Small Business Innovation and Economic Security Act Will Bring Big Changes

Bottom Line Up Front

On March 17, 2026, the U.S. House of Representatives passed the Small Business Innovation and Economic Security Act (the Act). The Act, which reauthorizes the Small Business Innovation Research (SBIR) program and Small Business Technology Transfer (STTR) program until September 30, 2031, has already passed the Senate and is now awaiting President Trump’s signature. The Act, if passed, will make significant changes that will impact federal contractors who are or will be recipients of federal funds under both programs. These changes will strengthen research security within the programs, modernize and streamline the programs to reduce administrative burdens, and accelerate innovation to advance cutting-edge technology. Federal contractors should be aware of these coming changes and how they may impact the conduct of their business.

Background

The SBIR and STTR programs are two of the US government’s primary mechanisms for funding early-stage R&D by small businesses. Established under the Small Business Innovation Development Act of 1982, the SBIR program was designed to stimulate technological innovation, strengthen the role of small businesses in meeting federal R&D needs, and increase commercialization of innovations derived from federal funding. The STTR program, later authorized by the Small Business Technology Transfer Act of 1992, builds on similar objectives but emphasizes formal collaboration between small businesses and nonprofit research institutions, such as universities and federally funded research and development centers.

Both programs are administered across multiple federal agencies with significant R&D budgets, including the U.S. Department of Defense, National Institutes of Health, U.S. National Science Foundation, and U.S. Department of Energy. Agencies allocate a portion of their R&D funding to these programs and issue competitive solicitations for proposals from eligible small businesses. The programs are structured in three phases: Phase I focuses on establishing technical feasibility, Phase II supports continued R&D and prototype development, and Phase III is oriented toward commercialization. This phased approach is intended to reduce risk while encouraging private-sector follow-on investment. Eligibility for Phase I and II SBIR and STTR programs is limited to for-profit small business concerns that are US-owned and -operated, with no more than 500 employees, as defined by the Small Business Administration. Both programs also impose restrictions on ownership structure, including limits on foreign ownership and requirements regarding control by US individuals or entities. 

Current State of the SBIR and STTR Programs

Following the expiration of the fiscal year 2023 authorization, congressional authorization for the SBIR and STTR programs lapsed on September 30, 2025, and as a result of this lapse, new SBIR and STTR awards cannot be made until a law is passed that reauthorizes the programs. Fortunately, many SBIR and STTR contracts and grants that were awarded before SBIR and STTR program authorization lapsed remain in place and can be resourced by pre-allocated federal funds. Still, billions of dollars in federal funding for new SBIR and STTR programs are currently frozen while the reauthorization process plays out. Federal agencies have approached the authorization lapse differently, but all of them have greatly reduced the number of available SBIR and STTR opportunities. Unfortunately, companies eligible for new SBIR and STTR awards may have a long wait; President Trump has stated that he will not sign any legislation into law, including the Act, before the Safeguard American Voter Eligibility Act (SAVE America Act) passes both chambers of Congress. Currently, the SAVE America Act has passed through the House and is under debate in the Senate. If the Act is ultimately passed — whether by presidential signature or otherwise¹ — federal agencies are expected to immediately resume issuing new SBIR and STTR awards. 

Changes on the Horizon

The Act, if signed into law, will introduce significant changes to the SBIR and STTR programs with which federal contractors should familiarize themselves. In addition to reauthorizing the programs, the Act imposes a number of structural reforms aimed at bolstering national security and supporting R&D efforts through commercialization. 

First, the Act will create a new funding mechanism for Phase II awards, called Strategic Breakthrough Awards, which will be focused on progressing SBIR research into production. Under this new significant authority, agencies could award up to $30 million to an entity under a single award or series of awards based on research production or development milestones that will be completed within 48 months. The creation of the Strategic Breakthrough Awards is a direct attempt to help small businesses survive the “valley of death” between Phase II proof-of-concept work and commercial deployment. Small businesses and startups that have validated their technology with government R&D funding have historically struggled to secure the bridge capital needed to manufacture at scale, hire employees and sustain a growing workforce, and meet the regulatory requirements imposed by the federal government. Strategic Breakthrough Awards should help, but they will only be available for small business concerns that can prove they have technical readiness and the ability to gain immediate commercial traction.

Agencies² with more than $100 million in annual SBIR obligations will be eligible to allocate Strategic Breakthrough Awards. To be eligible, a small business concern must:

1. have been previously awarded at least one Phase II award under a SBIR or STTR program;
2. “demonstrate not less than 100 percent matching funds from new private capital or new funding awarded by a government agency under a program other than a Phase I or II of a SBIR or STTR program, or a combination of both; and 
3. demonstrate that the technology is an effective solution to an issue, as evidenced by market research.

Under the Act, the Department of War (DOW) will mandate that small business concerns meet additional eligibility requirements to participate in Strategic Breakthrough Awards.

Specifically, a small business must:

1. provide a product, process, or technology that is mature, has a commitment for inclusion in a program objective memorandum from a senior acquisition official within the DOW, and meets high priority requirements or operational needs of the military; and
2. obtain 20% or more of the required matching funds from the DOW under a program other than a Phase I or II of a SBIR or STTR program.

Second, the Act will require agencies to deny SBIR and STTR applicants for ownership by, or connections to, certain countries and entities. Specifically, the Act will prohibit the allocation of SBIR or STTR awards to small business concerns with connections to entities that are listed on the Uyghur Forced Labor Prevention Act Entity List, Non-Specially Designated Nationals List, Chinese Military-Industrial Complex Companies List, Section 889 Prohibition List, 1260H list of Chinese military companies, Military End-User List, Entity List maintained by the Department of Commerce’s Bureau of Industry and Security, and Withhold Release Orders and Findings List. The Act will also permits an agency to deny an SBIR or STTR award based on the agency’s overall discretion. To make this assessment, agencies will be required to use a risk-based approach that analyzes a small business concern’s cybersecurity practices, patents, employees, foreign ownership, and financial ties as well as foreign affiliations of the entity’s owners and key personnel. Small business concerns that are denied awards based upon a security assessment will receive written notification explaining the basis for the decision and remain eligible for future award cycles should their ownership or connections change.

Finally, the Act will result in administrative changes to the SBIR and STTR programs that are intended to reduce program inefficiencies. The Act requires federal agencies to impose caps on the number of proposals a single company can submit per federal fiscal year in response to Phase I solicitations and specific Phase II solicitations. This change is intended to prevent a single company from submitting a large number of proposals across multiple agencies and topics, a strategy that often had the impact of overwhelming proposal review panels and consuming administrative bandwidth overall. In addition, the Act will require agencies to publicly report the type of new award being allocated (e.g., direct-to-Phase II, Strategic Breakthrough Award, Phase III prime contract or subcontract). This change aims to improve congressional and public transparency of the SBIR and STTR programs. The Act will also impose additional training requirements on the federal acquisition workforce, including contracting officers, regarding the missions, goals, and authorities of the SBIR and STTR programs.

Takeaways:

We recommend taking the following practical steps to prepare for the reauthorization of the SBIR and STTR programs and the imposition of the new requirements we have discussed. 

Companies should consider whether they will target a Strategic Breakthrough Award at a certain amount and begin to secure sources of new funding to meet the 100% matching requirement. Small business concerns focused on DOW Strategic Breakthrough Awards should also begin to strategize about how they will satisfy the requirement that 20% of the matching funds originate from the DOW, outside of Phase I or II of the SBIR and STTR programs. Finally, we recommend companies begin documenting how their technology is an effective solution to a current issue and how they can complete a proposed project under a Strategic Breakthrough Award within 48 months.

Companies should also remain on the lookout for guidance from agencies regarding the number of proposals a single entity can submit per federal fiscal year for Phase I solicitations and specific Phase II solicitations. This will be impactful for companies that have historically cast the net for funding broadly. Although it may be possible to obtain waivers related to the imposed cap, they will be challenging to obtain. Federal agencies will have the ability to exempt mission-critical solicitations from the caps, but the Act provides that such exemptions will be limited and require cabinet-level approval.

Finally, companies should conduct diligence to identify any connections, no matter how small, to entities that are listed on the Uyghur Forced Labor Prevention Act Entity List, Non-Specially Designated Nationals List, Chinese Military-Industrial Complex Companies List, Section 889 Prohibition List, 1260H list of Chinese military companies, Military End-User List, Entity List maintained by the Department of Commerce’s Bureau of Industry and Security, and Withhold Release Orders and Findings List. This diligence should involve reviewing ownership interests of people and investment entities, contractual relationships with third parties, and outside activities of management team members and board members. 

Goodwin’s Government Contracts & Grants team has significant experience counseling clients on doing business with the US federal government and on the SBIR program and the STTR program specifically. Please contact the authors of this alert if you have any questions.

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1. ^[1] A presidential signature is not required for a bill to become law. Under Article I, Section 7 of the U.S. Constitution, a bill automatically becomes law if the president does not sign or veto it within 10 days (excluding Sundays), provided Congress remains in session. If Congress adjourns during that period, the bill does not become law. President Trump has stated that he will not sign any legislation into law before the SAVE America Act passes both chambers of Congress. The SAVE America Act has passed the House and is currently under consideration in the Senate. ↩

2. ^[2] There are eight federal agencies that currently participate in the SBIR and STTR programs: the Department of War, the Department of Energy, the National Institutes of Health, the National Science Foundation, NASA, the Department of Agriculture, the Environmental Protection Agency, and the Department of Homeland Security. ↩

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.