SBIR Regulatory Enforcement Issues

January 27, 2016  - By
Image: GPS World

Small Business Innovation Research (SBIR) Regulatory Enforcement Issues

Alison Brown, Co-Chair Government Contracting Working Group

Small Business Administration (SBA) Regulatory Fairness Board, (719) 331 2844

1       Overview

The National Defense Authorization Act of 2012 contained SBIR/Small Business Technology Transfer (STTR) reauthorization provisions which included language that indicated strong Congressional intent to improve the process of rapidly transitioning SBIR/STTR (hereafter SBIR) innovative technologies for insertion into DOD fielded systems and platforms. The law specifically states:

“Sec. 5108: To the greatest extent practicable, Federal agencies and Federal prime contractors shall issue Phase III awards relating to technology, including sole source awards, to the SBIR and STTR award recipients that developed the technology.”

Phase III is further defined as (see Sec. 5125) – “for work that derives from, extends, or completes efforts made under prior funding agreements under the SBIR program.”]

This provision is the strongest statement to date that Congress is serious that agencies and prime contractors issue Phase III awards to SBIR producers of technology – a mandate, – no longer merely an issue of discretion. Congress had good reason for its action since, while SBIR commercialization outside of the agencies is strong, for Federal programs, as one participant in Congressional hearings noted, “SBIR transition is horrible.”

SBIR contractors, however, have raised serious concerns about the degree to which DOD complies with the restrictions in existing law and policy. In particular, contractors have reported difficulties in retaining their data rights in Phase III of the SBIR program, which involves commercialization of the project. Many report that agencies and/or prime contractors “pressure” them to turn over their rights, or “fight them” in their attempts to retain their rights. Some firms also allege that agencies improperly procure goods through non-SBIR contracts that are follow-on to Phase II SBIR contracts, and should go to SBIR firms.

Table 1 – Extract from HASC report, “Challenges to Doing Business with the Department of Defense”, March, 2012[1]

In a panel report to Congress, supported by the Department of Defense (DOD) , it was acknowledged that one of challenges faced by small businesses was that DOD was not consistently following the existing law and policy in the SBIR Policy Directive (see Table 1).

Attachment 1 includes case studies describe avenues that small businesses have used to attempt regulatory enforcement of the SBIR Policy Directive for cases where Phase III SBIR work was improperly awarded to entities other than the SBIR firms. However, currently there is currently no effective recourse for small businesses or avenues for enforcement of the current SBIR Regulations[2] within the DOD and other government agencies.

2       SBA SBIR Phase III Contract Appeal Process

Under the SBIR Regulations, if a small business brings forward concerns on Phase III work being awarded to another entity, then “SBA may then appeal an agency decision to pursue Phase III work with a business concern other than the SBIR awardee that developed the technology to the head of the contracting activity”. The problem with this path is that the SBA Office of Technology which is identified in the SBIR Policy Directive as responsible for coordination, has no staff available for routinely pursuing time consuming appeals and so rarely can take action on issues raised to them by small businesses.

Contract appeals for other than SBIR issues are normally executed by the SBA Procurement Center Representatives (PCRs), for example when contracts are incorrectly awarded to other than a small business. However, the SBA PCRs are not currently trained on the SBA Policy Directives on how to handle Phase III contract appeals when a small business identifies work that should have been awarded to an SBIR company.

3       SBIR Regulatory Enforcement Recommendations

3.1     Train SBA PCRs in SBIR Phase III Appeal Process

Training should be provided by the SBA Office of Technology to the SBA PCRs on the Phase III Preference established in the SBIR Policy Directive. The SBA PCRs should then be empowered to use the SBA’s appeal authority when approached by small businesses with valid claims that Phase III work is being awarded with a business concern other than the SBIR awardee that developed the technology.

3.2     Identify SBA PCRs as POCs for SBIR Regulatory Enforcement

Currently the SBA Office of Technology is the only office referenced as the SBA representative in the Policy Directive. While the SBA Office of Technology is the correct point of contact for guidance and clarification on Policy Directive and for receiving agency reports, they are not staffed for regulatory enforcement. The SBIR Policy Directive should be clarified to identify the correct POCs to which small businesses should address Regulatory Enforcement issues.

4       Measurable Impact

4.1     Number of SBIR Issues raised to PCRs

Number of SBIR Phase III contracting issues identified to SBA PCRs by small businesses.

4.2     Number of SBA PCR Appeal Processes Initiated on SBIR Phase III

Number of submissions by SBA PCRs of “Notice of Intent to Appeal” related to SBIR Phase III contracting issues.

4.3     Number of Additional Phase III Contracts Awarded

Number of additional Phase III contract awards made to SBIR companies as a result of SBA engagement that otherwise would be been awarded to an entity other than the SBIR company.

Attachment 1: Outcomes from Prior SBIR Regulatory Enforcement Cases

1       US Court of Federal Claims – Spectrum

In this case, Spectrum Sciences and Software, Inc. (Spectrum), a munitions assembly systems manufacturer, entered into a Cooperative Research and Development Agreement (CRADA) with the Air Force Research Lab to implement a prototype of their SBIR developed technology for improving a munitions assembly conveyor (MAC) used by the Air Force to assemble aerial bombs. In a suit filed through the United States Court of Federal Claims[3] (Spectrum Sciences & Software, Inc. v. United States, 84 Fed. Cl. 716

(2008) and 98 Fed. Cl. 8 (2011)), Spectrum alleged that the Air Force used technical data derived from Spectrum’s prototype to issue a competitive solicitation and award a contract to a competitor of Spectrum for implementing the MAC enhancements. The court ruled in Spectrum’s favor and determined damages were owed by the defendant to the plaintiff.

Although Spectrum won their case in the US Court of Federal Claims, they went out of business. Under the Equal Access to Justice Act[4] a plaintiff may be awarded legal fees, but attorney fees may not be awarded in excess of $125/hour meaning that small businesses, even when they prevail in a court case, are facing a significant unreimbursed legal expense. The length and cost of a legal suit, which was extended in Spectrum’s case by the Air Force appealing an initial judgement, makes this an unattractive option for most small businesses seeking enforcement of the intellectual property right protection granted to them for follow-on work under the SBIR Policy Directive.

2       Government Accountability Office (GAO) – Complere

In this case, NASA awarded Complere Inc. (Complere) SBIR phase I and phase I research contracts. After the phase II contract concluded, Complere submitted an unsolicited phase III proposal, which NASA did not accept–electing instead to do its own research on the topic in-house. Complere filed a GAO bid protest, alleging that NASA had acted improperly.

The GAO dismissed Complere’s bid protest[5]. The GAO noted that “an agency is not required to enter a phase III funding agreement with a phase II awardee . . . and may even enter into a phase III funding agreement with an entity other than the phase II awardee, requiring only that the agency notify the SBA of such action.”[6]


The GAO continued: “We conclude from our review of the SBIR Program Act and SBA’s policy guidance that an agency decision not to enter into a phase III funding agreement is generally not subject to our bid protest review, given the broad discretion accorded agencies to determine whether, and with whom, to enter into phase III funding agreements.”

The GAO left the door open to the possibility of bid protest jurisdiction if an agency used non-SBIR federal funds to conduct a SBIR phase III competition. However, in the “typical” SBIR case, like this one, an agency’s decision not to fund a SBIR phase III agreement is not subject to the GAO’s bid protest jurisdiction.

Although Congressional language made it clear that preference is to be given to an SBIR company, over any other entity (which would include internal Government researchers) for Phase III work that “extends, derives from or logically concludes” prior SBIR funded research, this decision by the GAO removes the bid protest process as a viable avenue for small businesses to pursue.

3       SBA Phase III Contract Appeal – NAVSYS Corporation

NAVSYS Corporation developed and fielded a precision GPS navigation capability, Talon NAMATH, under a Phase III SBIR contract to Air Force TENCAP. The systems was declared “provisionally operational” and used in theater in Operation Iraqi Freedom. Although the Talon NAMATH system was declared a huge success in theater, the follow-on contract for a fully operational system was awarded to the incumbent Boeing.

NAYSYS complained to the SBA as under the SBIR Regulations, Agencies, that intend to pursue R/R&D, production, services, or any combination thereof of a technology developed under an SBIR award, with an entity other than that SBIR awardee, must notify SBA in writing prior to such an award. Based on information from NAVSYS, the SBA filed a Notice of Intent to Appeal the decision to pursue Phase III work with a business concern other than the SBIR awardee and the Air Force issued a Stop Work Order on Boeing. After over a year of wrangling, NAVSYS was ultimately awarded a follow-on contract.


[2] SBIR Policy Directive,





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About the Author: Alan Cameron

Alan Cameron is the former editor-at-large of GPS World magazine.