Beginning the Phase III SBIR/STTR Contracting Process

In prior guides, we’ve discussed how the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants are “America’s seed fund.” Typically ranging from $50,000 to $750,000, this seed fund allots billions to small businesses annually. However, those numbers are just for the first two Phases of the SBIR/STTR programs. In this guide, we’ll discuss how Phase III offers even more lucrative opportunities for small business tech that breaks the mold. Before discussing Phase III, let’s establish a brief overview.

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A Refresher

Earlier, we drafted an extensive Small Business Innovation Research (SBIR) / Small Business Technology Transfer (STTR) guide to help prospective government contractors get started with a Phase I SBIR/STTR. Additionally, if you’d like to take a deep dive, you can look at the Small Business Administration’s (SBA) 152-page overview of the SBIR/STTR programs. For a quick refresher, the SBIR and STTR programs aim to promote federal R&D (Research and Development) needs through small business innovation. The eventual goal of this effort is commercialization.

The feds split both programs into three Phases:

1. Phase I (Concept Development): Valued between $50,000 and $250,000, a Phase I is designed to appraise the technical merit, potential, and eventual commercialization of an emerging technology that fits a prescribed need detailed in a solicitation.

2. Phase II (Prototyping): Once the business establishes merit in Phase I, R&D efforts continue with awards valued at around $750,000 (up to $1.8 million) for two years of work.

3. Phase III (Commercialization): This last Phase sees a concerted commercialization effort that applies to federal government markets. Federal agencies award sole-source contracts with non-SBIR/STTR funds. The work must derive from, extend, or complete these Phase I and II technologies.

You’ll notice how the government guides the first two Phases in a scripted process. Private businesses respond to federal solicitations, are funded by federal SBIR/STTR dollars, and develop technology evaluated by federal means.

Not so in Phase III.

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How Phase III Differs

Once the government approves proof of concept in Phase I and the business has developed the requisite technology in Phase II, you might notice that you have a high-risk, high-impact technology on your hands that has the potential to become marketable.

Phase III departs from the federally guided philosophy of the first two Phases by putting the ball back into the business’s court. At this point in the program, it is up to the company to sell its technology.

With business-led commercialization, the unscripted nature of Phase III allows businesses to take their product to the private market or sell it in the multibillion-dollar federal contracting marketplace. Either option proves highly lucrative for firms with a successful product. What’s even more lucrative is that these products’ development is government-funded. For more information about businesses finding SBIR/STTR success, visit the following Vertx resources: SBIR/STTR Success Stories Part 1 and Part 2.

Although the SBIR/STTR reward funding has stopped at this Phase, additional federal funding options are open should a business decide to pursue them.

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Digging Deeper into Phase III

SBIR/STTR policy directives define commercialization as the following process:

“The process of developing products, processes, technologies, or services and the production and delivery (whether by the originating company or others) of the products, processes, technologies, or services for sale to or use by the Federal government or commercial markets.”

It’s a simple enough process that all businesses engage in when they develop a product to sell to the market. But should your business continue down the federal route, will an agency fund your technology with non-SBIR/STTR dollars?

The quick answer is yes. Functionally, this is the equivalent of a “Phase III SBIR/STTR award,” although the awardee sources the funding elsewhere. But why should a business expect additional federal funding after departing from the program proper?

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Attributes of Phase III

Numerous aspects of the Phase III process are mutually beneficial to the participating business and agency. For example, Phase III awards are sole-source. With competition requirements met in the prior two Phases, awards may now be allocated on a non-competitive basis to a Prime contractor or subcontractor because their work derives from, extends, or completes work performed under a prior SBIR/STTR agreement.

Additionally, there is no limit on the number, award amount, or duration of Phase III awards. Any agency can make these awards, regardless of their participation in Phases I and II of the SBIR/STTR programs. If you continue to engage with the agency you’ve engaged with in Phases I and II, they are within their rights to engage in a Phase III award at any point during the Phase I and II process with you. And if your business grows by the time you’re in Phase III, small business size standards no longer apply to you.

As you can see, the unscripted nature of Phase III awards allows leeway for both the contractor and the client. Several additional benefits include:

• A broad scope of awards covering products, production, services, and research.
• Services and materials can be acquired through the same Phase III contract.
• Any teammates are fair game, from small and large businesses to universities and Federally Funded Research & Development Consultants (FFRDCs).
• All types of federal funding can be used (except for SBIR/STTR funding).
• Any federal agency can issue a Phase III award.
• Support for any security level.
• There is no limit on time elapsing between Phase I/II award and Phase III award or between separate Phase III awards.
• And any contracting options are available, whether cost plus, time & material, firm fixed price, etc.

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Wrapping Up

A Phase III award is the ultimate goal for most businesses engaging in the SBIR/STTR process. Phase III acquisition starts in Phase I, however, which can prove challenging to navigate as a company is working out proof of concept and testing the viability of technologies. And that’s not to mention several of the logistical challenges of this work. If your company is still at the “starting line” of this process, you might find several of the following guides on how to get started helpful:

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Additionally, the following external resources are helpful for beginners still trying to figure out the process:

• The Small Business Technology Council (SBTC) website contains a treasure trove of DoD SBIR/STTR Phase III resources.
• SBIR.gov offers a free overall SBIR/STTR tutorial.

Do you think a Phase III SBIR/STTR award is in your future? Do you want to step off on the right foot in federal contracting? Reach out to Vertx Partners today to receive a free consultation from a member of our staff who has decades of experience in SBIR/STTR awards. It only takes a few minutes to complete our survey to receive a personalized response that will set you on the right path.