I just read in Federal Computer Week that GSA added a new Schedule award for reverse auction services. Agencies can contract with the firm to actually conduct the auction for them or at least assist. GSA is getting pretty progressive. I guess Dave Barrum maent it when he said "this isn't your father's GSA"

By Vern Edwards on Thursday, April 20, 2000 - 10:32 am:

Bob:

Good points. It looks like the auction thing is going to happen--agencies are gearing up. I like the idea if its done properly and for the right kinds of procurements: mainly commodities and standard commercial items for which there is a vigorous market. COs absolutely must respect industry concerns about disclosure of trade secrets and other confidential information during the competition process.

Unfortunately, what seems to happen is that once these kinds of innovations/reforms catch on everybody jumps on the bandwagon and thinks that they have to do it in order to win a hammer award or publish a "success story" in Contract Management magazine. Overkill and abuse discredits innovation and reform.

We'll just have to wait and see what happens.

By bob antonio on Thursday, April 20, 2000 - 08:14 am:

Vern:

No problem. I found the discussion interesting. Before someone reacts to your last response, I will acknowledge that we are talking about the negotiation method of contracting and not the sealed bidding method of contracting.

Under the right circumstances, it appears that GSA's auction could end up in a sustained protest on one or two issues. In the decisions that I posted, the Comptroller General continues to refer to auctions and in one decision the Comptroller General attached "improper" to auction. So the issue of "improper auctions" may be alive. Revealing a price or prices on a negotiated procurement before award also appears to be a possibility. Joel, being in construction, also brought up the issue of bid-shopping. I share his feelings.

We are in an era of internet anarchy. This is not all bad because it spurs innovation. However, can the current innovation coexist with contracting legislation that dates to 1792? I think not. Before our innovative anarchy is declared to be common chaos and crushed, we must be sure that we have the proper authority to innovate. Even then, our innovation must consider the taxpayers. These taxpayers include the industries that provide our products and services.

By Vern Edwards on Wednesday, April 19, 2000 - 06:22 pm:

Eric:

Thanks for responding to my last response to your most recent response, etc., etc.

Anybody reading this thread who thinks what we've said is authoritative is beyond our help. I refuse to worry about them. Readers who are influenced by your warnings about practicing law without a license probably have "See a lawyer first" tattooed on their foreheads, so I'm not worried about them either.

As for the other readers here, I'm confident in their intelligence and content to let them develop their own interpretations of the cases in question. For the intellectually curious, the cases are definitely worth reading.

As to who delved more deeply into the cases--I'm sure it was you. I only wish the delve had been more fruitful for you.

To Bob Antonio:

Sorry, my friend. If I'd had any notion that my mention of the Trade Secrets Act would send this thread spinning off on such a tangent I would never have uttered it. This tangent has nothing whatsoever to do with the issue you raised; I mentioned the Trade Secrets Act only with reference to pre-award conduct under simplified acquisition procedures. No regulation authorizes public disclosure of competitors' prices before award, so whatever the validity of Eric's arguments, they are inapplicable to my original point.

With regrets,

Vern

By Eric Ottinger on Wednesday, April 19, 2000 - 05:03 pm:

Vern,

Actually, I made a point of not interpreting it at all, which may have been prudent.

Unfortunately, I fear that some people may think our speculation is somehow “authoritative.” We should put out large signs saying PURE SPECULATION.

I don’t think the average reader is going to enjoy those cases. But, “to each his own taste.”

As for the risk of criminal penalties, I think the average reader will do well enough to read the parts that I have put in capital letters and be reassured that the likelihood of criminal penalties is not only “highly unlikely;” it is ENTIRELY IMPOSSIBLE (as long as we acting in accordance with the regulation, etc. etc.)

I don’t know whether to thank you for giving me the opportunity to dig more deeply into these cases or to ask why you didn’t do so yourself.

Regards,

Eric

By Vern Edwards on Wednesday, April 19, 2000 - 04:18 pm:

Eric:

Two things:

First, why do you keep uttering warnings about practicing law without a license? Who do you know that's doing that? You don't mean to suggest that educated laypersons should not discuss and debate court decisions among themselves, do you?

Second, I have read the series of quotes in your most recent message, but I cannot figure out what point you were trying to make. (The lack of quotation marks doesn't help.) All I know is that your previous message misinterprets the quote that you used from McDonnell v. Widnal.

We'll probably never agree about whatever it is that you're talking about now. But that's okay; you and I rarely agree, especially when it comes to interpreting the language of statutes, regulations, and decisions. The careful, constant readers of this thread can look up the cases for themselves, read them, discuss them, and reach their own conclusions, and I'm content to let them do that.

By the way, everyone, they are wonderful cases to read--well written and historically informative.

By Eric Ottinger on Wednesday, April 19, 2000 - 01:56 pm:

Vern,

Neither of us should be practicing law without a license. However, take a look at Chrysler:

US-CT-APP-3, 24 CCF 81,818, Chrysler Corporation v. James R. Schlesinger, Secretary, United States Department of Defense; Lt. Gen. Wallace Robinson, Director, Defense Supply Agency; Philip J. Davis, Director, Office of Federal Contract Compliance; and John Dunlop, Secretary,, (Sep. 26, 1977)

The other statutes relied upon by the contractor to give a right to prevent disclosure were CRIMINAL and WERE NOT VIOLATED SINCE THE DISCLOSURES WERE AUTHORIZED BY REGULATIONS. Since the statutes were criminal in nature they did not give a private individual the right to sue for their enforcement in any event.

Also--

US-SUP-CT, 26 CCF 83,181, Chrysler Corp. v. Brown, Secretary of Defense, et al., (Apr. 18, 1979)

29If we accepted the Government’s position, 18 U.S.C.§1905 would simply be irrelevant to the issue of public access to agency information. The FOIA and other such “access” legislation are concerned with formal agency action--to what extent can an agency or department or, put diffently, the head of an agency or department withhold information contained within the governmental unit’s files. It is all but inconceivable that a government employee would withhold information which his superiors had directed him to release; and these Acts are simply not addressed to disclosure by a government employee that is not sanctioned by the employing agency. This is not to say that the actions of individual employees might not be inconsistent with the access legislation. But such actions are only inconsistent insofar as they are imputed to the agencies themselves. THEREFORE, IF§1905 IS NOT ADDRESSED TO FORMAL AGENCY ACTION--I. E., ACTION APPROVED BY THE AGENCY OR DEPARTMENT HEAD--there should have been no concern in Congress regarding the interrelationship of§1905 and the access legislation, for they would then address totally different types of disclosure.

Regarding “Trade Secrets,” perhaps the Judge made some determination that doesn’t show in the written record. In light of the following in the public record, I would say that “confidential statistical data, amount or source of any income, profits, losses, or expenditures” are the operative words under the “Trade Secrets Act.” Pending further clarification, I think this is what Mr. Wellington meant.

US-CT-APP-DC, 40 CCF 76,809 , McDonnell Douglas Corporation v. Sheila E. Widnall, Secretary, Department of the Air Force, and United States Air Force, (June 30, 1995)
McDonnell Douglas also argued that, apart from Exemption 4, the Trade Secrets Act, 18 U.S.C. §1905 (1988), prohibited the release of the information sought by General Dynamics. That statute provides, in relevant part, that:

Whoever, being an officer or employee of the United States or any department or agency thereof... publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties... which information concerns or relates to the TRADE SECRETS, processes, operations, style of work, or apparatus, or to the identity, CONFIDENTIAL STATISTICAL DATA, AMOUNT OR SOURCE OF ANY INCOME, PROFITS, LOSSES, OR EXPENDITURES of any person... shall be fined not more than $ 1,000, or imprisoned not more than one year, or both; and shall be removed from office or employment.

Regards,

Eric

By Vern Edwards on Wednesday, April 19, 2000 - 10:21 am:

Eric:

I fear that you may have misinterpreted the quote you gave us from McDonnell v. Widnal. I'll repeat the quote below for everyone's convenience:

“18 U.S.C. §1905. A criminal statute, the Trade Secrets Act does not furnish a private cause of action against governmental disclosure, see Chrysler Corp. v. Brown, 441 U.S. 281, 316 (1979) (citing Cort v. Ash, 422 U.S. 66 (1975)), but it can be relied upon in challenging agency action that violates its terms as 'contrary to law' within the meaning of the Administrative Procedure Act, 5 U.S.C. §706(2)(A) (1988). Chrysler, 441 U.S. at 318-19.”

After this quote you said, "I am not a lawyer. But I think this puts any concern about committing criminal acts to bed." I take this to mean that you somehow link the quote from the court to the likelihood of criminal prosecution.

The court's quote has no bearing at all on the likelihood of criminal prosecution. The quote means that a private party cannot file a reverse FOIA civil suit under 18 U.S.C. § 1905. Reverse FOIA civil suits must be filed under the Administrative Procedures Act. This has important procedural consequences.

The meaning of your McDonnell v. Widnal quote becomes clear when you read Chrysler v. Brown, the Supreme Court decision cited in McDonnell v. Widnal. In that decision the Court said:

"We reject, however, Chrysler's contention that the Trade Secret Act affords a private right of action to enjoin disclosure in violation of the statute. In Cort v. Ash, 422 U.S. 60 (1975), we noted that this Court has rarely implied a private right of action under a criminal statute and where it has done so 'there was at least a statutory basis for inferring that a civil cause of action of some sort lay in favor of someone.' Nothing in § 1905 prompts such an inference. Nor are other pertinent circumstances outlined in Cort present here. As our review of the legislative history of § 1905--or lack of same--might suggest, there is no indication of legislative intent to create a private right of action. Most importantly, a private right of action under § 1905 is not 'necessary to make effective the Congressional purpose,' J.I. Case Co. v. Borak, 377 U.S. 426, 433 (1964), for we find that review of DLA's decision to disclose Chrysler's employment data is available under the APA [Administrative Procedures Act]."

In short, only the government can take someone to court under 18 U.S.C. § 1905.

I agree with your hypothesis that it is highly unlikely that a government employee would be prosecuted for disclosing trade secrets during a debriefing conducted in accordance with the FAR. However, that hypothesis cannot be validly based on the quote you gave us from McDonnell v. Widnal.

Please excuse me if I have misunderstood you.

By Eric Ottinger on Tuesday, April 18, 2000 - 04:47 pm:

All,

(Note that I posted my last message before I read Vern's most recent message.)

Strangely, it appears that we had the answer under our nose all along. The AF and McDonnell Douglas fought essentially the same issue, in front of the same Court, back in 1995.

US-CT-APP-DC, 40 CCF 76,809 , McDonnell Douglas Corporation v. Sheila E. Widnall, Secretary, Department of the Air Force, and United States Air Force, (June 30, 1995)

“18 U.S.C. §1905. A criminal statute, the Trade Secrets Act does not furnish a private cause of action against governmental disclosure, see Chrysler Corp. v. Brown, 441 U.S. 281, 316 (1979) (citing Cort v. Ash, 422 U.S. 66 (1975)), but it can be relied upon in challenging agency action that violates its terms as “contrary to law” within the meaning of the Administrative Procedure Act, 5 U.S.C. §706(2)(A) (1988). Chrysler, 441 U.S. at 318-19.”

I am not a lawyer. But I think this puts any concern about committing criminal acts to bed.

Eric

By Eric Ottinger on Tuesday, April 18, 2000 - 04:20 pm:

Vern,

Thanks for passing this information along.

I’ll take "case-specific, record-specific." However, it would be nice if someone told us exactly what these prices were.

This doesn’t answer the trade secrets/criminal penalties question, except insofar as the issue doesn’t come up. I think the silence speaks loudly enough.

I believe McDonnell Douglas indicated their desire to keep these prices confidential during the solicitation phase. Presumably, there is no need to notify the successful contractor before releasing unit prices during a debriefing, because it is expected that any contractor who was concerned about this issue would have already raised the issue in negotiations. I have no idea whether this is a good legal rule, but it fits common sense. If an offeror were making the kind of noises that McDonnell Douglas was making, I would proceed very carefully.

I think I can sort the mixed messages out well enough, but this is going to be confusing for a lot of people absent some further clarification.


Eric

By Vern Edwards on Tuesday, April 18, 2000 - 04:13 pm:

John:

I just spoke with Peter L. Wellington, the attorney who argued the McDonnell Douglas v. NASA case for McDonnell Douglas. He is with Steptoe & Johnson LLP of Washington DC.

He told me that the DC Circuit held that McDonnell's prices were trade secrets.

Vern

By Vern Edwards on Tuesday, April 18, 2000 - 03:42 pm:

All:

I have just received an e-mail forwarding to me a March 3, 2000 memo by the Director, DoD Directorate for Freedom of Information and Security Review. Attached to it is a memo from the Office of the Assistant Secretary of Defense for Public Affairs, dated Feb. ?, 2000, which is signed by the Director, Freedom of Information and Security Review, and an unsigned memo from the Department of Justice, Office of Information and Privacy, dated Feb. 24, 2000. The memos are about the McDonnell Douglas case that we have been discussing.

The memo from the DoD Directorate of Freedom of Information and Security Review says that the McDonnell case will have no effect on the FAR debriefing rule about disclosure of unit prices. It says that for contracts "solicited" on or after January 1, 1998, (the effective date of the FAR Part 15 Rewrite) COs need not notify the successful contractor before releasing its unit prices during a debriefing. It says that objections to the release of unit prices will be evaluated by the DoD component and that if DoD decides to release the prices it should give the contractor time to initiate a reverse FOIA lawsuit. It provides some case citations to consider. It also says that "provisions have been made for withholding unit prices prior to contract award" [FAR 15.306(e)(3)?] and for withholding unit prices in unsuccessful proposals.

The DoD memo requires different processing for contracts solicited before Jan. 1, 1998. They must be processed in accordance with DoD 5400.7-R, "DOD Freedom of Information Act Program."

The memo from the Office of the Assistant Secretary of Defense for Public Affairs says the same thing, but cites the Procurement Integrity Act as a basis for not disclosing unit prices prior to award. It also says that unit prices "are not proprietary information after contract award and accordingly cannot be withheld from disclosure under the FOIA by exemption (b)(4)."

The Department of Justice memo says that the McDonnell Douglas decision is "case-specific, record-specific," and that it "does not set forth a new rule of law or categorical nondisclosure principle." It urges agencies to "consistently hold to the position of disclosing unit prices upon a determination that their release would not cause competitive harm." Underlining added. This seems to suggest the need to make such a determination before disclosing prices. It says that "agencies must take special care in compiling their administrative records and be sure to restate, carefully evaluate, and address all submitter objections to disclosure." It then suggests reasoning for agencies to use in arguing that disclosure of unit prices will not cause competitive harm. It makes no distinction in these regards between contracts solicited before and after Jan. 1, 1998.

Some comments:

First, the DoD and Justice memos do not track completely. Justice wants evaluation and careful documentation to the effect that disclosure of prices will not cause competitive harm, but DoD says that COs don't have to notify the successful offeror of their intent to release the prices. I don't see how an agency can make such an evaluation and careful documentation without talking to the contractor first.

Second, the memos talk about "unit prices," while the court used the term "line item prices." Unit prices are components of line item prices, but line item prices include more than unit prices. I'm not sure that this is significant. Most of the reverse FOIA price disclosure case have been about unit prices.

Finally, the memos deal with disclosure during debriefings, not with disclosure as part of an auction process leading to an award. It is clear that disclosure as part of an auction process conducted in accordance with FAR Part 15 requires offeror permission. I'm not sure what all this means with regard to disclosure as part of an auction process conducted in accordance with FAR Part 13.

The memos are interesting and call for "widest dissemination possible." I presume that the fact that no one has mentioned them before means that not everyone has received them yet.

I'm glad about these memos, because I thought the McDonnell decision was a bad call and said so rather vociferously in the old Water-cooler. It looks like the government is going to continue to fight with industry about this issue. I spoke with a friend at Boeing this morning, who told me that this is a "very big deal." So, I guess we're going to be seeing more such reverse FOIA cases. But I wish that the DoD guidance tracked more closely with the Justice guidance, or vice versa. Hopefully, COs will make the required determinations and document their files.

Keep watching the D.C. Circuit.

By Vern Edwards on Tuesday, April 18, 2000 - 11:09 am:

John:

You make a good point. The court said, "The company objected to the release of certain information in the contract--including launch service prices, cost figures for specific launch service components and overhead, labor rates, and profit figures and percentages... ."

This indicates that the "information" included more than just prices. However, it still seems clear to me that the prices themselves ("launch service prices") were among the information that the court agreed to protect ("And under present law, whatever may be the desirable policy course, appellant has every right to insist that its line item prices be withheld as confidential."). Underlining added.

All the same, I'll concede that courts are often careless with language. One way to check would be to call the attorneys for McDonnell Douglas (now Boeing). I'll see if I can locate them.

By John Ford on Tuesday, April 18, 2000 - 10:25 am:

Vern, it is not too great a leap of logic to equate "line item pricing information," as used in the McDD decision, with "line item prices." However, the language used by the court does require that leap and I am not willing to make it with absolute confidence, although I have cited McDD in commenting back to the government on FOIA requests for information relating to my company's contracts. Even if the leap is correctly made, we still do not know the precise manner in which the line item prices were presented. For example, did they require a breakout of proposed cost and profit on a "unit" basis? The point is, we know the court used a certain rationale to justify withholding certain information which the court described in generic terms. However, we don't know precisely what that information was. Without this knowledge, we may be able to rely on the court's rationale and say that the release of certain specific information would cause a contractor competitive harm, but we should not go much beyond that. Notably, McDD did not address or consider the impact the FAR or other regulations might have on the releasability of information in prescribed circumstances.

I didn't say I'm against the principle of buying services or supplies using Internet ("reverse") auction techniques. The distinction between that and MATOCs is that the "Internet Reverse Auction" is strictly open competition. If suppliers opt to participate, they are free to. As Vern says, its success or failure may depend upon the level of complaints received.

In MATOC, the contracts have already been awarded, hopefully to companies chosen for more value than simply low price - I feel an auction tactic is akin to bid shopping - which I detest. Maybe it miiiight be ok... in situations where the initial contracts were awarded on the basis a "lowest priced, technically acceptable offer" But it will eventually ruin MATOC participation by the best companies. Happy Sails!

By Vern Edwards on Monday, April 17, 2000 - 05:56 pm:

It seems clear to me that the DC Circuit, in the case cited by Eric Ottinger: McDonnell Douglas Corp. v. NASA, 98-5251, June 25, 1999, did hold that McDonnell's line item prices were trade secrets.

Here is what the judge said that is pertinent to my claim:

"It is undisputed that the total price of the contract may be made public. But the government does not claim that it or NASA has any independent legal authority to release line
item pricing information. It does point out that NASA has a long and consistent practice of doing so. That is of no consequence. If commercial or financial information is likely to cause substantial competitive harm to the person who
supplied it, that is the end of the matter, for the disclosure would violate the Trade Secrets Act. To be sure, we noted in a previous case that "it appeared passing strange" that the prices charged to the government for specific goods could be confidential, McDonnell Douglas v. Widnall, 57 F.3d at 1167, but we did not address the competitive harm issue in that case.

Appellant claimed the release of line item pricing information would cause it competitive harm for two reasons: it would permit its commercial customers to bargain down ("ratchet down") its prices more effectively, and it would help its domestic and international competitors to underbid it (the company claimed that disclosure of the line item pricing data would allow competitors to calculate its actual costs with a high degree of precision).

NASA's response to appellant's concern that its customers' bargaining leverage will be enhanced is rather mystifying. The agency said that publication of line item prices is the "price of doing business" with the government, which either
assumes the conclusion, or else assumes a legal duty or authority on the government to publicize these prices, which, as we have noted, the government does not assert. NASA did recognize that if disclosure enabled competitors to under-
bid McDonnell Douglas that would constitute competitive harm. See Gulf & Western Indus., Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1979). But the agency "reasoned" that underbidding due to the disclosure would not occur because price is only one of the many factors used by the government in awarding contracts. That response seems too silly to do other than to state it, and pass on.

Perhaps the most convoluted--even astonishing--reason given by NASA for claiming appellant would not be likely to suffer competitive harm is that "it is [McDonnell Douglas'] competitors who have suffered competitive harm in failing to
learn the prices for [McDonnell Douglas'] domestic launch vehicles" since their line item prices have become public. (Emphasis added.)1 As should be obvious, by so stating, NASA implicitly recognized that it would be to the competitor's advantage to receive McDonnell Douglas' line item price information. Of course, it follows that appellant will be competitively harmed by that disclosure. That appellant's competitors have not attempted to stop the disclosure of their line item prices is of no significance in determining the issue before us.

NASA's decision could either be seen as not in accordance with law because releasing the information would be contrary to the Trade Secrets Act, or as arbitrary and capricious for
its illogical application of the competitive harm test. Under either rubric, the decision must be set aside. Both of the reasons McDonnell Douglas advanced for claiming its line item prices were confidential commercial or financial information are indisputable. McDonnell Douglas has shown--as much as anyone can show before the event--that it is likely to suffer substantial competitive harm. And under present law, whatever may be the desirable policy course, appellant has every right to insist that its line item prices be withheld as confidential."

Footnotes omitted; underlining added.

The careful reader should be able to see it plainly: the court considered McDonnell's line item prices to be trade secrets because McDonnell had convinced it that their disclosure would cause McDonnell competitive harm.

By John Ford on Monday, April 17, 2000 - 04:35 pm:

Vern and Joel,I am not suggesting anything about the wisdom of using a "reverse auction" or a straight auction technique. I perceived indications earlier in this thread that some of our correspondents were speculating on what would be a good vehicle to test these techniques. My comment was that a multiple award contract, either for supplies or services, might be an appropriate vehicle because orders under these contracts are not subject to the requirements of Part 15, contracting offices are allowed great discretion in the processes they use to afford contract holders a fair opportunity for consideration, they are designed for best value awards, and they are not protestable. If the process is as objectionable as you state, then this experiment might be the catalyst for the policy makers and Congress to look at the issue with renewed vigor.
One final note, the citation for the Trade Secrets Act is 18 U.S.C. 1905. The FAR's silence on its application is deafening.

By Eric Ottinger on Monday, April 17, 2000 - 04:20 pm:

Susan,

Thank you for substantiating my concern.

Here is what the Judge actually said.

(McDonnell Douglas Corporation v. National Aeronautics and Space Administration, (June 25, 1999))

“… we have held that the Trade Secrets Act, 18 U.S.C. §1905 (1994), “is at least coextensive with that of Exemption 4 of FOIA,” id. at 1151. Accordingly, when a person can show that information falls within Exemption 4, then the government is precluded from releasing it under the Trade Secrets Act. See McDonnell Douglas Corp. v. Widnall, [40 CCF 76,809] 57 F.3d 1162, 1164 (D.C. Cir. 1995).”

It is clear that the Judge considers the Exemption 4 and the Trade Secrets Act to overlap in some fashion. It is not at all clear that contractor sensitive information covered by Exemption 4 is always “trade secrets,” and it is not at all clear that the prices in the McDonnell Douglas contract were considered to be trade secrets.

The McDonnell Douglas case received wide publicity. If there is going to be an impact on FAR policy regarding debriefings, I would expect to see some action by our policy makers.

Frankly, I expected that we would all wait for a while, notice that the other shoe hasn’t dropped, then stop worrying about this.

I’ve put a question in at the “Ask a Professor” site. I will be curious to see what they have to say. In any case, this is a question for competent legal counsel. We shouldn’t be speculating unless we are really qualified to provide an authoritative answer.

Eric

By Susan McCullough on Monday, April 17, 2000 - 03:16 pm:

I don't think a CO can rely exclusively on the debriefing language Eric quotes from FAR 15.606(d)(2) with out also considering the language in the following paragraph FAR 15.606(e), which reads, in pertinent part: "Moreover, the debriefing shall not reveal any information prohibited from disclosure by 24.202 or exempt from release under the Freedom of Information Act (5 U.S.C. 552) including-- (1) Trade secrets; *** (3) Commercial and financial information that is privileged or confidential, including cost breakdowns, profit, indirect cost rates, and similar information;***" FAR 24.202(b) goes on to say "No agency shall disclose any information obtained pursuant to 15.403-3(b) that is exempt from disclosure under the Freedom of Information Act. (See 10 U.S.C. 2306a(d)(2)(C) and 41 U.S.C. 254b(d)(2)(C).)"

I'm not sure how this language relates to reverse auctions, but I did want to add this additional FAR language to the discussion about what can or can't be revealed during debriefings. To me, reading these sections together, the FAR makes it pretty clear that any information which would be protected from release under FOIA also should not be released in debriefings. Since there have been reverse FOIA cases in which release of the awardee's unit prices was blocked, I think we need to consider that their release under debriefings should also not be automatic, notwithstanding the general rule in 15.606(d)(2).

By Vern Edwards on Monday, April 17, 2000 - 11:19 am:

John and Joel:

There are many in government contracting who will consider the reverse auction procedure to be improper. Government procurement policy has opposed auctioning for a very long time, and the notion that such a procedure is improper is deeply ingrainged.

However, direct price competition is standard practice in many commercial markets, especially in markets for commodities and standard commercial goods and services. I think that it is in the procurement of these kinds of commodities, goods, and services that reverse auctions will generate the least controversy and offer the greatest potential for price reductions. Reverse auctions will destroy weak firms and have other market effects; but it is catching on very rapidly in the private sector.

I share Joel's concerns about using auctions to choose contractors for task orders under multiple award contracts, but for different reasons. Task order contracts are often (usually?) for custom services. Placing too much emphasis on price competition could drive down wages and generate unrealistically low prices, which could have a negative effect on the quality of services.

As to the trade secrets issue: I agree with John. I mentioned the court case in the first place only as a point of interest. I did not "speculate" about anything. All the same, Eric was quite right to say that COs should check with their lawyers about this. A clarification of the FAR has been suggested, but I don't know if anything is being done.

The Trade Secrets Act is a criminal statute. See 18 U.S.C. Ch. 90. However, I think that there is no chance that a CO would be prosecuted for releasing prices at a debriefing in simple compliance with FAR. I'm sorry that my comment sent some of you off on a tangent.

By joel hoffman on Monday, April 17, 2000 - 10:22 am:

John, are you suggesting an "auction" procedure in a MATOC, where the Government would disclose the lowest proposed task order or delivery order price to the competitors and ask if they can beat it?

I personally feel that this would be repulsive. To me, it would be comparable to the widespread practice of prime contractors, called "bid shopping".

In such a scenario, the prime contractor (usually) incorporates a subcontractor's or supplier's bid or proposal price in its bid or proposal to the Owner. Then, after award, the prime goes out and either squeezes the sub/supplier for a price concession or shops for lower bids, using auction techniques. This is a much criticized practice and hurts suppliers and subcontractors, who usually have less bargaining power than the primes. Many governmental jurisdictions prohibit or try to discourage this practice.

The similarity between that practice and us using it to compete MATOC task/delivery orders is that the Government would be bid shopping between contractors, after award of the basic contracts.

I don't believe the Government ought to be promoting practices similar to those which the various subcontractor associations constantly complain about and which many jurisdictions try to stamp out, in response to those concerns.

The distinction between bid shopping and an Internet "auction technique" is that there is no existing contract, just a request for open competition in an auction.

You made a couple of very good points about the McDD case. Does anyone know for sure whether the data requested under the FOIA was cost details supporting CLIN amount or did the controversy concern the actual CLIN amounts? Please clarify. Did or could someone provide a hyperlink for this case? Thanks......

Happy Sails! Joel

By John Ford on Monday, April 17, 2000 - 09:42 am:

A couple of comments on the McDD case and the FAR. First, the McDD case involved a proposed release by NASA under FOIA and not in regard to a debriefing required by FAR. So to that extent, the case is not really on point. Also, it is not clear from the decision exactly what data was proposed for release. All the decision says is that it was line item pricing data. We don't know if that included labor rates, mix and hours, indirect costs, or profit. In this regard, the FAR says we are not to release information on indirect rates or profit in debriefings. Thus, it is possible the court and the FAR are consistent. Another point is that the criminal provision only prohibits disclosures that are not authorized by some other law. The courts have been liberal in their interpretation of what is "law" by holding in some situations that properly promulgated regulations are considered law. While the FAR is a regulation having the force and effect of law, there has been no decision one way or the other as to whether the FAR qualifies as a law so that a release of Trade Secrets pursuant to the FAR is permitted.
As to a proper forum to test out an auction, it seems that an award under a multiple award contract where the only competitive requrement is fair opportunity to be considered would be a viable option.

By Vern Edwards on Friday, April 14, 2000 - 08:27 pm:

The real issue is whether or not it would be unduly restrictive of competition to require contractors to allow the government to disclose their prices as a condition of being considered for award. The Trade Secrets decision is a problem, but easily resolved by getting permission to disclose.

On line reverse auctions are the wave of the future for some kinds of buys. It's going to happen. We will find a way to deal with the problems. My friends at NAVICP Mechanicsburg are going to conduct such an auction on May 5. They have invited me to attend. If I am able to go I'll let you all know how it went. Exciting stuff.

By Eric Ottinger on Friday, April 14, 2000 - 04:39 pm:

Joel,

It is true that the Judge cited the Trade Secrets Act. It is not at all clear that this makes the pricing information “Trade Secrets” from the point of view of the criminal law. This is a question for lawyers to answer, and we shouldn’t be giving legal advice when we are not qualified.

I would be very concerned that one of our “lurkers” would read that “under some circumstances” it might be a violation of a criminal law to release unit prices at the debriefing or at any other time. They might take this as authoritative guidance, pass it along and, possibly change their practice in debriefings to stay clear of these potential criminal violations.

If there were an issue, two things should have happened. First, there should be some subsequent case to demonstrate that the “Trade Secrets” issue wasn’t specific to the very unique circumstances of the McDonnell Douglas case. Second, since the FAR direction would be in conflict with the Trade Secrets Act, there should be a Case to revise the FAR. Further, there should have been some kind of interim letter from the Director of Defense Procurement to implement the Court’s guidance, as there was after the Adarand decision.

None of this has happened. It is one thing to speculate when a decision is recent and the implications are not entirely clear. It is another thing to be putting out the same kind of poorly supported speculation a year later.

You and I are talking past each other. I wasn’t really addressing the auction issue. It was the potential impact on debriefings that bothered me. It is one thing to argue about the interpretation of FAR guidance. It is another thing to tell our readers that they may be committing a criminal act when they follow clear direction in the FAR.

In the earlier thread, Vern wanted organize a letter writing campaign to Congress. I thought it would be more appropriate to simply address the question to the appropriate policy makers in the Government and let them resolve it. If he hasn’t done either of these things he should let the issue drop. He wanted to make a big noise but, to the best of my knowledge, neither he nor his colleagues were really serious enough about the issue to follow through.

If Vern or one of his more senior colleagues did “Call Eleanor,” I will be happy to acknowledge that and curious to know what resulted.

Regards,

Eric

By joel hoffman on Friday, April 14, 2000 - 03:49 pm:

Eric, please forgive my ignorance. I assume in an "auction", using my vernacular for the regular usage of the term, that the whole world knows what the latest "offer to beat" is. Am I wrong?

There is quite a difference between my idea of an "auction" and telling an unsuccessful offeror what his own price is or was and what the prices of the (now contractor on a public contract) are, during the debriefing.

Notwithstanding the previous debate on the watercooler, the winning contractor's contract prices are usually open for public scrutiny. The requirement to provide it during the debriefing only relates to the time restrictions for filing a timely protest. The unsuccessful offeror won't otherwise be able to see the prices in time to decide whether it was shafted. Happy Sails! Joel

By Eric Ottinger on Friday, April 14, 2000 - 03:27 pm:

Joel,

This isn't really Bob's issue. If, in fact, there is a criminal issue, a contract specialist would violate a criminal law when he complies with FAR 15.506.

FAR 15.506 Postaward debriefing of offerors.

"(2) The overall evaluated cost or price (INCLUDING UNIT PRICES), and technical rating, if applicable, of the successful offeror and the debriefed offeror, and past performance information on the debriefed offeror;"

We debated this under a previous thread. Since there was no action to change the FAR, I thought it would become obvious that there is no criminal issue and this would go away.

If any one of us feels that we will violate the law in some fashion when we comply with clear direction in the FAR or other regulations, we should elevate the issue and get some kind of resolution.

I have no problem with speculation, which is labeled speculation. However, we should keep in mind that we have an audience and we shouldn't be telling them to non-comply with the FAR unless we have a very good reason.

I mean this very seriously. If Vern or his more senior colleagues haven't first contacted the responsible policy making bodies in the Government to bring this kind of issue to resolution, they shouldn't be pursuing the issue in this forum.

At that point we really are giving legal advice without a license.

I don't like loose talk about criminal law issues in the Open Forum. As far as I am concerned, it is either put up or shut up. If you really have an issue, go do what needs to be done. Otherwise, be careful about what you say.

If Vern (or his colleagues) have actually contacted the appropriate policy makers, they should say so. They are big boys and I am sure they have the phone numbers. If they haven't, they should be very careful not to mislead contracting people with idle speculation.

Eric

By joel hoffman on Friday, April 14, 2000 - 03:23 pm:

Bob, etal. Perhaps even if the Courts and Boards are unable to sustain the new practices of Government agency attempts to utilize on-line reverse auctions, it will stir necessary legislative action to legalize it. If Congress is really interested in protecting the TAXPAYERS' INTERESTS - you know, that often forgotten bottom line objective - they will legalize it if it makes sound business sense. That's how I would decide! Happy Sails!

By bob antonio on Friday, April 14, 2000 - 03:07 pm:

Stan:

I agree with you. I would like to see commodity items moved online in an online auction environment--at least in an initial test that is free from protests, etc. Perhaps after some quantity level was reached through the government's "online requisitioning" system, the auction would take place. Of course, I would want to see the contracting community involved in the design of such systems.

We have numerous government e-Malls, GWACS, etc. I believe NIH is contracting for its own on-line auction. We will have more. It is only a matter of time before someone starts asking what all of this means. It will not be a pretty answer.

At some point, Congress must put all contracting laws and regulations on the table for change to reflect our technology. The federal contracting community must have an alternative to present that is based on its needs to accomplish the contracting mission and to achieve the interests of the taxpayers.

Read my note preceding this one--it is baloney. I don't know what the law says, what the regulation says, nor what the Comptroller General is saying. I don't think it is me. I think there is plenty of confusion to go around.

In regard to your note about the need for contracting officers. Any taxpayer that understands the true role of the contracting officer--our business agent--will demand that contracting officers are leading this effort.

Hey, Eric - lighten up - please. Bob asked the question "How do you decide?" Obviously, he's asking the question to the wrong forum, if he is looking for a "reliable source of information" concerning a pending legal decision. I haven't seen many lawyers providing such "reliable information" here. Everyone is entitled to an opinion. Vern's answer was not definitive. He said it depends on what the legal forums will rule......... Happy Sails! Joel

By bob antonio on Friday, April 14, 2000 - 02:34 pm:

Vern:

In looking at the GSA site, they may have tried to deal with the issue on "reveals an offeror's price without that offeror's permission." Here is an excerpt from the GSA site.

"Suppliers can see the bidding process but have no knowledge as to the others identities."

However in looking at 41 U.S.C. 423 and the FAR section, my initial impression is that "price" stands on its own and that the offeror does not have to be identified with price for a violation of the law and regulation. I must go back later and see if my second impression is the same.

Now to improper auctions. In at least one case issued after the Nick Chorak Mowing, B-280011.2, October 1, 1998 case, a Comptroller General decision continued to discuss "improper auctions." (Although it appears that new solicitations or the original solicitations were issued after 1/1/98, in at least one case it is unclear.) For eaxmple in SMS Data Products Group, Inc., B-280970.4, January 29, 1999. is the following passage.

"The Army advised our Office that it intended to take corrective action by canceling the RFQ and SMS's purchase order, and by issuing a new solicitation. SMS then filed this protest arguing that the requirements were not ambiguous and that resolicitation would result in an improper auction and technical leveling.

* * * * *

SMS also contends that, because the vendors' prices and products have been exposed, canceling the RFQ and resoliciting will foster an improper auction and technical leveling. Where, as here, the
corrective action proposed by the agency is not improper, the prior
disclosure of information in an offeror's proposal does not preclude the corrective action, and the resolicitation of the same requirement does not constitute an improper auction. See Unisys Corp., supra; Sperry Corp., B-222317, July 9, 1986, 86-2 CPD para. 48 at 4. The corrective action does not constitute improper leveling, and the possibility that the purchase order may not have been issued based on a fair competition has a more harmful effect on the integrity of the competitive procurement system than the fear of an auction; the statutory requirements for competition take priority over the regulatory constraints on auction techniques. See Unisys Corp., supra." (bold added)


In Spectrofuge Corporation of North Carolina, Inc.--Recon, B-
281030.3, April 9, 1999 the passage is

"As we have made clear in similar situations, the risk of an auction is secondary to the importance of correcting an improper award and preserving the integrity of the competitive procurement system through appropriate corrective action." (bold added)

So the Comptroller General is still talking about an "improper auction." If there is no error in the decisions, I assume an "improper auction" can occur in some cases in the Comptroller General's view.

I believe online government to business auctions have great potential. However if there are no legal exemptions from current law and regulation to allow their test, I would be interested to hear the steps that GSA took to assure itself that online auctions are proper.

By Stan Livingstone on Friday, April 14, 2000 - 02:07 pm:

I think disclosing prices as a condition of award isn't unreasonable, and I bet GAO and the Courts will see it that way too as we get more into electronic auctions. Right now, people disclose prices on sealed bids. Everyone responding to negotiated procurements know prices get disclosed if they are the successful offeror - maybe all get divulged. I think the next logical step as we move from paper to IT is reverse auctions. It's being done in industry and we in government are moving that way also - why should the governemnt use different commercial practices? If companies complain about disclosure, do they also complain to private sector customers? I don't think so.

By Eric Ottinger on Friday, April 14, 2000 - 12:33 pm:

Vern,

Oh boy,

It really don’t do for the Open Forum to become known as a reliable source of misinformation. Before you repeat this story about contract prices, Trade Secrets and criminal acts, please note that this is strictly your personal opinion and note that no contract specialist has actually been prosecuted for complying with the FAR and disclosing price information at a debriefing.

Anticipating your blast of outrage-- Just answer the question and state the facts. Has there been any criminal case such as you hypothesize.

Did you call Eleanor? Are you going to call Dee?

If you didn’t or you won’t follow-through, why do you use the Open Forum to spread such half-baked speculation.

Eric

By Vern Edwards on Friday, April 14, 2000 - 11:00 am:

I think that the answer depends on whether the auction is conducted pursuant to the simplified acquisition procedures in FAR Part 13 or the competitive negotiation procedures in FAR Part 15. The prohibition in FAR 15.306(e) against disclosing prices without an offeror's permission applies only to procurements conducted in accordance with Part 15.

But even if the procurement is conducted pursuant to Part 13, don't forget that there was a Federal court decision last year which held that under some circumstances a contractor's line item prices could be considered trade secrets. Disclosure of trade secrets is a Federal crime.

If the procurement is conducted pursuant to Part 15, then I think the question is whether the GAO or the Court of Federal Claims would consider it to be unduly restrictive of competitive to require offerors to disclose their prices as a condition of being considered for award. The outcome of such a protest is hard to predict. The answer might depend on how many prospective offerors objected to the plan.

By bob antonio on Friday, April 14, 2000 - 08:04 am:

Time: The first auction on GSA's new Government-to-Business site.

Issue: Nasty Bob's LLC (Nasty) is a major supplier of a commercial item. Nasty was asked by GSA to participate in its first auction. Nasty said no I will not reveal my prices during the auction which is the equivalent of the negotiation process. GSA told Nasty they were sorry Nasty felt that way. However, GSA said there is plenty of competition among the firms that will play with us. GSA went ahead with the auction and Nasty protested to the U. S. Court of Claims stating that the auction was an improper restriction on competition that prevented all eligible firms for competiing. Below is a Comptroller General decision and excerpt that touches on an issue. How do you decide?

Nick Chorak Mowing, B-280011.2, October 1, 1998

Solicitations issued after January 1, 1998, such as this one, are governed by the Federal Acquisition Regulation (FAR) as amended by the Federal Acquisition Circular (FAC) No. 97-02, which includes the Part 15 rewrite. While the predecessor Part 15 included constraints on the government's use of "auction techniques," FAR sec. 15.610(e) (June 1997), the rewrite does not contain such a provision. Section 15.306(e) now sets forth specific limitations on exchanges with offerors by Government personnel involved in an acquisition. Section 15.306(e)(3) proscribes the revealing by government personnel of an offeror's price without that offeror's permission, but explicitly provides that, "the contracting officer may inform an offeror that its price is considered by the Government to be too high, or too low, and reveal the results of the analysis supporting that conclusion."