SBIR Phase III: what the law says about follow-on awards

Phase III of the Small Business Innovation Research (SBIR) program is follow-on work that derives from, extends, or completes an effort under an earlier SBIR or Small Business Technology Transfer (STTR) funding agreement, and it is paid for with money from outside those two programs. For a Federal agency or prime contractor pursuing technology developed under such an agreement, the rules are in the United States Code (U.S.C.): 15 U.S.C. 638(e)(4)(C) defines Phase III, and subsection (r) sets a preference for Phase III awards. The U.S. Small Business Administration (SBA) Policy Directive implements that text, and Public Law 119-83 amended it in 2026.

What the statute says a Phase III is

The code's definition of the SBIR program lists Phase III as a third phase, to be used where appropriate, for work that derives from, extends, or completes efforts under prior SBIR funding agreements. Clause (i) describes two funding sources: non-Federal capital, or, for products or services intended for use by the Federal Government, follow-on Federal awards that are not SBIR awards. Clause (ii) covers non-SBIR Federal funding used to continue research that was competitively selected using peer review or merit-based procedures.

Subsection (r)(1) lets a Federal agency enter a Phase III agreement with a small business concern that holds a Phase II funding agreement, for additional work during or after the Phase II period. The Phase II agreement may set out procedures for Phase III agreements, at the awarding agency's discretion.

The Policy Directive adds several statements in its section on the phased structure of the programs:

• There is no limit on the number, duration, type, or dollar value of Phase III awards made to a business concern.
• The small business size limits for Phase I and Phase II awards do not apply to Phase III awards.

Competition and sole-source awards

Subsection (r)(4) says that, to the greatest extent practicable, Federal agencies and Federal prime contractors shall do two things. Under (r)(4)(A), they consider an SBIR or STTR award to satisfy the competition requirements in 10 U.S.C. 3201 through 3205 and any other applicable competition requirements. Under (r)(4)(B), they issue Phase III awards relating to the technology, "including sole source awards," to the SBIR and STTR award recipients that developed it, and the text says they do so "without further justification."

The directive restates this as a special acquisition requirement for agencies, their Government-owned, contractor-operated facilities, federally funded research and development centers, and Government prime contractors that pursue research or production of technology developed under SBIR or STTR. They shall issue Phase III awards, including sole source awards, to the awardee that developed the technology, to the greatest extent practicable and consistent with the agency's mission and optimal small business participation.

The directive then sets out the mechanics:

• An agency makes a good faith effort to negotiate with the awardee over the new, related work. If pursuing the Phase III work with the awardee is found practicable, the agency awards a non-competitive contract to the firm.
• If sole source pursuit does not meet the directive's requirements on availability, practicality, and capability, the agency documents the file and gives SBA a copy of the decision with its rationale.
• SBA may file a notice of intent to appeal and then a formal appeal. The directive sets business-day deadlines, including 10 business days for SBA's formal appeal and 30 business days for the agency's written decision.

The April 2019 Federal Register publication of the directive has the same sole-source provisions and appeal deadlines.

Data rights carry into Phase III

Subsection (r)(3) requires each SBIR or STTR funding agreement to set out the respective rights of the United States and the small business concern in intellectual property and in any right to carry out follow-on research.

Under the directive, a Phase III award has SBIR/STTR status and must include SBIR/STTR data rights protection, and the scope and extent of those rights for federally funded Phase III awards are identical to those for Phase I and Phase II. The protection period begins at award of an SBIR/STTR funding agreement and ends twenty years, or longer at the participating agency's discretion, from the date of award of a funding agreement for Phase I, Phase II, or federally funded Phase III.

What Public Law 119-83 changed

Public Law 119-83, approved April 13, 2026, amends section 638 on Phase III in its sections 5 and 6.

• Section 5 adds subsection (r)(5). The SBA Administrator, coordinating with the Secretary of Defense, the General Services Administration Administrator, and other agency heads, sets up training for contracting officers and the acquisition workforce on the programs' missions, Phase III agreements, Phase III data rights, and executing Phase III sole source contracts.
• Section 6(a) amends subsection (j)(4) so that procurement center representatives advocate for the maximum practicable use and transition of SBIR and STTR technologies into Phase III. It requires SBA to modify its policy directives to conform to that subsection within one year of enactment.
• Section 6(b) adds (r)(4)(C) and (D). Agencies develop simplified, standardized procedures and model contracts for Phase I, II, and III awards, and issue standardized solicitation provisions and clauses explaining what information a small business may be expected to provide to establish Phase III eligibility.

The 2024 edition of the code quoted above and the directive posted on SBIR.gov as of October 12, 2026, which carries a May 3, 2023 effective date, both predate these amendments.

What to check

• Is the follow-on work funded by something other than SBIR or STTR money, as clause (i) or (ii) of 15 U.S.C. 638(e)(4)(C) describes?
• Where sole source pursuit does not meet the directive's requirements, did the agency document the file and give SBA a copy of the decision with its rationale?
• Which edition of the statute and which version of the directive does the document cite, given Public Law 119-83 and the directive's May 3, 2023 effective date?

Sources

1. 1United States Code, 2024 Edition, Title 15, Section 638 - Research and development · U.S. Government Publishing Office
2. 2Policy Directives (SBA SBIR/STTR Policy Directive) · U.S. Small Business Administration, SBIR.gov
3. 3Public Law 119-83: Small Business Innovation and Economic Security Act · U.S. Government Publishing Office
4. 4Small Business Innovation Research Program and Small Business Technology Transfer Program Policy Directive (Federal Register, April 2, 2019) · Office of the Federal Register