What Do I Do With My SBIR Phase II? A Field Guide for the Awkward In-Between

A Phase II SBIR award is one of the strangest moments in the federal market. You've taken government money, built something that works, and proven a technical concept. And then — usually with very little fanfare — the period of performance ends. The funding stops. The program manager who championed you moves to a new role. The contracting officer who awarded Phase II rotates. You are holding a working prototype, a stack of deliverables, and the unsettling realization that nobody handed you a transition plan.

This is the moment most SBIR-funded companies lose the technology to the "valley of death." It is also the moment a small number of companies start a real federal business. The difference is almost never about the technology. It is about whether someone in the company understands what Phase III is and how to use it.

Phase III is a real contracting pathway, not a marketing label.

Phase III is the commercialization phase of the SBIR program. It is the legal pathway Congress created for turning the prototype you built in Phase I/II into an actual product, service, or capability the federal government can buy under a real contract. It is authorized by the SBIR statute (15 U.S.C. § 638(r)) and implemented through the SBIR/STTR Policy Directive and the FAR/DFARS.

Three properties of Phase III matter more than anything else in the regulation:

• It is sole source. A Phase III award goes to the original Phase I/II awardee. It is not competed. The agency does not need to publish it on SAM.gov as a competitive opportunity, and the awarding contracting officer does not need to write a Justification & Approval. The statute itself is the justification.
• It has no dollar ceiling. Phase II awards have caps. Phase III does not. A Phase III contract can be five figures or nine figures. It is constrained only by what the customer needs and what is reasonable under cost or price analysis.
• It has no time limit. A Phase III can be awarded a month after Phase II ends or five years later. The only condition is that the work still derives from, extends, or completes the prior SBIR effort.

What you actually do with a Phase II award — the three-move sequence.

There is a simple sequence that turns a finished Phase II into a Phase III award. It is not glamorous, and it is not the kind of work that shows up in a pitch deck. But every Phase III transition we have supported follows a version of it.

Move 1 — Identify a federal end user who actually wants this.

The end user is the person whose mission your technology improves. It is rarely the original Phase II program office. Sometimes it is a different agency entirely. Their interest is the predicate for everything else — without a customer with funding authority and a real need, no contracting officer can issue you a Phase III.

Move 2 — Make the award feel low-risk to the customer.

Most contracting officers are unfamiliar with Phase III; they likely never issue one and tend to be cautious. The work here is to take the procedural risk off their plate — to make invoking the authority feel like the safe, clean choice rather than the exposed one. The customer's appetite is the first gating factor; the contracting officer's is the second. Both can be built, but neither happens on its own.

Move 3 — Establish the connection to the prior work, before you need it.

The authority rests on a clear line from the original SBIR/STTR effort to the proposed Phase III scope. Documenting that connection so it holds up under a skeptical legal review is a central piece. A thin version of it is the most common reason a Phase III stalls. The teams that move fastest build this while the prior effort is still live, not months later when they're trying to reconstruct it. Getting it right, in the form a specific agency expects, is most of the work, and it's the part we're usually brought in to do.

Common myths Phase II awardees believe (and what's actually true).

Most awardees show up with at least one of these misconceptions. They are worth correcting before you spend time on the wrong path.

• "My Phase III has to come from the agency that funded Phase II." No. Any federal agency can issue your Phase III. Cross-agency transitions are common and explicitly allowed.
• "I have to start Phase III right after Phase II ends." No. There is no time limit.
• "Phase III has to be more R&D." No. It can be production, services, sustainment, or operations.
• "My contracting officer needs to write a J&A." No. The Phase III statutory authority is its own justification. A short D&F is typically enough.
• "I'll lose my data rights when the contract changes." No. Your SBIR data rights carry forward and last 20 years from the original Phase I/II award.

The honest answer about timing.

Most Phase III awards take longer than the awardee expects, because most awardees start the work after Phase II ends rather than during it. The companies that close a Phase III quickly have usually been working on the customer relationship and the documentation for six to twelve months before Phase II ends. If you are reading this and your Phase II is already closed, that is fine — there is no clock. But starting now is better than starting later.