This legislation could help more small tech companies land defense contracts

The Pentagon hasn't used a waiver helping small businesses obtain Small Business Innovation Research grants in the eight years it has existed. But new legislation may change that.
Rep. Mac Thornberry, R-Texas
Rep. Mac Thornberry at a hearing of the House Armed Services Committee in 2016. (DOD photo / Flickr)

Newly proposed legislation could increase the amount of work the Department of Defense does with small businesses — particularly those that get a majority of their funding from venture capital.

The Accelerating Defense Innovation Act would create a pilot project within the DOD’s Small Business Innovation Research (SBIR) program to direct grant money to companies the department has otherwise avoided because of legal hurdles that stretch back more than a decade.

Created in 1983, SBIR provides small businesses with research grants to expedite their products’ development, as well as potential follow-on funding and assistance in meeting competitive requirements during the acquisition process. In 2003, courts ruled companies with more than 50 percent venture capital ownership are ineligible for SBIR grants. Congress created a waiver in 2011 for small businesses that are majority owned by multiple domestic venture investors, which requires congressional notification and Small Business Administration approval.

DOD has never used the waiver. Instead, the department “is turning away innovative small businesses with the most promising military and commercial technologies,” reads a fact sheet from the office of Rep. Mac Thornberry, R-Texas, the new bill’s sponsor. For example, Thornberry’s office cites satellite technology from startup Capella Space that can see through clouds. The 50-person team came out of DOD’s Hacking 4 Defense program but failed to receive an SBIR grant because of venture capital investment.


The Domestic Investment Pilot Program would allow the secretary of Defense and service acquisition executives for each military department to make an SBIR award to a small business that is majority-owned by multiple domestic venture investors. The bill allows no more than 15 percent of DOD SBIR program funds to be awarded to small businesses owned in majority part by multiple domestic venture investors, and the program will end on Sept. 30, 2022.

Despite the limitations of SBIR, there are other ways for young tech companies to work with the DOD, regardless of their funding. The Defense Innovation Unit, for example, currently handles pilot projects for commercial innovations that any of the department’s branches may procure after testing is complete. The goal is to speed up time to agreement, which the unit generally reaches within 90 days of first contact with the company.

Thornberry, the ranking Republican on the House Armed Services Committee, wants to include his legislation in the 2020 National Defense Authorization Act (NDAA), the release said.

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