FEDERAL CONTRACT LAW
Are unit prices public information, or are they not?
By Joseph J. Petrillo
Chalk one up for secrecy in government pricing.
A recent appellate court decision upended a series of lower court rulings about whether unit prices in government contracts are public information. The decision holds that NASA, in response to a Freedom of Information Act request, could not release prices charged by McDonnell Douglas Corp. for satellite launch services. McDonnell Douglas merged with Boeing Co. last year.
The decision is especially important because it comes from the U.S. Court of Appeals for the District of Columbia Circuit, where most FOIA law is settled.
The decision is a surprising reversal of prior case law. Since 1974, the test for protecting proprietary information was set forth in the National Parks decision, decided in the same court. Information submitted by a private party would be exempt from disclosure if it could meet one of two tests. Under the Trade Secrets Act, the government did not have discretion to release proprietary documents.
Test 1 was whether disclosure would reduce the government's ability to obtain the information in the future. Courts reasoned companies would still bid on federal contracts even if their prices were disclosed, so this test wasn't met.
Test 2 was whether disclosure would cause substantial competitive harm to the submitter. In assessing this test, most courts drew a distinction between cost information and prices. Courts almost always protected information about a contractor's labor, material and indirect costs as well as profit percentages. Firm fixed prices, even on the unit level, were left public. Courts reasoned that disclosing such prices would not cause competitive harm, in part because competitors could not extract the various cost components from the price alone.
A change in the law came in 1992, in the Critical Mass case. Once again, a landmark decision came from the Court of Appeals for the D.C. Circuit. That case established Test 3: Price information should be protected from disclosure if it isn't customarily released to the public by the submitter. If the submission is involuntary, however, the National Parks tests would apply.
That decision had little impact on the release of contract price information. Although contractors could show that submitting a bid or proposal was completely voluntary, there was no choice about whether or not to include a price if the solicitation so required. Courts focused on this latter point. Because submitting price information in a bid or proposal was not voluntary, the National Parks tests still governed release under FOIA.
The McDonnell Douglas decision, issued late last month, changes the landscape significantly. Applying the National Parks test, the court held that release of unit prices was likely to cause substantial competitive harm to the submitter. The opinion flatly asserted: '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.'
The competitive harm which McDonnell Douglas asserted, and which the court found persuasive, was twofold. Release of NASA's unit prices would let commercial customers bargain-down the price of launches and would let competitors underbid McDonnell Douglas.
Any government contractor with commercial customers can make the same assertions. Even if there is a published price list for the items, releasing unit prices might compromise the discount the government receives. The same potential for competitive harm could apply to this situation. In some cases, the bottom-line contract price itself might be exempt from disclosure.FAR overlooked
One curiosity about the McDonnell Douglas case is what it doesn't do. Neither the appellate decision nor the district court opinion that it overrules mentions the Federal Acquisition Regulation. FAR has long required that, whenever possible, notices sent to unsuccessful bidders include the unit prices of the winners.
The FAR rewrite strengthens this rule. When only the total contract price is included in the award notice, unit prices 'shall be made publicly available upon request.' At a minimum, FAR seems to establish a presumption that unit prices are public information. The court decisions, however, ignore this regulation.Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell, PLLC. E-mail him at email@example.com.