Congress Is Reauthorizing SBIR — And If You’ve Won a Phase II, More Good News
SBIR PROGRAM UPDATE | MARCH 2026
Let’s be honest — the last six months have been rough. When the SBIR program expired on September 30, 2025, it wasn’t just a bureaucratic inconvenience. For a lot of SBIR firms, it meant frozen grant funds, stalled projects, and some very difficult conversations with employees, investors, and agencies who were counting on that work to continue. The frustration was real, and frankly, it was earned. I think we all feel the same way: a program that has driven American innovation for decades should not have simply lapsed.
The good news — and it is genuinely good news — is that relief is finally here. The House has passed the Small Business Innovation and Economic Security Act (S. 3971), joining the Senate, and the bill now heads to the President, who is expected to sign it. Once enacted, it extends SBIR and STTR through September 30, 2031, and brings meaningful changes that go well beyond a simple extension.
We know there is some emotional history to work through here. It is hard to feel enthusiastic about a program that left so many companies in the lurch. But the changes in this bill are substantive enough that they deserve a good look — because the Phase II winners who understand what has changed and act on it quickly will have a real advantage heading into the new authorization period.
Below are the changes that matter most — and what to do about them now.
Phase III Is Finally Getting the Attention It Deserves
For years, Phase III has been the most misunderstood part of the SBIR program. Contracting officers didn’t always know they could award Phase III contracts on a sole-source basis. Agencies left money on the table. Small businesses missed transitions that they could have been awarded otherwise.
The new bill takes direct aim at this problem in three concrete ways:
Contracting officer training is now the law. The SBA Administrator — working with the Secretary of Defense and GSA — must establish formal training programs covering Phase III award authorities, data rights, and how to execute sole-source Phase III contracts. This is no longer a best practice. It’s a legal requirement.
Simplified, standardized contracts. Agencies must develop model contracts and streamlined procedures for Phase I, II, and III awards, along with standardized solicitation language that clarifies what a company needs to demonstrate to establish Phase III eligibility.
Procurement Center Representatives are now in your corner. These SBA representatives, embedded at major federal buying offices, are explicitly directed to champion the maximum use and transition of SBIR and STTR technologies into Phase III. That’s a meaningful shift from passive awareness to active advocacy.
The bottom line: If you have Phase II work that a federal customer has expressed real interest in, now is the time to have the Phase III conversation — before the agency funds its next contract cycle. The training mandate creates a window of heightened awareness inside agencies, and that window will not stay open forever.
A Brand-New $30 Million Award Pathway Opens in 2026
This one is worth paying close attention to. The bill creates a new funding mechanism called the Strategic Breakthrough Allocation. Starting in fiscal year 2026, agencies with extramural (work performed by awardees) R&D budgets over $100 million can set aside up to 0.50% of their SBIR allocation for awards of up to $30 million per company, over a period of up to 48 months.
This is not a Phase II follow-on dressed up with a new name. To qualify, your company must:
Have at least one prior Phase II award
Provide 100% matching funds from private capital or non-SBIR government sources
Demonstrate technology validated by market research as an effective solution
For DoD awards specifically, have a program acquisition executive commitment and show at least 20% of matching funds from DoD non-SBIR sources
Agencies have 90 days to complete contract awards once they receive a proposal, and streamlined contracting processes are required.
The bottom line: For a Phase II winner who has already attracted private investment or follow-on government interest, this is the most significant new commercial bridge funding mechanism created in years. Watch for agency solicitations under this authority — and those who get their matching fund documentation organized now, not the week a solicitation drops, will have a big advantage.
Security Vetting: More Rigorous, More Formal, and Now Required by Law
National security screening has been part of the SBIR conversation for a while now, but the new bill codifies it in a way that leaves no room for ambiguity. Agencies are now explicitly required to evaluate every applicant for security risk, including:
Cross-referencing against federal watchlists — including the Commerce Department Entity List, the DoD Chinese Military Companies list, the DHS UFLPA Entity List, the Treasury Non-SDN CMIC List, and others
Review of foreign ownership, investment relationships, technology licensing agreements, and joint ventures with entities in foreign countries of concern
Coordination with the intelligence community and federal law enforcement
A denial on security grounds does not permanently disqualify your company — you remain eligible for future cycles. And agencies are required to notify you of the basis for the denial, to the extent permitted by national security. If you have foreign nationals on your team, it is advised to get with the program offices right away to make sure this doesn’t get in the way of an award.
The bottom line: If your company has foreign investors, foreign employees, technology licensing agreements with non-U.S. entities, or affiliations with overseas partners, document your compliance posture now. Agencies will be looking. A well-prepared disclosure is far better than a surprise flag during due diligence — one of those cases where an ounce of prevention is worth ten pounds of cure.
Proposal Volume Limits Are Coming in FY2027
Starting in fiscal year 2027, each agency’s SBIR/STTR program director must set a limit on how many proposals a single company may submit per year, per solicitation, or per topic. The exact methodology varies by agency. Waivers are available for time-sensitive topics, but they’re capped at 5% of topics agency-wide.
The bottom line: If your strategy has depended on high-volume proposal submissions across a single agency, now is the time to rethink it. Each agency must publish its methodology 90 days before the start of FY2027 — by July 4th, essentially — so watch for those announcements and start identifying your highest-priority topics well in advance.
What to Do Right Now
Yes, everyone is busy. But a few minutes of focused attention now can make a significant difference as we head into the new authorization period. Here are the four things worth doing this month:
Start the Phase III conversation now. Reach out to your agency program manager before budgets are locked. The window of opportunity created by the training mandate is real, but it won’t last indefinitely.
Audit your foreign ties. Review all investors, partners, licensing agreements, and key personnel for any foreign country of concern connections, and prepare appropriate documentation before your next submission.
Track Strategic Breakthrough Allocation announcements. Especially if you have private capital or DoD follow-on interest, this new mechanism could be the bridge your commercialization plan has been waiting for.
Identify your highest-priority topics before FY2027. Proposal limits are coming. Getting ahead of agency methodology announcements is a simple competitive advantage.
The SBIR/STTR reauthorization is the most substantial update to the program in years. The Phase II winners who take a little time now to understand and act on these changes will have a meaningful head start heading into the new authorization period. An ounce of planning, as always, is worth a pound of cure.
Author Information
Rick Kleban is the founder and president of Sycamore Growth Group, an Ohio-based firm specializing in federal and state research & development tax credits by providing elite written substantiation for credit claims. He also advocates at the federal and state levels to improve the credit to better incentivize innovation, which, in turn, grows the tax base helping communities.
Jenna Tugaoen is a tax attorney at Sycamore Growth Group, an Ohio-based tax advisory firm that specializes in assisting businesses in attaining and substantiating R&D tax credits.
James Bean, CPA, is a senior researcher and R&D tax controversy specialist at Sycamore Growth Group.