A Q&A recap for defense industry partners navigating federal acquisition
At SOF Week 2026 in Tampa, industry partners joined the “Ask the Contracting Officer” session presented by Jennifer Morris, Partner, and Janie G. Sullivan, Contracts Director at Capstone Law Solutions. The questions asked cut to the core of federal market strategy: how to move through the SBIR pipeline, how to structure teaming arrangements, how to protect intellectual property and how to think long-term about growth. This recap reflects some of the most frequently asked questions and the guidance shared during the session.*
How the SBIR Pipeline Actually Works
The simplest way to remember the SBIR pipeline is paper, prototype and production. Phase I is a short feasibility study to establish technical merit. Phase II produces and matures an actual prototype. Phase III is where real fielding and revenue happen, covering work that derives from, extends or completes the earlier phases.
Phase III is not automatic. Companies that wait until Phase II ends to think about transition have already lost momentum. Building the transition strategy from day one of Phase II, not the final quarter, is what separates companies that field technology from those that stall.
What Most Companies Get Wrong About SBIR Phase III
Several facts about Phase III consistently catch companies off guard. There is no dollar ceiling on a Phase III contract. There is no limit on the number of Phase III contracts a company can hold. Any federal agency can award a Phase III, not just the one that funded Phase I or II. The work simply has to derive from, extend or complete the original SBIR effort.
Phase III can also be a sole-source authority. If Phase I or Phase II were awarded competitively, the government does not have to compete Phase III because the prior awards satisfy the federal requirement for competition for the entire SBIR lifecycle. Phase III is not “non-competitive.” It is “already competed.” That legal foundation is one of the most powerful strategic assets available to a small business, and most companies underuse it.
As long as the underlying Phase I or Phase II was competitively awarded, that sole-source Phase III pathway is available across agencies, across contract vehicles, with no dollar ceiling, and with no limit on the number of awards. The contracting officer does not have to recreate competition that already occurred.
Modifying, ruggedizing, integrating, or adapting a prototype for a new mission set all qualify as Phase III work, as long as the effort derives from or extends the original SBIR. That flexibility allows vendors to keep building on a single SBIR foundation without triggering a competitive re-compete every time the technology evolves.
The definition of “prototype” is also broader than most companies assume. A prototype is not just hardware. It can be software, algorithms, AI and machine learning models, integrated systems, processes, training methodologies, or services with a novel technical approach. Companies regularly leave opportunity on the table by defining the term too narrowly.
Navigating the sole-source pathway and its agency-portability requires careful structuring, the kind experienced federal contracts counsel can help map before a window closes. Capstone Law Solutions works with companies to build Phase III strategies from the earliest stages of Phase II, ensuring no expansion opportunities are left unexplored.
Teaming, Partnership Structure and Long-Term Strategy
When a small business partners with a large business on a Phase III, structure determines everything. In most cases, it is beneficial for the small business to retain prime position and bring the large business on as an integrator or subcontractor. That arrangement preserves the small business’s Phase III sole-source authority and SBIR data rights while still providing access to the large business’s integration capacity and production infrastructure.
Cybersecurity compliance presents a related challenge. Building out CMMC, NIST 800-171, and ATO-compliant infrastructure represents a major capital investment for a small business. One practical solution is partnering with a large business that already has compliant infrastructure and flowing that security structure down through the teaming arrangement. That keeps the small business’s limited capital focused on the technology itself.
If the large business partner assumes the prime position, the teaming arrangement effectively nullifies the sole-source authority flowing from the SBIR because large businesses are not eligible for SBIR awards as primes. There are other pathways to sell technologies derived from SBIRs to the government, but in most cases using SBIR Phase III authorities provides significant advantages.
The stakes in these arrangements ( IP rights, sole-source eligibility, compliance liability) make legal review a necessary investment, not a luxury. Counsel should review every teaming agreement to ensure IP and data rights protections survive flow-down provisions and that companies aren’t unknowingly locking themselves out of sole-source award authorities.
On the question of long-term strategic direction, small businesses face three distinct paths and the critical mistake is not consciously choosing one. The first path is building the company toward acquisition, developing IP, contracts, and team depth into something attractive to a buyer. The second is operating as a subcontractor to an established prime, accepting a lower ceiling on growth in exchange for steadier revenue and lower operational burden. The third is becoming a prime, which carries the highest upside but demands DCAA-compliant accounting, facility clearances, program management depth, and the working capital to sustain it. Each path is a valid strategy. Drifting without a direction is not.
Finding the Right Federal Customer
DoD is the most visible customer, but the federal market extends well beyond it. The Department of Homeland Security, including Customs and Border Patrol, the Transportation Security Administration, the Coast Guard, and the Science and Technology Directorate, actively buys technology. So do the Department of Energy and its national laboratories, the Department of Justice, the FBI, the State Department, the Intelligence Community, and NASA.
Because SBIR Phase III sole-source authority travels across agencies, a Phase II funded by one agency can become a Phase III contract with an entirely different one. The customer base is significantly wider than most companies explore.
SOCOM is a prime example of this dynamic. SOCOM frequently awards Phase III contracts for efforts originally funded as Phase I and Phase II by the Services, DARPA, DHS, and other organizations. A company does not need a SOCOM Phase I or II to land a SOCOM Phase III. If the technology maps to a SOF mission need, SOCOM is often the operationalizing customer for work matured elsewhere.
Where to Look for SOF Opportunities Beyond SAM.gov
SAM.gov is the official posting board, but by the time a formal solicitation appears there, the relationship-building window is largely closed. The SOF AT&L website at socom.mil/SOF-ATL can be another productive starting point. The SOF Hard Problems page publishes the command’s current priority capability gaps. Currently three hard problems are listed for active industry engagement: Small Unit Dominance, Mission Assured Communications, and Signature Management. Companies with solutions that map to those gaps can contact the command directly at Hard_Problems@socom.mil. The BAA and RFI Announcements page and the Capability Areas of Interest page on the same site are additional front doors that most vendors overlook entirely.
Contracting Strategy: Award First, Refine After
When the question is whether to push for a better agreement before award or accept the contract and modify later, the practical answer is almost always to get on contract. Funding disappears, priorities shift, and requirements get re-scoped. Attempting to perfect every detail before an award puts the entire opportunity at risk.
As long as scope, price, and terms are in reasonable alignment at award, the contracting mechanism exists to be adjusted through modifications. The perfect contract is always one modification away. Do not let the pursuit of ideal terms become the reason a funded opportunity falls apart.
What Legal Counsel Actually Delivers
The questions raised throughout this session on Phase III strategy, teaming structure, and IP discipline each point toward a common theme: the companies that use these mechanisms most effectively are the ones with experienced counsel shaping strategy alongside them, not just documenting agreements after the fact.
Most companies underestimate what legal counsel can do beyond drafting agreements and managing disputes. Strategic value is where experienced counsel earns its place. Counsel helps prepare negotiation positions, clarifies where leverage actually sits, and can sit at the table during negotiations, which matters significantly when small businesses face primes or government counterparts with experienced acquisition teams on their side.
Beyond negotiations, legal counsel addresses size standards and affiliation analysis, organizational conflicts of interest, bid protests and claims, M&A and exit structuring, FAR and DFARS flow-down review, CMMC posture, and ITAR/EAR export controls.
The right time to bring legal in is early, always. Cap table structure, IP assignment, founder agreements, and the data rights language in a first SBIR proposal are all areas where getting the foundation right is relatively inexpensive. Unwinding mistakes later is costly and sometimes not possible at all.
A Disciplined Approach to IP Protection
IP protection requires active, ongoing discipline across three areas.
Mark everything. SBIR data rights legends, limited rights markings, and restricted rights markings belong on every deliverable, drawing, software file, and report. Anything unmarked defaults to granting the government unlimited rights, and that is extremely difficult to reverse.
Define ownership and licensing terms at the beginning of every agreement. Who owns background IP, foreground IP, and jointly developed IP? What license does the government receive? What flows down to primes and subcontractors? All of that needs to be in writing before performance begins, not after.
Monitor through performance. Audit deliverables before they leave the building. IP protection is not a one-time checklist item completed at contract award. It is an ongoing practice that requires attention throughout the life of the program.
The questions raised at this session reflect a market that is both expanding and maturing. The contracting mechanisms are flexible by design. The companies that consistently succeed are the ones that understand those mechanisms and use them deliberately, from SBIR entry all the way through to fielding.
Law firms work with companies to establish these practices from the outset so that by the time a deliverable leaves the building, protection is already built in. Getting the IP foundation right early is far less costly than addressing gaps after performance has begun.
For follow-on questions from the session or to schedule a complimentary consultation, contact Capstone Law Solutions at jmorris@caplawsolutions.com.
*The information provided here does not constitute legal advice. Companies seeking such advice should consult counsel directly.
All images are courtesy of: Dawn Zoldi, P3 Tech Consulting.