Colt M4 Data Rights & The Individual Carbine CompetitionJun 21, 2011 19:30 UTC by Defense Industry Daily staff
Guest Article by Daniel E. Watters
On June 14/11, the US Army released a pre-solicitation notice for the procurement of approximately 70,000 to 100,000 M4 and M4A1 carbines in a best value competition (W56HZV-10-R-0593). This represents the first time that the procurement of the M4/M4A1 has not been limited to Colt Defense. How was this point reached, exactly what are the Army’s options, and how that may affect the Individual Carbine competition?
There’s still a very good chance that the competition for a new replacement rifle will meet the fate of previous competitions, and the Army will continue to buy the M4…
The Infamous M4 Addendum
Contrary to popular misconception, the US Department of Defense does not own the technical data package (TDP) for either the M4 carbine or its parent, the M16 rifle. In June/67, in its role as the DOD’s designated procurement agency, the US Army purchased a license from Colt for the TDP and the rights to produce the M16 family of weapons and its component parts.
Some wonder why Colt proprietary rights to the M16 TDP and M4 TDP are still given such reverence by the Army, long after most applicable patents had expired. For example, the Army paid royalties on second-sourced M16 rifles and parts until 1990. It is more glaring in the case of the M4 as very little of the M4′s original design was ever patented by Colt. The short answer is that the Army agreed to such terms in the original 1967 licensing agreement and its amendments, particularly the infamous “M4 Addendum” of 1997.
The origin of the “M4 Addendum” traces back to the improper release of the M4 TDP by the US Army’s Rock Island Arsenal to the US Navy’s NSWC-Crane in early 1996. NSWC-Crane had requested a copy of the M4A1 TDP to support the solicitation of accessories for the M4 SOPMOD kit. While soliciting an adaptor for training ammunition, NSWC-Crane provided the M4A1 TDP to 21 vendors in August/96. As one of the potential bidders, Colt was very much surprised to receive a copy of their own TDP drawings, and gave notice that the terms of the 1967 Licensing Agreement had breached. NSWC-Crane quickly attempted to recover all copies of the TDP and sent out non-disclosure agreements (NDA) to the other 20 vendors. All of the vendors except FN Manufacturing complied. FN Manufacturing officials had balked on one of the five terms of the NDA, refusing to state whether they had safeguarded the TDP while it was in their possession. Instead, they provided a letter asserting that they had not improperly used the data.
Around the time, the Army announced the procurement of 716 M4A1 and 9,785 M4 carbines. FN Manufacturing submitted an unsolicited bid, which was promptly rejected. However, the damage was done. Connecticut’s Congressional delegation became involved, demanding a DOD Inspector General audit of the Army and Navy’s actions in their handling of the M4 TDP. By the end of the year, Colt announced that the DOD’s failure to adequately to protect the proprietary data constituted a material breach of the 1967 Licensing Agreement. Thus, the licensing agreement would be terminated, and the DOD could no longer use the TDP in the second-source procurement of the M16/M4 or their parts. Colt also threatened a lawsuit, estimating damages from $43.5 – 70 million. In response, the Army claimed that the license could only be terminated if they had not made a best faith effort to correct the situation.
Settlement negotiations between Colt and the Army dragged on through 1997. In December 1997, an agreement was reached. Colt would waive its damage claims and leave the previous terms of the 1967 licensing agreement intact with regards to the M16 TDP. In return, the Army agreed to not use the M4 TDP for competitive procurement for a set period of time, ensuring Colt’s sole-source status. The resulting agreement was dubbed the “M4 Addendum”.
However, FN Manufacturing still hoped to gain a piece of M4 procurement, and found their chance in May/98. The Army announced that it was awarding Colt a $8,296,925 contract for 15,925 M4/M4A1 Carbines. The following day, FN Manufacturing delivered an unsolicited proposal claiming that they were also capable of producing the M4 for the US Army. The Army’s rejection of the proposal led to FN Manufacturing filing suit in the US Court of Federal Claims.
A series of dismissals and appeals ultimately led to FN Manufacturing challenging the Army’s right to give Colt sole-source rights to the M4, given its similarity to the M16. This placed the Army is the awkward position of claiming that the M4 was really far different than the M16 and XM177, after originally claiming that the M4 had about 80% in common with the M16. The US Court of Federal Claims ultimately dismissed FN Manufacturing’s protests, ruling that the Army was well within its rights to forego any claims to the M4 TDP.
At the time, it probably seemed like a good deal to give Colt sole-source rights to the M4, in return for the DOD maintaining its rights to second-source the M16 and its spares. Back in the late 1990s, the US Army and other service branches intended to issue far more M16 rifles than M4 carbines.
All seemed well, until the US Army dramatically expanded its issue of the shorter M4 Carbine over the M16 during its operations in Iraq and Afghanistan, ultimately leading to decision to issue a “pure fleet” of M4. Likewise, the other service branches began to increase their issue of the M4, most notably the decision of the US Marine Corps to issue the carbine as a replacement for pistols and rifles amongst senior enlisted personnel and field-grade officers.
At the same time, Colt’s prices for the M4 began to steadily increase. In December 1999, Colt was charging $521 per M4 carbine (DAAE20-98-C-0082-P00011). By December 2002, Colt’s price for an US Army-configuration M4 carbine was $912 (DAAE20-02-C-0115-P00004). However, the Army was able to gain certain concessions over the years. In July 2006, Colt agreed to lower its prices, and begin to provide basic issue items like the Back Up Iron Sight (BUIS) and M4 Adaptor Rail System (ARS), which had formerly been provided to Colt as Government Furnished Material (GFM) (W52H09-04-D-0086-P00025). Before this concession, the price of the M4 and M4A1 had grown to $1,012 and $1,029, respectively (W52H09-04-D-0086-0040). Afterwards, the price of a basic M4 dropped to $815, and with Colt-provided BUIS and ARS only $1,142 (W52H09-04-D-0086-0040). At the time of the final sole-source delivery order in December 2010, Colt’s price was just over $1,221 per fully-equipped carbine (W52H09-07-D-0425-BR02).
As discussed in “The US Army’s M4 Carbine Controversy”, Colt’s steady increase in prices, combined with stories of M4 unreliability, led to unwanted Congressional attention. In response, rival manufacturers have moved in and stepped up lobbying efforts. They’re hoping hoping to gain a share of a second-sourced contract for the M4 carbine, or score a complete win with a contract for a replacement rifle.
What Second Sourcing Really Means
As of July 1/09, the sole source clause of the “M4 Addendum” expired, allowing the Army to second source production of the M4/M4A1 carbines and their unique parts. Under the terms of the licensing agreement, however, the M4 TDP remains Colt proprietary data. Those terms also state that the US Army would have to pay 5% in royalties to Colt, for every M4/M4A1 carbine and/or their unique parts procured from second sources, for another 26 years – through Dec 24/37.
Second source contractors will also be required to sign non-disclosure agreements, just as they do for the M16. The non-disclosure/ non-use agreements for accessing the TDP will forbid the other companies from using Colt’s proprietary data for commercial sales. Once the second-source vendor’s military contract ends, the company will be required to be destroy all of the TDP information provided to them.
The Individual Carbine
The Army’s recent pre-solicitation for open source production of the M4/M4A1 brings up an interesting quandary for Colt. I fully expect FN Manufacturing to submit an M4 bid close to what they charge for their M16A4, and that will be seriously hard to beat.
Obviously, if Colt does not bid low enough, they cannot expect to win the contract. However, if Colt’s bid is significantly lower than their last contract price, they will find Congress, the GAO, and the DOD asking some uncomfortable questions as to why their previous prices were so much higher.
If FN Manufacturing or another company is awarded a M4/M4A1 contract, at a per unit cost significantly less than Colt’s previous prices, it will also put intense pressure on the pricing of the Individual Carbine candidates. As the deck already seems stacked against non-5.56mm entries, the Individual Carbine solicitation winner will need to show a huge increase in reliability and durability, in order to justify any large difference in price over the new M4/M4A1 price. Competitors cannot expect to price their candidates 1.5 to 2 times higher and be adopted.
Judgements about the ratio of acquisition and separate support costs, vs. performance, have already been used to sink FN USA’s 5.56mm SCAR-16 within USSOCOM. Barring a change in priorities, the Individual Carbine may survive all of its laboratory and field tests, and yet fall victim to the harsh reality of a tightening DOD budget.
D.E. Watters is a Contributing Editor at The Gun Zone