What are the Advantages of a Phase III Sole Source SBIR?

March 16, 2024

From the Defense Acquisition University (DAU) Contracting Cone:

"Pros: Ability to uniquely negotiate terms and conditions, and pricing arrangements enables improved mission outcomes"

From the Small Business Administration's Website:

"The right to receive sole-source awards is a real benefit to the government as well. The sole-source award avoids the arduous process the government must go through to compete a requirement – planning the procurement, developing the solicitation, soliciting proposals and evaluating them, sending out questions to offerors, making an award decision and then having it protested and held up in litigation. The entire process can take years. A sole-source award can be made in a matter of months or even weeks. The SBA SBIR/STTR Policy Directive even dictates the justification that an agency can and must use to justify the sole-source award. Predictably, that justification reads that the new award must derive from, extend, or complete prior SBIR effort and be funded with non- SBIR funds. That’s all that is required. Nothing could be easier. Fast, quick, and easy–that is what an SBIR sole-source award represents to the government."

A Phase III Small Business Innovation Research (SBIR) is not a contract vehicle. Phase III is just a normal contract. The contracting officer uses a Phase I or II SBIR or STTR to award a Phase III contract without further competition. Thus, a SBIR Phase III can be a stand alone contract or multiple award, Blanket Purchase Agreement, Basic Ordering Agreement, Indefinite Delivery/Indefinite Quantity (ID/IQ), Government Wide Acquisition Contract (GWAC), or any type of contract desired by the agency. A list of Forward Edge-AI's Phase III contract vehicles are available here.

The objective of Phase III, where appropriate, is for the small business to pursue commercialization objectives resulting from the Phase I/II R/R&D activities. The SBIR/STTR programs do not fund Phase III. At some Federal agencies, Phase III may

involve follow on non SBIR/STTR funded R&D or production contracts for products, processes or services intended for use by the U.S. Government.

Each of the following types of activity constitutes SBIR/STTR Phase III work:

Commercial application (including R/R&D, testing and evaluation of products, services or technologies for use in technical or weapons systems) of SBIR/STTR funded R/R&D that is financed by non Federal sources of capital.
SBIR/STTR derived products or services intended for use by the Federal Government, funded by non SBIR/STTR sources of Federal funding.
Continuation of SBIR/STTR work, funded by non SBIR/STTR sources of Federal funding including R/R&D.

Five (5) Key Advantages of a Phase III Sole Source Over Other Contracting Methods:

Avoids litigation (bid protests)
No limits on the size, scope, or duration of a Phase III contract
Awards can be made in weeks or even days
Business office and contracting officer have broad discretion on what requirement derives from, extends, or concludes prior Phase I/II effort
Ability to uniquely negotiate terms and conditions, and pricing arrangements

From the Period Table of Acquisition Innovations

Problems Solved

Provides for the rapid procurement of the production and/or delivery of products, and/or services stemming from SBIR/STTR investments.
Provides options for acquisition programs to adapt or further develop previously developed internal or cross agency technology.
Reduces duplication of effort, building on previous investment.
Offers opportunity to cross-pollinate or develop lateral applications of innovative technologies into new markets.
Enables “bridging the gap” between R&D and commercialization.
Reduces pre-award administrative effort and award development time.

Benefits of Use

SBIR/STTR Phase III awards can increase efficiency and deliver value and savings to agencies and their R/R&D programs by leveraging the Government’s R/R&D investment in previous SBIR Phase I and/or Phase II efforts. This also maximizes the return on investment made through the SBIR/STTR programs.

Flexible and rapid access to promising R&D investments
- Any agency, including non-SBIR agencies, can issue a Phase III award.
- Awards can be based on either a SBIR/STTR Phase I or II award.
- There is no limit on number, duration, contract type, or dollar value of Phase III awards, and there is no time limit by which a Phase III award must be made following a Phase I or Phase II award.
- Agency is not required to execute a sole source justification under FAR Part 6 or publicize a planned or executed sole source award under FAR Part 5 if the award is issued under the authority of 15 U.S. Code § 638(r)(4).
- Phase III awards may be issued to other-than-small businesses.

Mechanics of the SBIR Phase III Contracting Methodology:

Phase III is a streamlined way for the Government to buy innovative tech. Ordinarily, when the Government wants to buy something, it needs to satisfy competition requirements, which means a burdensome process involving open solicitations, rigorous and impartial evaluations, and opens up the requirement to bid protests (litigation).

Phase III allows the Government to expedite the award process, skipping straight to contract award and value delivery. According to the SBA, it’s a win-win: good for the government and their industry partners.

Risk Adverse acquisition professionals are often hesitant about Phase III sole source (satisfying competition requirements), or simply lack knowledge about the authorities.

The key thing to keep in mind is that a SBIR Phase III is not actually a sole source. Statutorily, it's an award without further competition. This authority expressly authorizing Phase III sole source contracts. The Department of Defense for example obligates more than $1B per year using Phase III contracts.

Exceptions to the Government’s general requirement for full and open competition are described at FAR Subpart 6.3 (Other Than Full and Open Competition).

The government is prohibited from disclosing SBIR Data to a private firm outside the government. Hence, the government cannot make an award to another firm for work or a product that the government cannot even describe to that other firm. This nondisclosure obligation creates the imperative, the necessity, to deal only with the SBIR firm that developed the SBIR Data in the first place.

FAR 6.302-5 contains the exception applicable to Phase III contracts. It states that “full and open competition need not be provided for when … a statute expressly authorizes or requires that the acquisition be made … from a specified source.”

The authorizing statute is at 15 U.S.C. § 638(r)(4). It states that federal agencies “shall … consider an award under the SBIR program or the STTR program to satisfy the requirements under sections 3201 through 3205 of title 10 and any other applicable competition requirements.”

The SBA's SBIR Policy Directive states that agencies shall “issue, without further justification, Phase III awards relating to technology, including sole source awards, to the SBIR and STTR award recipients that developed the technology.”

Phase III sole source contracts are authorized, compliant with competition requirements, and advantageous for the Government and technology-providers.

From the Period Table of Acquisition Innovations: