LawFlash

Government Contract–Specific Impact of Recent Supreme Court FOIA Decision

July 02, 2019

In Food Marketing Institute v. Argus Leader Media, the US Supreme Court held that private sector commercial information in the federal government’s possession may be withheld from public release without a showing that the disclosure would cause competitive harm to the party submitting the information. This decision has two important implications for government contractors and grantees: First, where a contractor’s submission of information is mandatory, protecting this information now will be easier because likely competitive harm need not be shown. Second, contractors seeking to protect information in the future could be required to demonstrate that the government has expressly provided an assurance of privacy by reference to a statute, FAR clause, or some specially drafted assurance.

The Freedom of Information Act, 5 USC § 552 (FOIA), empowers any person to request access to federal agency records or information unless the records are protected from disclosure by a legal exemption. Competing contractors often file FOIA requests seeking information submitted to the government, including information on the award and performance of contracts and grants, to gain competitive advantage. In such cases, the entity that provided the information to the government must defend against disclosure of its information by invoking applicable FOIA exceptions. For government contractors, the most familiar of these exemptions is Exemption 4, which protects “trade secrets and commercial or financial information [that is] privileged or confidential” from disclosure. 5 USC § 552(b)(4). The majority of contractors and grantees who find themselves on the other end of a FOIA request for commercial or financial information contained in US government records will seek protection from release to the FOIA requester by asserting that the information meets the requirement to be considered “confidential” under Exemption 4.

What Does It Mean to Be ‘Confidential’?

Until the Court issued its decision in this case, the standard followed by most agencies for determining whether information was “confidential” within the meaning of Exemption 4 was established by the US Court of Appeals for the DC Circuit, where many federal agencies are located. That standard required a preliminary determination of whether the private entity providing its commercial information to the government did so voluntarily or was required to provide the information. If voluntarily provided, information was “confidential” if it was of the kind that would customarily not be released to the public by the person from whom it was obtained. See Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871, 879 (D.C. Cir. 1992) (en banc), cert. denied, 507 U.S. 984, 113 S. Ct. 1579, 123 L. Ed. 2d 137 (1993).

However, if submission of the information was compulsory, it was only confidential if disclosure of the information was likely to have either of the following effects: (1) to impair the government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained. Id.; see also Nat’l Parks Conservation Ass’n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). In applying the substantial harm test, courts found that companies did not need to show actual competitive harm. See Gulf & W. Indus., Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1979). Rather, to protect the information submitted, companies were required to prove “[a]ctual competition and the likelihood of substantial competitive injury.” Id.

Court determinations of whether submission of confidential information was mandatory or voluntary have been necessarily fact based. In the government contracts context, courts have held that the inherently voluntary nature of proposal submissions does not mean that submission of information in a proposal necessarily will be deemed voluntary. Instead, the test has been whether submission of the specific elements of information at issue was necessary to comply with the terms of the solicitation, even if the contractor was not required to submit a proposal in the first place. See, e.g., Canadian Commercial Corp. v. Dep’t of Air Force, 442 F. Supp. 2d 15, 29 (D.D.C. 2006). As a result, different pieces of information in a contractor’s proposal have been subject to different definitions of “confidential.” In one case, for example, submission of the general and administrative (G&A) rates themselves was deemed mandatory because the solicitation required submission of a cost proposal including G&A rates. However, submission of G&A rate ceilings was deemed voluntary because it was not expressly required by the solicitation and was provided only in response to a follow-up question from the contracting officer asking whether the contractor would be willing to propose a cap on the G&A rates contained in its proposal. Cortez III Serv. Corp., Inc. v. Nat’l Aeronautics & Space Admin., 921 F. Supp. 8 (D.D.C. 1996). Similarly, in a case involving the Department of Veterans Affairs’ solicitation of blanket purchase agreements (BPAs) adjunct to existing Federal Supply Schedule (FSS) contracts, submission of unit pricing data was deemed required in order to compete for the BPA. At the same time, submission of information regarding offered rebate and incentive programs was deemed voluntary because the solicitation stated that, to be considered, offers should include any added value items, but must include a copy of the underlying FSS contract containing the unit prices. Mallinckrodt Inc. v. West, 140 F. Supp. 2d 1 (D.D.C. 2000).

In its Food Marketing Institute decision, the Supreme Court soundly rejected the substantial harm test, holding that the express language of the FOIA statute provided no basis for imposition of this test. Instead, the Court found that “[a]t least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, [then] the information is ‘confidential’ within the meaning of Exemption 4.” While the Court acknowledged the separate DC Circuit tests for submission of mandatory and voluntary confidential information, the Court’s decision focuses almost exclusively on the definition of “confidential” in the statute, stating it could “discern [no] persuasive reason to afford the same statutory term two such radically different constructions” (emphasis original).

Takeaways

This decision has two important implications for government contractors and grantees. First, contractors and grantees whose submission of information is mandatory will no longer have to demonstrate that release is likely to cause substantial competitive harm to protect their information, making it easier for contractors and grantees to protect their information and harder for requestors to get it.

Second, the decision raises the possibility that a lower court could require contractors and grantees submitting information that is not required to prove more than under the standard previously applied to information voluntarily submitted—namely, that the government received the information with an assurance of privacy. Were this a requirement, the FOIA statute, as interpreted by the Court, would no longer independently promise Exemption 4 protection for sensitive information voluntarily submitted in the context of a government contract or grant solely on grounds that the information is the kind customarily not released to the public by the submitter. Rather, contractors and grantees likely would need to satisfy the “assurance of privacy” criteria with reference to either a separate statutory promise of confidentiality, such as may be inferred from the Trade Secrets Act, 18 USC § 1905, or specific contract clauses, such as the Federal Acquisition Regulation (FAR) data rights clauses, which expressly promise to protect information submitted under contract that is marked with a protective legend. Unsuccessful offerors in competitive procurements, however, already are shielded by the categorical assurance of privacy set forth in FAR 24.202(a), which provides that “[a] proposal in the possession or control of the Government, submitted in response to a competitive solicitation, shall not be made available to any person under the Freedom of Information Act. This prohibition does not apply to a proposal, or any part of a proposal, that is set forth or incorporated by reference in a contract between the Government and the contractor that submitted the proposal.”

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Stephen E. Ruscus
Donna Lee Yesner
Katelyn M. Hilferty