FOIA Post (2002): New McDonnell Douglas Opinion Aids Unit Price Decisionmaking

May 29, 2002

New McDonnell

Douglas Opinion Aids

Unit Price Decisionmaking

A significant "reverse"

Freedom of Information Act decision addressing the long-controversial issue

of the treatment of unit prices (or similar contract pricing information) in

government contracts under Exemption 4 of the Freedom of Information Act has been handed down by the District

Court for the District of Columbia.

That court has

upheld a Department of the Air Force determination that release of Contract

Line Item Number (CLIN) prices for the current and option years of an awarded

government contract would not be likely to cause substantial competitive harm

to McDonnell Douglas Corporation, which is now a wholly owned subsidiary of The Boeing

Company (Boeing). See McDonnell Douglas Corp. v. United States Dep't of

the Air Force, 215 F. Supp. 2d 200, 205-09 (D.D.C. 2002). This is the first

decision to rule squarely on the disclosure of unit prices in awarded government

contracts since the D.C. Circuit's controversial decision on this issue three

years ago. See 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);

see also Freedom of Information

Act Guide & Privacy Act Overview (May 2002), at 250-54 (analyzing

D.C. Circuit's McDonnell Douglas opinion, together with opinion issued

by its author upon denial of rehearing, to make clear its limitations).

In reaching its

decision, the D.C. District Court first ruled that the Air Force had properly

determined that the submission of the pricing information at issue "was not

voluntary," because "Boeing was required to provide its cost and pricing information"

in order to be "considered for the contract" in the first place. 215 F. Supp.

2d at 205. Thus, the court found, the conventional tests for confidentiality

set forth in National Parks & Conservation Ass'n v. Morton, 498

F.2d 765, 770 (D.C. Cir. 1974), applied. See 215 F. Supp. 2d at 205.

The court next

ruled on Boeing's argument that release of its pricing information would harm

the government's ability to obtain such information in the future -- and it

soundly rejected that argument. The court declared that although Boeing's articulation

of such a novel argument was "catchy," the government itself was in the "best

position to determine whether an action will impair its information gathering

in the future." 215 F. Supp. 2d at 206.

Then the court

addressed the issue of possible competitive harm. It ruled that in "reverse"

FOIA cases, an agency "is not required to prove that its predictions of the

effect of disclosure are superior." 215 F. Supp. 2d at 205. Rather, the court

reasoned that the "harm from disclosure is a matter of speculation, and when

a reviewing court finds that an agency has supplied an equally reasonable and

thorough prognosis, it is for the agency to choose between the contesting party's

prognosis and its own." Id.

In this case, the

court found that in its fulsome, twelve-page letter addressing "each point of

fact and law made by Boeing in its comments," 215 F. Supp. 2d at 203, the Air

Force had "presented reasoned accounts of the effect of disclosure based on

its experiences with government contracting," id. at 209. Therefore,

the Air Force's decision to disclose the pricing information was not arbitrary

or capricious in any respect. See id.

Most significantly,

in issuing this ruling the D.C. District Court specifically found that the D.C.

Circuit's McDonnell Douglas decision did not require a different result.

Rather, the court found that the arguments that were made by the Air Force in

this case, based upon its administrative record, "differ[ed] markedly" from

those put forth by NASA in that earlier D.C. Circuit case. 215 F. Supp. 2d at

208.

First, whereas

NASA had argued in its case that "'underbidding due to the disclosure would

not occur because price is only one of the many factors used by the government

in awarding contracts,'" 215 F. Supp. 2d at 207-08 (quoting McDonnell Douglas

v. NASA, 180 F.3d at 306), the Air Force by contrast reached the conclusion

that "even if underbidding were to occur, the fact that price is just one of

many factors means that the effect of the underbidding would be diluted by the

other factors, and subsequently, the likelihood of competitive harm resulting

from disclosure would be greatly reduced," 215 F. Supp. 2d at 208. Secondly,

the Air Force "also concluded that economic uncertainty about the future, coupled

with all of the variables that are not in the contract that one would need in

order to deduce sensitive information, cast serious doubt on the likelihood

that any of the disputed information would be likely to cause substantial harm."

Id. Thus, the D.C. District Court found that the Air Force did not

make the "types of conclusory claims" that had been made by NASA in that case.

Id. at 208 n.9. "[I]nstead," it found, the Air Force "offered a reasoned

account for its position." Id.

This new precedent

thus recognizes that the D.C. Circuit's McDonnell Douglas decision

did not create any per se rule that unit prices always are protected by Exemption

4. Accord Freedom of

Information Act Guide & Privacy Act Overview (May 2002), at 251-52

(citing 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 by stressing that panel opinion authored by him should be taken to "hold

. . . only that [NASA's] explanation of its position" in that case was insufficient)).

With this new McDonnell Douglas decision, it now is even more readily

apparent that agency determinations to disclose pricing information, made on

a case-by-case basis, may be upheld as long as agencies adequately justify them

in the administrative records that are compiled in the course of their

decisionmaking.

Accordingly, agencies should

continue to notify their submitters whenever FOIA requests are made for pricing

information in awarded contracts and conduct a thorough competitive harm analysis

of any objection that is made to disclosure of that information. Once that analysis

is completed, and if a submitter's objections are not upheld, agencies then

must clearly set forth their analysis and their rationale for disclosure.

See FOIA Post, "Treatment of

Unit Prices Under Exemption 4" (posted 5/29/02) (advising that the clear

focus of the D.C. Circuit's opinion in McDonnell Douglas was on the

"explanation of the agency's position," making it imperative that agencies create

administrative records that thoroughly explain their rationale for any decision

to disclose unit prices). In doing so, they can be confident that they have

sufficient administrative records upon which to base and support their disclosure

decisions if challenged in "reverse" FOIA cases.

(This case was

litigated by Office of Information and Privacy Senior Attorney Tricia S. Wellman,

as principal counsel, together with OIP Deputy Director Melanie Ann Pustay.)

  (posted 10/4/02)

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