In a recent bid protest decision— Digital Force Technologies, Inc., B-423319 (May 19, 2025), the Government Accountability Office (“GAO”) denied a protest of a Small Business Innovation Research (“SBIR”) program Phase III sole source solicitation issued by the Air Force, concluding that the Air Force had properly procured work from a successor-in-interest entity that derives from, extends, or completes efforts under prior SBIR contracts. Notably, GAO found that a single SBIR-derived component of the overall system to be procured can be a sufficient link to prior SBIR work for an agency to exercise its authority to issue a sole source SBIR Phase III contract.
This decision builds on previous GAO decisions in ASRC Federal Data Network Technologies, LLC, B-418765, Aug. 28, 2020, 2020 CPD ¶ 339 (“ASRC II”)[1] and Toyon Research Corporation, B-409765, Aug. 5, 2014, 2014 CPD ¶ 235, in which GAO had explained that “it must be evident that the requirements for the second effort incorporated original concepts, findings, ideas, or research results that were generated in the first.”[2]
This blog post briefly summarizes background on the SBIR program and requirements for Phase III sole source awards, as backdrop to GAO’s findings in Digital Force Technologies. The post then analyzes particular aspects of GAO’s decision suggesting an expansion of existing case law in this area and concludes with a brief discussion of practical considerations for government contractors.
I. Background On SBIR Program And SBIR Phase III Awards
The SBIR program is intended to increase the participation of small businesses in federally funded research or research and development. The SBIR program is divided into three phases, with Phases I and II devoted to testing nascent technologies and further developing them, respectively; and Phase III intended for work that “derives from, extends, or completes efforts made under prior funding agreements under the SBIR program[.]”[3]
To qualify for SBIR Phase I or II awards (which may take the form of a procurement contract, grant, cooperative agreement, or Other Transaction), an entity must meet several eligibility requirements. For example, the entity must qualify as a small business concern at the time of award and certify that it meets certain size and ownership requirements.[4] For Phase I awards, the awardee must also perform at least two-thirds of the research or analytical effort, while for Phase II awards, the awardee is required to perform at least half of the effort.[5] And, both Phase I and Phase II have employment and location of work requirements (ex-U.S. work is generally prohibited).[6] The program also requires agencies to maintain benchmarks for progress towards commercializing the technologies that program participants must meet to remain eligible for new Phase I awards.[7]
But after an entity has completed Phase I and/or Phase II, SBIR Phase III awards have several unique and attractive features. First, an agency is not required to conduct a new competitive procurement for Phase III awards, as the competitions for Phase I and Phase II awards satisfy statutory competition requirements for Phase III awards.[8] Second, there is no limit on how many Phase III awards a business concern may win, or the value of those awards.[9] Third, the small business size limits for Phase I and Phase II awards do not apply to Phase III awards.[10]
II. Digital Force Technologies, Inc.: Key Background
The protest in Digital Force Technologies, Inc. involved the Air Force’s issuance of sole source SBIR Phase III solicitation for a a tactical security system (“TSS”) to Clear Align. The protestor, Digital Force Technologies, Inc. (“Digital Force”), argued that the Air Force’s requirement for a TSS did not derive from, extend, or complete the SBIR Phase II contracts that the Air Force had identified were performed by a successor in interest to Clear Align, the awardee.[11]
III. A Single “SBIR-Derived Component” That Is “Reasonably Related” To The “Overall Objective” Of The Phase III System Can Be Sufficient
Digital Force challenged the Air Force’s determination that the proposed solution derived from, extended, or completed the prior relevant SBIR Phase II efforts. The protester argued that the use of Phase III authority was not proper because only a single component of the TSS to be acquired – the camera – was derived from the relevant prior Phase II work, while the system also included several commercial-off-the-shelf (“COTS”) components that were available from multiple sources.[12] Digital Force analogized the Air Force’s interpretation to a situation where a large defense contractor purchased the rights to the camera, installed it on a C-40 aircraft, and then won a Phase III to expand the Air Force’s C-40 fleet.[13]
GAO disagreed, and found sufficient support in the record to determine that the Air Force had “reasonably concluded” that Clear Align’s proposed TSS derived from the relevant prior SBIR Phase II contracts.[14]
GAO dismissed Digital Force’s contention that the Air Force had improperly exercised its statutory authority to use SBIR Phase III to procure a system with various COTS components. Notably, GAO concluded that there was no authority prohibiting an agency from using its Phase III authority to procure a system “where only a component of the overall system derives from, extends, or completes a prior SBIR effort.”[15] The infrared camera, which was a SBIR-derived component, was “reasonably related to the overall objective of the system” that required “surveillance capability, motion detection, video assessment, and sensing technologies” that the Air Force was seeking to procure.[16]
IV. SBIR Phase III Focuses On Work To Be Performed; Agency Requirements Are “Relevant”, But “Not Dispositive”
GAO also rejected Digital Force’s contention that the Air Force’s requirements,as opposed to the proposed Phase III solution,must derive from prior SBIR efforts. GAO determined that the statutory authority for the SBIR program and SBIR/STTR Policy Directive both indicate “that SBIR phase III unambiguously refers to the work to be acquired, not the agency’s requirement.”[17] GAO noted that “while an agency’s requirements may be relevant to the analysis of whether a procurement constitutes an SBIR phase III procurement, the requirements themselves do not need to derive from, extend, or complete a prior phase I or II effort in order for an agency to properly use SBIR phase III.”[18]
In determining there was no statutory or policy requirement for the agency’s requirements to build on prior SBIR work, GAO appears to expand its reasoning from prior cases involving SBIR Phase III challenges. GAO explained that looking at whether an agency’s requirements “incorporate original concepts, findings, ideas, or research results” from the prior SBIR work is one “potential approach” to determining whether a procurement properly qualifies as SBIR Phase III, but is not required under the relevant statutory authority and agency guidance.[19]
V. Practical Takeaways For Contractors From Digital Force Technologies, Inc.
Across multiple decisions, GAO has repeatedly determined that the SBIR/STTR Policy Directive affords agencies significant flexibility when developing SBIR Phase III work scope. Digital Force Technologies, Inc. clarified that there is “no requirement in statute or the [SBIR/STRR] policy directive that the entirety” of the Phase III solution derive from Phase I efforts.[20] This compliments the earlier ASRC II decision, which provides guidance for determining whether a particular product is derived, extends from, or completes earlier Phase I work. These decisions, taken together, are further evidence that contracting agencies may stand to benefit from partnering with small businesses that develop innovative technologies with broad use applications. We will continue to monitor developments in the SBIR space on Covington’s Inside Government Contracts blog.
[1] ASRC II involved a protestor arguing that the relevant SBIR Phase III contract – for a health care delivery system – was improper because it did not derive from previous SBIR Phase I work, which concerned “shipboard assessment methodology with prototype software for training-based, combat systems readiness measurement.” ASRC II, at p. 6. As in the recent Digital Force Technologies case, GAO rejected the ASRC II protest and concluded that in light of the “relatively limited” statutory and policy requirements for an agency to justify a Phase III award, the Phase III award was proper. Id. at p. 12. The ASRC II decision also indicated that individual orders issued against a multi-award Phase III contract need not reference the underlying SBIR Phase I technology, so long as the master contract indicated it would build on the earlier SBIR work. Id. at pp. 8-9.
[2] Toyon Research Corporation, B-409765, Aug. 5, 2014, 2014 CPD ¶ 235 at 16 n. 15. Notably, in Digital Force Technologies, GAO determined there was no need to apply the “original concepts, findings, ideas, or research results” test from ASRC II, because the relevant inquiry was focused on the proposed solution, not the Air Force’s requirements. Digital Force Technologies, Inc., B-423319 (May 19, 2025), p. 12.
[3] 15 U.S.C. § 638(e)(4)(C).
[4] See 13 C.F.R. § 121.702.
[5] See SBIR/STTR Policy Directive, U.S. Small Business Administration (May 3, 2023), p. 33.
[6] See id. at pp. 33-35.
[7] See id. at p. 38.
[8] See id. at p. 26.
[9] See id.
[10] See id. at p. 27.
[11] Digital Force Technologies, Inc., B-423319 (May 19, 2025), p. 4. Digital Force also challenged whether Clear Align was a successor-in-interest to Computer Optics, the contractor that had performed the earlier SBIR work. GAO concluded that the Air Force reasonably relied on Clear Align’s proposal and the relevant asset purchase agreement in determining that Clear Align was a successor-in-interest to Computer Optics that had acquired the relevant assets in 2013. For further details of this aspects of GAO’s decision, see id. at pp. 15-19.
[12] Id. at pp. 8, 10.
[13] Id. at p. 10.
[14] Id. at p. 14.
[15] Id.
[16] Id.
[17] Id. at p. 7.
[18] Id. at p. 8, n. 5 (emphasis added).
[19] Id. at p. 12.
[20] Id. at p. 15.