Defense Department Innovation Focus Presents Small Business Opportunities

The U.S. Defense Department broke records last year with small business contracts, but with the pending release of Better Buying Power (BBP) 3.0, which stresses the importance of innovation, smaller companies may see even greater opportunities.

Defense Department officials aim to ensure there are insertion points in major programs to bring in new technologies over the lifetime of the system, including tapping into innovative small business research. “Small businesses in general are more flexible and more agile. They’re innovative and they’re job creators—all the things the warfighter needs,” says Andre Gudger, Defense Department director of the Office of Small Business Programs and the acting director of manufacturing and industrial base policy.

The insertion point concept is one way the department is streamlining acquisition, promoting innovation and staying ahead of potential adversaries, Gudger indicates. “This is reducing some of the barriers. When we see a great technology, and we see that it can fit within the framework of a weapon system, we will now go direct to those companies without a feasibility study, without a white paper, and directly procure that and get it inserted into our major weapon systems sooner,” he explains. “That’s going to give us the technology edge and a competitive advantage over our adversaries.”

The concept builds on lessons learned years ago. “I think some of the things you will see under this initiative are some of the things we did decades ago in our Virginia-class submarine program. Small business built, currently to this day, 70 percent of the Virginia-class submarines as a prime contractor. It’s a model to show that small company development and innovation can lead to the fielding of a major weapon system, and quite frankly, the finest that the world has ever seen,” Gudger declares.

Additionally, the Virginia-class submarine offers lessons learned for interoperability. “If you talk about using commercial technology, open source, and it being interoperable, the Virginia class also serves as a model for that, and we use that in other major weapons systems,” Gudger says.

Small businesses are vital to the department’s future, he adds. “It’s more than just filling a capability and a technology. These are the things that shape the future of our country, and quite frankly, they change part of our economic system because technologies are born and whole industries are born,” Gudger states.

The Defense Department in September released a white paper draft of BBP 3.0. “Underpinning BBP 3.0 is the growing concern that the United States’ technological superiority over potential adversaries is being threatened today in a way that we have not seen for decades,” the white paper says. It explains that the military depends on a suite of capabilities that originated in the 1970s and 1980s, including precision munitions, wide-area surveillance systems, networked forces and stealth technology. While systems have been upgraded, the underlying technology remains the same. The military also depends on a small number of high-value assets in space, on land and at sea.

“Potential adversaries have had decades to study the American way of war and to develop and field systems and tactics designed to defeat American forces, particularly our global power projection capabilities. At the same time, there has been a remarkable leveling of the state of technology in the world, where commercial technologies with military applications such as advanced computing technologies, microelectronics, sophisticated sensors and many advanced materials are now widely available,” the document warns. “In addition, the global information network has made protection of technical information much more difficult, a fact that potential adversaries are doing their best to exploit. Our technological superiority is not assured, and, in fact, it is being challenged very effectively right now.”

The original BBP emphasized best practices. The second version focused more intently on building professionalism within the acquisition community. BBP 3.0 emphasizes innovation to overcome challenges and prepare for the future. Small businesses—specifically, the Small Business Innovation Research (SBIR) program, which is coming off a record year—could play a significant part.

“It’s a huge role. SBIR helps the federal government meet its research and development needs,” Gudger says. “BBP 3.0 is about technology superiority. It’s about technology innovation.” The draft plan, he adds, offers 17 points on research and development investments. “There’s 17 times small business will contribute materially and probably across the board in every category,” he asserts.

BBP 3.0 covers both the demand side, or programs, and the supply side, science and technology projects. Because of the pace of advances in areas such as digital processing, radio frequency devices, optics and networks, the Defense Department cannot hope to keep up using traditional acquisition approaches, the defense officials warn in the draft document. “We have to design our acquisition plans to account for periodic technology refresh cycles on a much faster time scale,” Gudger says.

He largely credits small businesses for the rapid pace of technological change. “When you look at global outreach and bringing in commercial technologies, make no mistake about it, commercial markets are moving at light speed in technical areas, and most of that is driven by small business development,” he states.

The past year established new records, he reports. “Small business has never had this large a share of prime contracts in the Department of Defense—23.4 percent of our prime contracts have gone to small business. That’s a record. It’s historical, in fact,” Gudger observes. “We’re one of the leaders of the federal government, which is a nontraditional [Defense Department] kind of outcome.” Additionally, for the first time in history, the department met its goal for service-disabled, veteran-owned small business at 3 percent.

Small business contracts also have proved to be a solid investment. “When we look at the return on investment for the SBIR program, for every dollar we invest, the return is $2, so there’s no better place in the world to make an investment than in SBIR,” Gudger contends. “It delivers margins you can’t even get on Wall Street.”

Furthermore, Defense Department investments in small businesses generate capital, attract private equity funding, allow small companies to grow and sometimes lead to unexpected benefits. A SBIR contract with Qualcomm, for example, fostered widespread use of the cellphone, Gudger maintains. “The guts of your smartphone today are based on that technology, and it was initially a SBIR Phase I contract that has gone on to create an entire industry and to revolutionize the world,” he says.

He cites iRobot as another small business that thrived in part because of Defense Department investments. But SBIR contracts are not always about disruptive technologies. Gudger reveals that Dick’s Sporting Goods sells heat-resistant gloves developed through the program.

Over the past 12 years, roughly 66 percent of the companies involved in the SBIR program have successfully commercialized their products. “On average, we get about 12,000 to 14,000 proposals for SBIR a year. We award about 4,000 of those annually. My big focus has been on traditional and nontraditional suppliers—33 percent of our Phase I awards are new applicants; 25 percent of those awards are first-time winners,” Gudger cites. “That means we’re maintaining a healthy industrial base with a lot of competition, which is achieving great product development and future capability at a more affordable cost.”

Small businesses still face challenges in working with the Defense Department and other government agencies. For example, the slow pace of contract awards can be tough on businesses struggling to get started. But department officials strive to remove barriers and continually improve the process. “We have made significant strides in streamlining for small business over the past few years,” he says.

Gudger cites the Rapid Innovation Fund as another essential program for small businesses. The program is designed to dramatically streamline the acquisition process, in part, by reducing paperwork. Instead of a 25-page response from industry, businesses submit a four-page white paper. The faster turnaround helps bridge the “valley of death” during which a product or company can die awaiting funding.

“We’ve awarded more than $800 million in the past three years in the Rapid Innovation Fund, and it has been a high success. It has helped us move to commercialize small business technologies,” Gudger reports. “Twenty-five percent of all the investments we’ve made go to commercialization, whether it’s DOD or the commercial markets. Those are numbers you can’t find anywhere else when you’re making investments into new and emerging technologies and ideas.”

Check out this SIGNAL blog on how the U.S. Special Operations Command is using the SBIR program to develop innovative technologies with a number of applications.