DoD Issues SBIR Awards Amid Stalemate
Despite the ongoing legislative stalemate over SBIR/STTR reauthorization, the Department of Defense continues to issue contracts to small businesses. Recent awards include funding for UAS payloads for ordnance detection, composite binders for missile propulsion, and AI-enabled biometric monitoring. AFWERX also awarded a direct-to-Phase II contract to FlexRadio, reflecting a focus on accelerating dual-use technology.
- The legislative authority for the SBIR/STTR programs expired on September 30, 2025. As a result, federal agencies cannot issue new Phase I or Phase II solicitations or awards, though work on existing contracts and non-SBIR funded Phase III commercialization can continue. - The reauthorization is stalled in the Senate primarily due to a debate over program reforms, with competing proposals from Senators Joni Ernst (R-IA) and Ed Markey (D-MA). In January 2026, the two senators formally exchanged compromise proposals, signaling potential progress but no final agreement has been reached. - A key point of contention is the concern over "SBIR mills"—a small number of companies that receive a high volume of awards. Senator Ernst's INNOVATE Act proposes reforms like a $75 million lifetime funding cap per company and requiring a 1:1 ratio of private to SBIR funding for firms with over 25 Phase II awards. - The competing SBIR/STTR Reauthorization Act of 2025 aims to make the programs permanent, arguing it would provide stability for small businesses. This bill would also increase the mandatory R&D budget set-aside for SBIR from 3.2% to 7% and for STTR from 0.45% to 1% over seven years. - The DoD is the largest participant in the program, with an annual SBIR budget of over $1 billion. Historically, about half of DoD SBIR awards go to firms with fewer than 25 employees. - The AFWERX Direct-to-Phase-II (D2P2) model is designed to accelerate innovation by allowing small businesses with mature, commercially viable technologies to bypass the initial Phase I feasibility study. To be eligible, a company must already have a prototype-ready solution and a signed memorandum from an Air Force customer. - To bridge the gap between prototyping and large-scale production—often called the "valley of death"—AFWERX offers Strategic and Tactical Funding Increase (STRATFI/TACFI) programs. These can provide $3M to $15M in additional funding by matching investments from private venture capital or other government program offices. - Industry groups, including the Professional Services Council and the National Defense Industrial Association, sent a letter to congressional leaders in January 2026 urging immediate reauthorization. They warned that the continued lapse is forcing companies to cancel millions in anticipated funding, which could lead to layoffs and the loss of technological advantages.
