Can an Agency Take SBIR Technology In-House Instead of Awarding Phase III? Strategi Opens the Door to Review

The Small Business Innovation Research program is designed not merely to fund promising research, but to help successful technology move toward operational use and commercialization.

That transition becomes difficult when an agency wants the technology—but apparently does not want to obtain the follow-on work from the company that developed it.

A recent Court of Federal Claims decision suggests that an SBIR contractor may have a forum to challenge that situation.

In Strategi Consulting, LLC v. United States, Strategi had completed a Phase II SBIR effort developing Tactical Surveillance, Reconnaissance, and Tracking software for the Air Force and Space Force. The company alleged that the Government continued to need the capability but instead of awarding Strategi a Phase III contract, pursued similar work through an internal organization and existing contractors.

The SBIR statute provides a significant preference for follow-on Phase III work deriving from prior SBIR development. It does not guarantee that an agency must purchase additional work. But where the Government does acquire work that derives from, extends, or completes an SBIR effort, the prior developer can possess important procurement rights.

The Government sought dismissal, arguing in part that there was no procurement within the Court of Federal Claims’ protest jurisdiction.

The court disagreed at this procedural stage.

It found that Strategi had sufficiently alleged a reviewable procurement-related claim involving the Government’s consideration and rejection of Phase III proposals and alleged continuing development of similar technology. The court also rejected the argument that the FASA task-order protest bar necessarily foreclosed review merely because some disputed activity allegedly occurred through existing task orders. U.S. Court of Federal Claims ECF

That is not a ruling that Strategi is entitled to a Phase III contract.

It is a ruling allowing the challenge to proceed rather than ending the case on jurisdictional grounds.

For SBIR contractors, that distinction is still important.

Phase II contractors should document the technical lineage of their technology carefully. Relevant records may include the original solicitation, proposal, Phase I and Phase II deliverables, software versions, Government technical direction, demonstrations, code transfers, transition discussions, Phase III proposals, agency responses, and later requirements that appear to derive from the SBIR-developed capability.

Contractors should also understand their SBIR data rights. Phase III procurement preferences and intellectual-property protections address related but distinct interests, and both can become important when technology begins moving toward operational use.

The practical message from Strategi is not that agencies lose freedom to decide what they need.

It is that an agency decision to continue SBIR-derived work through another route may be subject to meaningful judicial scrutiny.

For companies whose business model depends on turning Phase II development into Phase III revenue, that is a development worth watching closely.

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FedClause360 can help contractors understand SBIR clauses, technical-data rights, software rights, procurement preferences, and other contractual provisions that become critical when federally funded innovation transitions toward follow-on acquisition.

Disclaimer:
This article is provided for general informational and educational purposes only and does not constitute legal or bid-protest advice. The Strategi decision discussed here addressed jurisdictional issues and did not determine that the contractor was entitled to a Phase III award or prevail on the merits.