What is a Phase III, and Why is it Valuable?
A Phase III is defined as an award that derives from, extends, or completes prior SBIR effort and is funded with non-SBIR funds.  This definition contains two important components:
A Phase III derives from, extends or completes prior SBIR effort or work.
The term “derives from” means that the Phase III work under consideration must trace back to prior SBIR or STTR effort. The prior work that the Phase III effort under consideration is being compared to can be SBIR work performed in a prior Phase I, Phase II, or even a prior Phase III.
The term “extends” means that the proposed Phase III work can be for an entirely different application of the technology that was developed in a prior Phase I, Phase II, or even a prior Phase III.
The term “completes” refers to the process of converting prior SBIR research and effort into a product, which is the completion of the innovation continuum. 
A Phase III must be funded with non-SBIR funds.
The Phase III requirement must be funded with “non-SBIR” (or non-STTR) funds in order to constitute a Phase III.
This definition is very confusing to some federal employees. They are instructed that the funding for a requirement defines its nature. Therefore, they many times mistakenly assume that because work being considered is funded with “non-SBIR” (or “non-STTR”) funds, the work cannot constitute a Phase III SBIR or STTR. However, the opposite is true.
The very fact that a Phase III requirement is funded with non-SBIR funds can make it a Phase III. This means that funding for the Phase III work does not come from the SBIR program, that is, the set aside funds used for Phase I and II.
A Phase III, therefore, looks a lot like a normal agency procurement because it is funded with mission funds of the agency. However, it is that very fact that makes the new requirement a Phase III, if it also derives from, extends, or completes prior SBIR or STTR effort.
Identification of a Phase III is the first step in preserving SBIR Data Rights after Phase I and II are completed.  In addition to SBIR Data Rights, Phase III status brings with it:
- the right to sole-source contracts;
- exemption from SBA size standards for a procurement;
- no limits on the dollar size of a Phase III procurement;
- a right to the Phase III mandate, by which the SBIR firm has a right to be awarded a future Phase III award to the greatest extent practicable;
- the right to receive subcontracts for Phase III work on a sole-source basis; and
- the ability to pursue research, research and development, services, products, production, or any combination of those under a Phase III. 
Additional details are available via SBA’s SBIR Data Rights Course, as well as the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Program Policy Directive, effective May 2, 2019.
Updated by Kristin Stiner, March 2020