Government Contracting 101 - Part 4: What is the Role of Small Business in New Product Development?

Small businesses are the cornerstone of innovation in the US Government, and  Federal Acquisition Regulation (FAR) Part 19 discusses Small Business Programs.  It sets the size standards to be considered a small business, and it also sets the policies, coordination with the Small Business Administration (SBA), Small Business Set-Asides, subcontracting with small businesses, description of special categories of small business, etc.

Small businesses are on the leading edge of innovation.  In fact, small businesses invent at a rate faster than large businesses. In a patent study[1], it was found that the smaller the company, the greater the number of patents per employee.  This was found to be true all along the scale; as businesses grow, their patent to employee ratio declines.  Small business accounts for 8% of all patents issued, but 24% of all patents in emerging technologies.  The government is interested in emerging technologies as that is how they keep their competitive edge.

Because of this, and other factors, Congress has mandated that small businesses receive 23% of all Federal Government contracting dollars, including 5% of prime and subcontracts to Small Disadvantaged Businesses; 5% of prime and subcontracts to Women-Owned Small Businesses; 3% of prime and subcontracts to HUBZone Small Businesses; and 3% of prime and subcontracts to Service-Disabled Veteran-Owned Small Businesses.

There are some very specific programs designed to enhance the role of small business in government contracting.  Here are a few of the major key programs:

Small Business Innovative Research (SBIR) Program

The SBIR program was established within the National Science Foundation in 1976 with the first awards issued in 1977.   The program was well received and further established in 11 different agencies with the SBIR Development act of 1982. It is designed to enhance the role of small businesses in research and development that has potential for commercialization.  The program has not only generated significant innovation in the country but also been recognized as a significant driver in overall job growth in the United States over the last 30 years.  The non-dillutive funds have helped many small businesses succeed where they might have otherwise failed early on.  Two large success stories from the SBIR program funding are Symantec and Qualcomm.  

The SBIR program currently mandates the 11 agencies set aside 3.2% of their R&D budgets for the program.  In 2016 this translated into 3,029 awards for a total of $1.35 Billion.  The US Small Business Administration (SBA) serves as the coordinating agency for the SBIR program.

Small Business Technology Transfer (STTR) Act

Modeled after the SBIR program, STTR was established in 1992.  The goal of the STTR program is to facilitate the transfer of technology developed by a research institution through the entrepreneurship of a small business concern.  The program accepts proposals where small businesses partner with universities or research institutes.  There are several qualifiers to this program as to the percentage of work performed, employment of the Principle Investigator, etc.  In 2016 there were 567 awards for a total of $192 Million.

Federal and State Technology Partnership (FAST) Program

FAST programs are competitive grants programs designed to strengthen the technological competitiveness of small businesses.  These funds are issues from the Federal Government to the state level where the program is managed.

The emphasis on using small business concerns doesn’t stop at the SBIR/STTR level.  There are several other ways that small businesses can get involved in government contracting.  Some contracts are set up specifically for small businesses (we will discuss these opportunities for small business in a special blog near the end of this series).

Federal contracting with small businesses is a win-win.  Small businesses get the revenue they need to grow their businesses and create jobs, and the Federal Government gets the opportunity to work with some of America’s most innovative and nimble small businesses, often times with a direct line to the CEO.

 - Brian Ormsby, ReliAscent

[1] Patent Trends among Small and Large Innovative Firms during the 2007-2009 Recession, Anthony Breitzman, PhD.  May 2013.





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