A US Small Business Innovation Research (SBIR) award denied due to security threat of co-owners’ foreign ties after national security review.
On June 8, the US Court of Federal Claims (USCOFC) published its opinion affirming the Air Force’s denial of a SBIR award due to the applicant’s ties to a foreign country of concern.[1]
The US Small Business Administration’s SBIR and Small Business Technology Transfer (STTR) programs award qualifying small businesses funding to develop new technology for commercialization purposes. Under the SBIR and STTR Extension Act of 2022 (SBIR Extension Act),[2] federal agencies must undertake an enhanced due diligence review for SBIR and STTR applications with potential national security risks, including those posed by foreign ownership and control and ties to certain foreign countries, persons, or entities. The Department of Defense (DoD), including the Air Force, has adopted guidance implementing the SBIR Extension Act’s enhanced due diligence requirement with respect to foreign influence or control.
In this case, Kayhan Space Corporation (Kayhan), a small business space technology company based in Colorado, submitted a SBIR grant application but was denied by the Air Force due to the security threat posed by the two co-owners’ ties to Iran – a country designated as a specified foreign country of concern under the SBIR Extension Act. Kayhan petitioned USCOFC to overturn the Air Force’s denial, alleging that the determination was arbitrary, capricious, and lacked a reasonable basis. The court ultimately found the Air Force correctly followed SBIR Extension Act requirements regarding national security review and properly documented their risk assessment process and final determination.
This order demonstrates one of the US Government’s many avenues to review Foreign ownership, control, or influence (FOCI) in government contract and grant opportunities. Last month, the DoD published a proposed rule which would expand FOCI review beyond classified contracting and make it a requirement for broader defense supply chain screening. We recently issued an alert on the implications of this proposed DFARS rule here.
Historically, agencies focused FOCI review on contractors performing classified work and holding a facility clearance. The SBIR Extension Act, the DoD’s recent proposed rule, and this order reflect a whole-of-government laser-focused efforts to ferret out national security risks by preventing entities with FOCI from engaging in contract and grant opportunities. SBIR/STTR program applicants are required by statute to disclose information related to the applicant’s foreign ownership, investment, and control when seeking funding through the program. Entities looking to pursue future government contracts and grants, including SBIR/STTR, should evaluate their FOCI exposure and take mitigation measures before submitting a bid or application. Failure to disclose foreign ties in an SBIR/STTR application may trigger consequences such as repayment of all funds awarded[3], civil penalties and damages under the False Claims Act due to false certification of eligibility, and suspension or debarment from future government contract opportunities.
[1] Kayhan Space Corp. v. United States, No. 25-cv-104 (Fed. Cl. June 8, 2026)
[2] Congress has since reauthorized the SBIR and STTR Extension Act of 2022 twice – first in December 2024 and again in April 2026.
[3] See 15 USC 638(g)(18).