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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