Vol. II, No. 2
Disclosure of Prices
The prices in government contracts should not be secret. Government contracts are "public contracts," and the taxpayers have a right to know--with very few exceptions--what the government has agreed to buy and at what prices. Most knowledgeable students of American history, law, and government would agree. Public access to public contracts was well established before FOIA, and FOIA was hardly intended to promote secrecy in such matters.
Nevertheless, this office is repeatedly asked by agencies, contractors, and FOIA requesters whether prices in government contracts can be kept secret.
The Department's position is firmly rooted in history in which decades of corruption and other abuses in government procurement led Congress as well as the states to enact a system of competitive bidding on publicly advertised specifications with public opening of bids. Later, the pressures of wars and the growth of modern technology often made it impractical to advertise detailed specifications and led to negotiated competitive procurement procedures.
To help assure that the public gets the best value unimpaired by corruption, favoritism, or waste, access to negotiated contracts is at least as important as access to competitively bid contracts. The latter procedures automatically assure public assess to all contract terms and conditions, including prices. Negotiated contract procedures do not automatically grant access, but nothing in such procedures authorizes secrecy in the contract that is awarded.
The Office of Federal Procurement Policy recognized this public access principle in a statement chiefly designed to reassure companies that submissions of sensitive business information during a procurement would generally be protected under FOIA Exemption 4. But the statement distinguished awarded contracts from most pre-award material, saying:
Procurement is one of the principal means whereby our Government effectuates national policies, as to both domestic and international concerns, and therefore the public has a strong interest in how it is conducted. The public's right to scrutinize the process must be recognized, particularly with regard to the terms and conditions of awarded contracts, which represent Government action, and with regard to contract deliverables. 0FPP Policy Letter No. 78-3 dated March 30, 1978. (Emphasis added.)
The prices that have been agreed to in a contract are terms comparable in importance with those that specify the goods and services to be furnished and the "government action" aspect of an awarded contract is itself a significant "prodisclosure" factor; FOIA generally is less hospitable to withholding final decisions. (See FOIA subsection (a)(2) and Sears v. N.L.R.B., 421 U.S. 132 (1975). In addition, information in agency records describing government action is not information "obtained from a person" within the meaning of Exemption 4.
Arguments for suppressing the price terms in awarded government contracts stem chiefly from two interrelated sources: the urging from some firms in the computer industry and an unreported district court decision in a "reverse FOIA" suit, Honeywell v. N.A.S.A., Nos. 76-353, 76-377 (D.D.C. 1976).
Most industries have long accepted the fact that prices in government contracts are public information. But some elements of the computer industry are relatively new, intensely competitive, and very complex. In the Honeywell case, the agency had awarded a contract to a computer company and released the contract's so-called "bottom-line" price, but planned also to release the other prices in the contract over the company's objections. The company sued to block release and argued that the Court should prohibit disclosure of the agreed prices for pieces of equipment because disclosure would benefit the company's competitors. The Curt agreed. The Justice Department did not appeal. Even though the Department regarded the decision as bad law and bad public policy, the record was not considered good for an appeal and the case was of little, if any, precedential value. The Court had characterized the contract's price terms as "itemized cost data" and had characterized the government's position as treating "every single figure and each word in a government contract" as public information.
Both statements were misleading. The Department recognizes that government contracts often incorporate by reference much material that may still be withheld under FOIA Exemption 4. For example, portions of the proposal are often sales representations (e.g., resumes of key personnel, the firm's private sector experience), rather than terms or conditions of the contract. This protection would also extend to the company's costs. But the prices agreed to in a government contract are not the company's costs. They are the government's prospective costs, and the company's prospective sales.
No other decisions are controlling or even important precedents on the question of withholding awarded government contract price terms under FOIA Exemption 4. See, however, as of possible interest, Planning Research Corp. v. F.P.C., 555 F.2d 970 (D.C. Cir. 1977); Babcock & Wilcox Company v. Rumsfeld, 70 F.R.D. 595 (N.D. Ohio 1976); USS-OCF-W&M v. Eckerd, Civil No. 76-1933 (D.D.C. 1976); and Shermco Industries v. Air Force, 452 F.Supp. 306 (N.D. Tex. 1978), reversed on other grounds, 613 F.2d 1314 (5th Cir. 1980).
First, the position mandating the release of prices in government contracts only applies to contracts with federal agencies and not to contracts between private persons found in agency files. Thus, such a position would not apply to subcontracts under a prime government contract where the government is not a party to the subcontract.
Second, the position on release applies to contract prices (as agreed to and as actually paid), but not to a contractor's recent or present costs which are generally protected under Exemption 4.
Third, the position does not apply to a classified defense contract if disclosure of the contract prices would compromise the classification, for example, by tending to reveal the magnitude or nature of material being purchased.
Fourth, this position does not require release of technology which is a trade secret used in the company's other business even where the contract provides that this technology be used in furnishing the goods or services the government agrees to buy. Such questions, which may turn on the other terms of the contract or the surrounding circumstances, are beyond the scope of this discussion. In other words, in a hypothetical government contract to buy Coca-Cola, this position would not require release of that secret formula even it if were in the contract documents.
Disclosure of the "bottom-line" price in a contract is not a substitute for disclosure of other significant price terms. The bottom-line price may have little meaning or may fail to disclose what the government has agreed to pay for various significant items.
Finally, the law and policy calling for disclosure of prices in awarded government contracts is parallel to the long-established rule for disclosure of government employees' salaries. There is a different standard in dealings with the government. In the private sector, disclosure of salaries or prices is usually at the option of the parties. But the common principle--where the government is a party--is that neither individual privacy nor private commercial interest justifies secrecy as to government commitments of public funds.
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