Today, I submitted a written testimony before the United States Senate Committee on Appropriations, Subcommittee on Defense. Click here to download a full PDF of the testimony.
Dear Chairman McConnell, Ranking Member Coons, and members of the Subcommittee:
My name is Lars Erik Schönander. I am a research fellow at the Foundation for American Innovation, a think tank focused on promoting innovation, strengthening governance, and advancing national security. I write to respectfully request that the Committee include report language requiring the Department of Defense (DoD) to submit to Congress a report on the state of DoD’s Small Business Innovation Research (SBIR) technology transition.
The SBIR program was founded in 1982 to spur small business participation in federal contracting and improve science commercialization. Historic success stories include Qualcomm, ViaSat, and AeroVironment, while more recent success stories include goTenna, Anduril, and Vita Inclinata Technologies. As of 2024, agencies with more than $100 million in research budgets must allocate 3.25 percent of their budget to SBIR programs. In 2024, DoD awarded $2.7 billion in SBIR awards to 1,745 different companies.
There are three types of SBIR awards. Phase I awards test whether a technical idea has commercialization potential. Phase II awards turn ideas into prototypes and are based on work done in a Phase I award. Finally, a Phase III award is a contract that is derived from a Phase II award or through prior SBIR work, funded by an agency's general R&D or acquisition budget. An SBIR awardee company graduates from the SBIR program once it stops receiving Phase I and Phase II awards and starts receiving contracts from a general R&D or acquisition budget.
Unfortunately, not all DoD SBIR awardees are as successful at commercialization as the companies listed earlier. Some awardees have instead taken SBIR dollars for decades without graduating from the program. These companies, colloquially called “SBIR mills,” have received billions in DoD SBIR awards. Sixteen of the top 25 DoD SBIR recipients had 50 percent or more of their DoD contracting revenue come from SBIR awards versus regular contracting revenue from FY 2010 to FY 2024.
The previously listed companies, in contrast, received only a small fraction of their DoD contracts from SBIR awards. For example, Anduril turned just $12 million into hundreds of millions in Phase III awards and regular DoD contracts. Qualcomm received $1.1 million in SBIR awards from DoD in the late 1980s, which helped the company hire its first engineers.
Previous SBIR reforms have failed to address the problem of companies participating in the program but not effectively commercializing their research. The 2022 reauthorization of the SBIR program required the Government Accountability Office to study the behavior of “multiple award winners,” companies that received more than 50 Phase II SBIR awards over a 10-year period. The report concluded that multiple award winners fail to commercialize: “multiple awardees reported lower total and private sector sales and investments per Phase II dollar and fewer awards resulting in patents, compared to other awardees from FY 2011 through 2020.”
The report also covered whether the newly enacted commercialization benchmarks created by the 2022 reauthorization affected the business of multiple award winners. The report showed that there were limited consequences for companies not meeting the new benchmarks. The report found that small businesses not meeting the new standards did not face consequences for failing to meet the new standards.
DoD itself has called for commercialization reform. Reports in 2023 and 2025 from the Pentagon’s Defense Innovation Board recommended implementing stronger commercialization benchmarks for the SBIR program.
To improve the commercialization capabilities of DoD’s SBIR program, I recommend the following.
First, the Subcommittee should include report language accompanying the FY 2026 appropriations package requiring DoD to describe the rate of commercialization in the SBIR programs across DoD’s different components. While the Government Accountability Office and outside groups have developed their own metrics for commercialization, there is not a standard definition for successful commercialization of SBIR research at DoD. While the Small Business Administration SBIR report has data Phase III award spending, the report does not provide detailed information that would allow policy makers to assess DoD SBIR technology adoption. The Subcommittee could ask the Secretary of Defense for data on, first, how many DoD SBIR awardee technologies enter Programs of Record, and, second, how many DoD SBIR awardees receive Phase III SBIR awards, and how many dollars were spent on those awards.
Second, the Subcommittee should include report language recommending that DoD improve the data collection systems it already has to make it easier to track SBIR awards. SBIR transition data is limited because of how the Federal Procurement Data System, the federal government's contracting database, tracks SBIR awards. One useful change would be to use contract IDs to link Phase III SBIR awards to the previous SBIR awards that led to a Phase III award. Another improvement would be more detailed labeling of award types, such as specifying whether a Phase II SBIR award is a regular Phase II SBIR award, a “Direct to Phase II” award, or one awarded through a transition program that uses Phase II dollars such as STRATFI/TACFI.
