Under the guidelines specified by the 5000.02 SBIR/STTR Statutory requirement, it is mandatory for large businesses to form partnerships with an SBIR company. This collaboration aims to incorporate the SBIR company's products, services, or research findings into various programs to fulfill the goals set by task orders. If the value of this BPA/IDIQ surpasses $100 million, the large business is obligated to grant a Phase III subcontract. Additionally, they must annually report the financial worth of this subcontract to the Agency for documentation purposes. This mandate is grounded in the legislative framework provided by 15 U.S.C. 638 (Ref. (j)).

See by 15 U.S.C. 638 (Ref. (j)) and the Small Business Administration's Policy Directive:

For any contract with a value of not less than $100,000,000, the Secretary of Defense is authorized to-

The SBIR Policy Directive limits subcontracting on Phase I SBIRs to 33%, and 50% on Phase IIs. Up to 60% of the research effort for an STTR project can be subcontracted. However, the Policy Directive does not impose subcontracting limits on a Phase III contract.

Guidance recommending Phase III- DoDI 5000.02. SBIR Phase IIIs are not small business set asides contracts because size standards do not apply to a Phase III funding agreement. See https://www.sbir.gov/tutorials/data-rights/tutorial-4 (exemption from SBA size standards for a procurement), and https://afwerx.com/divisions/afventures/phase-iii/ (Importantly, a Phase III contract may be awarded to a firm which has outgrown the small business size standard, to a novated awardee, or to a successor in interest, such as a large company that acquired the small business).

Small Business Administration's (SBA) Definition of size standards:

Size standards define the largest size a business can be to participate in government contracting programs and compete for contracts reserved or set aside for small businesses. Size standards vary by industry and are generally based on the number of employees or the amount of annual receipts the business has. You can find small business size regulations in Title 13 Part 121 of the Electronic Code of Federal Regulations (eCFR).

For the reasons above (Phase III is exempt from Size Standards, and Size Standards are used to qualify a firm to participate in small business set aside contracts), a Phase III contract is not a small bushiness set aside. Furthermore, because a Phase III is not a set aside, the 51% workshare requirements by prime contractors do not apply (5% - 20% acceptable). A relevant GAO bid protest decision is available here

This conclusion is supported by the fact that according to the Federal Procurement Data System (FPDS), the top ten Phase III contractors are large businesses (greater than 500 employees, and more than a $1B in annual revenue).

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