A Clean Sheet Redesign of the Small Business Innovation Research Program – War on the Rocks

Report on the Restructuring of the Small Business Innovation Research Program for Sustainable Development

This report analyzes the structural deficiencies of the Small Business Innovation Research (SBIR) program and proposes a comprehensive redesign. The current program, while well-intentioned, fails to effectively meet its objectives, thereby hindering progress toward key Sustainable Development Goals (SDGs), including SDG 9 (Industry, Innovation, and Infrastructure), SDG 8 (Decent Work and Economic Growth), and SDG 16 (Peace, Justice, and Strong Institutions). A fundamental overhaul is required to create an accountable, efficient, and sustainable innovation ecosystem that delivers tangible capabilities and fosters inclusive economic growth.

Analysis of Program Deficiencies and SDG Misalignment

Established in 1982, the SBIR program was designed to stimulate technological innovation and support small business participation in federal research and development. However, after four decades, significant structural flaws impede its effectiveness and contravene the principles of sustainable development.

Key Systemic Failures

• Lack of Program Manager Engagement: Acquisition program managers are not incentivized to integrate SBIR technologies, creating a disconnect that undermines SDG 9 by preventing innovative solutions from being scaled.
• The “Valley of Death” Funding Gap: A critical funding gap exists between the research and acquisition phases. This stalls promising technologies, wasting public investment and hindering the growth of small enterprises, which is counterproductive to SDG 8.
• Ineffective Institutional Structures: The system suffers from inadequately trained personnel, mismanaged programs, and “innovation theater” that misallocates capital. This reflects a failure to build effective and accountable institutions as mandated by SDG 16.
• Fragmented and Disconnected Funding: So-called “bridge funds” like Accelerate the Procurement and Fielding of Innovative Technologies (APFIT) are detached from programs of record, representing an inefficient use of resources that conflicts with SDG 12 (Responsible Consumption and Production).
• Disconnection from End-Users: The process for identifying research needs is weakly connected to operational end-users, leading to misaligned priorities and solutions that do not address pressing challenges. This undermines the principle of inclusive stakeholder participation central to the SDGs.

A Proposed Framework for a Sustainable and Innovative Program

A clean-sheet redesign is proposed to replace the current flawed system. This new framework retains the valuable sole-source Phase III contracting authority but rebuilds the surrounding structure to align with sustainable development principles.

Core Components of the Redesigned Program

1. Establish Dedicated Transition Funding

   Mandate a dedicated, flexible funding line within each acquisition program, equal to 10% of its R&D budget, specifically for transitioning new technologies. This directly addresses the “valley of death” and creates a clear pathway for innovation, fostering the sustainable industrialization goals of SDG 9.

2. Consolidate and Refocus Innovation Offices

   Merge fragmented innovation offices (e.g., AFWERX, NavalX) into a single institution with a clear mandate to remove barriers and transition capabilities. This reform strengthens institutional effectiveness and accountability, directly supporting SDG 16.

3. Automate and Democratize Topic Selection

   Implement an automated, AI-assisted system for topic development that uses plain language and incorporates end-user voting and crowdsourcing. This enhances transparency and inclusivity, aligning with SDG 16 and ensuring that innovation is demand-driven and addresses real-world needs.

4. Reallocate Ineffective “Bridge” Funds

   Eliminate disparate slush funds and redirect their funding into the new program-side transition accounts. This ensures resources are managed responsibly and effectively, in line with SDG 12, by placing investment decisions with the programs responsible for implementation.

5. Enforce Market-Based Procurement Mechanisms

   Apply a “Rule of Two” for sole-source Phase III procurements, compelling offices to award contracts directly to qualified small businesses when at least two can meet the requirement. This accelerates technology insertion and enhances competition, promoting the growth of small enterprises as envisioned in SDG 8.

6. Create a Centralized AI-Enabled Marketplace

   Develop a centralized digital marketplace for all Phase III-eligible projects. This platform would streamline the contracting process, enabling program managers to discover solutions and generate contracts efficiently, thereby improving institutional performance (SDG 16) and fostering partnerships (SDG 17).

Implementation Imperatives for Accountability and Success

To ensure the redesigned program achieves its objectives and contributes meaningfully to the SDGs, several implementation mandates are essential.

Mandatory Accountability Measures

• Alignment and Transition Planning: Every project must be aligned with a current or future acquisition program and have a clear transition plan.
• Enforcement of Transition Funding: The 10% transition fund within program offices must be sequestered and its use enforced to drive adoption of new technologies.
• Performance Metrics: Companies and government technical points of contact that fail to achieve a 10% transition rate will be disqualified, creating a system of accountability that drives results for SDG 9.
• Investment Caps: A $25 million cap on Phase I and II awards per company will ensure public funds act as seed investment rather than sustained revenue, encouraging businesses to become self-sufficient in line with SDG 8.
• Mandatory Feedback: Entities must provide meaningful feedback on all proposals to help non-traditional vendors improve, fostering an inclusive ecosystem as per SDG 10 (Reduced Inequalities).
• Performance Reporting Systems: Implement both Contractor Performance Assessment Reporting System (CPARS) reviews for companies and a complementary Government Performance Assessment and Reporting System to ensure mutual accountability, reinforcing SDG 16.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth

  The article addresses SDG 8 by focusing on the Small Business Innovation Research (SBIR) program, which is designed to stimulate economic activity by supporting small businesses. It discusses the program’s original objective to “foster participation by socially and economically disadvantaged small businesses” and critiques its current failures, which hinder the growth and sustainability of these enterprises. The proposed reforms aim to create a more stable and effective ecosystem for small businesses to thrive, thereby contributing to productive employment and economic growth.

• SDG 9: Industry, Innovation, and Infrastructure

  This is the most central SDG to the article. The entire text is a critique and redesign proposal for a key piece of national innovation infrastructure—the SBIR program. It directly discusses the need to “stimulate technological innovation,” enhance research and development (R&D), and bridge the “valley of death” that prevents new technologies from being commercialized and fielded. The proposals for automating topic selection, creating dedicated transition funds, and merging innovation offices are all aimed at building a resilient and effective infrastructure to foster innovation.

• SDG 10: Reduced Inequalities

  The article connects to SDG 10 by referencing one of the SBIR program’s core objectives: to “foster participation by socially and economically disadvantaged small businesses.” By highlighting the program’s structural flaws, the article implies that these inequalities persist because the system fails to provide a viable entry point and growth path for all small businesses, including those from disadvantaged groups. The proposed reforms aim to create a more equitable and accessible system for non-traditional companies to enter the defense market.

• SDG 16: Peace, Justice, and Strong Institutions

  The article is a direct call to reform a government institution (the SBIR program) that is described as a “broken process.” It critiques the lack of accountability, transparency, and effectiveness within the current system. The proposed solutions, such as implementing a “Government Performance Assessment and Reporting System,” ensuring end-user participation in decision-making through “open voting,” and creating clear, accountable funding pathways, are all aimed at building more “effective, accountable and transparent institutions at all levels.”

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 8.3: “Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises…”

   The article’s entire focus is on reforming the SBIR program, a policy instrument designed to support innovation and growth in small businesses within the defense sector. The proposed “clean sheet re-design” is a direct attempt to create a more effective policy that supports entrepreneurship and helps small tech companies cross the “valley of death” to become sustainable.

2. Target 9.5: “Enhance scientific research, upgrade the technological capabilities of industrial sectors… encouraging innovation and substantially increasing the number of research and development workers… and public and private research and development spending.”

   The article directly addresses this target by analyzing a federal R&D program. It proposes structural changes to make R&D spending more effective, ensuring that innovations transition into real-world capabilities. The call to fix the funding gap and better align R&D with end-user needs is aimed at enhancing the overall effectiveness of scientific research and technological development.

3. Target 9.b: “Support domestic technology development, research and innovation… including by ensuring a conducive policy environment…”

   The critique of the SBIR program as a “broken process” with “structural flaws” and the detailed proposal for a new system is fundamentally about creating a more “conducive policy environment” for domestic technology development. The reforms are intended to remove barriers and create clear pathways for innovation to flourish.

4. Target 16.6: “Develop effective, accountable and transparent institutions at all levels.”

   The article criticizes the current SBIR program for its lack of accountability, citing issues like “innovation theater” and mismanaged programs. The proposals to “disqualify companies and technical points of contact that fail to maintain a 10 percent transition rate” and to implement performance assessment systems for both contractors and government customers are direct measures to build a more accountable and effective institution.

5. Target 16.7: “Ensure responsive, inclusive, participatory and representative decision-making at all levels.”

   The current system is described as having a “persistent disconnection from end users.” The proposed reform to “automate topic development, selection, and compilation” using “end-user voting and crowdsourcing” directly addresses this target. It seeks to replace a “closed-door voting system” with an open and participatory process that is responsive to the needs of the people who will actually use the technology.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Technology Transition Rate: The article explicitly proposes a key performance indicator: “disqualify companies and technical points of contact that fail to maintain a 10 percent transition rate.” This provides a clear, quantitative metric to measure the effectiveness of the reformed program in moving technology from R&D to active use (Target 9.5).
• Dedicated Funding for Technology Transition: A clear financial indicator is proposed: a “dedicated, colorless funding line within each acquisition program — equal to 10 percent of its research and development budget — to support the transition of new technologies.” The allocation and use of this fund would be a direct measure of institutional commitment to bridging the “valley of death” (Target 9.b).
• Implementation of Accountability Systems: Progress towards Target 16.6 can be measured by the implementation of the proposed accountability mechanisms. The article calls for mandating “Contractor Performance Assessment Reporting System (CPARS) reviews” and creating a new “Government Performance Assessment and Reporting System.” The establishment and use of these systems would be a direct indicator of increased accountability.
• Cap on Seed Funding Per Company: The proposal to “cap company and subsidiary Phase I and II awards from the program at $25 million” serves as an indicator for Target 8.3. It measures whether the program is successfully helping companies become self-sustaining rather than perpetually dependent on seed funding.
• Level of End-User Participation: The shift from a “closed-door voting system” to one that involves “end-user voting and crowdsourcing” is a measurable indicator for Target 16.7. Progress could be tracked by the number of end-users participating in topic selection and the percentage of topics generated through this open, participatory process.

4. Table of SDGs, Targets, and Indicators

Source: warontherocks.com