Congress Renews SBIRs. Yay!?
The ink is drying and the dust has settled. A hot take at where things landed in SBIR/STTR Extension Act of 2022.
Author’s note: A promise to stop writing about SBIRs…broken. Read the first three SBIR substack articles if you haven’t. This is the shortest and last installment…promise.
Congress has passed the SBIR/STTR Extension Act of 2022 with a flurry of last minute negotiations, a healthy dose of media attention, a lot of excitement, and a mixed bag of reform. Womp womp. Let’s dig in….
The Good
There are some exciting and notable steps that came out of the updated extension including:
Open Topics are now mandatory for each component of the DOD at least once a year. In addition, GAO will further study and compare open topics and conventional topics on a number of dimensions.
This is a big win in the short-term and could be the impetus of real change. Longer term success of open topics will really depend on ties to other pathways for success including DIU, APFIT, OTAs and more involvement from the PEOs.DOD will pilot accelerated awards (90 days) with simplified procedures.
This may not get as much attention but is very exciting as it is a step towards faster and more predictable awards AND hopefully lowers barriers for new, non-DOD entrants. Would be great to seeIncrease foreign risk management and report on adversarial military and foreign influence.
Very important to address foreign influence and investment for both SBIRs and STTRs. It will be interesting to see how much additional work this becomes for small firms and new entrants.Prohibition against private entities writing solicitation topics.
Kinda feels insane that this has to be put into legislation in a process that claims to be fair and competitive, but it’s a pretty well-known fact this happens a decent amount of time. Will it be enforced?GAO studying multiple award winners and subcontracting.
100% good thing. No one wants to see my spreadsheets again. Let professionals do this.
The Bad and the Ugly
In an effort to reign in some of the SBIR mill activity, transition rates for the and commercialization rates were addressed and boosted. However, a deeper dive shows this will do little to address the issue of mills, and may make things a bit worse. The breakout is below with a summary table.
Phase I to Phase II transition rate has gone from 25% for firms with 20 PI in 5 years to 50% for firms that have won more than 50 PI awards in 5 years.
About 20-25 companies would qualify (10% of all allocated SBIR/STTR dollars). This will impact about 8-10 companies that are hovering slightly below a 50% P1-P2 transition. This also means that about 50 companies will not be obligated to have this conversion target.Firms that have won more than 50 Phase II awards (up from 15 awards) during the previous ten years increase sales and/or investments per Phase II award received from $150K to $250K.
About 20-25 companies would qualify (10% of all allocated SBIR/STTR dollars). These companies would now be expected to generate about $0.20 of sales/investment for every dollar they receive. Not aspirational commercialization. This also means that about 80 companies will not be obligated to have this conversion target.Firms that have won more than 100 Phase II awards (up from 15 awards) during the previous ten years increase sales and/or investments per Phase II award received from $150K to $450K.
About 8-10 companies would qualify (5% of all allocated SBIR/STTR dollars). These companies would now be expected to generate about $0.37 of sales/investment for every dollar they receive. Higher, but the absolute dollars these companies have received is fairly astounding. This also means that about 80 companies will not be obligated to have this conversion target.
Final Thoughts and Questions
Open Topics will generate a lot of interest and engagement. Will we see real commercial opportunities for these companies by 2025? The math says probably not, it’s just not enough time to have many companies be awarded Phase I-II, then get real awards. We will, however, see more entrants, and that will be a good thing.
Open Topics will also cause each component and agency to address the evaluation process. Rumors swirled around AFWERX in the early days scrambling to have enough reviewers, much less reviewers with expertise. The DOD will need to prepare for this challenge and be resourced accordingly.
SBIR mills got away relatively unscathed from Senator Paul’s early proposals of reform and accountability. While I personally do not share basically any alignment with Sen Paul, on this topic his stance was objectively fair. I struggled to see why the DOD and Congressional Dems protected a select group of companies in favor for new entrants and commercialization — better information? lobbying? both?
SBIR mills will not be able to go back to the good ole days. With a 3 year and not 5 year renewal period, Sen Paul and SBIR reformists will get another shot at change. Next time around, way more eyes will be scrutinizing the use of these funds and the SBIR mills themselves, including the HASC and SASC.
While it’s exciting to look at the changes and what may come, it still feels like an opportunity missed for many (myself included).
With advances in drones, counter drones, AI (specifically large language and vision models), and hypersonics, our adversaries aren’t waiting.
Moreover, we are consistently losing good reformist leaders from key roles including: Will Roper, Mike Brown, and most recently Col Diller. Reforming the SBIR process would have shown future great leaders that the DOD and Congress is supporting real change.
Finally, a shaky/declining economy may be present for years to come. Reform could have helped a broader industrial base but attracted new entrants to pursue stable sources of revenue.
Could we have done better for the warfighter, taxpayer, and defense industrial base? Unequivocally yes.
Thanks again to everyone. It’s been fun to engage on this topic. For any curious parties (literally no one), my full round up of writing, ranting and typos on this topic can be found below…really squeezed the juice out of this orange!
Substack:
Emerging tech is transforming war in real-time, yet the biggest DOD incubator is stuck in the past
Are a few dozen SBIR mills sucking the air out of small business innovation?
Media:
America’s flagship program for innovative small businesses is broken (The Hill)
SBIR faces down-to-the-wire program reauthorization (Inside Defense)
‘Dual Use’ of Small Business Set-Aside Touted Amid Paul’s Attack (Bloomberg)
U.S. Small-Business Programs’ Future Is Clouded by Congressional Fight (WSJ)
SBIR mills, dual-use tech, and the case for reform with Ben Van Roo (Aquisition Talk)