S. 853 — INNOVATE Act

This section amends policies and funding requirements for the Small Business Technology Transfer (STTR) program, which funds R&D partnerships between small businesses and research institutions (e.g., universities), as follows: (1) in subsection (e), revises Phase I solicitation requirements under paragraph (6) to require inclusion of opportunities for follow-on funding in Phases II and III of the Small Business Innovation Research (SBIR) program (replacing prior subparagraphs (B) and (C)); and revises benchmarks under paragraph (7) to 50 percent (from 40 percent) and 20 percent (from 30 percent); (2) in subsection (f)(1), requires each participating federal agency to expend not less than 3.45 percent of its extramural research budget on STTR in FY2026 and each fiscal year thereafter; and (3) in subsection (n), requires not less than 0.20 percent for FY2026 and each fiscal year thereafter under paragraph (1)(B)(vi); and inserts new paragraph (2) directing agencies to use STTR funds for small business concerns conducting fundamental, basic, or other scientific research that most benefits from research institution partnerships, with the Department of Defense and National Aeronautics and Space Administration limited to technology readiness levels 1, 2, and 3.

This section establishes Strategic Breakthrough Awards within the Department of Defense's Small Business Innovation Research (SBIR) Phase II program (previously the Commercialization Readiness Program in SBIR and STTR) by revising subsection (ff) of Section 9 of the Small Business Act, striking STTR references, and requiring an allocation of at least 0.25% of the DoD extramural research or research and development budget—within the SBIR allocation under subsection (f)(1)—beginning in FY2026 and every fiscal year thereafter. Awards using these funds may be up to $30 million (no Small Business Administration waiver required) for a period of performance of not more than 48 months, limited to one per small business concern (including affiliates, spinouts, or subsidiaries), if the concern meets these requirements: (1) at least one prior SBIR Phase II award; (2) demonstration of at least 100% matching funds from new outside capital or non-Phase I/II SBIR or STTR DoD awards; (3) no more than $50 million in cumulative prior DoD contracts or awards; and (4) product, process, or technology at sufficient readiness with program objective memorandum commitment from a program executive officer or higher, validated via market research as an effective solution for high-priority military requirements. Eligible activities include design for manufacturing, establishing manufacturing facilities and supply chains, buying materials or inventory, integrating with open standards, testing low-rate production units, and purchasing production units and maintenance; awards must be made within 90 days of proposal receipt; and selection prioritizes potential to advance national security, introduce new technologies or applications, achieve cost savings, and enhance capabilities. (As background, the SBIR program reserves a portion of federal R&D funding across agencies for small businesses to develop innovative technologies with commercial potential; these awards support DoD transition of mature SBIR Phase II technologies into acquisition.)

This section directs the Secretary of Defense to brief the Senate Committee on Small Business and Entrepreneurship and the House Committees on Small Business and on Science, Space, and Technology not later than 60 days after enactment, and recurrently until implementation is complete, on the implementation of new paragraph (3) of section 9(ff) of the Small Business Act (15 U.S.C. 638(ff)), as added by section 102.

This section requires that any funding agreement that is a contract under the Small Business Innovation Research (SBIR) program 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 otherwise. The section similarly requires firm-fixed-price contracts for funding agreements under the Small Business Technology Transfer (STTR) program, unless the agency head makes a written determination otherwise. (SBIR and STTR provide federal R&D funding to small businesses to promote technological innovation and commercialization.)

This section revises SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) eligibility rules by (1) prohibiting a small business concern, including affiliates, spinouts, or subsidiaries, that has received more than $75 million in prior Phase I and II SBIR/STTR funding from applying for Phase I or II awards; (2) limiting any individual to serving as principal investigator on only one proposal per Phase I or Phase II solicitation; and (3) limiting Phase I applicants to concerns with no more than $40 million in annual receipts for the most recent fiscal year. The section also establishes a new Phase 1A award—a preliminary proof-of-concept phase mirroring standard Phase I but limited to open-topic SBIR announcements and intended for new entrants—requiring each participating agency to allocate at least 2.5% of its SBIR funds to Phase 1A awards of up to $40,000 each (limited to one per concern or principal investigator), available only to concerns with no prior SBIR or STTR awards based on two-page proposals addressing specified criteria (i.e., problem, solution, impact, differentiation, and commercialization strategy), with award decisions notified within 90 days and Phase 1A recipients eligible to pursue Phase I or II awards.

This section revises the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal R&D funding initiatives administered by participating agencies including the Department of Defense—to replace multiple references to businesses owned and controlled by women or socially and economically disadvantaged individuals with references to those owned by or employing individuals residing in "emerging States" (the 25 states with the fewest combined SBIR/STTR Phase I awards received in the prior 10 fiscal years) or "rural areas" (counties or subdivisions deemed mostly or completely rural by the Census Bureau). Specifically, the section (1) updates annual reporting under subsection (b)(7)(C), data collection under subsections (g)(8)(A) and (o)(9)(A), and STTR reporting under subsection (k)(1)(F); (2) strikes related clauses and subparagraphs (e.g., (g)(8)(A)(iii), (j)(2)(F), (k)(1)(F)(ii), (o)(9)(A)(iii)) and makes conforming redesignations and margin adjustments; (3) in the Commercialization Readiness Program under subsection (mm), strikes the September 30, 2025, termination date (thus extending the program indefinitely), modifies funding purposes to prioritize states with historically low SBIR awards, adds requirements to address adversarial influence, and conditions agency eligibility for allocated SBIR funds on not considering the race, gender, or ethnicity of principal investigators, founders, or key personnel in award decisions, not requiring diversity/equity statements in applications, and not offering supplemental funds based on those factors.

This section establishes a definition of “open topic announcement” in the Small Business Act as a solicitation for Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) proposals that (A) uses a generalized problem statement or broad technology area without requiring proposed solutions to adhere to specific technological specifications and (B) evaluates the proposed solution’s ability to meet the agency’s or government end user’s stated innovation need. (The SBIR and STTR programs provide competitive grants to small businesses for federal R&D with commercialization potential.)

This section establishes limits, to reduce administrative burden, on Phase I and Phase II proposal submissions by a small business concern—including its affiliates, spinouts, or subsidiaries—under subsection (cc) of the Small Business Act, which governs aspects of the Small Business Technology Transfer (STTR) program. Such concerns may submit (1) no more than 3 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 agency components, in a single fiscal year.

This section defines the term “foreign risk” in the Small Business Act for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal R&D grant programs that enable small businesses to participate in federal research efforts—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 all subsidiaries, spinouts, and affiliates) and covered individuals, owners, or other key personnel of the small business concern; and (2) an individual, research institution, business entity, government, or government-owned entity in a foreign country of concern that is disclosed as required under subsections (g) or (o), or otherwise identified in the due diligence process required under subsection (vv).

This section requires federal agencies to evaluate small business concerns for national security risks, including foreign risks connected 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, Chinese military companies list, Military End User List, Entity List, FCC List of Equipment and Services, and Withhold Release Orders and Findings List), prior to awarding Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) grants (in subsections (g)(15) and (o)(19), respectively). (The SBIR and STTR programs provide competitive grants to small businesses for high-risk federal research and development with commercialization potential.) It further (1) expands grounds for denial of SBIR and STTR Phase II awards to include such foreign risks, classified-source risks, or other agency-determined national security risks (in subsections (g)(18) and (o)(22), respectively); (2) prohibits agencies and personnel from communicating to applicants, prior to formal award notification, that an application was denied due to a foreign risk (in subsections (g)(17) and (o)(21), respectively); and (3) makes conforming redesignations and cross-reference updates.

This section requires, as part of the due diligence program to assess security risks in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—which provide competitive grants to small businesses for federal R&D with Small Business Administration oversight—examination of any relationship between a small business concern seeking an award and entities or individuals on lists specified in SBIR (subsection (g)(16)(D)) and STTR (subsection (o)(20)(D)) provisions, as published on the solicitation closing date.

This section strengthens federal agency recovery authority under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—competitive grant programs that fund R&D by small businesses with commercialization potential—in subsections (g)(18) and (o)(22), respectively, by (1) indexing recoverable amounts to inflation using the Consumer Price Index published by the Bureau of Labor Statistics; (2) applying a 10-year period beginning on the award date—or a longer or indefinite period if determined necessary for national security by the awarding agency head—to existing violations involving small business status changes or ownership changes; and (3) adding new violations for transferring SBIR- or STTR-developed intellectual property to certain foreign parties, prohibiting such transfers for five years (or longer/indefinite for national security) to foreign entities or individuals not incorporated in or citizens of NATO member countries or major non-NATO allies, and for 10 years (or longer/indefinite for national security) to entities, governments, or individuals in a foreign country of concern. (Thus, agencies may recoup funds, as inflation-adjusted, for these expanded violations.)

This section directs the Administrator of the Small Business Administration (SBA), in coordination with heads of agencies with Small Business Innovation Research (SBIR) programs, the Director of the White House Office of Science and Technology Policy, and the Committee on Foreign Investment in the United States, to develop best practices for protecting the proprietary technology and intellectual property of SBIR and Small Business Technology Transfer (STTR) award recipients from unintentional disclosure to foreign individuals and entities through informational rights of limited partners in venture capital, hedge fund, or private equity firms. These best practices must be shared with each SBIR or STTR award recipient by the granting agency.

This section revises the Government Accountability Office (GAO) reporting requirement under section 4(b)(4) of the SBIR and STTR Extension Act of 2022 by directing the Comptroller General to conduct a study and submit a report to specified congressional committees not later than one year after enactment of the INNOVATE Act and annually thereafter for three years 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) and Small Business Technology Transfer (STTR) programs. (As background, SBIR and STTR programs provide competitive grants and contracts to small businesses for federal R&D to foster technological innovation and commercialization.) The study must evaluate (1) the effectiveness of each participating agency's identification of enhanced risks in SBIR/STTR projects or applicants—including cybersecurity practices, patents (e.g., co-authorship with academics in foreign countries of concern), foreign influence among employees, foreign ownership and financial ties, and connections to entities or individuals on specified restricted lists; (2) by year, the number of proposals and small business concerns with foreign risks per agency, including prior awardees and the nature of those risks; and (3) the extent to which each agency's Inspector General and counterintelligence authorities conduct investigations, audits, inspections, and outreach related to the due diligence program.

This section revises minimum performance standards and commercialization benchmarks under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs (i.e., federal R&D grant programs that fund small businesses in Phase I for feasibility studies and Phase II for prototype development, with an expectation of commercial transition). (1) Establishes, for small business concerns with more than 10 Phase I awards, a minimum ratio of 0.25 Phase II awards received to Phase I awards received. (2) For concerns with more than 25 Phase I awards, sets a minimum ratio of 0.5 Phase II awards to Phase I awards, barring non-compliant concerns from Phase I participation for one year and limiting them to 5 Phase I awards per year thereafter until the ratio is met. (3) For concerns (including affiliates, spinouts, and subsidiaries) with more than 25 Phase II awards over their lifetime, requires (a) annual receipts from non-SBIR/STTR sources to exceed total Phase I and Phase II awards received since the first award, and (b) at least 65% of annual receipts and investments over the prior three years from non-SBIR/STTR sources; non-compliant concerns are ineligible for new Phase I or Phase II awards until the benchmarks are met.

This section revises the Small Business Innovation Research (SBIR) program's phase flexibility authority to allow each federal agency with an SBIR program to award Phase II grants directly to small businesses without a prior Phase I award, provided the business has satisfied the scientific, technical, and commercialization potential criteria of subsection (e)(4)(A) despite not receiving Phase I funding. (As background, the SBIR program provides grants to small businesses for high-risk research and development with commercialization potential, structured in phases including Phase I for technical feasibility and Phase II for prototype development.) The revision imposes the following limits on such direct Phase II awards: (1) generally not more than 10% of an agency's annual SBIR funds; (2) up to 30% for the National Institutes of Health and for each Department of Defense component; (3) ineligibility for businesses (including affiliates, spinouts, and subsidiaries) with more than 25 prior Phase II awards; and (4) no more than 25 such direct awards per business (including affiliates, spinouts, and subsidiaries).

This section amends the SBIR database requirements under the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs—federal initiatives that award grants to small businesses for high-risk R&D with commercialization potential—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, without additional funding, to (1) require reporting on whether SBIR/STTR awards or contracts are designated as those types or as Phase III contracts; and (2) allow contracting officers to reference prior SBIR/STTR contract identification numbers when recording related Phase II or Phase III contracts.

This section streamlines administration of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, which provide competitive grants to small businesses for federal R&D, by making the following changes: (1) in subsection (bb)(3), authorizing certain awards to another component of the same federal agency; (2) in subsection (gg), renaming and converting the pilot Commercialization Readiness Program to a permanent program (excluding the Department of Defense from the definition of covered federal agency) and striking certain requirements; (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) redesignating subsection (yy) as subsection (xx) and converting the pilot STTR program therein to a permanent program by striking certain requirements; (8) redesignating subsection (zz) as subsection (yy) and converting the pilot program therein to a permanent program, including increasing the set-aside percentage to 3.50% (from 3.25%) and decreasing it to 0.21% (from 0.46%).

This section reauthorizes the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program through FY2028 (from FY2025). (As background, SBIR provides phased grants to small businesses for high-risk research with commercialization potential, while STTR requires collaboration between small businesses and research institutions.)