FOIA Update: FOIA Counselor: Unit Prices Under Exemption 4

January 1, 1983

FOIA Update
Vol. IV, No. 4
1983

FOIA Counselor


Unit Prices Under Exemption 4

One controversial issue arising under the Freedom of Information Act's fourth exemption, 5 U.S.C. § 552(b)(4), is that of the disclosure of unit prices contained in government contracts. It is not unusual in this area of limited but sharply conflicting case law for agencies to find themselves in the role of a mere stakeholder as business competitors seek to withhold or obtain the submitter's price -- the government's cost -- for each item in an awarded contract. The arguments on both sides of this issue are forcefully presented at the administrative and the judicial levels, both in the standard FOIA access setting and in the "reverse" FOIA context.

There is no serious controversy concerning the disclosure of the total or "bottom line" amount of a government contract. Nor does there appear to be any real question that unit prices are properly withholdable prior to the final contract award determination. See, e.g., Shermco Industries, Inc. v. Secretary of the Air Force, 613 F.2d 1314, 1317-18 (5th Cir. 1980); Racal-Milgo Government Systems, Inc. v. SBA, 559 F. Supp. 4, 7 (D.D.C. 1981) (disclosure order stayed pending final resolution of bid protest). But the Exemption 4 status of unit prices in awarded contracts is not nearly so clear.

The appropriate inquiry under Exemption 4 for any requested record is to determine whether it is either (A) a trade secret or (B) information that is (1) commercial or financial, (2) obtained from a person, and (3) privileged or confidential. Gulf & Western Industries, Inc. v. United States, 615 F.2d 527, 529 (D.C. Cir. 1979). Judicial analysis has focused on whether unit prices qualify as either "trade secrets" or "confidential information."

Trade Secret Protection

In two "reverse" FOIA cases decided in 1982, it was squarely held that unit prices constituted protectible trade secret information and thus could not be disclosed. See Electronic Data Systems Federal Corp. v. Carmen, Civil No. C82-353-PKS, slip op. at 4 (W.D. Wash. Nov. 16, 1982); Sperry Univac Division v. Baldrige, 3 GDS ¶ 83,265 at 84,052 (E.D. Va. 1982), appeal dismissed, No. 82-1723 (4th Cir. Nov. 22, 1982). See also Honeywell Information Systems, Inc. v. NASA, Civil Nos. 76-353, 76-377, slip op. at 5 n.4 (D.D.C. July 28, 1976) (alternative holding). However, the continuing vitality of these holdings should be seriously questioned in light of the D.C. Circuit's recent adoption of a restrictive "common law" definition of trade secret. See Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1288 (D.C. Cir. 1983) (trade secret limited to "secret, commercially valuable plan, formula, process or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort").

Confidential Information

To qualify as "confidential" information under Exemption 4's traditional test, disclosure must either (l) impair the government's ability to obtain necessary information in the future, or (2) cause substantial harm to the competitive position of the person from whom the information was obtained. National Parks & Conservation Association v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974). The government's ability to let contracts has generally not been considered to be impaired by disclosure of unit prices. See, e.g., Racal-Milgo Government Systems, Inc. v. SBA, 559 F. Supp. at 6 ("It is unlikely that companies will stop competing for Government contracts if the prices contracted for are disclosed."). Thus, the dispositive issue is almost always whether disclosure will be likely to cause substantial competitive harm to the submitter of the information, i.e., the bidder.

The cases addressing the question of competitive injury to a contractor from the disclosure of unit prices are difficult to harmonize. At one extreme is Racal-Milgo Government Systems, Inc. v. SBA, 559 F. Supp. at 6, in which District Judge June L. Green ordered unit price information disclosed, holding that the agency had not proved that disclosure would cause substantial competitive harm to the submitter. In response to the SBA's claim that disclosure would allow a competitor to calculate the supplier's manufacturing costs and would give insight into its pricing strategy, Judge Green drew the rather confusing conclusion that these arguments were somehow inconsistent, and stated that even if they were accepted, the record did not indicate that disclosure would cause substantial competitive harm. See id. She then emphasized the public interest in favor of disclosure, stating that adequate information about government contracts was necessary in order for the public to evaluate the "wisdom and efficiency" of federal programs and that disclosure of only the aggregate prices was insufficient to allow evaluation of the contract. Id. The public release of prices charged the government was, she found, "a cost of doing business with the government." Id.

Providing essentially no practical assistance to FOIA decisionmakers are the three judicial decisions which have found unit prices protectible. These cases conclude in only the most cursory fashion that the disclosure of the unit prices involved in those cases could somehow directly lead to the harmful revelation of specific sensitive information. See Electronic Data Systems Federal Corp. v. Carmen, supra, slip op. at 3 ("costs and overhead"); Sperry Univac Division v. Baldrige, supra, 3 GDS at 84,052 (pricing and discount strategies on specific contract items); Honeywell Information Systems, Inc. v. NASA, supra, slip op. at 3 ("pricing strategy, discount policy, cost and profit margins, and technical methodology").

The J.H. Lawrence Precedent

In the only thorough treatment of the issue, District Judge Shirley B. Jones in J. H. Lawrence Co. v. Smith, Nos. 81-2993, 82-0361 (D. Md. Nov. 10, 1982), examined a unit price breakdown that contained more than two thousand line items to ascertain whether disclosure would reveal the profit or overhead costs of the submitter. After receiving extensive testimony concerning the various formulas that might be used to compute the contractor's markup, profit and overhead costs, Judge Jones concluded that because so many variables and uncertainties were involved, disclosure of the unit prices would not permit competitors to calculate confidential proprietary information. See slip op. at 6-9. Her conclusion that those unit prices must be disclosed under the FOIA seems an entirely rational one, at least under the circumstances presented in that case.

Overall, the varying results in these cases can mostly be attributed to the extent to which, based on the evidence available in a particular case, a judge has been convinced that release of the unit prices at issue would cause competitive harm to the submitter. Agencies can fulfill their responsibilities to both requesters and submitters by conscientiously examining all such evidence at the administrative level, after following the submitter notification procedures set forth in FOIA Update, June 1982, at 3, to ascertain whether (1) disclosure of unit prices would lead directly to the precise calculation of specific proprietary information and (2) revelation of that information would cause substantial harm to the submitter. Only upon such an assessment can it properly be determined whether unit prices should be disclosed under the FOIA in a given case.

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This supersedes the guidance set forth in FOIA Update, Winter 1981, at 5-6.

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