Proprietary Information Proper Basis for Restricted Solicitation Terms

While the overarching goal of the federal procurement system is to provide as many opportunities for competition as possible, there are those instances where the unique circumstances of a procurement require limiting the pool of offerors. In a recent decision, GAO determined that the need for proprietary maintenance information was a sufficient reason to limit competition.

Chromalloy San Diego Corp., B-416990.2 (June 3, 2019) involved a procurement by the Navy to service the LM2500 engine. The LM2500 is a gas turbine engine used in the Navy’s Ticonderoga-Class guided missile cruisers. The Ticonderoga-class is an integral part of the Navy’s ballistic missile defense operations.

As relevant to the protest, the LM2500 was developed as a commercial item by General Electric (“GE”) independent of the Ticonderoga-Class cruisers. According to GAO’s decision, the engine has also been used in the oil and gas industries, as well as foreign navies.

In connection with the development of the engine, GE drafted a service manual that provides the necessary technical information for overhauling the engine. The manual is periodically updated with new information by GE. Importantly, GE considers this information for be confidential and proprietary. In fact, the cover of the manual expressly states, “[t]he information contained in this document is GE proprietary information and is disclosed in confidence. It is the property of GE and shall not be used, disclosed to others, or reproduced without the express written consent of GE[.]”

GE’s manual divides engine service tasks into four “Levels.” Whereas Level I maintenance is comparatively routine and can be carried out by Navy personnel, Level IV repairs and overhauls are of such a complexity that only certified GE depots can perform the work. There are currently 6 locations that are licensed by GE to perform Level IV overhauls. Chromalloy is not licensed to perform Level IV overhauls.

In late August 2018, the Navy issued a Solicitation to “perform depot-level overhaul of the LM2500 turbine gas generators.” Competition under the Solicitation was restricted to those sites that possessed Level IV licenses from GE. In response, Chromalloy filed a GAO protest arguing the Solicitation’s terms were unduly restrictive of competition. In response, the Navy took corrective action.

As part of its corrective action, the Navy amended the Solicitation to expand the potential pool of offerors. The amended Solicitation now instructed offerors “that, to be technically acceptable, an offeror must either hold a GE level IV license or ‘have access to all relevant LM2500 [Original Equipment Manufacturer] service manuals, updates to those manuals, and service bulletins concerning the LM2500 engine, periodically issued by the [Original Equipment Manufacturer].’” Additionally, offerors were also required to demonstrate they had access to proprietary GE tools to complete the overhaul.

Once again, Chromalloy protested the terms of the Solicitation arguing the requirement for access to technical data and specialty tooling were unduly restrictive of competition and “overstate the Navy’s actual requirements.”

With respect to the technical data, Chromalloy argued that the Navy has acquired “unlimited rights” to GE’s technical data, thus the Navy was free to share the necessary technical information with offerors that did not possess Level IV licenses. In support of this argument, Chromalloy explained that the Navy had previously supplied it with GE technical data to complete a different contract.

In response to Chromalloy’s arguments, the Navy explained that the LM2500 was a complex piece of equipment that must be maintained to exacting standards. Given the Ticonderoga-class cruisers’ role in ballistic missile defense missions, breakdowns were not an option.

The Navy also explained that it had never obtained unlimited data rights to the LM2500 engine. To the contrary, Navy explained that GE had consistently marked its manuals and confidential and proprietary and that the Navy had never sought to obtain unlimited data rights to the manual’s technical information. Indeed, the Navy admitted that while it had previously supplied Chromalloy with proprietary GE technical data on another job, that distribution should not have occurred.

GAO agreed with the Navy. As GAO explained, “[t]he record provides ample support for the proposition that the [Original Equipment Manufacturer] information is necessary for successful contract performance[.]” Additionally, GAO also found that “the record is consistent with the Navy’s assertions that the information was developed by GE at its own expense, and that GE has consistently identified the information as proprietary.” Thus, the Navy had not obtained unlimited data rights to GE’s technical data relating to the LM2500, and was not at liberty to distribute the technical information to contractors. Under these circumstances, GAO concluded the Solicitation’s limitation to facilities with GE Level IV licensing was reasonable.

GAO was similarly unpersuaded by the arguments about specialty tooling. According to Chromalloy, the non-specialized tools it possessed should have been adequate to complete the necessary overhauls. In response, the Navy explained that GE’s tools are built to particular specifications and that it could not verify the adequacy of Chromalloy’s own tools. GAO concluded that the requirement that offerors have GE’s specialty tools did not overstate the Navy’s requirements. As GAO explained, “the record establishes that the requirements at issue relate to national defense and human safety and reasonably supports the agency’s determinations regarding the necessity of the tools to successfully perform the contract requirements.” As such, the Solicitation restrictions were reasonable.

Chromalloy is an excellent example of how multiple government procurements can interact with one another, occasionally limiting subsequent competition. When the Ticonderoga-class cruisers were procured, the Navy came to possess a number of GE gas turbines. As the Navy did not acquire data rights in the engines, subsequent procurements for complete overhaul maintenance must be restricted. In this away, a data rights decision made decades ago is still impacting federal procurements today.