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Title - Small Business Innovation Research Phase III

Question -

Is there a checklist on the SBIR phase III and what type of milestone/review must be conducted to enter a SBIR phase III?

Scenario - The Integrated Aircrew Ensemble has completed SBIR phases I & II. We are looking at the pros and cons of conducting a SBIR phase III versus conducting a full-and-open competitive SDD contract award.

Posted - 11/28/2006 12:00:00 AM

Subject Area - Contracting


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For the knowledge of future readers of this question, the Small Business Innovation Research (SBIR) Program is a highly competitive three-phase award system which provides qualified small business concerns with opportunities to propose innovative ideas that meet the specific research and development needs of the Federal Government. (Visit the SBIR/STTR website.)

Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SBIR federal agency funding. To our knowledge no checklist as you refer to exists. There is a website for DoD you should bookmark for future reference that details specific information and guidance concerning the SBIR program: . We also suggest you bookmark the following site that contains DoD’s Desk Reference concerning the SBIR program: . The relevant section XII concerning Phase III is provided below for your information and use. Your attention is directed to Small Business Administration notice requirements if you intend to pursue R/R&D, production, services, or any combination thereof of a technology developed by an SBIR awardee of that agency, with an entity other than that SBIR awardee.



  1. General. SBIR Phase III refers to work that derives from, extends, or logically concludes effort(s) performed under prior SBIR funding agreements, but is funded by sources other than the SBIR Program. Phase III work is typically oriented towards commercialization of SBIR research or technology. A Federal agency may enter into a Phase III SBIR agreement at any time with a Phase II awardee. Similarly, a Federal agency may enter into a Phase III SBIR agreement at any time with a Phase I awardee.
  2. Competition. SBIR Phase III awards may be made without further competition. The competition for SBIR Phase I and Phase II awards satisfies any competition requirement when processing Phase III awards. Therefore, an agency is not required to conduct another competition in order to satisfy any statutory provisions for competition. Contract file documentation should demonstrate that the proposed Phase III award is derived from, extends or logically concludes efforts performed under prior SBIR funding agreements and is authorized under 10 U.S.C. 2304(b)(2) or 41 U.S.C. 253(b)(2). A separate J&A document is not required, pursuant to 10 U.S.C. 2304(b)(3) or 41 U.S.C. 253(b)(3).
  3. Phase III Limitations. There is no limit on the number, duration, type, or dollar value of Phase III awards made to a business concern. There is no limit on the time that may elapse between a Phase I or Phase II award and Phase III award or between a Phase III award and any subsequent Phase III award. Also, the small business size limits for Phase I and Phase II awards do not apply to Phase III awards.
  4. Data Rights. A Phase III award is, by its nature, an SBIR award, has SBIR status, and must be accorded SBIR data rights. If an SBIR awardee wins a competition for work that derives from, extends, or logically concludes that firm's work under a prior SBIR funding agreement, then the funding agreement for the new competed work must have all SBIR Phase III status and data rights.
  5. Property. SBIR legislation directs that an agency allow an SBIR awardee participating in the third phase of the SBIR Program continued use, as a directed bailment, of any property transferred by the agency to the Phase II awardee. A federally funded Phase III award (normally a government contract) would include appropriate property clauses. However, a non-federally funded Phase III agreement would not address government property. A separate bailment agreement would need to be made between the Government and the contractor. A suggested Bailment agreement format is provided.
  6. Preference for follow-on Awards to SBIR Contractor and SBA Notification Requirement. The SBIR Program Policy Directive points out that Congress intends that agencies that pursue R/R&D or production developed under the SBIR Program, give preference, including sole source awards, to the awardee that developed the technology. Agencies that intend to pursue R/R&D, production, services, or any combination thereof of a technology developed by an SBIR awardee of that agency, with an entity other than that SBIR awardee, must notify SBA in writing prior to such an award. This notice requirement also applies to technologies of SBIR awardees with SBIR funding from two or more agencies where one of the agencies determines to pursue the technology with an entity other than that awardee. This notitication must include, at a minimum: (a) the reasons why the follow-on funding agreement with the SBC is not practicable, (b) the identity of the entity with which the agency intends to make an award to perform research, development or production; and (c) a description of the type of funding agreement under which the research, development, or production will be obtained. SBA may appeal the decision to the head of the contracting activity. If SBA decides to appeal the decision, it must file a notice of intent to appeal with the contracting officer no later than 5 business days after receiving the agency's notice of intent to make award. Upon receipt of the SBA's notice of intent to appeal, the contracting officer shall suspend further action on the acquisition until the head of the contracting activity issues a written decision on the appeal. However, the contracting officer may proceed with award if he or she determines in writing that the award must be made to protect the public interest.
  7. Indefinite Delivery/Indefinite Quantity (ID/IQ) Contracts in Phase III. In order to facilitate the rapid transition of SBIR technologies from Phase II to Phase III, the Navy has pioneered the use of the ID/IQ type contract for Phase III efforts. See also FAR subpart 16.5. This approach allows multiple sponsors to contract with SBIR companies for Phase III follow-on efforts in an efficient and expedited manner through the use of individual task or delivery orders. This approach eliminates the necessity of writing multiple contracts with the same contractor for a particular technology. The basic ID/IQ contract can be written for a maximum 10 year term (5 years basic plus options). See DFARS 217.204(e)(i). This contracting approach can save a significant amount of procurement administrative lead time over the life of the contract. An example of a model ID/IQ contract can be found on the NAVAIR website,
  8. Item Identification and Valuation. SBIR contracting officers should be aware of the DFARS requirement for marking and valuing items delivered to DoD with a unit acquisition cost of $5,000 or more. See DFARS 211.274-2 for policy on unique item identification, and DFARS 211.274-3 for policy on valuation. This requirement was instituted to provide more effective accountability of items in the DoD supply chain. While this requirement generally would not apply to most SBIR Phase I and Phase II procurements (since R&D prototypes and not supply items are delivered), the marking and valuing requirement potentially could apply to those follow-on Phase III acquisitions where items for the DoD inventory are delivered. In such cases, contracts should be structured to provide for line, subline or exhibit line items reflecting deliverables having a unit acquisition cost of $5,000 or more. In addition, contract clause DFARS 252.211-7003, Item Identification and Valuation (June 2005), should be included in the contract.


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