The Department of Defense (DoD) recently released a memorandum to create a new Defense Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Due Diligence Program. This initiative seeks to safeguard the security and integrity of inventions and technologies generated under these programs by small firms across the United States. The memo, dated May 13, 2024, describes the roles and processes for analyzing and managing security threats posed by small businesses (SBCs), particularly those with linkages to foreign governments of concern. This project is in response to the growing need to defend America's military advantage against foreign rivals and competitors.

The SBIR and STTR programs have historically been crucial in propelling technological developments and providing critical capabilities to US warfighters. However, as these programs grow, there is a greater risk that foreign groups may try to exploit these inventions for their own gain. To tackle this threat, the Department of Defense has implemented rigorous methods to assess and minimize any security concerns connected with foreign affiliations or influences on SBCs seeking SBIR or STTR awards.

One of the key components of the new due diligence program is the requirement that all SBIR and STTR submissions contain a completed "Disclosures of Foreign Affiliations or Relationships to Foreign Countries" form. This form must be presented at the proposal stage; any proposal that does not include this information will be disqualified. The goal of this regulation is to ensure transparency about any foreign links that may represent a security concern.

In addition to the disclosure form, the program requires a complete business analysis by the Air Force Office of Commercial and Economic Analysis (OCEA). This assessment uses publicly and commercially available data to identify potential security risk indicators. The findings from these evaluations are gathered into business security risk indicator reports, which are subsequently used by DoD components to analyze the security risks associated with each proposal.

The memorandum also sets a due diligence assessment process for each DoD component that oversees SBIR or STTR initiatives. This procedure includes concurrent technical reviews and security risk assessments to ensure that award announcement deadlines are met. DoD components must conduct these reviews within 90 days of the program's inception and submit their policies to the Defense SBIR/STTR Program Office for monitoring.

For SBCs that may be under foreign ownership, control, or influence (FOCI), the program establishes a referral mechanism to appropriate counterintelligence entities for additional investigation. Furthermore, each DoD component must form a risk mitigation review board to assess SBCs identified as having significant risk characteristics. These boards will make recommendations on whether initiatives should proceed forward, taking into account the practicality of mitigation options.

This memorandum has far-reaching implications for foreign-owned enterprises seeking SBIR or STTR awards. Companies with foreign links must now navigate a complex ecosystem of compliance rules and risk evaluations in order to get DoD financing. This can be a difficult process, particularly for those who are inexperienced with the complexities of US federal contracting and security rules.

• Fed Contract Pros, a consulting service specializing in federal government contracting, is ready to help foreign-owned enterprises navigate these hurdles. Fed Contract Pros, with their comprehensive knowledge of federal rules and compliance, can provide vital advice on how to complete the necessary disclosures, understand the risk assessment process, and establish effective mitigation methods. Read our article on “What Foreign Companies Need to Know”.

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In conclusion, the Defense SBIR and STTR Due Diligence Program is an important step in protecting US technical breakthroughs from foreign threats. While the new rules provide obstacles for foreign-owned businesses, consulting services such as Fed Contract Pros provide the experience and support required to successfully navigate this complicated legal environment. Foreign-owned businesses can comply with new laws while still contributing to America's defense capabilities with careful planning and strategic advice.