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 FAR 24.2:  Freedom of Information Act - Trade secrets, commercial, financial information, reverse auction

U. S. Court of Federal Claims - Key Excerpts

The court’s discussion of the applicability of Exemption 4 of FOIA is instructive. Initially, the court noted that such applicability turns on “whether the information that a party seeks to have disclosed by the government was provided to the government voluntarily or under compulsion.” Id. at 204 (citing McDonnell Douglas Corp., 180 F.3d at 304). Financial or commercial information voluntarily submitted to the government “‘is confidential for the purpose of Exemption 4 if it is of a kind that would customarily not be released to the public by the person from whom it was obtained.’” Id. at 204-05 (quoting Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871, 879 (D.C. Cir. 1992)). On the other hand, if information is required to be submitted to the Government, such information is “confidential” if disclosure will “‘(1) . . . impair the Government’s ability to obtain necessary information in the future; or (2) . . . cause substantial harm to the competitive position of the person from whom the information was obtained.’” Id. at 205 (quoting Nat’l Parks & Conservation Assoc. v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974)). An interesting dichotomy thus exists between information voluntarily submitted and information compelled to be submitted by the Government. In either instance, however, FOIA’s Exemption 4 does not provide an immediate proscription on the disclosure of information by the Government. Instead, the method of providing such information—voluntarily or by compulsion—is key in determining the extent of its disclosure. Only then does discussion of the relative harms of disclosure to the Government and a plaintiff become relevant. The McDonnell Douglas district court went on to define plaintiff’s submission to the USAF as “not voluntary” because it was required to provide cost and pricing information in order to compete for the contract. Id. Because the USAF itself found that disclosure of the information requested would not harm its ability to obtain information in the future, the court accepted that rationale as reasonable and moved to the second part of the National Parks test. Plaintiff’s alleged harms echoed similar fears of plaintiff in this case—to wit, plaintiff in McDonnell Douglas asserted that, if the USAF did not exercise the option on plaintiff’s contract, plaintiff must compete anew for the contract against competitors who would be able to determine support hours, overhead factors, and profit factors for the current contract, thereby placing plaintiff at a disadvantage, id. at 207. Further, and similar to plaintiff’s concern about the size of the qualified field of bidders, plaintiff in McDonnell Douglas contended that the limited number of qualified subcontractors signified that “competitors will have likely gone to the same subcontractors . . . [and] that competitors could use the bids they have received from subcontractors and [plaintiff’s] Vendor Pricing Factor to calculate [plaintiff’s] markup rate, which is an inherent part of [plaintiff’s] pricing strategy.” Id. at 208. Mitigating against that inference, the USAF reasoned that competitors could not specifically determine these figures and would, therefore, not be able to cause competitive harm to plaintiff. Id. In another relevant argument from McDonnell Douglas, plaintiff complained that release of its “Over and Above Prices” would allow competitors, in conjunction with the public knowledge of plaintiff’s average wage paid, to compute plaintiff’s labor pricing factor, which is the “markup for support labor, overhead, and profit.” Id. at 209. The district court found that the USAF’s experience with government contracting was a reliable experience of determining the effects of disclosure of plaintiff’s information. Hence, the court concluded that the release of information under FOIA was not arbitrary and capricious. Id. These cases demonstrate a possible scenario for resolving plaintiff’s complaint against HUD’s reverse auction procedure. Although FOIA is not implicated directly in the present case, it has generated decisional law that a required disclosure of financial information in the bidding system is not voluntary. Taken together, these cases are authority that defendant cannot rely solely on 41 U.S.C. § 423(h)(2) to end this matter with the salvo that plaintiff was not required to participate in the reverse auction and that its bid was therefore voluntary. Moreover, the standards for determining whether Exemption 4 applies in a particular matter offer a legitimate tool to establish whether HUD or another agency has violated the FAR through a reverse auction procedure. In the first instance the agency, not plaintiff, makes an agency decision that the required financial information is not confidential commercial or financial matter. While that has not occurred here, the court is not prepared to invalidate reverse auctions based on the rationale of this line of cases. Therefore, the court holds that 41 U.S.C. § 423(h)(2) and 48 C.F.R. § 3.104-4(e)(1) do not prohibit HUD’s reverse auction procedure because disclosure is permitted. Moreover, as will be discussed, even if these cases apply to bid protests, plaintiff’s price structure is not readily discernible from the total prices that it enters for the lots. (emphasis procedure)  (MTB Group, Inc., v. U. S., No. 05-375C, June 7, 2005) (pdf)

Flammann has relied largely on the case McDonnell Douglas Corp. v. NASA, 180 F.3d 303 (D.C. Cir. 1999), and its application of the National Parks’ two-part test. In National Parks, the court set out a two-part test to determine what constitutes “confidential” information within the meaning of Exemption 4 of FOIA, to wit, (1) it must be information that “would customarily not be released to the public by the person from whom it was obtained,” id. at 766, and (2) the likelihood, upon release, to cause substantial competitive harm to the person who supplied it. Id. at 771. The information that the appellant in National Parks sought to obtain from the Department of the Interior was audited financial records, and the like, of companies operating concession stands in national parks. While the National Parks court found facts sufficient to satisfy the first part of the test, id., it remanded the case back to the district court to make a finding as to part two, stating: “If the district court finds in the affirmative, then the information is ‘confidential’ within the meaning of section 552(b)(4) and exempt from disclosure.” Id. In McDonnell Douglas, the plaintiff was seeking to protect the unit prices that it submitted to NASA under a satellite launch services contract. The contract was a negotiated procurement whereby, among other things, the parties agreed to “eliminate a clause stating that pricing information in the contract was considered to be in the public domain.” McDonnell Douglas, 180 F.3d at 304. Upon applying the two-part test, the D.C. Circuit found that the information was confidential within the meaning of section 552(b)(4) because the information was not in the public domain, and the plaintiff successfully argued that the release thereof “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,” therefore, disclosure was likely to cause substantial competitive harm. Id. at 306.

Clearly the decision in that case turned on the finding of both nonpublic disclosure and a showing of potential competitive harm. Undoubtedly, "where the Government has obligated itself in good faith not to disclose documents or information which it receives, it should be able to honor such obligations." This court, therefore, must agree with the defendant that the McDonnell Douglas case is inapposite to the case at bar, because the holding in that case applies to confidential undisclosed information in the hands of the government. McDonnell Douglas, 180 F.3d at 304. Whereas here, it is undisputed that sealed bids upon bid opening become publicly available, as did Flammann’s incumbent contract, on or about January 8, 2001. For that reason alone, plaintiff’s unit prices do not fit within Exemption 4 of FOIA, because publicly available information cannot meet part one of the National Parks “confidential” standard. See CNA Financial Corp., 830 F.2d at 1154 (stating that "[t]o the extent that any data requested under FOIA are in the public domain, the submitter is unable to make any claim to confidentiality–a sine qua non of Exemption 4." (Citation omitted).  (R & W FLAMMANN GmbH, v. THE UNITED STATES, No. 02-800C, September 23, 2002)

U. S. Court of Federal Claims - Listing of Decisions

For the Government For the Protester
MTB Group, Inc., v. U. S., No. 05-375C, June 7, 2005 (pdf) (Reverse Auction) R & W FLAMMANN GmbH, v. THE UNITED STATES, No. 02-800C, September 23, 2002

U. S. Court of Appeals for the Federal Circuit - Key Excerpts

The trial court relies on NKF Engineering, Incorporated v. United States, 805 F.2d 372 (Fed. Cir. 1986), for the proposition that procurement officers must act to prevent even an appearance of impropriety in order to meet FAR requirements of “safeguarding the interests of the United States in its contractual relationships,” 48 C.F.R. § 1.602-2 (2000), and ensuring that “contractors receive impartial, fair, and equitable treatment,” id. § 1.602-2(b) (2000). NKF Engineering found an appearance of impropriety where a former government employee was suspected of providing sensitive procurement information to a contractor who had employed the informant. 805 F.2d at 374. However, NKF Engineering did not hold that a procurement officer should violate a statute in order to meet these regulatory requirements. Thus the case is not applicable here.  A regulation that contravenes a statute is invalid. See United States v. Vogel Fertilizer Co., 455 U.S. 16, 26 (1982) (a regulation is invalid unless it “harmonizes with [a] statute’s ‘origin and purpose.’”); see also Hamlet v. United States, 63 F.3d 1097 (Fed. Cir. 1995). The FOIA statute obligates the government to disclose non-exempt information, Julian, 486 U.S. at 8, and supercedes purportedly contradictory regulatory requirements found within 48 C.F.R. § 1.602-2. A procurement officer’s general regulatory duty to ensure fair treatment under FAR is therefore superceded by FOIA’s mandatory disclosure requirement. Furthermore, where the “basic objective of [FOIA] is disclosure,” there can be no appearance of impropriety because the Army was required to disclose Flammann’s publicly available unit price information to any interested party, including Flammann’s other competitors for the resolicited bid contract. Chrysler, 441 U.S. at 290. A disinterested observer knowing all the facts and the applicable law would see nothing improper in the actions of the Army, and neither do we. Cf. Lachance v. White, 174 F.3d 1378, 1381 (Fed. Cir. 1999).  (R & W FLAMMANN GmbH, v. THE UNITED STATES, No. 03-5014, August 7, 2003)  (.doc)

U. S. Court of Appeals for the Federal Circuit

For the Government For the Protester
R & W FLAMMANN GmbH, v. THE UNITED STATES, No. 03-5014, August 7, 2003  (.doc)  (Overturns COFC decision above)  


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