S. 3971 — Small Business Innovation and Economic Security Act

This section amends Section 9(g) of the Small Business Act, governing the Small Business Innovation Research (SBIR) program, and Section 9(o), governing the Small Business Technology Transfer (STTR) program—both of which provide competitive grants and contracts to small businesses for federal research, development, and technology transfer—to require Federal agencies to (1) evaluate small business concerns for security risks (or foreign risks, in STTR) through due diligence, disclosures, and coordination with the intelligence community and Federal counterintelligence; (2) deny awards to concerns presenting such risks, including connections to entities or individuals on specified restricted lists (i.e., UFLPA Entity List, Non-SDN Chinese Military-Industrial Complex Companies List, Section 889 Prohibition List, section 1260H Chinese military companies list, Military End User List, Entity List, FCC List of Equipment and Services, and CBP Withhold Release Orders and Findings List), classified sources, or other agency-determined risks; and (3) notify denied concerns of the basis for denial, as appropriate without compromising national security, while clarifying that such denials do not bar eligibility for future awards. (Thus, the changes enable agencies to protect sensitive research funding from national security threats.)

This section establishes strategic breakthrough allocations within the Small Business Innovation Research (SBIR) program for federal agencies with annual SBIR expenditures exceeding $100 million, allowing such agencies to use up to 0.50% of their extramural research or research and development budget—beginning in FY2026—for Phase II awards of up to $30 million to a single small business concern (including affiliates) over a performance period of up to 48 months, exempt from certain SBIR award size and waiver requirements. Eligible small business concerns must have received at least one prior Phase II SBIR or STTR award; demonstrate 100% matching funds from new private capital, non-SBIR/STTR government funding, or a combination; show via market research that their technology is an effective solution; and, for Department of Defense awards, meet additional readiness, transition, and matching fund criteria (including at least 20% from non-SBIR/STTR DoD funding). Agencies must award contracts within 90 days of receiving proposals; prioritize critical technology areas; use specified selection criteria (e.g., advancing national security or providing undercapitalized technologies); and implement streamlined contracting processes. (As background, the SBIR program requires participating agencies to set aside a percentage of their extramural R&D budgets—currently 3.2%—for competitive awards to small businesses in Phase I feasibility studies and Phase II prototypes with commercialization potential.) This section further revises the SBIR commercialization readiness program by requiring agencies to (1) identify Phase II awardees—including those funded via strategic breakthrough allocations—with high commercialization potential; (2) analyze such programs during budget development; and (3) report to specified congressional committees on integrating SBIR and STTR awardees into agency budgets.

This section establishes requirements to reduce administrative burden in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal initiatives that award Phase I and Phase II grants to small businesses for high-risk R&D with commercialization potential—by directing each federal agency's SBIR or STTR program office Director to set, for FY2027 and each fiscal year thereafter, a uniform limit on the maximum number of Phase I and Phase II proposals any small business concern may submit in response to that agency's solicitations in a single fiscal year. The Director must use one of three non-delegable methods: (1) a fiscal year-wide limit, (2) a per-solicitation limit, or (3) a per-topic limit; the limit must be set no later than 90 days before the fiscal year begins; and, within 30 days of setting or changing it, the agency head must notify specified Senate and House committees of the methodology, considerations, and historical impact on small businesses. The section further authorizes topic-by-topic waivers of the limit for time-sensitive, mission-urgent topics, requiring non-delegable Director approval with written justification provided to the Small Business Administration Administrator and agency Undersecretary for approval or disapproval within 15 days; limits waivers to no more than 5% of the agency's SBIR and STTR topics per fiscal year; mandates agency recordkeeping of waivers and justifications; and requires Director notification to the committees within 30 days of each waiver. (Thus, the limits and waiver process standardize proposal submissions across firms to ease program administration while preserving flexibility for critical needs.)

This section establishes training requirements for federal contracting officers and agency acquisition workforce (newly defined in subsection (e)(20) as agency employees with procurement responsibilities) on Phase III awards—i.e., sole-source contracts for commercializing SBIR- and STTR-funded technologies—under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Specifically, the Small Business Administration (SBA), in coordination with the Secretary of Defense, Administrator of General Services, and other agency heads, must provide training on SBIR/STTR missions, goals, and authorities; Phase III agreements and data rights; and sole-source award execution (subsection (r)(5)). The section also authorizes use of funds under subsection (mm) for these activities (new (mm)(1)(L)).

This section expands the duties of procurement center representatives under the Small Business Act to advocate for the maximum practicable use and transition of products, services, and technologies developed under Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) programs to Phase III (i.e., commercialization via federal procurement contracts) through Phase III awards to small business concerns; and directs the Small Business Administration (SBA) Administrator to modify related policy directives within one year of enactment. The section further requires federal agencies to (1) develop simplified and standardized procedures and model contracts for Phase I (feasibility), Phase II (prototype), and Phase III SBIR awards and report to the SBA Administrator on related actions; and (2) issue standardized solicitation provisions and contract clauses providing clear guidance on information small businesses must provide for Phase III award eligibility during market research or proposals.

This section revises technical and business assistance for recipients of Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awards (i.e., competitive R&D grants to small businesses from federal agencies' extramural research budgets) as follows: (1) requires participating federal agencies to authorize award recipients to select vendor-provided assistance—including intellectual property protections, cybersecurity assistance, and screening for potential foreign involvement—or to use funds for hiring or training staff; (2) authorizes up to $6,500 per Phase I project and $50,000 per Phase II project for such assistance, included in or additional to the award as determined by the agency head; (3) permits targeted agency reviews of such funding; and (4) requires agencies with an Innovation Corps (I-Corps) program to offer SBIR or STTR recipients optional participation in I-Corps training (e.g., teams courses or bootcamps), fundable via assistance funds or other sources. (Thus, the changes shift assistance delivery from SBA-selected vendors to recipient-chosen options, enhancing flexibility for commercialization support.)

This section amends the SBIR database requirements under the Small Business Act to include, for each award, whether it is designated as (1) direct to Phase II; (2) subsequent Phase II; (3) a strategic breakthrough award; (4) a Phase III prime contract award; or (5) a Phase III subcontract award. (As background, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide competitive grants to small businesses for federal research and development needs across three phases: Phase I for feasibility studies, Phase II for prototype development, and Phase III for commercialization via federal contracts.) This section further directs the Administrator of General Services to update the Federal Procurement Data System to (1) require reporting on whether SBIR or STTR awards are designated as the above award types; (2) require reporting on whether contracts are designated as Phase III; (3) require reporting on non-SBIR contracts and subcontracts using SBIR- or STTR-funded technology; and (4) require contracting officers recording Phase II or Phase III contracts following prior Phase I or Phase II work by a small business concern to reference the relevant prior SBIR or STTR contract identification number. (Thus, the changes enhance tracking of SBIR and STTR award progressions and technology commercialization in federal procurement.)

This section extends the authorization for the Small Business Innovation Research (SBIR) program through September 30, 2031 (from September 30, 2025) and the Small Business Technology Transfer (STTR) program through 2031 (from 2025). (The SBIR and STTR programs require participating federal agencies to allocate a percentage of their extramural research budgets—currently 3.2% for SBIR and 0.45% for STTR—to competitively award grants to small businesses for high-risk technology development.) It further authorizes such agencies to carry over into FY2027 any remaining funds obligated for FY2026 under either program.

This section extends multiple authorities and pilot programs under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal R&D grant programs primarily for small businesses—through September 30, 2031 (from September 30, 2025 or FY2025), as follows: (1) revises phase flexibility authority under sec. 9(cc) of the Small Business Act to apply until September 30, 2031 (from FY2025), adds the Department of Energy and National Aeronautics and Space Administration as participating agencies, and extends it to STTR programs; (2) extends commercialization readiness pilot for civilian agencies, accelerated awards, Phase 0, administrative assistance, increased minimum performance standards, commercialization assistance pilots, due diligence program, STTR participation by military research and educational institutions pilot, and budget calculation pilot; (3) extends the Special Operations Command SBIR/STTR pilot program through September 30, 2031 (from September 30, 2025); and (4) repeals the sunset provision (sec. 5142 of the National Defense Authorization Act for Fiscal Year 2012) for a Government Accountability Office requirement to report on SBIR and STTR awards to small businesses.