This legislation, known as the "Small Business Innovation and Economic Security Act," primarily extends the authorization for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. It prolongs the operation of these crucial programs, along with several associated pilot initiatives and authorities, from September 30, 2025, to September 30, 2031, ensuring their continued role in fostering small business innovation.

A key focus of the bill is to bolster research security for SBIR and STTR awards. Federal agencies are now mandated to evaluate small business concerns for potential security risks, employing enhanced due diligence, required disclosures, and coordination with intelligence and law enforcement agencies. This includes specifically identifying connections to entities or individuals listed on various government watchlists, such as the UFLPA Entity List or the Non-SDN Chinese Military-Industrial Complex Companies List. Agencies must provide notification to businesses denied an award due to security risks, outlining the basis without compromising national security, and clarifying that such a denial does not prevent future eligibility.

The due diligence process is expanded to include comprehensive assessments of a small business's cybersecurity practices, patent and employee analysis, and foreign ownership. It also scrutinizes financial ties, affiliations of key personnel with foreign entities of concern, investment relationships, and technology licensing agreements. These measures are designed to safeguard sensitive research and technology from potential foreign threats.

The bill establishes a new "strategic breakthrough allocation" for federal agencies with substantial research and development budgets. Beginning in fiscal year 2026, these agencies can set aside up to 0.50 percent of their SBIR funds for Phase II awards, which can be up to $30,000,000 per small business. To qualify, businesses must have received at least one prior Phase II award, demonstrate 100 percent matching funds from new private capital or other government programs, and prove their technology offers an effective solution. Specific criteria apply for Department of Defense awards, emphasizing national security advancement and successful transition into acquisition programs.

To reduce administrative burden, the legislation requires federal agencies to set limits on the maximum number of proposals a small business can submit annually, starting in fiscal year 2027. Agencies can grant waivers for urgent, time-sensitive topics, provided there is a written justification and approval from the Administrator and Undersecretary. The bill also mandates improved data collection for the SBIR database and the Federal Procurement Data System, requiring tracking of various award types and linking Phase II and Phase III contracts to prior SBIR or STTR work.

Furthermore, the bill enhances support for Phase III commercialization by requiring training for federal contracting officers and the acquisition workforce on Phase III awards, data rights, and sole-source contracts. Procurement Center Representatives are directed to actively advocate for the maximum practicable use and transition of SBIR/STTR technologies to Phase III. Technical and Business Assistance (TABA) is improved, allowing award recipients to select vendors, including for cybersecurity assistance and screening for foreign involvement, and increasing funding limits for TABA services. It also integrates participation in I-Corps programs for awardees, allowing TABA funds to cover associated costs.