Small Business Innovation Research: Renew It Now!

By Farrell, Lawrence P., Jr. | National Defense, March 2008 | Go to article overview

Small Business Innovation Research: Renew It Now!


Farrell, Lawrence P., Jr., National Defense


It is no secret that small businesses are one of America's biggest assets. Firms with fewer than 500 employees represent 99.9 percent of the nation's 26.8 million businesses.

And it should come as no surprise that a large number of these small businesses are the incubators of many advanced technologies, including cutting-edge systems currently used by the U.S. military.

Which brings me to a recent congressional hearing where lawmakers debated the merits of renewing the Small Business Innovation Research Program that is set to expire Sept. 30.

NDIA, a long-time supporter of SBIR, joined other organizations in asking Congress to reauthorize the 25-year-old program. It is an important tool to stimulate high-risk technological innovation in the private sector and to increase the commercial application of government-funded efforts.

More than 16,000 companies have participated in SBIR. It is one of the few federal programs that specifically address small businesses. It has three components. In phase I, companies receive between $70,000 and $100,000 to execute early research. Phase II, which ranges from $200,000 to $750,000, allows the technology to be further developed. Phase III requires the company to find customers for commercialization. The total cycle can take up to 42 months including award and assessment time.

About $2 billion a year is spent on SBIR projects, and the payoffs can be seen everywhere. The National Institutes of Health relies on SBIR funds for much of its biotechnology and medical research. The Defense Department, which oversees about half of the SBIR funding, has been a strong proponent. Pentagon officials often have said that small businesses are critical engines of innovation that contribute to key war fighting capabilities.

In a larger sense, the U.S. defense industry's competitiveness depends in part on small business performance through SBIR.

The Defense Department's SBIR program has experienced substantial growth in recent years, more than doubling in size from 1999 to 2005, and it continued to grow through 2007 to approximately $1.25 billion. The "set-aside" funding-- 2.5 percent of all defense research and development must go to SBIR awards--has remained constant. So this expansion is directly driven by growth in the Pentagon's R&D budget.

Since the inception of SBIR in 1983, the Defense Department has awarded nearly $11 billion to qualifying small firms via 44,500 contracts. One problem, however, is that the administrative fee that the department receives--1 percent of the value of the contracts--is not nearly enough to effectively measure and manage SBIR projects.

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