H.R. 4777 — INNOVATE Act

This section modifies the Small Business Technology Transfer (STTR) program, which requires federal agencies with extramural research and development budgets exceeding specified thresholds to reserve funds for cooperative R&D awards to small businesses and partnering research institutions, by (1) increasing the minimum percentage of STTR funds for Phase I awards to 50% (from 40%) and decreasing the minimum for Phase II awards to 20% (from 30%); (2) increasing the minimum STTR set-aside to 3.45% of each agency's extramural research budget for FY2026 and each fiscal year thereafter (from 0.45%); and (3) requiring not less than 0.20% of each agency's SBIR and STTR funds for the commercialization pilot program (i.e., facilitating Phase III awards through federal acquisitions) for FY2026 and each fiscal year thereafter.

This section establishes a strategic breakthrough allocation within the Small Business Innovation Research (SBIR) program for participating agencies with an SBIR expenditure under subsection (f)(1) exceeding $100 million, requiring such agencies to allocate at least 0.25% of their extramural research or research and development budget from SBIR funds beginning in FY2026. (As background, the SBIR program requires federal agencies with large extramural R&D budgets to award a set-aside percentage—currently 3.2%—to small businesses for Phase I feasibility studies and Phase II prototype development.) It authorizes those agencies to award Phase II SBIR agreements of up to $30 million aggregate (including affiliates, spinouts, or subsidiaries) over no more than 48 months using strategic breakthrough funds, without requiring a waiver from the Small Business Administration, if the small business concern meets requirements including (1) at least one prior Phase II SBIR or STTR award, (2) 100% matching funds from nonfederal sources (excluding other Phase I or II SBIR/STTR awards), (3) market-validated effectiveness, and (4) technology readiness with a program objective memorandum commitment from a program executive officer or higher for transition to agency acquisition. Awards must be made within 90 days of proposal receipt for eligible activities including manufacturing design, facility establishment, materials procurement, testing, and production purchases; selection prioritizes national security advancement, novel technologies, agency customer purchase intent, and private undercapitalization; agencies must provide direct access to Phase III purchasing offices and streamlined contracting processes. This section further revises the SBIR commercialization readiness program by requiring phase I and II program managers to (1) identify high-transition-potential projects including those with strategic breakthrough awards, (2) analyze them during agency budget development, and (3) report to the Senate Committee on Small Business and Entrepreneurship.

This section directs the head of each federal agency participating in the Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) programs that made an award using funds from a strategic breakthrough allocation to brief the Senate Committee on Small Business and Entrepreneurship and the House Committees on Small Business and on Science, Space, and Technology on implementation of such allocation. Briefings must occur not later than 60 days after enactment and recurrently until implementation of sec. 9(ff)(3) of the Small Business Act (15 U.S.C. 638(ff)), as added by section 102, is complete.

This section requires that any funding agreement under the Small Business Innovation Research (SBIR) program that is a contract—with expenditures allocated pursuant to the program's set-aside—be a firm fixed-price contract (as defined in FAR 16.202), unless, on a case-by-case basis, the head of the awarding federal agency makes a written determination to use a different contract structure. It imposes the same firm fixed-price contract requirement—with a written agency head determination exception—for funding agreements under the Small Business Technology Transfer (STTR) program that are contracts. (The SBIR and STTR programs set aside a portion of certain federal R&D funding for competitive awards to small businesses to promote innovation and commercialization.)

This section establishes requirements to encourage new entrants into the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal initiatives that award grants to small businesses for research, development, and commercialization of innovative technologies meeting agency needs—by (1) limiting total Phase I and Phase II SBIR and STTR awards to any small business concern, including affiliates, spinouts, and subsidiaries, to $75 million, subject to a non-delegable waiver for national security with required reporting; (2) prohibiting an individual from serving as principal investigator on more than one proposal per Phase I or Phase II solicitation; and (3) restricting Phase I applicants to small business concerns with no more than $40 million in annual receipts. The section further establishes a new Phase 1A within SBIR programs, requiring agencies to allocate 1.5% to 3% of SBIR funds for open-topic awards of up to $40,000 to small business concerns (including affiliates, spinouts, and subsidiaries) with no prior SBIR or STTR awards, limited to one award per concern or principal investigator and based on streamlined five-page proposals addressing specified criteria including problem, solution, effects, differentiation, and commercialization strategy, with selection notifications within 90 days.

This section revises provisions of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal initiatives that reserve portions of agencies' extramural R&D budgets for competitive awards to small businesses—as follows: (1) in annual SBA reporting requirements under subsection (b)(7)(C), replaces data on firms "owned and controlled by women or by socially or economically disadvantaged individuals" with data on firms "owned by individuals who reside in rural areas"; (2) in subsection (e), adds definitions of "new entrants" (a small business concern that has not received an SBIR or STTR award) and "rural area" (a county or other political subdivision defined by the Bureau of the Census as mostly rural or completely rural in the most recent decennial census); (3) in data collection requirements for SBIR under subsections (g)(8)(A) and STTR under subsections (k)(1)(F) and (o)(9)(A), strikes certain clauses, redesignates others, and replaces references to firms owned or employing "a socially or economically disadvantaged individual" with firms owned or employing "an individual who resides in a rural area," employing "an individual who resides in a rural area," or that "is a new entrant"; (4) in policy directive requirements under subsection (j)(2), strikes subparagraph (F) and redesignates others; (5) in subsection (mm) on state and local assistance for SBIR commercialization— (A) eliminates the September 30, 2025, expiration date for annual reporting (thus, making it ongoing); (B) revises paragraph (1)(F) to include "adversarial influence" alongside waste, fraud, and abuse; (C) revises paragraph (2)(A) to prioritize increasing participation by states with historically low SBIR awards; and (D) adds paragraph (7) prohibiting agencies from using allocated SBIR funds unless they forgo considering the race, gender, or ethnicity of a small business's principal investigator, founder, or key personnel in award decisions; forgo requiring or considering diversity/equity statements in applications; and forgo offering supplemental funds based on such characteristics.

This section requires applicants to the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal initiatives that fund R&D partnerships between small businesses and federal agencies or research institutions—to disclose any current or pending agreement with NewsGuard Technologies, Inc., Global Disinformation Index entities, Internews, or similar entities that demonetize or rate the credibility of domestic news outlets based on fact-checking of lawful speech. It further prohibits SBIR and STTR awards to applicants with such agreements and makes conforming amendments to update cross-references.

This section directs the Small Business Administration to connect small businesses awarded grants under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal R&D set-asides requiring agencies to reserve 3.2% and 0.45% (respectively) of their extramural research budgets for competitive awards to small businesses—with small business investment companies (as defined in the Small Business Investment Act of 1958) and other domestic private investors.

This section requires the Small Business Administration (SBA) Administrator, not later than 90 days after enactment, to modify policy directives for the Small Business Innovation Research (SBIR) program under subsection (j) and the Small Business Technology Transfer (STTR) program under subsection (p) of Section 9 of the Small Business Act (15 U.S.C. 638) to— (1) require each participating federal agency to enhance outreach to rural communities, including by conducting such outreach and coordinating with small business development centers in areas served by them; and (2) require the SBA to place special emphasis on small business concerns in rural areas in its own SBIR and STTR outreach efforts. This section further revises SBIR policy directive requirements under subsection (j)(2)(F) to include enhanced outreach to small business concerns that have never participated in federal research and development, with special emphasis on those in rural areas. (The SBIR and STTR programs provide competitive grants to small businesses for high-risk research with commercialization potential, with SBIR conducted within federal agencies and STTR requiring partnerships with research institutions.)

This section defines "open topic announcement" for purposes of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs as a solicitation using a generalized problem statement or broad technology area without specific technological specifications that evaluates small business proposals based on meeting the agency's or end user's stated innovation need. This section expands the innovation open topics program by (1) applying it to the head of each participating federal agency (previously, solely the Secretary of Defense), with references to the Department of Defense replaced by such agency; (2) requiring the head of each participating agency to ensure the agency and each component thereof conducts open topic announcements consistent with existing limits per fiscal year (previously, components of the Department of Defense); and (3) striking paragraph (3). (Thus, agencies such as the Departments of Energy, Health and Human Services, and others with extramural R&D budgets over $100 million join the Department of Defense in using open topics to broaden small business participation in SBIR and STTR Phase I awards.)

This section establishes limits on the number of proposals that a small business concern, including its affiliates, spinouts, or subsidiaries, may submit to Phase I or Phase II solicitations under the Small Business Innovation Research (SBIR) program (15 U.S.C. 638(cc)) as follows: (1) no more than 10 proposals to a single Phase I solicitation or a single Phase II solicitation; and (2) no more than a combined total of 25 proposals to Phase I or Phase II solicitations published by a single agency, including the agency's components, in a single fiscal year. (The SBIR program awards competitive grants to small businesses for high-risk research and development with commercialization potential.)

This section establishes a definition of "foreign risk" for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs as any foreign affiliation, technology licensing agreement, joint venture, contractual or financial obligation, investment agreement, research relationship (including co-authorship), or business relationship in the past 10 years between (1) a small business concern submitting an SBIR or STTR proposal (including its subsidiaries, spinouts, affiliates, covered individuals, owners, or key personnel) and (2) an individual, research institution, business entity, government, or government-owned entity in a foreign country of concern that is disclosed under SBIR/STTR disclosure requirements or identified through required due diligence.

This section amends the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—under which participating federal agencies reserve set-aside portions of their extramural R&D budgets (3.2% for SBIR and 0.45% for STTR) for competitive awards to small businesses—by (1) requiring agencies to evaluate applicant small business concerns for national security risks using due diligence processes, disclosures, or coordination with agency Inspectors General or the intelligence community; (2) adding as grounds for Phase I award denial any foreign risk connecting the concern (including affiliates, spinouts, or subsidiaries) to entities or individuals on eight specified restricted lists (i.e., UFLPA Entity List, Non-SDN Chinese Military-Industrial Complex Companies List, Section 889 Prohibition List, Chinese military companies list under section 1260H, Military End User List, Entity List, FCC List of Equipment and Services, and Withhold Release Orders and Findings List), classified foreign risks, or other agency-determined national security risks; and (3) prohibiting agencies and personnel, including technical points of contact, from communicating to applicants prior to formal award notification that an application was denied due to foreign risk.

This section expands due diligence requirements under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—competitive federal grants to small businesses for research, development, and commercialization of innovative technologies—by directing agencies to examine any relationships between small business concerns seeking awards and entities or individuals on specified security risk lists (as described in 15 U.S.C. 638(g)(16)(D) and (o)(20)(D)), using lists published on the solicitation closing date.

This section revises the federal recovery authority for Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program awards—competitive R&D grants to small businesses with commercialization potential—in parallel ways under subsections (g)(18) and (o)(22), respectively. For both programs, it (1) subjects recoverable award amounts to annual inflation adjustments according to the Consumer Price Index published by the Bureau of Labor Statistics; (2) limits recovery triggers for exceeding small business size standards or undergoing an ownership change to the 10-year period beginning on the award date (or a longer or indefinite period as determined necessary for national security by the awarding agency head); (3) adds a trigger for recovery if the recipient sells, leases, or provides SBIR- or STTR-developed intellectual property to a foreign entity or individual (not incorporated in or a citizen of a NATO member country or major non-NATO ally, as listed in 22 U.S.C. §2321k) during the 5-year period beginning on the award date (or longer or indefinite for national security); and (4) adds a trigger for recovery if the recipient sells, leases, or provides such intellectual property to an entity, government, or individual in a foreign country of concern during the 10-year period beginning on the award date (or longer or indefinite for national security). (Thus, these changes expand agencies' ability to recoup funds for up to 10 years post-award—or indefinitely for national security—to protect U.S. technology from certain foreign transfers.)

This section requires the Small Business Administration (SBA) Administrator, in coordination with heads of agencies with Small Business Innovation Research (SBIR) programs, the White House Office of Science and Technology Policy Director, and the Committee on Foreign Investment in the United States, to develop best practices for sharing with each SBIR or Small Business Technology Transfer (STTR) award recipient. (Thus, the best practices recommend protections for the recipient's proprietary technology and intellectual property against unintentional disclosure to foreign individuals and entities through informational rights granted to limited partners in venture capital, hedge fund, or private equity firms invested in those recipients.)

This section revises the Government Accountability Office (GAO) reporting requirement in section 4(b)(4) of the SBIR and STTR Extension Act of 2022 to direct GAO to study and report to designated congressional committees not later than 18 months after enactment of the INNOVATE Act and annually thereafter through September 30, 2028, on the implementation and best practices of due diligence programs established under section 9(vv) of the Small Business Act (15 U.S.C. 638(vv)) across federal agencies participating in the Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) programs. (The SBIR and STTR programs provide federal R&D funding to small businesses, including grants and contracts, to foster technological innovation.) The study must assess (1) each agency's effectiveness in identifying enhanced risks in SBIR and STTR projects—including cybersecurity practices, patents with co-authorship by academics from foreign countries of concern, foreign influence among employees, foreign ownership and financial ties, and applicant connections to restricted entities or individuals; (2) annual numbers of proposals and small business concerns with such risks by agency, including prior awardees and risk details; and (3) Inspector General and counterintelligence investigations, audits, inspections, and outreach on these due diligence programs. Reports are submitted to the Senate Committees on Small Business and Entrepreneurship and Armed Services and the House Committees on Small Business, Armed Services, and Science, Space, and Technology.

This section revises the Phase flexibility authority under the Small Business Innovation Research (SBIR) program (15 U.S.C. 638(cc)) to permit agencies to award Phase II grants directly to small business concerns without a prior Phase I award, provided the concern has completed the R&D feasibility determinations required under subsection (e)(4)(A). (The SBIR program provides competitive grants to small businesses for federal R&D with commercial potential, typically proceeding sequentially from Phase I feasibility studies to Phase II prototypes.) The revision imposes the following limits on direct-to-Phase II awards: (1) generally not more than 10% of an agency's annual SBIR funds, or 30% for the National Institutes of Health program or each Department of Defense component; (2) ineligibility for concerns, including affiliates, spinouts, and subsidiaries, that have received more than 25 prior Phase II awards; and (3) no more than 25 such awards per eligible concern, including affiliates, spinouts, and subsidiaries.

This section amends the Small Business Innovation Research (SBIR) database requirements to include, for each award, its classification as (1) Phase 1A; (2) direct to Phase II; (3) subsequent Phase II; (4) strategic breakthrough award; (5) Phase III prime contract award; or (6) Phase III subcontract award. It further directs the General Services Administration to update the Federal Procurement Data System to require reporting on these SBIR and STTR award classifications and Phase III contract designations, and to enable contracting officers to reference prior SBIR or STTR contract identification numbers when recording related Phase II or III contracts, with no additional funds authorized.

This section streamlines administration of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs by making the following amendments: (1) in subsection (bb)(3), authorizing actions involving another component of the same federal agency; (2) in subsection (gg), redesignating the pilot program as the permanent Commercialization Readiness Program (excluding the Department of Defense), striking paragraph (7), and redesignating paragraph (8) as (7); (3) in subsection (hh), simplifying the funding provision and striking paragraph (2); (4) in subsection (ii)(2)(B), striking clause (iv); (5) in subsection (qq)(3), striking subparagraph (I); (6) in subsection (vv)(3), striking subparagraph (C); (7) in subsection (yy), removing the "pilot" designation, simplifying the text, and striking paragraph (2); and (8) in subsection (zz), removing the "pilot" designation, increasing the percentage in paragraph (1)(B) to 3.50% (from 3.25%), decreasing the percentage in paragraph (1)(C) to 0.21% (from 0.46%), and striking paragraph (3).

This section extends the authorization for the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program through 2028 (from 2025). These programs require federal agencies with large R&D budgets to set aside funds for competitive awards to small businesses to perform research with commercialization potential.

This section makes technical amendments to Section 9 of the Small Business Act by (1) replacing "small-business concerns" with "small business concerns" throughout and making related terminology changes; (2) updating references to the Senate Committee on Small Business and Entrepreneurship (from Committee on Small Business of the Senate) and House Committee on Science, Space, and Technology (from Committee on Science and the); (3) inserting "malign" before "foreign talent recruitment program" in two places; and (4) correcting punctuation and other minor grammatical issues.

This section repeals two subsections of section 9 of the Small Business Act (15 U.S.C. 638), which authorizes the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs to assist small businesses in obtaining federal research and development contracts and benefits: (1) subsection (oo), designated as redundant; and (2) subsection (tt), designated as obsolete.

This section establishes a severability clause, providing that if any provision of the Act, or its application to any person or circumstance, is held invalid, the remainder of the Act and the application of its remaining provisions are unaffected.