SBIR Phase III Guide: Transitioning Research to Production Contracts

Quick Answer: What is SBIR Phase III?

SBIR Phase III is the commercialization stage where Phase I/II research transitions to production contracts or commercial applications. Phase III contracts can be awarded sole-source to SBIR awardees without competition, and there is no funding limit. Any federal agency can award Phase III contracts for technology developed under another agency's SBIR program.

No Cap

Funding Limit

Sole Source

Allowed

Any Agency

Can Award

No Time

Limit

Phase III Overview

SBIR Phase III represents the commercialization and transition stage of the SBIR program. Unlike Phase I (feasibility) and Phase II (development), Phase III focuses on bringing proven technology to market through production contracts, commercial sales, or continued development for specific applications.

Phase III is often the most valuable but least understood part of the SBIR program. The sole-source authority and unlimited funding potential make Phase III contracts significantly more valuable than Phase I and II awards combined.

Phase III Objectives

→Transition R&D to production or operational use
→Scale technology for commercial markets
→Derive additional R&D from Phase I/II work
→Integrate technology into larger systems
→Pursue follow-on production contracts

Eligibility Requirements

Phase III eligibility derives from prior SBIR/STTR awards, but the requirements are more flexible than many realize.

Basic Requirements

✓Prior Phase I or Phase II award
✓Work derives from SBIR/STTR research
✓Company remains small business
✓Technology matches agency needs

What's NOT Required

✓Same agency as Phase I/II
✓Completed Phase II
✓Specific timeframe after Phase II
✓Use of SBIR set-aside funds

Cross-Agency Phase III

Any federal agency can award a Phase III contract based on SBIR work performed for a different agency. For example, technology developed under a DoD Phase II can support a Phase III contract from NASA, DHS, or any civilian agency with a matching need.

Sole Source Authority

Phase III sole source authority is one of the most powerful benefits of the SBIR program, allowing agencies to award contracts without competition.

Sole Source Benefits

→No competition required regardless of dollar value
→Exemption from standard J&A requirements
→Faster procurement timeline
→No fair opportunity required on IDIQs
→Applies to production and service contracts

Documentation Requirements

While Phase III avoids competition, agencies still require documentation:

→Evidence of prior SBIR/STTR award
→Demonstration that work derives from SBIR R&D
→Fair and reasonable price determination
→Agency requirement documentation

Contract Types

Phase III can take many forms depending on the technology maturity and agency needs.

R&D Continuation

✓Extended development work
✓System integration
✓Prototype refinement
✓Testing and validation

Production Contracts

✓Manufacturing and delivery
✓Service deployment
✓Sustainment and maintenance
✓Training and support

Funding Sources

Phase III contracts are funded from agency mission budgets, not SBIR set-aside funds. This opens larger funding pools.

Funding Mechanisms

Program Office Funds

Direct funding from the program requiring the technology

Procurement Budgets

Production funding for manufacturing and delivery

RDT&E Accounts

Research funding for continued development

O&M Funds

Operations funding for services and sustainment

Transition Strategies

Build Relationships Early

Identify potential Phase III customers during Phase I. Engage program offices, not just the SBIR office. Understand operational requirements beyond R&D objectives. The time to find Phase III sponsors is during Phase II, not after.

Demonstrate Operational Value

Program managers fund solutions to their problems. Translate R&D results into operational benefits. Show how your technology solves real mission needs. Cost savings, capability improvements, and risk reduction drive Phase III decisions.

Educate Contracting Officers

Many contracting officers don't fully understand Phase III authority. Prepare clear documentation explaining the sole-source justification. Reference the SBIR Policy Directive and relevant FAR/DFARS provisions. Make it easy for them to execute.

Pursue Multiple Pathways

Don't depend on a single Phase III opportunity. Market your technology to multiple agencies and programs. Cross-agency Phase III and commercial sales diversify your revenue and reduce risk.

Common Challenges

Phase III transition faces several common obstacles that can be overcome with preparation.

Typical Phase III Barriers

→Funding gaps: Bridge between Phase II and Phase III funding
→CO unfamiliarity: Contracting officers unsure of sole-source authority
→Technology readiness: Technology not mature enough for production
→Manufacturing scale: Scaling from prototype to production
→Program timing: Technology ready but program not funded

Frequently Asked Questions

Is there a time limit on Phase III eligibility?

No. There is no time limit on when Phase III contracts can be awarded. Technology developed under SBIR Phase I/II remains eligible indefinitely, as long as the work derives from that research and the company remains a small business.

Can Phase III count toward small business goals?

Yes. Phase III contracts to small businesses count toward agency small business contracting goals. This gives agencies additional incentive to award Phase III contracts.

What if I outgrow small business size?

If you exceed small business size standards, you lose sole-source Phase III authority. However, you can still compete for contracts based on your technology. Some companies structure growth carefully to maintain small business status for key Phase III opportunities.

Can primes use my Phase III technology?

Your SBIR technology can be incorporated into larger systems through subcontracts with prime contractors. The Phase III authority belongs to your company. Primes must work with you to access the sole-source benefits.

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