Line Item Pricing in Government Contracts is Exempt from Disclosure Under Freedom of Information Act, Court Holds

May 18, 2009

By: Christian F. Henel

This article originally appeared as a post on the blog ConstructionWebLinks.com.

The U.S. Court of Appeals for the District of Columbia Circuit has held that the federal government is not permitted to disclose line item pricing information in a government contract in response to a Freedom of Information Act (FOIA) request.

In 2002, Canadian Commercial Corp. signed a three year contract with the Air Force to repair, overhaul, and modify jet engines. Under the contract, the Air Force had an option to extend the contract with Canadian Commercial for up to an additional four years.

In 2003, Sabreliner, a competing contractor that lost the bid to Canadian Commercial, filed a FOIA request for the Canadian Commercial contract. Canadian Commercial wrote the Air Force, objecting to disclosure of Canadian Commercial’s hourly rates and line item pricing in the contract, arguing that they were trade secrets.

The Air Force issued a decision letter rejecting Canadian Commercial’s objection, and Canadian Commercial responded by filing a “reverse” FOIA suit to enjoin the Air Force from disclosing the information. See, e.g., Chrysler Corp. v. Brown, 441 U.S. 281 (1979) [permitting a person whose information is about to be disclosed to file a lawsuit to enjoin the disclosure].

The U.S. District Court held in deciding a summary judgment motion that the Air Force acted in an arbitrary and capricious manner when it rejected Canadian Commercial’s objection to disclosure of the line item pricing and enjoined the Air Force from releasing the line item pricing. The Air Force appealed. The Court of Appeals affirmed. Canadian Commercial Corp. v. Department of the Air Force, 514 F.3d 37 (D.C. Cir. 2008).

The appeals court broke its decision into two parts. First, the court addressed the Air Force’s argument that pricing should be categorically excluded from any exemption under FOIA. It rejected that argument and held that pricing was, in fact, exempt under FOIA.

The Air Force argued that it should be permitted to disclose the line item pricing because Congress had not have intended FOIA to include line item pricing because FOIA was intended to broaden the array of information available to the public and the Air Force had regularly disclosed line item pricing before enactment of FOIA.

In rejecting this argument, the court noting that the plain language of FOIA Exemption 4 limited the types of information available under FOIA and that the Air Force had failed to provide any evidence of a prior practice of disclosing such pricing information. FOIA Exemption 4 protects from disclosure “matters that are… trade secrets and commercial or financial information obtained from a person and privileged and confidential.” 5 USC §552(b)(4).

In considering whether the line item pricing in Canadian Commercial’s contract fell within the exemption, the court applied the analysis set forth in National Parks and Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974). Under National Parks, information involuntarily obtained from a person is exempt from FOIA disclosure if “disclosure would either impair the Government’s ability to obtain necessary information in the future, or cause substantial harm to the competitive position of the person from whom the information was obtained.”

The court held that line item pricing was exempt under the National Parks test because disclosing it would cause substantial harm to Canadian Commercial. Citing two cases that addressed the same issue, the court held that “it is the law of this circuit that prices do come within Exemption 4.” See, McDonnell Douglas v. Air Force, 375 F.3d 1182 (D.C. Cir. 2004) and McDonnell Douglas v. NASA, 180 F.3d 303 (D.C. Cir. 1999).

The court next addressed whether the Air Force was arbitrary and capricious when it concluded that the line item pricing should be disclosed.

The Air Force advanced two arguments. First, the Air Force argued that it was not arbitrary and capricious to conclude that Canadian Commercial would suffer no competitive harm because Canadian Commercial should have realized that the Air Force did not intend to switch to another contractor to perform the work because switching contractors involves high transaction costs.

The court found that this argument suffered from “a complete lack of empirical support.” If the Air Force did not intend to at least entertain switching to another contractor, the court reasoned, the Air Force would not have negotiated an option with Canadian Commercial in the first place. The Court also noted that the FAR does not permit an agency to exercise an option unless doing so would be “the most advantageous method of fulfilling the Government’s need,” taking price into account. See, 48 CFR §17.207(c)(3). Thus, under the FAR, it was possible that the Air Force might decline to exercise its option with Canadian Commercial.

Second, the Air Force argued that Federal Acquisition Regulation requires it to disclose line item pricing information. The court rejected this argument, pointing out that FAR contains an exemption from disclosing any information protected under FOIA. See, 48 CFR §15.506(e)(1).

Accordingly, the court held that the Air Force acted in an arbitrary and capricious manner when it concluded that disclosure of line item pricing would not cause Canadian Commercial to suffer “substantial competitive harm.”

The court enjoined the Air Force from releasing Canadian Commercial’s line item pricing information. The court affirmed but did not address the District Court’s ruling that Canadian Commercial’s hourly rates were not exempt and should be disclosed.

* Christian F. Henel is formerly of Ober|Kaler's Construction Group.