SBIR/STTR Programs Revived with Some Notable Changes

The Senate has finally reached an agreement to reauthorize the Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”) programs after a five‑month lapse and significant uncertainty about the future of the programs.

On March 3, 2026, the Senate passed the Small Business Innovation and Economic Security Act (the “Act”), which, if enacted, will reauthorize the SBIR/STTR programs for another five years, through September 30, 2031. In light of the lapse, the Act also permits federal agencies to roll forward leftover SBIR/STTR funds at the end of fiscal year 2026 into 2027.

The Act reflects a compromise that stops well short of the more aggressive reforms that were in consideration. Still, it implements meaningful changes to the SBIR/STTR programs, including security and program oversight measures and a new higher-value option for Phase II awards.

Increased Due Diligence of Foreign Connections and National Security Considerations

The Act significantly expands the due diligence agencies must perform on a potential SBIR/STTR awardee’s foreign ownership and potential national security risks. Specifically, in addition to the current requirement to examine cybersecurity practices, patents, employees, financial ties and obligations (including surety, equity, and debt obligations), and foreign ownership, agencies must now also analyze:

• Foreign affiliations of the company, or its covered individuals, owners, or other key personnel with an entity in a foreign country of concern;
• Investment relationships with an individual or entity in a foreign country of concern;
• Technology licensing agreements or joint ventures with an individual or entity in a foreign country of concern; and
• Business relationships between covered individuals, owners, or other key personnel with an individual or entity in a foreign country of concern.

Agencies also must assess a concern’s connections to entities on various federal watch lists and coordinate with the intelligence community to assess potential security risks. If excluding a concern on that basis, however, the Act requires an agency to provide the entity notice. This will help applicants make informed corrective actions to ensure eligibility for future awards.

Strategic Breakthrough Funding

The Act introduces a new option to award SBIR Phase II contracts of up to $30 million over up to four years through a “Strategic Breakthrough Allocation.” This represents a significant increase from the current cap of $1.5 million (or modestly higher with special approvals) over up to two years.

This new authority is limited to agencies with more than $100 million in required SBIR expenditures each year (equating to an overall extramural R&D budget (i.e., an R&D budget to spend on external sources) of just over $3 billion or more), and such awards may only account for up to 0.5 percent of an agency’s overall extramural R&D budget. To be eligible for such awards, a small business concern must (1) have previously been awarded a Phase I or Phase II contract, (2) secure one-for-one matching funds from sources outside the SBIR program (e.g., private capital or non-SBIR government funds), and (3) demonstrate a critical technology that is an effective solution. For awards by the Department of Defense (“DoD”), concerns must also (1) provide a product process or technology that meets (a) a necessary level of readiness and has a commitment for inclusion in a program objective memorandum from a program executive or higher in the DoD, and (b) high-priority requirements or operational needs of a military department through a successful transition and into the acquisition process; and (2) obtain 20% of the required matching funds from a new funding awarded by DoD.

These larger Phase II contracts may help ferry chosen SBIR contractors across the valley of death, but they may also siphon limited SBIR funds and reduce the overall number of SBIR awards—making it all the more important for SBIR contractors to pursue these large-dollar opportunities where they can.

Proposal Caps

One of the most hotly contested issues leading to the lapse in authorization was disagreement about what to do about so-called “SBIR mills”—companies that receive a high number of Phase I and II awards, yet never ultimately commercialize those projects into Phase III. Congress has rejected the prescriptive approach proposed by some and instead opted to direct each federal agency to set its own cap on the number of proposals an individual concern may submit each year (or per solicitation, or per topic). It will be interesting to see how different agencies approach this direction, and contractors should monitor these various caps closely and plan to track the number of proposals they submit.

Technical and Business Assistance

SBIR/STTR Phase I and II awardees may apply for Technical and Business Assistance (“TABA”) funding to engage a third-party advisor for legal, business management, or technical assistance. Historically, awardees have been required to use a vendor of the agency’s choosing. The Act would instead permit awardees to choose their own third-party advisor (or, alternatively, hire or train staff) and use the funds for new purposes, such as cybersecurity assistance and screening for foreign involvement in technology development. Phase I awardees may receive $6,500 in TABA funds per project, while Phase II awardees may receive up to $50,000 per project.

In addition to the above, the Act also includes a few administrative changes, like trainings for contracting officers, and requirements for identifying additional award classifications (like direct‑to-Phase II, strategic breakthrough awards, etc.) in public databases. Taken together, the Act presents some meaningful reforms. It is now up to the House of Representatives to consider and vote on passing those reforms.