SBIR Phase III: from research award to funded customer

What actually counts as Phase III?

Start with the technology and work funded under a prior Phase I or Phase II award. The proposed follow-on work must have a clear connection to it: it derives from, extends, or completes that earlier effort. The money for the follow-on work must come from somewhere other than the SBIR/STTR program. A Phase II award is not always a prerequisite; SBA policy allows qualifying Phase III work to follow Phase I.

That test is about the work, not the label on a sales deck. A new project for the same customer is not automatically Phase III if it has no meaningful connection to the earlier technology. Conversely, a qualifying federal agreement may be Phase III even when the customer is a different agency or the agreement is a subcontract under a federal prime. The buyer and its contracting team need to identify the applicable funding and acquisition path.

Three possible paths

1. Federal customer: an agency uses non-SBIR funds for related development, testing, products, production, or services.
2. Prime contractor: a subcontract under a federally funded prime contract may qualify when the work is tied to the prior SBIR/STTR effort.
3. Commercial customer: private money can support commercialization of the technology. The SBA directive’s detailed Phase III federal contracting and data-rights rules chiefly address federally funded agreements, so do not assume a private sale follows the same contracting rules.

The official SBIR program overview confirms that Phase III does not receive SBIR/STTR program funding. The SBA policy directive gives the fuller definition and examples.

Why founders care about the Phase III designation

For a qualifying federally funded Phase III agreement, SBA policy recognizes the original developer’s position and the associated SBIR/STTR data rights. A federal agency can use a sole-source award for qualifying work; the policy directs agencies and federal prime contractors to pursue the developer to the greatest extent practicable, subject to the stated conditions. That is an acquisition option and a protection to raise with a real buyer, not a promise that an award or budget exists.

The policy also sets no general cap on the number, duration, or dollar value of Phase III awards, and says there is no fixed deadline after Phase I or II by which Phase III must occur. The practical constraints are the customer’s need, available non-SBIR funds, the proposed work, and the agreement the parties can put in place. Read the Phase III provisions in SBA policy.

A practical route from award to customer

1. Document the lineage. Keep the prior award number, topic, agency, period, deliverables, and a short explanation of what the technology now does. Be able to show how the proposed work derives from, extends, or completes that effort.
2. Name the operational problem. Replace a broad claim such as “our prototype has defense applications” with a specific user, environment, performance need, and next test or purchase decision. State what has already been demonstrated and what remains unproven.
3. Find a buyer with a reason to act. Talk with the program office, end user, or prime contractor that owns the problem. Find out who can sponsor a trial or purchase and which organization controls non-SBIR funding. A technical champion and a funded buyer may be different people.
4. Propose the next funded step. Offer a bounded test, integration, production lot, or service with deliverables, acceptance criteria, schedule, and cost. Ask the customer’s contracting team to assess whether the work qualifies for a Phase III agreement and which vehicle fits.
5. Review the agreement and data rights. Make the relationship to the earlier award clear in the acquisition record. For a federally funded Phase III agreement, check that the agreement includes the required SBIR/STTR data-rights terms and that technical data is handled and marked correctly. Bring in qualified contracts or data-rights counsel when those terms are consequential.

Illustrative example: a Phase II award develops a sensor prototype for contested environments. An operational unit wants to test it on a platform, and a program office identifies non-SBIR funds for integration and evaluation. The founder’s useful next document is a scoped test proposal that identifies the earlier award and explains the technical connection. Whether the resulting agreement is Phase III depends on that connection and the acquisition decision; calling it “Phase III” in a pitch does not settle the question.

What to put in a customer brief

Keep the first version short enough for a program manager to forward. Include the prior SBIR/STTR award number and topic, the capability built, evidence from tests or users, the customer problem, the proposed next work, an estimated cost and schedule, and the decision or funding source you are asking the customer to identify. State any integration, security, manufacturing, or data-rights issues that could affect the schedule.

Ask two direct questions: “Who owns this requirement and its non-SBIR budget?” and “Who should assess the Phase III contracting path?” The answers tell you whether you have a transition opportunity or only interest in the technology.

Use award data carefully

Our SBIR/STTR tracker helps you inspect earlier awards matched to companies in this directory. The contract tracker can show later federal awards matched to those companies. This is a selected dataset, not a complete view of every agency, company, or subcontract. A later contract with a matching company does not prove that the contract is a Phase III award or that it stems from a particular SBIR project. Check the underlying award, company disclosures, and customer documentation before making that claim.

The records are useful for a narrower question: which organizations fund work in a technology area, and which companies have moved from research awards into broader federal work? Use those patterns to identify potential customers and partners, then verify the specific program and people involved.

For founders pursuing a non-SBIR opportunity or a first subcontract, see our guide to getting a first government contract.

Common questions

Do I need a Phase II award first?

No. SBA policy permits Phase III work related to a prior Phase I or Phase II effort. You still need to establish the connection between that effort and the proposed work.

Is Phase III a grant I apply for on SBIR.gov?

No. There is no SBIR/STTR program funding for Phase III. A customer or partner must have another source of money for the work. SBIR program overview.

Does Phase III guarantee a sole-source contract?

No. SBA policy provides a basis for qualifying noncompetitive federal awards and a preference for the developer, but the customer must have a real requirement and funding and apply the relevant policy. Discuss the proposed agreement with the buyer’s contracting team. SBA policy directive.

Can a subcontract count?

Yes. A subcontract to a federally funded prime contract may qualify if it derives from, extends, or completes the prior SBIR/STTR work. Identify that lineage and the applicable data-rights terms in the agreement. SBA policy directive.

Prepare a data-rights record before the next agreement

SBA’s data-rights guidance distinguishes qualifying technical data and software developed under an SBIR/STTR award from other information. Protection depends on the applicable policy, contract or agreement language and required markings; it is not a blanket label for everything the company owns. Review the actual clauses with a qualified adviser before promising a customer or partner unrestricted use. SBA data-rights tutorial.

Build an inventory alongside the technical scope. For each planned delivery, record the item, creator, funding history, relevant award number, applicable clause or agreement provision, proposed marking and intended recipient. Separate pre-existing technology, award-developed material and later privately funded changes. That gives counsel and the contracting team something concrete to review.

Keep an award and delivery register with dated versions. An unmarked attachment sent during a technical exchange can create avoidable questions later. The goal is a defensible record and clear permissions, rather than a generic slide saying “SBIR protected.”