The Re-emergence of the Purchase and Licensing of Technical Data Packages for
Second Source Procurement or Sustainment
By Holly Emrick Svetz 1
Since the beginning of the Obama administration, federal agencies, and in particular, the
Department of Defense ("DOD") have been on a mission to engage in increasing competition in
government contracting. This, of course, creates tension with the goals of government
contractors who develop intellectual property in the hope that it will provide a competitive
advantage in the marketplace, if not a monopoly through prosecution of a patent portfolio,
copyright of writings and software, and protection of trade secrets and trademarks.
This article focuses on one way in which DoD procurement offices are attempting to
address these conflicting goals -- by buying technical data packages. The policy background
leading to use of technical data packages will be covered first, followed by discussion of two
interesting examples of their recent increased use. The focus of these examples is not on the
requirement in new development program solicitations to deliver technical data packages, but
instead on the trend towards purchase of technical data packages for existing or nondevelopmental products.
Competition Policy and Technical Data Packages
On March 4, 2009, President Obama issued a Memorandum for the Heads of Executive
Departments and Agencies that called on agencies to reverse trends away from full and open
competition. i Among other things, the Memorandum states that "[i]n certain exigent
circumstances, agencies may need to consider whether a competitive process will not accomplish
the agency's mission. In such cases, the agency must ensure that the risks associated with
noncompetitive contracts are minimized." The Memorandum required the Director of the Office
of Management and Budget ("OMB"), in collaboration with the Secretary of Defense, the
Administrator of the National Aeronautics and Space Administration, the Administrator of
General Services, the Director of the Office of Personnel Management, and the heads of other
appropriate agencies to develop and issue by July 1, 2009 Government-wide guidance to assist
agencies in their procurement processes.
On May 22, 2009, Congress passed the Weapon Systems Acquisition Reform Act of
2009 ("WSARA"). ii Section 202, of WSARA calls on DoD to use "Acquisition Strategies to
Ensure Competition Throughout the Lifecycle of Major Defense Acquisition Programs."
Congress has helpfully included in the statute measures for DoD to consider:
(1)
Competitive prototyping.
(2)
Dual-sourcing.
(3)
Unbundling of contracts.
(4)
Funding of next-generation prototype systems or subsystems.
1
Holly Emrick Svetz is a partner in the Northern Virginia office of Womble Carlyle Sandridge & Rice LLP,
practicing government contracts law.
1
(5)
Use of modular, open architectures to enable competition for upgrades.
(6)
Use of build-to-print approaches to enable production through multiple
sources.
(7)
Acquisition of complete technical data packages.
(8)
Periodic competitions for subsystem upgrades.
(9)
Licensing of additional suppliers.
(10)
Periodic system or program reviews to address long-term competitive
effects of program decisions iii
The topic of this article, technical data packages, made number seven on Congress' list.
Missing the July 1, 2009 deadline by a few weeks, on July 29, 2009, OMB issued a
Memorandum entitled "Improving Government Acquisition." This document instructed agencies
to review their contracts and existing practices and advised that in Fall 2009, further guidance
regarding would be provided regarding competition and other issues. None of the several
following guidance documents, listed below, address the technical data package issue at all.
•
OMB Memorandum, "Increasing Competition and Structuring Contracts for the
Best Results," Oct. 27, 2009. iv
•
Under Secretary of Defense (Acquisition, Technology and Logistics) DirectiveType Memorandum, "Implementation of the Weapon Systems Acquisition
Reform Act of 2009," Dec. 4, 2009. v
•
Under Secretary of Defense (Acquisition, Technology and Logistics)
Memorandum for Acquisition Professionals, "Better Buying Power: Mandate for
Restoring Affordability and Productivity in Defense Spending," Jun 28, 2010. vi
Finally in September 2010, the role of the technical data package in competition was
addressed again. In a Memorandum from the Under Secretary of Defense (Acquisition,
Technology and Logistics), in a section entitled, "Promote Real Competition" and a subsection
entitled, "Remove obstacles to competition," is a sub-sub section entitled, "Require open systems
architectures and set rules of acquisition of technical data rights." vii The guidance provided
states:
At Milestone B, I will require that a business case analysis be conducted in
concert with the engineering trade analysis that would outline an approach for
using open systems architectures and acquiring technical data rights to ensure
sustained consideration of competition in the acquisition of weapons systems. A
successful example of the strategic use of open architecture and buying of
appropriate technical data rights is the Navy's Virginia-class SSN program. The
Virginia program uses a modular open systems architecture and selective subcomponent technical data rights procurement that promotes a robust competition
at the component supplier level, while still supporting continual and effective
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block upgrades to the existing systems that reduces the overall life cycle cost of
the system.
Around the same time, in August 2010, the Army issued a guide for data management
that is intended to advise the program manager and other involved in the acquisition and support
of Army hardware and software. The Army's guide advises:
Historically product support or acquisition program operating sustainment costs
are approximately 70% of the total ownership cost of the system over its entire
"cradle to grave: lifecycle. Lack of technical data significantly impedes the
Army's ability to maximize competition for both acquisition and sustainment of
the acquisition program. It also severely impacts the government enterprise's
ability to properly plan and execute effective and efficient sustainment strategies.
This has led to the government's inability to reduce total ownership costs
throughout its life cycle. Hence the value of the technical data across the
government enterprise is critical for meeting key operating and sustainment
Warfighter requirements.
To ensure maximum availability of competitive acquisition and product support
alternative throughout the life cycle of a system or component, PMs must make
certain that all necessary product data and associated data rights are acquired at
logical points in the life cycle process and are maintained for future use. viii
The guide goes on to suggest several alternatives for acquiring the needed data rights for
life cycle support from the Original Equipment Manufacturer ("OEM"), which is quite practical
and should be helpful to government acquisition personnel:
•
Additional Rights Negotiations
•
Change program strategy
•
Use of Competitive Sourcing Proposals
•
Physically and Functionally Interchangeable Items ("PFI"), Components, or
Processes ("ICPs")
•
Reverse Engineering by or at the direction of the Government
•
Reverse Engineering by a third party
•
Internal Government Use of Limited Rights data ix
The guide further elaborates on the first option -- Additional Rights Negotiations:
The parties may negotiate for data rights beyond the automatic and default rights
conveyed by the DFARS clauses. Such negotiations are subject to a statutory
prohibition that the contractor cannot e compelled to relinquish such additional
rights as a condition of being responsive to the solicitation or as a condition of
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award. In a competition, such negotiations within this prohibition are difficult
and usually take the form of a voluntarily priced option (often a not-to-exceed
price) to deliver all required data (commercial and noncommercial) with not less
than GPR. Generally, a competitive evaluation of such options is limited to the
life cycle cost impacts to the program. x
Unfortunately, many program managers and contracting officers do not have the benefit
of training or a close relationship with their government contracts counsel and offer only one
approach -- require all offerors to submit technical data with Government Purpose Rights to be
considered responsive. This is very common in major weapons systems development
solicitations. The proposal response and negotiation in response to these solicitations is a
challenge that is not covered in this article. This article addresses the situation in which the
offeror or any of its team of subcontractors are offering items developed exclusively at private
expense or are commercial items. A simple demand that these contractors simply give up their
intellectual property, as pointed out by the Army's guide, is not within the Government's
authority.
Two recent procurements by the Army have involved acquisition of rights in technical
data packages involving information that was developed exclusively at private expense that are
relatively sophisticated and demonstrate approaches that attempt to balance the objectives and
interest of both parties.
The Camouflage Pattern Procurement
The first is a procurement by the Army's Natick Contracting Division for a new family of
camouflage patterns. The offerors were to proposed fixed prices for delivery of 1000 yards each
of Wooded, Transitional, and Arid camouflage patterns. In addition, the solicitation included
priced option Contract Line Items ("CLINs") for "Government Non-Exclusive License Rights" in
each of the patterns. The RFP included the following regarding the licensing option:
The Government may request to procure, through exercising an option under
CLINs 1001. 1002, 1003, and 1004, the non-exclusive right, license and privilege
worldwide to:
a. use, reproduce, and/or distribute, such as through solicitations, the Material
for use in printing camouflage patterns onto an unlimited number of uniforms,
individual equipment, and unit level equipment, that is solely for a United
States Government purpose (e.g., Army, Navy, Marine Corps, Air Force, and
Coast Guard including their active and reserve components) excepting FMS.
b. Publicly display and authorize others to display the Material, the camouflage
patterns or the uniforms, individual equipment, and unit level equipment in
connection with the advertising, publicizing, marketing, distribution and use
of the Material or the camouflage patterns.
In accordance with DFARS clause 252.227-7013, the Offeror shall identify items,
components or processes developed exclusively at the Offeror's expense and
propose under CLINs 1001, 1002, 1003, and 1004, the cost of procuring said
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rights in accordance with the terms and conditions set forth under Non-exclusive
License Agreement attachment reference in Section J of Contract. xi
The evaluation criteria included five areas: Technical, Management/Production
Readiness, Contract/Cost/Price, Past Performance, and Small Business Participation Plan. The
Technical Area was more important than the Management/Production Readiness Area, which
was significantly more important than the Contract/Cost/Price Area, which was more important
than the Past Performance Area, which was more important than the Small Business
Participation Plan. Within The Management/Production Readiness Area, there were three
factors: Producibility of Print, Manufacturability of End Item, and Licensing Requirements.
Produciblity of Print was significantly more important than Manufacturability of End Item and
Licensing Requirements, which are of equal importance. xii
The Licensing Requirement Factor stated the following:
This section will be evaluated for any and all licensing requirements and criteria
and stipulations related to future military use of this camouflage solution(s). xiii
The Solicitation states that the Management/Production Readiness Area would be rated
using the following Adjectives: Outstanding, Good, Acceptable, Marginal, Susceptible to Being
Made Acceptable, and Unacceptable, and their descriptions deal with the degree to which the
proposal's approach is feasible, demonstrates understanding of the problems, and the degree of
risk in meeting requirements.
The Army's proposed license agreement was included in the solicitation and is found at
Attachment A. It contains license terms that are remarkably common in commercial agreements.
The indemnification clause, usually highly scrutinized in licensing agreements, is missing
because the Government generally cannot provide indemnification as that is considered an
obligation of funds in advance of authorization and appropriations. In any event, any
infringement actions against the Government would need to be filed under 28 U.S.C. § 1498
where the Government is represented by the U.S. Department of Justice. Only in specific an
unusual circumstances does the Government seek to have another party handle its defense.
No contract award has yet been made, although five teams are still having their
camouflage designs tested by the Army. xiv According to the Army:
The Phase IV Camouflage Effort seeks to select a family of three patterns
comprising the woodland, arid, and transitional environments, which will allow
the Army to operate in different terrains and conditions around the globe. The
Phase IV patterns are undergoing field trials and the data from those trials will be
taken to Army senior leadership for review. This will be followed by a costbenefit analysis to determine if the Army will adopt a new camouflage pattern. xv
The M4 Procurement
This procurement follows a long history of data rights disputes. The M4 carbine is the
successor to the M16 as the primary small arms weapon for all of the Department of Defense.
Colt Defense is the successor to the Colt organization that developed the M16. Over the years,
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many improvements were made to the weapon, many with Government funds. In 1967, Colt and
the Army signed a license agreement giving the Army certain license rights in the technical data
package.
The M4 was developed and passed testing in 1990. The M4 shares many common parts
with the M16, so the Army and Colt behaved as though the 1967 license agreement applied to
the M4, although the agreement did not specifically address the M4. In 1996, the Army shared
the Technical Data Package with the Navy for use in an adaptor kit procurement. As was later
determined in litigation, the Navy distributed Colt's technical data package to competitors
without implementing protective measures as required under the 1967 license agreement. xvi
FN Manufacturing, a competitor, allegedly kept a copy of the technical data package and
submitted an unsolicited proposal for the M4 to the Government. The Army asserted that it had
rights in the technical data package because of the 1967 license agreement, while Colt disagreed.
Two engineers, one from each party, agreed that a number of parts were "critical and unique"
and not funded by the Government. This resulted in a 1997 addendum to the 1967 license
agreement.
In 1998, the Army published an announcement of an intent to make a sole source award
to Colt for the M4 due to a lack of data rights. FN Manufacturing filed a bid protest arguing,
among other things, that the Army improperly relinquished rights in the M4 technical data
package when it entered into the 1997 addendum to the 1967 license agreement. The court held
that the 1997 Addendum was a lawful agency action. xvii Although the terms of the license
agreement between Colt and the Army are treated as proprietary, it is known that the agreement
permitted the Army to use the technical data package after July 2009 for a competitive
procurement of the M4. The press contained concern about Colt's continuously increasing prices
for the M4 and there was interest in Congress and the Department of Defense in fostering
competition in the small arms area. xviii
On August 19, 2011, the Army issued Solicitation No. W56HZV-10-R-0593 for a five
year indefinite delivery indefinite quantity contract for the M4, variants, and accessories. The
very first paragraph of the solicitation addressed the technical data package:
The Technical Data package (TDP) for this solicitation and any resulting contract
includes documents that are proprietary to Colt Defense LLC. Disclosure and use
of the TDP are restricted by the Non-Disclosure and Non-Use Agreement (located
in Section J - Attachment 0003) that the offeror has to execute prior to receipt of
the viewing of the proprietary TDP. To obtain a copy of the TDP, see Section C
of the solicitation.
*
*
*
The offeror shall not reproduce, duplicate or copy the TDP, or any portion
thereof, except to the extent necessary for, and then only in connection with
(i) the preparation and/or submission of proposals related to this procurement
being affected by the Untied States Government, or (ii) the manufacture within
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the United State or Territories or under a contract with the United States
Government.
The offeror shall not disclose the TDP or any portion thereof, to any person or
entities other than its own subcontractor and vendors and then only in connection
with this solicitation or any resulting contract. Prior to any such disclosure, the
offeror shall (i) obtain from each such subcontractor and vendor a Non-Disclosure
and Non-Use Agreement in accordance with paragraph 4 of the Non-Disclosure
and Non-Use Agreement that the offeror has executed in connection with this
solicitation, and (ii) clearly and identifiably marks the technical data to restrict its
use and reproduction. xix
The terms of the license agreement between Colt and the Army are considered
proprietary, but it is referenced in the M4 solicitation:
The technical data includes license technology for which the Government is
obligated to pay a royalty amount pursuant to a license agreement. If the offeror
is the owner of or a licensee under the technology/technical data, indicate below
and provide a copy of license if applicable: xx
The price factor is described in the original solicitation as follows:
The royalty rate is 5%. If an offeror does not indicate that it is the owner or a
licensee of the technology/technical data, its offer will be evaluated by adding an
amount equal to the royalty to its proposed prices. xxi
Although the licensing agreement between Colt and the Army is proprietary, public
sources state that the Army must
Pay 5% in royalties to Colt, for every M4/M4A1 carbine and/or their unique parts
procured form second sources through December 24, 2037. xxii
Interestingly, there were no protests of this provision, which essentially penalizes the
offerors not owning the data rights by assessing the licensing fee the Government agreed to pay
Colt on top of any proposed price.
Remington Arms was selected as the intended awardee, but Colt protested the award. xxiii
Although the protest was decided July 24, 2012, a redacted, public version of the decision has
not been released as of the October 9, 2012 submission date of this article. The GAO issued the
following statement in response to a press inquiry regarding the protest decision:
GAO reviewed the challenges raised by Colt and found that the agency failed to
follow the solicitation criteria with regard to the evaluation of the offerors’ total
evaluated prices and sustained the protest on this basis. Colt’s other challenges
were denied. xxiv
7
Corrective action was issued by the Army via an amendment to the solicitation on
September 24, 2012 and proposal submissions are due October 9, 2012, the submission date of
this article.
The Army again demonstrated a commercial licensing approach and used a technical data
package to foster competition with the goal of getting the best deal for the best equipment.
While there are many ways in which these procurements can be questioned or criticized, they are
refreshing deviations from the default approach of demanding Government Purpose Rights in
technical data that was developed exclusively at private expense. These programs and others
being conducted by other creative program offices are examples of situations in which
competition is increased and the value of contractors' intellectual property is recognized to the
benefit of both sides of the table.
i
Memorandum for the Heads of Executive Departments and Agencies: Government Contracting, Mar. 4, 2009
available at http://www.whitehouse.gov/the_press_office/Memorandum-for-the-Heads-of-Executive-Departmentsand-Agencies-Subject-Government.
ii
P.L. 111-23, Weapon Systems Acquisition Reform Act of 2009.
iii
Id., § 202.
iv
OMB Memorandum, "Increasing Competition and Structuring Contracts for the Best Results," Oct. 27, 2009
available at
http://www.whitehouse.gov/sites/default/files/omb/assets/procurement_gov_contracting/increasing_competition_10
272009.pdf.
v
Under Secretary of Defense (Acquisition, Technology and Logistics) Directive-Type Memorandum,
"Implementation of the Weapon Systems Acquisition Reform Act of 2009," Dec. 4, 2009 available at:
http://www.dtic.mil/whs/directives/corres/pdf/DTM-09-027.pdf.
vi
Under Secretary of Defense (Acquisition, Technology and Logistics) Memorandum for Acquisition Professionals,
"Better Buying Power: Mandate for Restoring Affordability and Productivity in Defense Spending," Jun. 28, 2010
available at:
https://dap.dau.mil/policy/Documents/Policy/Carter%20Memo%20on%20Defense%20Spending%2028%20Jun%20
2010.pdf.
vii
Under Secretary of Defense (Acquisition, Technology and Logistics) Memorandum for Acquisition Professionals,
"Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending," Sep. 14,
2010 available at: http://www.acq.osd.mil/docs/USD_ATL_Guidance_Memo_September_14_2010_FINAL.PDF.
viii
Army Guide for the Preparation of a Program Product Data Management Strategy, Aug. 31, 2010 at 1, available at
https://acc.dau.mil/adl/en-US/439476/file/56835/DMS%20Guide_Version_8-31Aug10-final_DIST_A.pdf.
ix
Id. at 15-16.
x
Id.
xi
Solicitation No. W911QY-11-R-0008, issued Apr. 15. 2011, ¶ C.7.
xii
Id., ¶ M.2.
xiii
Id., ¶ M.2.2.3.
xiv
Eloise Lee, BUSINESS INSIDER, "The Army is Eyeing These Cool New Camouflage Patterns," Mar. 2, 2012,
available at http://www.businessinsider.com/the-army-is-eyeing-these-cool-new-camouflage-patterns-2012-3?op=1.
xv
US Army Camouflage Improvement Effort STILL Going Strong, SOLDIER SYSTEMS, Jun. 30, 2012, available at:
http://soldiersystems.net/2012/06/30/us-army-camouflage-improvement-effort-still-going-strong/.
8
xvi
Michael Hordell, "The Colt M4 Carbine - Intellectual Property Problems, Successful Negotiations, and a Long,
Long Protest, May 24, 2003 available at http://www.pepperlaw.com/publications_article.aspx?ArticleKey=198.
xvii
FN Manufacturing v. United States, 42 Fed.Cl. 87, 93 (1998).
xviii
Daniel E. Watters, DEFENSE INDUSTRY DAILY, "Colt M4 Data Rights & the Individual Carbine Competition,"
Jun. 21, 2011, available at http://www.defenseindustrydaily.com/Colt-M4-Data-Rights-The-Individual-CarbineCompetition-06942/.
xix
Solicitation No. W56HZV-10-R-0593, ¶ A.1.
xx
Id., ¶ L.5.2.
xxi
Id., ¶ M.5.2.3.
xxii
Daniel E. Watters, DEFENSE INDUSTRY DAILY, "Colt M4 Data Rights & the Individual Carbine Competition,"
Jun. 21, 2011, available at http://www.defenseindustrydaily.com/Colt-M4-Data-Rights-The-Individual-CarbineCompetition-06942/.
xxiii
In the interest of full disclosure, the author represents Remington Arms in this bid protest and ongoing
procurement.
xxiv
Rob Curtis, MILITARY TIMES, "GAO upholds Colt's protest of Remington M4 contract award," Aug. 17, 2012
9