Direct to Phase II and other SBIR paths, explained

Direct to Phase II lets an agency make a Small Business Innovation Research (SBIR) Phase II award to a small business that never received Phase I for the project. The agency head must first determine that the business has already shown what Phase I is meant to show: the scientific and technical merit and feasibility of an idea with commercial potential. The authority is 15 U.S.C. 638(cc). In the 2024 edition of the code it ran during fiscal years 2012 through 2025 for the National Institutes of Health, the Department of Defense (DoD), and the Department of Education. Public Law 119-83, approved April 13, 2026, rewrote that window and that list.

What the statute and the directive require

Section 10(a) of Public Law 119-83 replaces the fiscal year window with "Until September 30, 2031." It adds the Department of Energy and the National Aeronautics and Space Administration to the agencies, and it applies the authority to the Small Business Technology Transfer (STTR) program as well as SBIR.

The Small Business Administration (SBA) Policy Directive, effective May 3, 2023, adds procedure. Before a Direct to Phase II award, the agency head or a designee must issue a written determination on merit and feasibility and submit it to SBA. The directive predates the 2026 law: it labels the provision SBIR only and says the authority ends September 30, 2022 unless extended.

A Direct to Phase II award is a Phase II award. SBIR.gov states that as of October 16, 2026, agencies may issue a Phase II award of up to $2,239,578 without SBA approval, and that anything larger needs a waiver.

Section 8 of the 2026 law requires the SBIR database and the Federal Procurement Data System to flag each award as Direct to Phase II, subsequent Phase II, strategic breakthrough, or Phase III.

Feasibility documentation in DoD solicitations

DoD's 2027 SBIR solicitation, issued under the Department of War name with Release 1 topics pre-released October 7, 2026, sets the evidence rules in section 1.7:

• Each eligible topic requires documentation that the feasibility described in the topic's Phase I section has been met.
• The documentation cannot be based solely on, or logically extend from, prior or ongoing federally funded SBIR or STTR work.
• The business or the principal investigator must have substantially performed the work documented.
• The business must show it owns or licenses the intellectual property involved before submitting.

If the business fails to show Phase I-level merit and feasibility, the Phase II proposal will not be accepted or evaluated. The same solicitation caps experienced firms that fail the increased performance standards at 20 Phase I and Direct to Phase II awards each from the Army, the Navy, and the Air Force, and 20 from all other components combined. From October 1, 2026, a business may submit one proposal per topic, a limit of the kind section 4 of Public Law 119-83 requires from fiscal year 2027.

Which DoD components use it

In the 2026 SBIR solicitation's Release 6 instructions, dated September 2026, the Department of the Navy runs a two-step process for one Direct to Phase II topic, DON26BZ06-DV088, a minimally invasive remote blood collection device for free-ranging cetaceans. The business first submits a Phase I Feasibility Proposal of no more than 30 pages, with up to 20 pages of feasibility proof and 10 describing the proposed Phase II. Only firms the Navy selects then submit a full proposal, and no Phase I awards are made on that topic. The Department of the Air Force publishes its own Direct to Phase II instructions in the same release.

In the 2027 Release 1 instructions, the Air Force again offers Direct to Phase II. Applicants must show research and development completed by means other than SBIR or STTR, and the principal investigator must be primarily employed by the business.

The Commercialization Readiness Program

Subsection (y) of section 638 authorizes the Secretary of Defense and each military department Secretary to run a Commercialization Readiness Program. The program accelerates the transition of SBIR and STTR technologies to Phase III and into the acquisition process. Each military department Secretary must certify in writing that a program picked for rapid transition is expected to meet high priority military requirements.

Up to 1 percent of SBIR funds may pay for administering the program, and that money may not fund Phase III awards. For contracts of at least $100,000,000, DoD may set Phase III transition goals in subcontracting plans and require prime contractors to report Phase III subcontracts. DoD must also set a goal for Phase II contracts that lead to programs of record or fielded systems. Civilian agencies have a separate pilot in subsection (gg) that may use up to 10 percent of SBIR and STTR funds.

Sequential and subsequent Phase II awards

Subsection (ff)(1) says a business with a Phase II award remains eligible for one additional Phase II for continued work on that project. The directive gives the sequential award the same guideline amounts and limits as the first. Supplemental awards such as some agencies' Phase IIB must attach to a base Phase II and count toward its size.

Subsection (bb) adds two crossings: a business with a Phase I from one agency may get a subsequent Phase II from another if both agencies find in writing that the topics are the same, and a Phase I in SBIR or STTR may lead to a Phase II in either program. Subsection (uu) lets agencies spend up to 5 percent of SBIR funds on a subsequent Phase II through a commercialization assistance pilot, which Public Law 119-83 extended to September 30, 2031.

What to check

• Does the awarding agency hold Direct to Phase II authority for this program, under the post-April 2026 text of section 638(cc)?
• Is the feasibility evidence from work outside SBIR and STTR, performed by the business or the principal investigator, with the intellectual property owned or licensed?
• Which component's instructions govern: the Navy's two-step feasibility proposal or the Air Force's single proposal?
• Is the written merit and feasibility determination on file and sent to SBA before award?
• Is a Phase IIB a sequential Phase II or a supplement counted against the base award's size?
• Does the award exceed the Phase II level SBIR.gov lists as of its date, and if so, was a waiver granted?

Sources

1. 1United States Code, 2024 Edition, Title 15, Section 638 - Research and development · U.S. Government Publishing Office
2. 2Public Law 119-83: Small Business Innovation and Economic Security Act · U.S. Government Publishing Office
3. 3Policy Directives (SBA SBIR/STTR Policy Directive, effective May 3, 2023) · U.S. Small Business Administration, SBIR.gov
4. 42027 SBIR Broad Agency Announcement (BAA), Release 1 Preface · Department of War SBIR/STTR Program, DoW SBIR/STTR Innovation Portal, October 2026
5. 52027 SBIR BAA, Release 1, Service/Component Instructions · Department of War SBIR/STTR Program, DoW SBIR/STTR Innovation Portal, October 2026
6. 62026 SBIR BAA, Release 6, Service/Component Instructions · Department of War SBIR/STTR Program, DoW SBIR/STTR Innovation Portal, September 2026
7. 7About SBIR and STTR · U.S. Small Business Administration, SBIR.gov

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