FOIA Post (2002): Treatment of Unit Prices Under Exemption 4

Treatment of Unit Prices Under Exemption 4

The thirty-five-year history of the Freedom of Information Act, 5 U.S.C. § 552 (2000), has seen much change and development in the Act's exemptions and procedural provisions. Few FOIA exemptions have evolved more significantly during that time than Exemption 4, 5 U.S.C. § 552(b)(4), the Act's business information exemption, particularly with respect to its coverage of the "unit prices" that are contained in awarded government contracts. See FOIA Update, Vol. IV, No. 4, at 10 ("FOIA Counselor: Unit Prices Under Exemption 4").

The term "unit prices" commonly refers to the specified amounts to be paid by the government per item for the goods or services rendered by the contract, but it sometimes is applied to a wider range of contract pricing information as well. Due to the persistently heavy use of the FOIA by competing offerors on government contracts, and the proliferation of "reverse" FOIA cases in which contractors actively seek to prevent disclosure of their information, the treatment of unit prices under Exemption 4 has been a rather controversial area of FOIA law, and may continue to be, for many years.

Not infrequently, government contractors seek protection for the prices the government pays for products, arguing that disclosure would cause them substantial competitive harm. There is often disagreement, however, over whether such a showing of harm has been made in a particular case, and these disagreements sometimes are litigated in "reverse" FOIA cases.

The McDonnell Douglas Decision

Three years ago, despite much prior case law supporting the disclosure of government contract prices, the Court of Appeals for the District of Columbia Circuit issued a decision in a "reverse" FOIA dispute involving NASA -- McDonnell Douglas Corp. v. NASA, 180 F.3d 303 (D.C. Cir. 1999), reh'g en banc denied, No. 98-5251 (D.C. Cir. Oct. 6, 1999) -- that abruptly set aside the agency's disclosure determination for just such information.

In that case, the district court had upheld NASA's decision to release contract prices based on the agency's thorough rebuttal of McDonnell Douglas's claims that release would cause it competitive harm. 981 F. Supp. 12, 16 (D.D.C. 1997). The lower court held that NASA had effectively refuted McDonnell Douglas's contentions regarding competitive harm when it determined that contractors "compete on a variety of factors other than price," that foreign competitors were "not likely to be substantially aided by release," and that "any difficulty" McDonnell Douglas "may face in future commercial contract negotiations [did] not qualify as a substantial competitive injury and should be viewed as the cost of doing business with the Government." Id.

The D.C. Circuit reversed the district court's decision, however, characterizing NASA's administrative responses to McDonnell Douglas as, among other things, "mystifying." 180 F.3d at 306-07. Without referring to any of the prior appellate court rulings on the issue, see Pacific Architects & Engineers v. United States Department of State, 906 F.2d 1345, 1347 (9th Cir. 1990), and Acumenics Research & Technology, Inc. v. United States Department of Justice, 843 F.2d 800, 808 (4th Cir. 1988), or even to its own prior decisions limiting the type of harm recognized under the competitive harm prong to only that flowing from affirmative use of the information by competitors, i.e., CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1154 (D.C. Cir. 1987), and Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1291 n.30 (D.C. Cir. 1983), the D.C. Circuit took a new view of unit prices. It flatly declared McDonnell Douglas's arguments -- that the prices' release "would permit its commercial customers to bargain down ('ratchet down') its prices more effectively" and "would help its domestic and international competitors to underbid it" -- to be "indisputable." 180 F.3d at 306-07

This determination was further refined, though, by a subsequent development in the McDonnell Douglas case. NASA filed a petition for rehearing and although that petition was denied, D.C. Circuit Court Judge Silberman, the author of the court's opinion, ameliorated the government's concerns in two distinct ways. First, concerning the court's rejection of NASA's position, Judge Silberman expressly clarified that the McDonnell Douglas decision did not hold that "line item pricing would invariably" be protected. See McDonnell Douglas Corp. v. NASA, No. 98-5251, slip op. at 2 (D.C. Cir. Oct. 6, 1999) (Silberman, J., concurring in denial of rehearing en banc). Rather, he explained, the court held "only that the agency's explanation of its position bordered on the ridiculous." Id. Second, Judge Silberman specifically acted to reconcile prior D.C. Circuit cases with the McDonnell Douglas decision by commenting that "[o]ther than in a monopoly situation[,] anything that undermines a supplier's relationship with its customers must necessarily aid its competitors." Id. Thus, the two statements of the D.C. Circuit in the McDonnell Douglas case must be read together for a full understanding of the court's opinion.

The MCI Worldcom Decision

Since the issuance of the D.C. Circuit's McDonnell Douglas decision three years ago, there have not been any subsequent decisions squarely ruling on the issue of disclosure of unit prices. However, in MCI Worldcom, Inc. v. GSA, 163 F. Supp. 2d 28, 35-36 (D.D.C. 2001), another "reverse" FOIA suit, the District Court for the District of Columbia did address such an argument in the alternative and more importantly ruled on the applicability of the disclosure provisions contained in the Federal Acquisition Regulation (FAR).

At issue in MCI Worldcom were tables containing complex matrices specifying millions of "pricing elements" for telecommunications services provided by contractors to the government. Id. at 29-30. The agency had informed the submitters that pursuant to a new policy "it would now publicly disclose all 'contract unit prices'" pursuant to the disclosure provisions of the FAR. Id. at 30-31 (citing 48 C.F.R. §§ 15.503(b)(1), 15.506(d)(2) (currently at volume 2001), which mandate disclosure of unit prices in post-award notices and debriefings for contracts solicited after Jan. 1, 1998).

In overturning that agency decision, the court first ruled that the tables did not, in fact, contain "unit prices," but instead "more closely resemble[d] 'cost breakdowns,' which," it noted, "are specifically prohibited from disclosure by the very FAR provision relied upon" by the agency. 163 F. Supp. 2d at 33. Noting the absence of any "standard definition of 'unit price'" in the FAR or in the case law, the court then found that because the "pricing elements and components" at issue were "not separately purchased, ordered or billed to the government," they did not constitute the "price" for a "'good or service.'" Id. at 32-33. Accordingly, the court concluded that the tables did not contain "'unit price' information" within the meaning of the FAR. Id. at 34.

Although the court could have concluded its decision with that holding, it nonetheless went on to opine that "even assuming" that the tables did contain "'unit price' information," the FAR did not "permit their disclosure." Id. Focusing on language contained in both of the FAR provisions relied on by the agency -- that prohibited "release of information that is confidential, trade secret, or otherwise exempt under FOIA Exemption 4" -- the court determined that the "unmistakable meaning" of the FAR provisions was that unit price information could be disclosed "only insofar as it" is not otherwise exempt from disclosure. Id. at 34-35 (citing Mallinckrodt Inc. v. West, 140 F. Supp. 2d 1, 5-6 (D.D.C. 2000), appeal dismissed voluntarily, No. 00-5330 (D.C. Cir. Dec. 12, 2000)).

Then, moving to an analysis of whether the tables were protected under Exemption 4, the court relied on the D.C. Circuit's decision in McDonnell Douglas, finding that the submitters had "set forth detailed facts" establishing that they would suffer "precisely the injuries that led [the D.C.] Circuit to declare that line item pricing was confidential information and not disclosable." 163 F. Supp. 2d at 36. Most significantly, in making this determination, the court evidently was influenced by the fact that the agency was unable to "point[] to anything in the administrative record that establishes that the information is not confidential," as it had "never made any findings" on that issue. Id. at 36 & n.10. Thus, the lack of a detailed administrative record supporting the agency's disclosure decision was pivotal to the outcome of the case.

The Submitter Notice Process

In sum, the net effect of these two decisions is that agencies now should pay renewed attention to their treatment of unit prices in accordance with the following approach: First, agencies handling FOIA requests for unit price information should in all cases notify the submitter that such a request has been made in order to obtain and consider any objections to disclosure. Accord Exec. Order No. 12,600, 3 C.F.R. 235 (1988), reprinted in 5 U.S.C. § 552 note (2000), and in FOIA Update, Vol. VIII, No. 2, at 2-3; see also FOIA Update, Vol. VIII, No. 2, at 1. Second, agencies should conduct a thorough competitive harm analysis of any objection that is made to the disclosure of unit prices through this submitter-notification process. Accord FOIA Update, Vol. III, No. 3, at 3 ("OIP Guidance: Submitters' Rights"); see also FOIA Update, Vol. IV, No. 4, at 10 ("FOIA Counselor: Unit Prices Under Exemption 4"). Indeed, inasmuch as Judge Silberman made clear that the D.C. Circuit's decision in McDonnell Douglas did not establish a "per se" rule governing disclosure of unit prices, and because the clear focus of the decision was on the "explanation of the agency's position," it is imperative that all agencies, having afforded submitter notice, carefully evaluate any claims of competitive harm that may be made by submitters on a case-by-case basis.

Only by paying careful attention to the potential application of Exemption 4 to unit prices can agencies be sure that they will always have a sufficient administrative record on which to base and support their decisions.

(This guidance supersedes FOIA Update, Vol. XVIII, No. 4, at 1, and FOIA Update, Vol. V, No. 4, at 4.) (posted 5/29/02)

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