Max Headroom 
Two key Pentagon small business innovation programs that award technology funding to nontraditional firms have not yet been impacted by the White House budget office’s order to pause and review federal grant disbursement, according to a Defense Department spokesman.
The Office of Management and Budget on Monday issued a memo directing federal agencies to temporarily pause “all activities related to obligation or disbursement of all federal financial assistance,” according to multiple news reports. The order appears to pause any new grant awards and exempts programs like Social Security and Medicare that provide assistance directly to individuals.
The Pentagon has several initiatives to aid small businesses looking to make inroads with the Defense Department, most notably the Small Business Innovative Research, or SBIR, and Small Business Technology Transfer, or STTR, programs. These congressionally mandated efforts require all federal agencies — not just DOD — to set aside funding to incentivize small companies to engage in early-stage research and development.
During a Senate Armed Services Committee hearing Tuesday, several lawmakers expressed concern that the White House’s grant funding pause could impede these efforts. But a Pentagon spokesman told Defense News the department does not believe the programs fall within the scope of the memo.
“SBIR/STTR programs are funded through contracts,” the spokesman said. “They are not considered grants or financial assistance. As such, we have not been applying the OMB memo to the SBIR/STTR program.”
Funding for SBIR and STTR was last reauthorized in 2022 and that authority is set to expire this September.
While these initiatives are largely supported in Congress and in the Pentagon and offer small companies a chance to use DOD’s interest to woo investors, there are ongoing efforts to reform the programs. In a report released last fall, the Government Accountability Office reviewed 34 incidents of fraud in SBIR/STTR programs and found that most agencies do not conduct fraud risk assessments.
In one case study, a business owner who misrepresented his companies received seven awards from the Army, Air Force, Defense Advanced Research Projects Agency, Missile Defense Agency, NASA and the Energy Department.
Sen. Joni Enrst, R-Iowa, said during Tuesday’s hearing that while she thinks SBIR and STTR are important tools for small businesses, she’s concerned that a subset of funding recipients are abusing the mechanism.
“In the past decade, 25 companies — they’re notoriously known in my circles as SBIR mills — received 18% of all award dollars at DOD, amounting to about $2.3 billion,” Ernst said. “That’s a $92 million windfall per company in a program meant for small businesses.”
Nathan Diller, the former director of the Air Force’s AFWERX innovation hub and a witness at the hearing, said one option for reforming the programs is to make the awards available to a wider pool of companies. That may mean issuing smaller dollar contracts initially that can be followed up with larger awards to firms with promising technology.
“We also need to be very deliberate about scaling — and scaling quickly — to those best companies,” he said.
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