What a Phase III award is
A Phase III award is the commercialization stage of the SBIR and STTR programs. Phase I funds feasibility, Phase II develops the prototype, and Phase III is where the technology is put to work — produced, delivered, or further developed for a government or commercial customer. Phase III is not funded with SBIR/STTR set-aside dollars. It is paid for with the buying agency's own program money, and there is no statutory dollar ceiling on it, unlike the caps that govern Phase I and Phase II.
The defining feature of Phase III is the work itself. Under the SBIR/STTR program definitions, a Phase III is a third phase for work that, in the statute's words, "derives from, extends, or completes" efforts made under prior SBIR or STTR funding agreements. If the work meets that test, it is a Phase III by nature — it carries SBIR/STTR status regardless of how it is funded or which contracting vehicle is used.
A note on the citation: FAR 19.1306 is HUBZone
It is worth being precise, because the wrong citation circulates. FAR 19.1306 is titled "HUBZone sole-source awards" — it governs when a contracting officer may make a sole-source award to a HUBZone small business, with its own price thresholds and SBA appeal rights. It has nothing to do with SBIR or STTR Phase III.
The Phase III sole-source authority lives elsewhere. It is statutory, in the Small Business Act, and it is implemented through the SBA SBIR/STTR Policy Directive and agency guidance. We spell out the correct chain below, because getting the citation right is the first credibility test a Phase III justification has to pass.
Where the authority actually comes from
The sole-source authority for a Phase III award is 15 U.S.C. 638(r) — the Phase III provisions of the Small Business Act. Section 638(r)(4) directs that, to the greatest extent practicable, Federal agencies and prime contractors 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. That is the operative grant: the statute, not a FAR set-aside subpart, is what permits the sole-source action.
The governing policy is the SBA SBIR/STTR Policy Directive, which carries the force of law and lays out the Phase III preference and the data-rights protections that come with it. On the FAR side, a proposed rule (FAR Case 2020-010, published April 2023) would amend FAR 6.302-5, "Authorized or required by statute," to make explicit that a contracting officer may award a sole-source Phase III action under the 15 U.S.C. 638(r)(4) authority without further justification. As of this writing that FAR amendment is a proposed rule, so the controlling authority a contracting officer cites today is the statute and the Policy Directive — and, for defense work, the relevant DFARS and agency supplements.
The "derives from" test
Everything turns on derivation. A Phase III award is only a Phase III if the work derives from, extends, or completes effort funded under a prior SBIR or STTR agreement. This is the link that connects the new award back to the original competed Phase I or Phase II — and it is the link the sole-source authority rests on.
The test is about the technology, not the contract number. The new effort does not have to be identical to the earlier work; it has to trace to it. Continued development of the same technology, production of a system that grew out of the prototype, or services that complete the transition of the SBIR-developed capability all satisfy the standard. The firm receiving the Phase III award must be the concern that developed the technology under the earlier phases — the preference runs to the original developer.
Sole source, and why no further competition is required
The reason a Phase III can be awarded sole-source without a new competition is that the competition already happened. A company earns SBIR/STTR status by winning a competitive Phase I, and Phase II is competed from the Phase I pool. The statute treats that earlier competition as sufficient: an agency that wishes to fund a Phase III, which is by definition an extension of prior Phase I and/or Phase II awards, is not required to conduct another competition for it.
Practically, that means a Phase III award made under 15 U.S.C. 638(r)(4) does not require a separate justification and approval for other than full and open competition under FAR Part 6, and it does not require the usual synopsis or publication under FAR Part 5. The justification is short by design: it is enough to state that the award is an SBIR/STTR Phase III derived from, extending, or completing prior SBIR/STTR funding agreements, and is authorized under 15 U.S.C. 638(r)(4). Further justification is not needed to satisfy competition concerns.
What trips contractors up
The authority is generous, but it is not automatic, and three things commonly go wrong.
The first is proving derivation. The whole edifice rests on the link to the earlier phase, and a thin or hand-waved connection invites a challenge. The contractor has to be able to show, with the prior contract numbers and a clear technical thread, that the new work derives from, extends, or completes the SBIR/STTR effort. A gap here is the most common reason a Phase III action stalls.
The second is agency unfamiliarity. Many contracting officers see Phase III rarely, and the instinct of a careful CO is to reach for a full Part 6 justification and a synopsis — the very steps the statute makes unnecessary. A contractor who cannot point cleanly to 15 U.S.C. 638(r)(4) and the SBA Policy Directive ends up absorbing weeks of avoidable process, or worse, a competition the statute never required.
The third is documentation. Even a streamlined justification has to exist, be correct, and cite the right authority. Citing FAR 19.1306 — the HUBZone provision — or leaning on a generic sole-source rationale undercuts the very thing that makes a Phase III fast. The credibility of the package depends on the citations being exactly right.
How dbrf drafts Phase III justifications
A Phase III justification is a compliance artifact: it has to assert the right authority, establish derivation from the prior SBIR/STTR work, and give the contracting officer a clean, citable basis to act without a new competition. That is precisely the kind of regulatory drafting we built dbrf.ai to handle. It assembles the justification against the controlling authority — 15 U.S.C. 638(r), the SBA SBIR/STTR Policy Directive, and the relevant FAR and agency supplements — traces the derivation back to the earlier phases, and produces a package a contracting officer can rely on, so a transition that should be fast does not get slowed by a citation that should have been right the first time.