In short: most defence technology companies win their first government money through a prototype or innovation route rather than a full procurement. In the US that is usually an Other Transaction (OT) prototype agreement, often through the Defense Innovation Unit, or an SBIR award. In the UK it is UK Defence Innovation. In Europe it is a European Defence Fund consortium. Each route sets rules on who can own the company, who owns the results and how the money can be borrowed against, and those rules matter more to the next funding round than the size of the first award.
The routes at a glance
| Route | Legal basis | What it buys | Who can bid |
|---|---|---|---|
| OT prototype agreement | 10 U.S.C. 4022 | A prototype, with a possible follow-on production award without a new competition | Needs a nontraditional defense contractor or small business participating to a significant extent, or a one-third cost share |
| DIU Commercial Solutions Opening | 10 U.S.C. 4022 | A prototype OT, awarded in as few as 60 to 90 days (DIU says its average is closer to 120) | Commercial companies answering a published problem statement |
| SBIR and STTR | 15 U.S.C. 638, as extended by Public Law 119-83 | Phase I feasibility, Phase II development, Phase III follow-on work without a new competition | Small businesses of up to 500 employees, majority US-owned |
| UK Defence Innovation | MOD programme | Open calls and competitions on a three-month rapid commercial innovation cycle | UK and international suppliers, subject to security requirements |
| National Security Strategic Investment Fund | British Business Bank programme | Equity, directly or through accredited funds | Dual-use technology companies |
| European Defence Fund | Regulation (EU) 2021/697 | Grants for research and development actions | Consortia of at least three entities in three EU or associated countries, free of non-associated third-country control |
Three things to settle before the first bid
- Ownership. SBIR eligibility, the EDF control test and a future facility security clearance all turn on who owns and controls the company. A term sheet that gives a foreign investor board control can close a route before the company bids.
- Intellectual property. The award decides what the government can do with the technical data and software. Mark everything that is delivered, on time, or the protection can be lost.
- Follow-on. The prize is the follow-on production award or Phase III contract. Plan for it from the first agreement: compete the prototype, define success, and keep the paperwork that proves it.
The rest of this guide covers the step-by-step timetable for each route, the data rights and ownership traps, what foreign investors and lenders need to see, how to finance an OT or SBIR award, and a first-contract checklist. It is free with a work email, along with the in-house counsel tools.
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Questions
What is an Other Transaction agreement?
A prototype agreement made under 10 U.S.C. 4022 rather than a procurement contract. The Federal Acquisition Regulation does not apply, so the terms are negotiated, and a prototype that was competed and successfully completed can lead to a follow-on production award without a new competition.
Is the SBIR programme running in 2026?
Yes. Its authority lapsed on 30 September 2025 and was restored by Public Law 119-83, signed on 13 April 2026, which extends the SBIR and STTR programmes to 30 September 2031 and tightens the security review of applicants.
Can a company with foreign investors win SBIR awards?
It must be more than 50% directly owned and controlled by US citizens or permanent residents, or, where the agency allows it, more than 50% owned by several venture capital, hedge fund or private equity firms. Since April 2026 agencies must also assess foreign ownership and financial ties, including debt.
What replaced DASA in the UK?
UK Defence Innovation, launched on 1 July 2025, brought together the Defence and Security Accelerator, the UK Defence Innovation Unit, the Command Innovation Hubs and DE&S Future Capability Innovation, with a ring-fenced budget of at least £400m a year.
Sources
- govinfo: 10 U.S.C. 4022, authority of the Department of Defense to carry out certain prototype projects
- Defense Innovation Unit: Work with us (Commercial Solutions Opening)
- govinfo: Public Law 119-83, extending the SBIR and STTR programs (13 April 2026)
- eCFR: 13 CFR 121.702, SBIR and STTR size and eligibility standards
- Federal Register: SBIR and STTR Policy Directive (2 April 2019)
- SBIR.gov: About the SBIR and STTR programs
- govinfo: 31 U.S.C. 3727, assignments of claims
- GOV.UK: A new era for defence innovation, UK Defence Innovation
- British Business Bank: National Security Strategic Investment Fund
- EUR-Lex: Regulation (EU) 2021/697 establishing the European Defence Fund
General information on public law and market practice as at 28 Oct 2026, not legal advice on any transaction.