Below are some FAQs about sole source SBIR Phase III contracts.

See Acquisition Gateway SBIR Best Practices:

What is SBIR/STTR Phase III?

In the context of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, a Phase III SBIR refers to the stage where the research or technology developed during the earlier Phase I and Phase II stages is commercialized.

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Phase III work "derives from, extends, or completes" the efforts made in Phase I and II. This means it's a continuation of the technology development.   The primary goal of Phase III is to bring the technology to the market, either for government use or in the commercial sector.   Phase III SBIR work has the following key characteristics:

• It's about transitioning the developed technology into products, services, or processes.  

• It has different rules than phase 1 and 2, such as no small business size limitations.

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Are there limitations to a Phase III SBIR contract?

• No limits on the number of awards

• No limits on the type of funding agreement

• No limits on the dollar value or duration

• No limits on the scope (can be products, services, production, and/or research)

• No Limits on time lapse between Phase I, II or III

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Is a J&A required?

• A J&A is not required. The effort can be a sole source. There is no limit on the number, duration, type, or dollar value of Phase III awards made to contractors. There is no limit on the time that may elapse between a Phase I, Phase II or Phase III award. A Federal agency may enter into a Phase III SBIR agreement at any time with a Phase I or Phase II awardee. Small business size limits for Phase I and Phase II awards do not apply to Phase III awards.

• Phase III work may be for products, production, services, R&D or any such combination. Per AFFARS 5319.201(c)(10), a DD2579 is not required. Solicitations of Phase I/II satisfies competition requirements. Per FAR 6.302-5 (see 10 U.S.C. 2304 (f)(6)), no J&A is required. PCO just needs to prepare a D&F for the file (with input from PE/PM) on how the Phase III "derives from/extends/completes" previous SBIR/STTR award. Synopsis of the proposed contract action is not required per FAR 5.202(a)(7) and synopsis of the SBIR contract award is not required per FAR 5.301(b)(2).

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Must the SBIR|STTR Program Office approve a Phase III contract?

• No. The SBIR/STTR Program Office does not approve Phase III contracts, though the program office should be informed of the procurement and may provide support. The contract must be correctly reported as Phase III in FPDS-NG, under the “Competition Information” category.

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Does the PWS need to mention SBIR Phase III?

The person in charge of the project (the PM) needs to write a description of the work (the PWS) that clearly shows how it builds upon, expands, or finishes the work done in the earlier SBIR/STTR phases. This is crucial to make sure the work is eligible for Phase III.

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The paperwork needed to start the contract (the PR package) should include: a detailed description of the work (SOW), proof of regular government funding (non-SBIR/STTR funds), the period of performance (PoP), the type of government funds being used, a list of required reports (CDRLs), any government-provided equipment or support (GFP/GFI/Base Support), information on who owns the data rights, any security requirements (DD254), and any international trade restrictions (ITAR), if applicable.

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Once the contracting officer (PCO) has all this paperwork, they'll send a request to the company (letter RFP) asking for a technical proposal (how they'll do the work) and a cost proposal (how much it will cost). The project manager will then review the technical proposal to see if it makes sense (they use the same standards as in Phase I/II). They will also look at the costs to make sure the company understands the work, that the costs match the work plan, and that the costs are reasonable for the proposed approach and schedule. Then, the contracting officer will review the costs and negotiate any disagreements with the company.

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What are some best practices that SBIR|STTR awardees can implement in order to obtain a Phase III contract?

There are several steps SBIR|STTR awardees can implement in order to obtain a Phase III contract, including:

1. Locate a buyer for your SBIR|STTR-derived services and products. This responsibility rests primarily with the SBIR|STTR firm. Do your best to identify potential buyers to aid in establishing the ceiling value.

2. Provide a clear description of how your proposed Phase III work derives from, extends or completes prior SBIR|STTR-funded work. When possible, provide a picture or some sort of illustration that the contracting organization can understand. The technical breadth and complexity of SBIR|STTR efforts often make it difficult for non-technical contracting personnel to see the path from Phase I/II work to the Phase III work.

3. Show how your Phase III work supports the SBIR|STTR program’s commercialization objectives, including sales in the private sector when possible.

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How do I identify the correct Procurement Office for a SBIR|STTR Phase III requirement?

Identifying the correct Procurement Office for an SBIR/STTR Phase III requirement involves understanding that Phase III work is funded by non-SBIR/STTR funds, and therefore, the procurement process aligns with standard agency acquisition practices. Here's a breakdown of how to approach this:  

Key Considerations:

• Phase III Nature:

  • SBIR/STTR Phase III work is about commercializing the technology developed in Phases I and II. It's funded by regular agency funds or private sector investment, not by the SBIR/STTR program itself.  

• Agency-Specific Practices:

  • Each federal agency has its own procurement offices and procedures. Therefore, the specific office will vary depending on the agency involved.

General Guidance:

• Requirements Office (PEO/PM):

  • The Program Executive Office (PEO) or Program Manager (PM) who has the requirement is the starting point. They will typically work with their supporting contracting office.

• Agency Contracting Commands:

  • For example, within the Department of the Army, this often involves the Army Contracting Command (ACC) or Mission and Installation Contracting Command (MICC).  

• General Services Administration (GSA):

  • The GSA can also be a procurement avenue for Phase III contracts, offering government-wide acquisition contracts. If your Requirements Office is interested in participating or partnering with GSA, please visit https://aas.gsa.gov/sbir/ or email gsasbir-sttr@gsa.gov.

In essence, you'll need to follow the standard procurement channels of the agency that intends to use the SBIR/STTR-developed technology.

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May a portion of an SBIR award be subcontracted?

For Phase I, a minimum of two thirds of the research and/or analytical effort must be performed by the proposing firm, and for Phase II, a minimum of one-half of the research and/or analytical effort must be performed by the proposing firm. Note that there are not statutory minimums for a Phase III award.

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Can a Phase III contract be initiated before the Phase II effort is complete?

Yes - the SBA Policy Directive indicates that a Federal agency may enter into a third phase agreement at any time with a Phase I or Phase II awardee.

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Can a Phase III requirement be procured using simplified acquisition techniques?

Yes - if the dollar value of the Phase III effort is below the Simplified Acquisition Threshold or if the procurement meets the requirements of FAR 13.5 for commercial items, the simplified process may be utilized.

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Can a Phase III contract include options for additional work or additional quantities?

Yes, however, the use of options needs to be justified in accordance with FAR 17.205.

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How do I know if a proposed effort is an SBIR/STTR derived product or process?

The product must extend, derive from, or complete efforts developed under a previously awarded Phase I or Phase II funding agreement, described in Chapter III below. The SYSCOM SBIR/STTR Program Office for the topic/award for Phase I/II can assist you in determining whether or not the work is appropriate for Phase III. Examples from the Periodic Table of Acquisition Innovations:

• Extends

• Derives

• Completes

Note also in a Bid Protest Decision, General Accountability Office (GAO) determined that the Government (technical and contracts) has broad discretion on determining what extends, derives, or completes a SBIR Phase I/II.

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Are Phase III sole source awards permissible?

Yes, because the competition for SBIR/STTR Phase I and Phase II awards satisfies any competition requirement of the Armed Services Procurement Act, the Federal Property and Administrative Services Act, and the Competition in Contracting Act. The Phase III award is made directly to the SBIR/STTR firm, but not made under the Sole Source provisions of part FAR 6. Therefore, an agency that wishes to fund an SBIR/STTR Phase III project is not required to conduct another competition in order to satisfy those statutory provisions. As such, in conducting actions relative to a Phase III SBIR award, in accordance with NMCARS 5206.302-5 (b), contracting officers may use the streamlined SBIR Phase III Justification & Approval template in Annex 13 of the NMCARS25.

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Phase III provides an opportunity for a directed award, which will bypass formal solicitation, evaluation, and award procedures. While a protest may be filed against such an award, it challenges clear authority in the SBIR/STTR statute and Policy Directives. Many DON acquisition program offices have successfully used directed Phase III awards as an efficient and cost-effective way to deliver innovative technologies. An unusual aspect of Phase III is that no size limits apply to the awardee, unlike Phase I and II. As a result, these directed award rights accrue to acquirers of SBIR/STTR firms, or firms that receive SBIR/STTR technology rights through novation.

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How does a DON KO perform a Phase III status evaluation?

Phase III candidacy is rooted in statute language: "Federal agencies, to the greatest extent practicable, shall issue Phase III awards to the SBIR/STTR awardee that developed the technology." Although an SBIR/STTR awardee is eligible for contract work that "derives from, extends, or completes prior SBIR effort and is funded with non-SBIR funds" - if that firm developed the subject SBIR/STTR technology - there is no right to a contract. Rather, that firm's Phase III eligibility imposes an obligation to engage in a J&A process whereby a DON KO, supported by the PM, determines whether the SBIR firm is 1) available to perform the requirement and 2) capable of doing so. The pre/post-business clearances for negotiation with an SBIR/STTR firm should contain a documented assessment, based on price comparisons, past performance and related evidence of competency needed to support a Phase III contract. Although an SBIR/STTR awardee may request Phase III preference prior to or after an RFP, RFI or BAA has been issued, it is the KO's responsibility to determine Phase III status and execute contracts, with full documentation.

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In one conceptual Phase III assessment scenario, the first step is to determine if the work that the SBIR/STTR firm would do to achieve a solicitation's requirement set meets the Phase III definition. If it does, the second step is to evaluate whether the firm could meet all or part of the requirement set. It is possible to split the requirement if the SBIR/STTR firm can only complete a portion, but that may not be an acceptable approach. (If it's determined that a single contract is needed and the SBIR/STTR firm is not proposing an approach that would meet the entire requirement, such as teaming or subcontracting, a KO would move forward with the open solicitation and notify bidders of the SBIR/STTR firm's capability as a potential subcontractor.)

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The third step is to determine whether the firm has the capability to perform the work. (It would not need to have the capability prior to award but would need to be able to show how it would develop that capability.)

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The KO should evaluate whether the proposal is competitive through rate comparisons, reviewing past performance, and executing market assessments. If the proposal meets required performance parameters, it can be approved. A solicitation to receive other bids for comparison could be published, but this should be a last resort, and the KO must be extremely careful not to release any SBIR/STTR protected data. If it is determined that the requirement is not a Phase III, or that the firm is not available or capable, that would end a SBIR/STTR firm's assertion of Phase III rights. All of this must be clearly documented in the DON SBIR/STTR Program Managers Database and the Federal Procurement Data System (FPDS-Next Generation).

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Finally, agencies are required to report to SBA all instances in which an agency pursues research, development, or production of a technology developed by an SBIR awardee, with a business concern or entity other than the one that developed the SBIR technology.