According to a Pentagon spokesman, despite a White House directive to pause and review federal grant disbursements, two significant Pentagon small business innovation programs—the Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) programs—remain unaffected.
These programs, which provide technology funding to nontraditional firms, continue to operate as usual.
The Office of Management and Budget (OMB) issued a memo on January 27, ordering a temporary halt to all federal financial assistance obligations and disbursements. This pause, which affects new grants, excludes programs like Social Security and Medicare that directly assist individuals. However, the Pentagon clarified that SBIR and STTR programs, funded through contracts rather than grants, are not impacted by the directive.
Funding concerns
The SBIR and STTR programs, last reauthorized in 2022, incentivize small businesses to engage in early-stage research and development. These initiatives are critical for small firms looking to collaborate with the Defense Department, which provides opportunities to attract investors and build relationships with government agencies. Funding for SBIR and STTR will expire in September unless reauthorized.
During a Tuesday Senate Armed Services Committee hearing, lawmakers voiced concerns that the OMB’s pause could disrupt these programs. However, a Pentagon spokesman confirmed that SBIR and STTR are exempt from the OMB memo, as they are funded through contracts rather than grants.
While these programs have widespread support in Congress and the Pentagon, they are also under scrutiny. The Government Accountability Office (GAO) released a report last fall reviewing fraud incidents within the SBIR/STTR programs. The report identified 34 fraud cases, highlighting that most agencies lack proper fraud risk assessments. One case involved a business owner who misrepresented his companies, receiving multiple awards from agencies like the Army, Air Force, NASA, and others.
Proposed Reforms
At the hearing, Nathan Diller, former director of the Air Force’s AFWERX innovation hub, suggested reforming the programs could involve making awards available to a broader range of companies. This could include issuing smaller initial contracts, followed by larger awards for firms with promising technology. Diller stressed the need to scale efforts quickly for the most promising companies to maximize the program’s impact.
With funding for SBIR and STTR set to expire in September, lawmakers and Pentagon officials are exploring ways to reform the programs to ensure they remain effective in supporting small businesses. Addressing concerns about fraud and ensuring that funding reaches the companies with the most promising innovations will be crucial for the future of these programs.
