Federal SBIR and STTR Opportunities Explained

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs have been around since the ’80s and early ’90s, but like any good simplified acquisition model, they have recently exploded in popularity. According to the portfolio data provided on SBIR.gov and the Congressional Research Service (CRS), the SBIR and STTR program has a 15% year-over-year (YOY) growth averaging 169 new awards each year. 

Just like any other outsourced federal requirement, SBIRs and STTRs are federally funded, meaning the money comes from taxpayer dollars. Funding is congressionally mandated, requiring every federal agency that has an external research and development (R&D) budget above $100M to earmark between 0.45% to 3.2% of their budget for these programs. 

The SBIR and STTR programs have been extended and reauthorized several times since their initial enactment. Most recently, Congress extended the authority of existing pilot programs and created new pilot programs associated with the SBIR and STTR program, among other activities, as part of the FY19 National Defense Authorization Act (NDAA) (P.L. 115-232). Among its provisions, the act extended (through FY22) the pilot programs authorizing the use of SBIR and STTR funds, accelerated the process for awarding SBIR and STTR awards, and established a Commercialization Assistance Pilot Program.

When initiated, both the SBIR and STTR programs were supposed to focus on funding innovative small businesses but these avenues are primed for the federal government to acquire innovative R&D from companies across the commercial, contracting, and non-traditional landscape.

But what really are SBIRs and STTRs, and where are the opportunities? 

The Pulse sat down with Tyler Sweatt from Second Front Systems, a public benefit corporation and veteran-owned small business (VOSB) that speeds the delivery of critical technologies to warfighters, to learn more about how and when federal agencies utilize these programs.

The Defense SBIR Innovation Portal (DSIP) is an overall good source of information, albeit in not the most user-friendly format, but hey, that’s government tech. Be prepared though – although DSIP is a source of information, it’s not the only one, and it frequently links out to other resources, so follow instructions carefully. 

While they are very similar, the one major difference is that:

• STTR is designed to promote collaboration between small businesses and non-profit research institutions.
• SBIR is designed to promote small business R&D with the potential for commercialization.

Both SBIR and STTR are 3-phase programs, with those phases loosely defined as:

1. Concept Development (max. $250K)
2. Prototype Development (max. $1.5M)
3. Commercialization/Scale 

Source: https://www.sbir.gov/sites/default/files/SBA_SBIR_Overview_March2020.pdf

According to SBIR.gov, 11 agencies (Civilian and Defense) currently participate in SBIR programs, with 5 of them participating in STTR as well. 

Source: https://www.sbir.gov/sites/default/files/SBA_SBIR_Overview_March2020.pdf

There are a number of customers who leverage the SBIR and STTR programs. It is a great way to get non-traditional participation in the National Security Innovation Base, promote collaboration between organizations and experts, and bring new concepts into the community. 

AFWERX has taken the U.S. Air Force SBIR game to the ‘next level’ with their Open Topics, Pitch Days, and AFventures, etc., but the U.S. Army, Office of the Secretary of Defense (OSD), U.S. Navy, Department of Energy (DOE), National Science Foundation (NSF), Defense Advanced Research Projects Agency (DARPA), Intelligence Advanced Research Projects Activity (IARPA), and others leverage SBIR and STTR funding to drive innovation. 

It provides a way for federal organizations to take a number of ‘small bets’ on potentially promising technologies and R&D areas without having to go ‘all in’ right out of the gate. The multi-phase structure of SBIR/STTRs provides a mechanism to ensure alignment between R&D and mission needs and allows for high levels of user engagement by the participating companies, ideally leading to better alignment between prototype/solution and mission needs. 

SBIRs and STTRs provide a great way to collaborate with small businesses and non-traditional contractors (NTDC). There are workshare requirements and some compliance items to ensure they are met, but your typical large businesses can participate as commercialization partners, subcontractors, etc.

The non-traditional aspect of this doesn’t just limit these efforts to ‘start-ups’ as an NTDC generally covers a pretty broad group of companies (including those who have regularly done business with the federal government or the Department of Defense [DOD]).

I’ve helped companies that are nearly 100 people and very experienced with working with the federal government to companies that are “a few folks” in a garage with venture capital funding’ go after SBIR and seen both be tremendously successful. 

Most of the compliance stuff is pretty straightforward (register your company on SAM.gov, get a DUNS and CAGE, ensure that you are not more than 50% owned by a VCOC and that there are no FOCI-related issues). Most of it can be done in a day or two. 

However, there are barriers to entry as you reach Phase II. 

As you progress through the phases and depending on what federal office you work with, the federal government may think that a Cost Plus-Fixed Fee (CPFF) type contract makes sense (especially the U.S. Navy), so be prepared to deal with those pretty burdensome accounting and compliance requirements. I recommend having a position on CPFF if you are not a services-based company. The requirements for Defense Contract Audit Agency (DCAA)/CPFF compliance are pretty extreme and many companies may find themselves reconfiguring their admin and back office in order to comply. If you are strictly a product company – it could be worth walking away from the effort. 

The maturity aspect early on (e.g. Phase I) is not too extreme. It’s when you start dealing with Intellectual Property (IP) and data rights issues, cost accounting, and the like that really have maturity implications. 

For example, if you are a product company and take on a small (say, 3 Engineers and a Product Manager [PM]) SBIR Phase II effort that is CPFF, your entire company will have to start doing time cards and tracking expenses in different ways. Essentially your company will take on an additional layer of governance and compliance just so you can execute a single product feature or prototype. 

You have to consider the tradeoffs on these types of decisions and the impact they may have on your business going forward.  

As you are looking at doing sponsored/federally funded R&D, it is important to thoroughly understand the regulatory and compliance requirements. Things such as shared IP/data rights, audit requirements, restrictions on private capital sources, and others are just a few examples of the importance of some basic diligence prior to embarking on working on SBIR programs.

From a compliance standpoint, the same rules apply. Track the ‘shalls’ and the other requirements and ensure they are captured. 

Phase I’s are basically a PowerPoint presentation or a small whitepaper with some compliance-related documents. Phase II’s add in a 15-page whitepaper that brings more of a program management flair to it. 

As you would expect, as the dollar amount on the effort increases, so does the complexity of the response. SBIRs have gained a lot of interest in recent years, thanks in a big part to AFWERX, and with that, they seem to have grown more complex in terms of submission requirements. 

Ideally, the contract process starts more commercial-esque (more streamlined, less complex) and increases in complexity through the program, but there is a vibrant secondary market of companies that will help you write the proposal and guide it through the process. 

This depends on a whole bunch of variables (what constitutes ‘real’ or ‘material’ etc.), but it usually depends on the:

• business development capability of the company
• maturity and ‘fit’ of the solution with the federal end-users
• federal customer demand and support

Typically, Phase I awards are less than $150,000 and Phase II’s are typically less than $1 million. You can go right from Phase I to Phase III and those Phase III contracts can be in the tens of millions of dollars. In fact, according to SBIR.gov, Phase III contracts can be for any dollar amount, and for any type of activity (including services outside of the R&D realm). 

Additionally, there are likely opportunities to expand the developed solution commercially (e.g. to highly regulated industries for example) to generate additional revenue streams. 

BLUF – if you are willing to put the work into scale, the SBIR program offers a tremendous opportunity to do some awesome R&D that can create a ton of value. 

This could be an essay in itself. Tons of stuff going on, from draft legislation making priority SBIR projects a reportable item for the Office of the Secretary of Defense (OSD) to increasing bridge funding to increase transitions of SBIR to programs of record.

The continued growth of, and interest in, the SBIR and STTR programs by both NTDCs and the federal government has elevated it to something of Congressional interest, and conversely to something that can easily be targeted by adversaries.

Our innovation base doesn’t have the same type of security budget that a Raytheon or Lockheed type does, but they can build exponentially faster (and usually better) software and commercial grade technology. Balancing the security needs with the commercial approaches will certainly result in some challenges and friction. 

1. Make sure to research the program and the associated requirements to ensure you understand them and any impact it will have to your business.
2. Address the basic compliance requirements (DUNS numbers, CAGE code, etc). 
3. Attend one of the AFWERX ‘Ask Me Anything’ events that provide some great insight into the program and what working on SBIR can be like or go find someone who has worked on SBIR efforts before and pick their brain.

Do you have more SBIR/STTR questions?

Contact Tyler Sweatt at tyler@secondfront.com