NEWS | Big Opportunity for Small Business in National Defense Policy, NDAA

It's NDAA week on Capitol Hill, with the first draft House and Senate compromise authorizing $900.6B for defense, including key provisions primed to affect small business.

UPDATE, DEC. 11, 2025 | After passing the House by a vote of 215-211 along tight party lines, the Senate will pick up the FY26 NDAA bill next week.

The legislation authorizes a 3.8 percent troop pay raise and significantly overhauls the way the Pentagon conceptualizes and buys weapons.

The bill also sets some defense policy, including provisions to limit the President's ability to reduce American troops in Europe, as well as military exercises and defense tech collaboration to support Taiwan.

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UPDATE, DEC. 10, 2025 | In yet another slim win for Speaker Mike Johnson (R-La.), the House passed a procedural vote to advance the NDAA - a $900b+ must-pass bill for how it shapes defense spending levels and policy, as well as authorizes pay increases and defense/military construction projects. 

Several Republicans said they would not support the bill, forcing Speaker Johnson to keep the vote open this afternoon.

Ultimately, lawmakers passed the procedural motion 215-211 to set up a rule, putting the FY26 NDAA on course for a final vote later today.

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UPDATE, DEC. 10, 2025 | The FY2026 National Defense Authorization Act (NDAA) is set to head to the House floor today, though not without last-minute uncertainty: according to current whip counts and reports, House leaders must first secure enough Republican votes to pass the rule governing debate. This is a key procedural step that traditionally receives no opposition support.

With the House Rules Committee advancing the bill under a closed rule, members won’t have the opportunity to offer amendments, raising the stakes for GOP leadership as they work to lock in the needed votes.

In addition, defense-sector negotiations resulted in a notable shift that could affect small suppliers in the national security industrial base. For instance, a provision that would have allowed the Pentagon to reimburse contractors for interest costs on facility upgrades and other investments, aimed at boosting domestic manufacturing capacity and strengthening supply-chain resilience, was removed from the final bill.

Instead, lawmakers agreed to a pilot program through 2027 to study the feasibility and risks of authorizing such financing costs, with a formal report due by February 2028.

While industry groups argue that reimbursement authority would have made it easier for smaller firms to secure capital and scale production, Department of Defense/War Secretary Pete Hegseth pushed back, warning of possible unintended consequences.

NSBA will continue monitoring these developments closely, particularly as Congress evaluates how best to expand domestic manufacturing capacity, strengthen supply chains, and ensure small-business participation in the nation’s defense ecosystem.

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DEC. 08, 2025 | Congress has released the compromise text for the Fiscal Year 2026 National Defense Authorization Act (NDAA), authorizing $900.6 billion for the Department of Defense, Department of Energy national security programs, and related activities.

The bill, which is considered a must-pass legislation, passing Congress and signed into law for the last 64 years, lands between the earlier House and Senate versions, reflecting several weeks of bipartisan negotiations.

While the NDAA is primarily a defense policy bill, it contains major implications for small businesses, especially those working in manufacturing, technology, R&D, cybersecurity, and the defense industrial base.

Specifically, the current draft of the NDAA:

• Authorizes $900.6B for defense spending, roughly $8B above the Administration's requested levels; and

• Provides $161.7B for procurement, as well as $145.7B for research, development, test, and evaluation (RDT&E).

  
  

Both areas represent with significant opportunities for small contractors and innovators.

A major theme of this year’s bill is streamlining defense acquisition, which includes:

• Requiring greater use of commercial products and services, reducing barriers to entry for small, innovative firms;

• Expanding the Commercial Solutions Opening process, increasing access to rapid contracting for nontraditional vendors;

• Raising dollar thresholds that trigger burdensome contracting requirements, reducing administrative load, especially for small firms; and

• Exempting certain nontraditional contractors from complex accounting rules.

These reforms reflect adaptation to Pentagon objectives of moving toward faster, more flexible procurement, highlighting a longstanding priority for small defense suppliers.

The current draft of the NDAA also reflects boosts investment in next-generation technologies, authorizing:

• Billions for programs in AI, cybersecurity, hypersonics, missile defense, and space systems; and

• New funding lines that strengthen early-stage innovation, benefiting small firms participating in SBIR/STTR programs and other R&D partnerships.

The bill additionally tightens several cybersecurity mandates. For example, in the current draft of the NDAA, contractors may not use AI developed by certain Chinese companies, such as DeepSeek and High-Flyer, to name a few, when executing DoD contracts; access to DoD cloud systems is restricted for individuals in adversary nations; and senior DoD officials’ telecom services must meet upgraded security standards.

Provisions are also included for funding and provisions to shore up U.S. manufacturing, shipbuilding, aerospace, and munitions production, sectors where thousands of small businesses contribute critical components.

For small firms in the federal marketplace, or those considering entering it, this NDAA signals:

• More opportunities in defense R&D and commercial technology integration, including AI, cybersecurity, automation, and advanced manufacturing;

• Easier, faster pathways to compete for DoD contracts by acquisition reforms and reduced administrative burdens;

• New compliance expectations in cybersecurity and AI, which will shape vendor eligibility and operational standards; and

• Increased stability in long-term defense funding, allowing small firms to plan and invest with more confidence.

Notably absent from the text of the current draft of the NDAA was a provision reauthorizing the SBIR/STTR critical research and technology development funding programs for small business.

RELATED | NSBA, SBTC URGE CONGRESS TO REINSTATE SBIR/STTR

On Oct. 1 this year, authorizations for these funds expired abruptly. Despite action from the House to pass a bill that would have provided more time for lawmakers to negotiate an extension (H.R. 5100), the Senate chose not to advance the legislation.

This failure to reauthorize the SBIR/STTR programs left many small businesses without capital resources, posing a threat to innovation being developed by firms across the country.

Examples of technology developed by SBIR/STTR funds since its inception nearly 40 years ago include central components of GPS and its continued integrations through vehicles and everyday civilian lives, as well as MRI machines and military-grade ceramic parts used in hospitals and on the battlefield around the world every day.

NSBA will continue tracking the NDAA, including potential for additional amendments to be included in the bill to address the lapsed SBIR/STTR programs.

In the meantime, small-business owners and supporters must urge Congress to act to reinstate the SBIR/STTR funds through the NDAA or as a standalone bill, ultimately laying a path to permanent reauthorization.