Infotech and the law: Court tightens law protecting contractors' pricing info

A new ruling by the U.S. Court of Appeals for the District of Columbia provides greater protection for a government contractor's pricing when it's requested by a competitor, pursuant to the Freedom of Information Act (FOIA). In this case, McDonnell Douglas Corp. v. United States, Lockheed Martin Corp. requested that the Air Force release pricing information related to an aircraft maintenance and repair contract that the service had awarded to McDonnell Douglas. Lockheed Martin requested pricing information that was set forth in the contract and included contract line items (CLINS) for over-and-above work, option-year prices and vendor pricing.Typically, when agencies get a FOIA request for disclosure of a federal contract or its terms, they ask the contract winner whether it has any objections to release of the information. The contractor usually sends its objections to the agency in what is known as a reverse FOIA letter. Most reverse FOIA letters cite Exemption 4 to FOIA and the Trade Secrets Act as grounds for withholding the information from disclosure. FOIA Exemption 4 exempts from disclosure trade secrets, as well as commercial and financial information that is obtained from a person (or company) and also is privileged and confidential. The Trade Secrets Act similarly prohibits an agency from releasing information subject to Exemption 4.Previous court decisions have imposed two standards for determining whether a contractor can claim protection under Exemption 4. If the contractor voluntarily provided the information to the government, the contractor must show that release of the requested pricing information customarily would not be released to the public. But if the government required the contractor to submit the information, the contractor must demonstrate that release of the information would impair the government's ability to get necessary information in the future or cause substantial harm to the contractor's competitive position.FOIA law in these matters has been inconsistent on two important questions. First, is information that is submitted to the government in a proposal and subsequently incorporated into a contract deemed voluntarily submitted or required? Second, what are the circumstances that qualify as likely to cause "substantial harm" to a contractor's competitive position?The D.C. circuit court's decision last month in McDonnell Douglas Corp. v. United States puts these issues to rest. The court considered the pricing information that was in McDonnell Douglas' proposal and incorporated into the subsequent contract, to be information that was required for submission by the government. Accordingly, to prevent release of the information, McDonnell Douglas had to demonstrate that its release would cause the company to suffer competitive harm. In reversing the trend of past cases, the court also made it easier for contractors to claim protection for pricing information under Exemption 4.For years, agencies have rejected contractor claims that release of CLIN pricing information under FOIA would let the contractor's competitors underbid it in future competitions. Agencies typically respond that the pricing information will be obsolete by the next procurement or that pricing is likely to be only one of several factors that might influence the success of a future proposal. In its decision, the D.C. circuit court rejected the Air Force's similar justification for allowing disclosure of option year and vendor pricing information under FOIA.The court upheld the Air Force's decision to release the over-and-above pricing information on the basis that the CLIN reflected publicly available information. The court also confirmed that the bottom-line price for the base year of the contract was properly disclosed.Devon Hewitt is a partner of Government Practices at ShawPittman in McLean, Va. She can be reached at devon.hewitt@shawpittman.com.