Legal Framework: Statutory Authority & Precedent
Complete legal foundation for SBIR Phase III contracting including USC, FAR, DFARS, SBA Policy Directive, and GAO case law analysis.
Section A: Statutory Framework
15 U.S.C. § 638 - Program Purpose
The SBIR program strengthens innovative small business participation in federally funded research and development. Statutory purposes include:
1. Stimulate Technological Innovation
In the United States
2. Meet Federal R&D Needs
Through small business participation
3. Foster Participation
By disadvantaged persons and women-owned small businesses in technological innovation
4. Increase Private Sector Commercialization
Of innovations derived from federal R&D
15 U.S.C. § 638(e)(4)(C) - Phase III Definition
Phase III is defined as work that derives from, extends, or completes efforts made under prior funding agreements under the SBIR program.
1. Commercial Applications
Funded by non-federal sources (private capital, commercial revenue)
2. Federal Applications
Work for federal use funded by sources other than SBIR program funds:
- • Products
- • Services
- • Research and development
Key Point: Phase III funded by program funds, not SBIR set-aside funds.
15 U.S.C. § 638(r)(4) - Phase III Awards
"Work that derives from, extends, or completes efforts made under prior funding agreements under this program shall be eligible for awards under this subsection to the extent and under such terms and conditions as may be prescribed by the head of the awarding agency."
Significance for SBIR Phase III Awards
Scope: "Products, production, services, or any combination thereof"
Authority: Explicit statutory authority for sole-source Phase III awards without competition.
15 U.S.C. § 638(g)
Protection of Information - Requires agencies to protect SBIR technical data and software for 20 years
15 U.S.C. § 638(o)(16)
Funding Agreement - Defines SBIR funding agreement for Phase I and II
15 U.S.C. § 638(j)
Federal Agency Expenditures - Establishes SBIR set-aside (min 3.65% of R&D budget)
FAR 6.302-5 - Authorized or Required by Statute
FAR 6.302-5(a)(2)(i)
Contracting without full and open competition is authorized when "authorized or required by statute, provided that the request for proposals is limited to the source or sources required by statute."
Application: SBIR Phase III falls within this authority - statute (15 U.S.C. §638) authorizes Phase III awards to SBIR awardees.
FAR 6.302-5(c)(2)(ii) - Justification Requirements
Justifications for other than full and open competition are not required "when the statute expressly requires that the procurement be made from a specified source."
Application: No formal J&A required for SBIR Phase III awards.
FAR 6.303
Justification Requirements - Establishes J&A requirements, but exceptions apply for SBIR Phase III
FAR Part 10
Market Research - For SBIR Phase III, confirms SBIR awardee as sole source
SBA SBIR/STTR Policy Directive (May 3, 2023)
Section 4(c) - Phase III Awards
- • (c)(1): No dollar or time limitations on Phase III awards
- • (c)(2): Phase III contracts funded with program funds, not SBIR/STTR funds
- • (c)(3): "Further justification is not needed" beyond SBIR connection documentation
- • (c)(5): Modifications and extensions do not require additional justification
Section 8(b)
Data Rights - Confirms 20-year protection period. Agencies must protect SBIR data from unauthorized disclosure.
Section 2(j)(4)(iii)
Synopsis Exemption - Phase III contracts exempt from SAM.gov synopsis requirements
Section 4(c)(6)
Eligibility - SBIR awardee eligible for Phase III without completing Phase I or II
Primary Sources (External Links)
15 U.S.C. § 638 - Small Business Innovation Research Program
uscode.house.gov
Federal Acquisition Regulation (FAR)
acquisition.gov
Defense Federal Acquisition Regulation Supplement (DFARS)
acquisition.gov
SBA SBIR/STTR Policy Directive (May 3, 2023)
sbir.gov
NMCARS (Navy Marine Corps Acquisition Regulation Supplement)
secnav.navy.mil
Section B: GAO Precedent Analysis
GAO's Role
The Government Accountability Office (GAO) provides bid protest jurisdiction over federal procurement decisions, including SBIR Phase III awards.
GAO Functions:
- • Adjudicates bid protests
- • Interprets statutory and regulatory requirements
- • Establishes legal precedent
- • Provides guidance on agency discretion
- • Reviews eligibility and proper use of authorities
Precedent Value:
GAO decisions establish authoritative interpretations of SBIR Phase III requirements, providing guidance to contracting officers on lawful application of Phase III authority.
Key GAO Decisions
Digital Force Technologies, Inc., B-423319 (May 19, 2025)
Most CriticalCase Synopsis
Air Force awarded sole-source Phase III contract for Tactical Security System to SBIR awardee. Protester argued only one component (camera system) derived from SBIR while overall system included commercial off-the-shelf (COTS) components.
GAO Holding
"In sum, there is no requirement in statute or the policy directive that the entirety of a phase III solution must be derived from prior SBIR efforts."
Analysis
GAO held that SBIR-developed technology constituting a material component of the proposed solution suffices, even when combined with non-SBIR technologies. The statute and SBA Policy Directive do not require 100% SBIR derivation.
Significance for This Acquisition
Critical Precedent for Services Contracts
This is the strongest precedent for technology-enabled services acquisitions. GAO confirmed SBIR technology may serve as enabling component within professional services delivery.
Application:
- AI-DDSF is integral enabling component for professional services
- Contractor personnel use SBIR technology to deliver all PWS tasks
- Government receives services (not standalone SBIR product)
- SBIR component enables performance at requisite quality and scale
- Directly validates technology-enabled services acquisition model
Legal Foundation: Provides firm legal basis for Phase III professional services contracts where SBIR technology is integrated into service delivery model.
Synergy Enterprises, Inc., B-419161 (December 20, 2020)
Case Synopsis
GAO denied protest of Phase III for healthcare system modernization (TMIP-J) based on prior SBIR shipboard assessment software. Protester challenged connection between Phase I/II work and Phase III scope.
GAO Holding
Agencies have "broad discretion" and "relatively limited requirements to justify a phase III award."
Burden on protester to "clearly" demonstrate Phase III fails to incorporate original concepts, findings, or research from prior SBIR.
Common concepts like "developing unique software able to operate on Navy vessels, providing automated data feedback, and collecting and transmitting data between disparate systems" were sufficient connections.
Significance - Agency Discretion Standard
- • Agencies have substantial discretion determining whether new work derives from prior SBIR
- • Standard focuses on whether Phase III incorporates original concepts or ideas
- • Connection need not address identical requirements
- • Technology can be extended to new application domains
Application
Supports extending AI-DDSF from Phase I concept to new application areas. As long as Phase III incorporates AI-DDSF concepts (data integration, knowledge graphs, NLP analysis, etc.), connection is sufficient even though specific mission differs from Phase I demonstration.
American Systems Corporation, B-418257 (January 21, 2020)
Case Synopsis
American Systems acquired DDL Omni after Phase I/II completion. Novation agreement recognized American Systems for Phase III agreement but not underlying Phase I/II contracts. GAO sustained protest.
GAO Holding
Awardee "must have either received a prior Phase I or Phase II award or been novated a Phase I or Phase II award."
Emphasized Policy Directive plain language requiring performance or novation of Phase I/II for Phase III eligibility.
Significance
Novation Requirements: Acquirers of SBIR awardees must ensure novation agreements specifically include Phase I/II contracts, not just Phase III follow-on agreements.
Successor-in-Interest: Subsequent SBA guidance clarified successors-in-interest may qualify without formal novation when acquiring all assets and rights, but formal novation preferred for clarity.
Application
Not directly applicable when Navaide is the original SBIR Phase I awardee, not a successor or acquirer.
However, demonstrates importance of maintaining clear administrative record of Phase I award.
Legal Principles Established by GAO
Principle 1: Agency Discretion
Standard: GAO defers to agency determinations about whether work derives from, extends, or completes prior SBIR. Review is limited to violations of regulations, bad faith, or unsupported determinations.
Application: Contracting officers have substantial discretion in determining SBIR connection. As long as rational connection exists and is documented, GAO will sustain agency decision.
Principle 2: Burden of Proof
Standard: Protesters bear burden of clearly demonstrating award fails statutory/regulatory requirements. Agencies need only provide rational explanation of connection to prior SBIR efforts.
Application: Administrative record need not be exhaustive. Logical connection narrative (Process, Step 2) provides sufficient documentation when it rationally explains technology connection.
Principle 3: Logical Connection
Standard: "Derive from, extend, or complete" requirement interpreted broadly. Common technical concepts, methodologies, or approaches between Phase I/II and Phase III suffice. Connection need not be direct or exclusive.
Application: AI-DDSF concepts (data integration, knowledge graphs, NLP, analytics) extending to new mission areas satisfies logical connection even though specific requirements differ from Phase I demonstration.
Accessing GAO Decisions & Resources
Application to This Acquisition
Statutory Compliance Checklist
| Requirement | Citation | Status |
|---|---|---|
| Phase I award to contractor | 15 U.S.C. §638(r)(4) | ✅ Verified |
| Work derives/extends/completes | 15 U.S.C. §638(r)(4) | ✅ See Process, Step 2 |
| Logical connection narrative | SBA Policy Dir. 4(c)(3) | ✅ Documented |
| No J&A required | FAR 6.302-5(c)(2)(ii) | ✅ Confirmed |
| SBIR data rights | DFARS 252.227-7018 | ✅ Included |
| Program funding | SBA Policy Dir. 4(c)(2) | ✅ O&M,N funds |
| Small business status | SBA requirements | ✅ Verified in SAM |
GAO Precedent Alignment
| Precedent | Principle | Application |
|---|---|---|
| Digital Force (2025) | Technology can enable services | ✅ AI-DDSF enables all PWS tasks |
| Synergy (2020) | Broad agency discretion | ✅ Rational connection documented |
| American Systems (2020) | Phase I award required | ✅ Original awardee, not successor |
Related Resources
- Process Flow - Step 2 - See logical connection to prior SBIR
- Contract Administration - No J&A required for modifications
- Data Rights Guide - SBIR data rights implementation
- Process Overview - How technology is applied