Phase III is one of the least understood phases of the SBIR/STTR programs. Federal employees and SBIR/STTR entrepreneurs alike struggle to master the intricacies of this phase of the SBIR and STTR programs.
Some general guidance
What is Phase III Commercialization?
Phase III is the commercialization phase and the ultimate goal of each SBIR/STTR effort. Phase III work derives from, extends, or completes efforts made under prior funding agreements under the SBIR/STTR program. Statute requires that Phase III work is funded by sources outside the SBIR/STTR Program. Small businesses are expected to leverage SBIR/STTR funding to obtain funding from the private sector, non-SBIR/non-STTR government sources, or both to continue research or research and development for commercial applications to sell in either private sector or military markets. Commercial applications can include testing and evaluations of products, services, or technologies for use in technical or weapons systems. Within the DOD, often the initial customer is a prime contractor for a major weapon system or other program of record.
Why is Commercialization Important?
The government expects that a company will be able to turn the research and development of the Phase II contract into a commercially viable product. A small business's ability to successfully commercialize its products and services to the military or private sector will determine how favorably its Phase II proposals are evaluated in the future. Within the DOD community, technological innovation creates jobs, increases productivity and spurs economic growth and competition. It also gives the technological edge to our Warfighter, an edge that can save lives.
How DoD Measures Commercialization
DOD measures commercialization by evaluating the Commercialization Achievement Index (CAI), investment information, and any additional material relating to the small business's history of commercialization. The CAI is calculated using the commercialization success of prior Phase II projects as reported by the small business.
When Should You Commercialize?
Small businesses, and the acquisition programs interested in SBIR/STTR technology, should start planning for commercialization as soon as a Phase I contract is awarded. Given the timelines associated with the DOD budget development process, it is crucial to begin identifying Phase III funding with ample lead time. Early commercialization planning will also support the small business's ability to align its SBIR/STTR technology with acquisition program schedules and requirements. Statute defines commercialization as "the process of developing products, processes, technologies, or services; and the production and delivery (whether by the originating party or others) of products, processes, technologies, or services for sale to or use by the Federal Government or commercial markets."
Phase III Conditions and Limits
No federal SBIR/STTR funding may be used on a Phase III contract, although non-SBIR/non-STTR government funds are allowed.
There is no limit on the number, duration, type, or dollar value of Phase III awards made to a business concern.
There is no limit on the time that may elapse between a Phase I or Phase II award and Phase III award or between a Phase III award and any subsequent Phase III award.
The small business size limits for Phase I and Phase II awards do not apply to Phase III awards.
Phase III Awards
A DOD component may award a Phase III contract on the basis of a project's success during the competitive preliminary stages. Phase III contracts may be awarded without further competition after Phase I or Phase II. All competition requirements are satisfied through the awarding of Phase I or Phase II contracts..
Tip sheets & Tutorials
Although each agency will have some criteria that are unique, we previously introduced three that are commonly considered important in evaluating all SBIR/STTR proposals: Innovation, Capabilities of the team, and Commercialization. To access, click HERE - clicking this link will redirect you to reference material provided by the U.S. Small Business Administration.
One goal of commercialization plans is to show you’re a risk manager, not a risk taker. You should identify and acknowledge the existing risks and provide a plan for how you will mitigate them. Access our Tip Sheet on this subject by clicking HERE.
Planning for commercialization should occur before you submit a proposal for SBIR or STTR, as opposed to after submission. Generally, if you are trying to figure out where to find a customer after developing a product or technology, it may be too late. Access our Tip Sheet on this subject by clicking HERE.
A critical component of your commercialization plan is gaining an understanding of the market that you are going to pursue. A proper market analysis can help to better inform you about what the true opportunity is for your product or service and how best to approach customers. Market analysis is a process that starts by first understanding the problem you are trying to solve, then identifying customers with the need to solve that problem. Finally, you determine the market size, and identify potential competitors. Access our Tip Sheet on this subject by clicking HERE.
The Secretary of Defense and the Secretary of each military department is authorized to create and administer a Commercialization Readiness Program (CRP) to accelerate the transition of technologies, products, and services developed under the Small Business Innovation Research Program or Small Business Technology Transfer Program to Phase III, including the acquisition process. Access our Tip Sheet on this subject by clicking HERE.
Phase III status is important because it is the admission ticket to receiving SBIR/STTR Data Rights and other Phase III rights. Once an SBIR firm passes through Phases I and II of the SBIR program, it enters the Phase III stage, where the right to SBIR Data Rights is harder to recognize. To access, click HERE - clicking this link will redirect you to reference material provided by the U.S. Small Business Administration.
Phase III status is the admission ticket to receiving SBIR Data Rights in a funding agreement. That is why it is so critical to recognize a Phase III requirement, and to insist that SBIR rights be accorded a Phase III. To access, click HERE - clicking this link will redirect you to reference material provided by the U.S. Small Business Administration.