FOIA Development in D.C. Circuit: New Defenses Against Disclosing Line Item Pricing to Competitors

 

Lesson: Contractors seeking to protect their CLIN pricing from disclosure to competitors under FOIA should cite McDonnell Douglas in opposition, and should be sure to make a complete record of their grounds at the administrative level. This decision offers contractors a roadmap of how to protect their line item and unit pricing.

 

In the latter half of 2004 the D.C. Circuit issued a decision rejecting a government assertion that a contractor’s line item and unit pricing could routinely be disclosed under the Freedom of Information Act (FOIA). It did allow disclosure of total contract price and of hourly labor rates for extra work.

 

In McDonnell Douglas v. Dep’t of the Air Force, 375 F.3d 1182 (D.C. Cir. 2004), the Circuit Court held that McDonnell Douglas’s option year prices and vendor contract line item number (CLIN) prices under its Air Force contract for maintenance and repair of the KC-10 and KDC-10 aircraft should not be released to its competitor Lockheed Martin under FOIA. It did uphold disclosure of certain other limited McDonnell Douglas CLIN prices.

 

McDonnell Douglas maintained that the option year prices and vendor pricing CLIN fell within FOIA Exemption 4, which exempts from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b)(4). The court reiterated the standard it had previously articulated in National Parks & Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974) that pricing information is "confidential" and therefore within the scope of Exemption 4, if its disclosure is "likely…to cause substantial harm to the competitive position of the person from whom the information was obtained."

 

The Air Force argued that release of option year prices was not likely to cause substantial competitive harm to McDonnell Douglas in the event that the Air Force decided to re-bid the contract rather than exercise the options. It claimed that in such circumstances, the new bid price "would be only one of several evaluation factors for award" of a new "best value" contract. The court rejected this argument and found with respect to option year prices that McDonnell Douglas had met the Exemption 4 standard:

 

“Simply put, release of the option year prices in the present contract would likely cause McDonnell Douglas substantial competitive harm because it would significantly increase the probability McDonnell Douglas's competitors would underbid it in the event the Air Force rebids the contract. [citation: substantial competitive harm likely where disclosure "would allow competitors to estimate, and undercut, its bids"]. Because price is the only objective, or at least readily quantified, criterion among the six criteria for awarding government contracts, submitting the lowest price is surely the most straightforward way for a competitor to show its bid is superior. . . . We conclude disclosure of McDonnell Douglas's option year prices would likely cause McDonnell Douglas substantial competitive harm by informing the bids of its rivals in the event the contract is rebid. []Consequently, the option year prices fall within the scope of Exemption 4, and the decision of the Air Force to release them was contrary to law.” Id. at 1189-90.

 

The court also found that release of the prices associated with certain CLINs composed predominantly of the costs of materials and services McDonnell Douglas procures from vendors also fell within Exemption 4. The court agreed with McDonnell Douglas’s argument that because Lockheed Martin had probably gotten quotes from the same vendors at the same or similar prices offered to McDonnell Douglas, release of the CLIN prices would allow Lockheed Martin to determine the McDonnell Douglas mark-up for these items and services. On the other hand, the court was not persuaded that release of hourly labor rates for certain maintenance and repair work would likely cause McDonnell Douglas harm.

 

This decision could have the effect of broadly protecting line-item prices from disclosure. The dissent characterized the majority’s opinion as coming “perilously close to a per se rule that line-item prices … may never be revealed to the public through a [FOIA] request." It accused the majority of "stand[ing] the burden of proof on its head," in essence requiring the Air Force to prove that no harm would come from a disclosure rather than placing the burden on McDonnell Douglas to demonstrate that such harm was likely.

 

The decision is persuasive precedent, although not binding, in other circuits such as the 9th Circuit on the West Coast.

 

A cautionary note regarding procedural matters: The court refused to consider arguments by either McDonnell Douglas or the Air Force that were not advanced in the initial FOIA proceedings at the administrative level. Many key arguments raised later in the proceedings were therefore ignored. This emphasizes the importance of including in the administrative record a comprehensive presentation of all specific facts and theories relating to claimed exemptions and likely competitive harm.