SBA’s socioeconomic small business contracting programs (i.e., the SDVOSB/VOSB, WOSB/EDWOSB, HUBZone, and 8(a) Programs). But there is still another–albeit less well-known–government contracting program that offers significant benefits to small businesses, particularly those in field of research-and-development (R&D). Indeed, the Small Business Innovation Research (SBIR) Program provides federal funding to small business for their R&D endeavors, helping them grow promising technological innovations into full-fledged revenue cornerstones for small businesses and major contributors to government efficiency and progress.
Established by the Small Business Innovation Development Act of 1982 and codified at 15 U.S.C. § 638, the SBIR program provides an excellent opportunity for small businesses to achieve R&D federal funding and development assistance. While we’ve talked about the SBIR program here before, here we’re taking an introductory perspective as part of our “Back to Basics” series for those unfamiliar with or newer to the concept.
Origins and Purpose
As part of the Small Business Innovation and Development Act of 1982, Congress sought to stimulate technological innovation as well as boost small businesses by creating the SBIR program. The goal was to increase private-sector commercialization of innovations derived from federally funded R&D by prioritizing small businesses to meet federal research and development needs. This also fosters the growth and development of women-owned and other socially/economically-disadvantaged small businesses by encouraging their participation in the program.
Think of it like a startup incubator designed to funnel government funds into the private sector through channels that would benefit from it the most. Ideally, small businesses will commercialize technologies developed with federal research dollars, thereby stimulating the economy generally, small businesses particularly, and maximizing the bang for the taxpayer buck. The program issues over $3 billion annually and is currently authorized through September 30, 2031. It requires every federal agency with an extramural R&D budget over $100,000,000 to establish its own SBIR program. Each participating agency must allocate no less than 3.2% of its extramural R&D budget to SBIR awards and cannot use those funds for administrative costs. Each agency determines its own research topics independently (and issues its own solicitations and evaluates proposals thereunder). But the SBA coordinates the solicitation schedule and issues policy directives to govern the operation of the program. SBA also maintains a public searchable database of SBIR awards, as well as a separate government-only database for program evaluation purposes.
Eligibility
As opposed to SBA’s wide range of size standards linked to corresponding NAICS codes used for general small business contracting and for SBA’s other socioeconomic contracting programs, there is just one size standard that governs the SBIR program: 500 employees. This number includes affiliates, as well as joint venturers. Even though there are affiliation exceptions for SBA-rule-compliant 8(a), HUBZone, WOSB/EDWOSB, and SDVOSB/VOSB joint ventures, these exceptions do not apply to SBIR. Instead, for the SBIR program, all parties to the joint venture must aggregate their numbers of employees–and together total fewer than 500 employees to be eligible.
Additionally, applicants must be U.S. owned and controlled. This may be by U.S. citizens, permanent resident aliens, other small business concerns (each of which is directly owned and controlled by such a U.S. citizen/permanent resident alien), a Native American/Indigenous Tribe, ANC, or NHO. The applicant may be more than 50% owned by venture capital operating companies, hedge funds, or private equity firms. But these must still be U.S.A. based. Awardees must also employ the principal investigator (i.e., the person who provides scientific and technical direction to the project at the time of award and for the duration of the project), meaning that SBIR awardees cannot rely on larger, more sophisticated subcontractors to get the work done.
Three-Phase Structure
The SBIR program operates in three phases. Phase I is like a startup phase—its objective is to establish, to the best extent possible, the scientific and technical merit and feasibility of ideas that appear to have commercial potential. SBIR Phase I awards typically do not exceed $150,000 and have a six-month performance period. Awardees must perform a minimum of two-thirds of the research or analytical effort for Phase I. And only firms awarded Phase I contracts are eligible to compete for Phase II.
Phase II expands and develops the proposals that demonstrate merit and feasibility, continuing and growing the efforts initiated in Phase I. Awards are based on the results of Phase I to develop specific program needs. And funding is based both on the results achieved in Phase I as well as the reevaluated commercial potential of the proposed project. Relevant indicators of commercial potential include the awardee’s prior commercialization record, existing private-sector funding commitments, and follow-on commitments. Phase II awards generally do not exceed $1,000,000 and have a two-year period of performance. Awardees must perform at least one half of the research or analytical efforts in this phase.
Phase III is the commercialization phase, and its objective is for the small business participant to pursue commercialization of the results produced in Phases I and II. It is important to note that the SBIR program does not fund Phase III. Rather, commercial applications must be funded by non-federal sources of capital, or follow-on non-SBIR federal awards intended for use by the U.S. government. To the greatest extent practicable, Phase III contracts, including sole-source awards, are awarded to SBIR recipients that developed the technology in the first two phases.
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As you can see, the SBIR program provides a unique opportunity for small businesses to access federal funds to develop exciting new technologies and gain access to the private sector to further expand them. The idea is to benefit all involved–the small businesses, the federal government, and the U.S. economy at large–all by directing taxpayer funds through promising channels. It is a unique program that promises the potential of great returns for eligible businesses. So, if you are considering applying and have questions or compliance concerns, don’t hesitate to contact us here.
Questions about the SBIR program or this post? Email us. Need legal assistance? Call us at 785-200-8919.
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