Emily Murphy, former administrator of the General Services Administration and current senior fellow at the George Mason University Business School’s Center for Government Contracting, who serves as a partner of CEO Coaching International, has published her first article as a part of Executive Mosaic’s GovCon Expert program.
In her first feature, GovCon Expert Emily Murphy, who is also a three-time Wash100 Award recipient, provided a breakdown of the Small Business Innovation Research (SBIR) program, including a brief rundown of its 40-year history as well as debunking a handful of the most common myths regarding the program.
You can read Emily Murphy’s full GovCon Expert article below:
GovCon Expert Emily Murphy: Debunking SBIR Program Myths
By GovCon Expert Emily Murphy
Since 1982, the Federal Government has successfully spurred innovation through the use of the Small Business Innovation Research (SBIR) program.
The technologies and companies that have emerged from the program range from the well-known, such as the Roomba vacuum cleaner, Qualcomm, Sonicare and Symantec, to technologies that save lives like improved submarine steam suits and improved process for controlling and transporting the gasses necessary to creating semiconductors.
However, during a recent webinar I hosted on behalf of George Mason University’s Center for Government Contracting, it became clear that there are still many misconceptions about this forty-year-old program especially when it comes to transitioning technologies from the laboratory to the battlefield.
A Brief Summary of the SBIR Program
Section 9 of the Small Business Act (15 U.S.C. § 637) requires that any Federal agency spending in excess of $100 million for research and development (R&D) performed by entities other than government employees must allocate 3.2 percent of that budget for small businesses.
At agencies that qualify, the SBIR program provides a path for rapid R&D while concurrently providing enhanced levels of intellectual property protections to the small business participants.
Currently, eleven agencies meet the $100 million threshold: the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, and Transportation, plus the Environmental Protection Agency, the National Aeronautics and Space Administration, and the National Science Foundation.
Together, they provide more than $3 billion in small business opportunities per year. While the Small Business Administration (SBA) sets the guidance for the SBIR program, agencies are allowed a great deal of flexibility in the implementation and may apply to SBA for additional policy waivers.
As a result, no two agency SBIR programs are identical, and frequently the program is administered differently within different sub-departments or agencies of larger departments.
For participating agencies, awards are made in three general phases. Phase I allows agencies to test both the technical merit of a proposed research and development (R&D) topic and to evaluate the capability of the small business awardee with a small financial investment over short period of performance.
Without any waivers from SBA, Phase I awards are capped at $275,766, and the normal period of performance is about six months. While some agencies solicit proposals on very specific topics and make a few higher dollar awards, other agencies, such as the Department of the Air Force, prefer to issue a larger number of smaller awards during Phase I, and often have broad topics on which a business can propose.
If Phase I grants or contracts achieve the desired result and additional R&D is considered to be in the interests of the government, a follow-on grant or contract is issued during Phase II to further pursue the scientific, technical, and commercial potential of the project.
While Phase II awards are generally $750,000 for 2 years, the SBA cap is substantially higher: $1,838,436 without a waiver.
The Air Force, via AFWERX, is conducting one of the more interesting pilots at this time, in which it caps its normal Phase II awards at $1.5 million but provides incentives for SBIR firms to obtain matching funds through its Strategic Funding Increase and Tactical Funding Increase Program (STRATFI/TACFI).
With these matching funds, Phase II awardees may gain an additional $1.8 million (TACFI) or $15 million (STRAFI) in funding. For example, in FY 2020 there were 18 STRATFI funding enhancements, which provided $101 million in SBIR funding, $102 million in other government funding, and $342 million in private funding over four years, thereby engaging 31 government organizations and 67 private capital sources.
When Phase II is successful, Phase III allows for the commercialization or follow on government work without additional competition. This includes additional R&D, production contracts, processes or services. During the Center for Government Contracting’s webinar, it became clear that there is a lot of confusion around these Phase III awards.
The following is a list of some of the most common myths:
Myth: The SBIR program is expensive.
While over $3 billion in funds are available for Phase I and Phase II awards annually, the SBIR program does not receive any appropriations.
Instead, it takes a portion of funds that were already appropriated for R&D. Agencies may then use those funds to pursue the R&D they were already prioritizing within the structure of the SBIR program.
Myth: Phase III awards are the end of the R&D process.
Reality: While some Phase III awards are for a new product or service that is ready to go to market, Phase III may also be for additional R&D as long as it derives from, extends or completes previous work.
Myth: Phase III awards aren’t considered competitive awards.
Reality: While Phase III awards do not require additional competition, they are not considered sole source awards. Instead, the competition requirements in the Competition in Contracting Act, the Armed Services Procurement Act, and the Federal Property and Administrative Services Act.
The competition at Phase I and Phase II is considered to meet the competition requirements. Thus, Phase III contracts found in FPDS or USASpending may be coded as competitively awarded.
Myth: If an SBIR-developed solution will solve the problem an agency is seeking to address, the agency must use it.
Reality: When Federal agencies want to pursue awards relating to the technology developed under the SBIR program, the Small Business Act encourages them to award to the SBIR Awardee “to the greatest extent practicable.”
SBA’s Policy Directive further says that the award should be made to the extent it is consistent with the agency’s mission and with optimal small business participation. In reality, combined with the simplified acquisition procedures, this means that there is a strong disposition to award to the SBIR awardee.
However, an agency may still run a competition if it suspects that a competitor has a non-SBIR solution that may better answer the government’s needs or simply to see what solutions are available. Finally, due to the lack of a comprehensive database, many agencies aren’t aware of what solutions are available for a Phase III award.
Myth: Only the agency that funded the SBIR may issue a Phase III award.
Reality: Any agency may make an award under Phase III of the SBIR program, even if that agency did not award Phase I and Phase II. This includes agencies that are not participants in the SBIR program. Indeed, prime contractors and federally funded research and development companies may also use Phase III award authority.
Myth: Phase III awards are transparent.
Reality: It is very difficult to track Phase III opportunities, because they are not coded as Phase III in FPDS or in USASpending, nor are they reported on SBIR.gov website.
Since many Phase III awards are made by the private sector, either as subcontracts to SBIR participants for work on government contracts or for pure commercial work, tracking awards by participant name or by Unique Entity Identification number also doesn’t provide a satisfactory answer.
However, this doesn’t mean Phase III awards don’t happen. Indeed, from May 30, 2018, to December 31, 2021, the General Services Administration’s Assisted Acquisition Program awarded over $6.9 billion in Phase III awards on behalf of other agencies.
Additionally, the Tibbetts Awards – given to the companies that most successfully take the results of their SBIR work to the next level – annually highlight companies that have met the phase II commercialization goals. In reality, we need a better way of tracking Phase III results.
In conclusion, the SBIR program has demonstrated that it can successfully shepherd a technology from concept to innovation, but the transition to Phase III remains the most misunderstood and difficult to navigate. While the Center’s webinar conveyed the passion many have for this program, its fully potential for commercialization still remains underutilized.