Can an Arkansas contractor block disclosure of contract fees and rates under FOIA's 'competitive advantage' exemption?

Plain-English summary

The Little Rock School District received an FOIA request for records concerning two construction projects, including construction management contracts. The contractors wanted to redact their pre-construction fee rate, labor burden rate, and insurance rates under Arkansas's "competitive advantage" exemption. Representative Clarke Tucker asked Attorney General Leslie Rutledge whether those redactions were appropriate.

Rutledge could not decide whether the fees and rates were exempt. The issue required facts from the contractors and review by the records custodian. The contractors needed specific factual or evidentiary material showing actual competition and the likelihood of substantial competitive injury from disclosure. A general assertion that the rates were competitive and would give others an unfair advantage was unlikely to meet that burden.

The opinion observed that federal courts had treated disclosure of prices charged to government as a cost of contracting with it. Rutledge suspected that showing substantial competitive injury from these fees and rates would be difficult, while leaving the decision to the custodian's factual review.

Currency note

This opinion was issued in 2017. Check current law and later decisions before applying its analysis to a current FOIA request.

Common questions

Q: Are fees in a public construction management contract automatically exempt from Arkansas FOIA?
A: No automatic exemption follows from the contractor's assertion. The contracts held by the school district are public records. The custodian must decide whether the competitive advantage exemption applies to the particular fees and rates after reviewing supporting facts.

Q: What must a contractor provide to support a pricing redaction?
A: Specific factual or evidentiary material showing actual competition and a likelihood of substantial competitive injury from disclosure. The opinion says actual injury need not already have occurred, but conclusory or generalized allegations will not suffice.

Q: Did the Attorney General approve or reject these redactions?
A: Neither. Rutledge said the determination was too factual for an AG opinion. She suspected the contractors would have difficulty carrying their burden, but assigned the factual review to the records custodian.

Q: Does the government's future ability to obtain bids supply a separate reason to withhold the rates?
A: The opinion recognizes that impairment of the government's ability to obtain necessary information can be another basis for the exemption. For the contract price information described here, Rutledge said that concern did not seem to be at issue, subject to any factual issues that might arise.

Background and statutory framework

Ark. Code Ann. § 25-19-105(b)(9)(A) exempts files that, if disclosed, would give an advantage to competitors or bidders. The opinion describes the school district's contracts as public records subject to disclosure unless an exemption applies. It cites Pharmacy Assocs. for the principle that disclosure of commercial or financial information may be withheld if it is likely to cause substantial harm to the provider's competitive position.

Rutledge explained that the custodian must rely on supporting information from the party claiming competitive harm. The contractors' reported statements that the fees were "very competitive in nature" and would give competitors an "unfair advantage" were generalized. The opinion does not decide whether additional evidence could support the particular redactions.

Citations

• Ark. Code Ann. § 25-19-105(b)(9)(A)
• Pharmacy Assocs.

Source

• Arkansas Attorney General opinions search: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2016-134
March 7, 2017
The Honorable Clarke Tucker
State Representative
111 Center Street, Suite 1900
Little Rock, AR 72201-4403
Dear Representative Tucker:

STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE

This is in response to your request for my opinion concerning the so-called "competitive advantage" exemption under the Arkansas Freedom of Information Act (FOIA), codified at Ark. Code Ann. § 25-19-105(b)(9)(A). As background for your request, you state:

The Little Rock School District (LRSD) received a FOIA request for bids, contracts and other documents regarding two construction projects, Pinnacle View Middle School and a proposed Southwest Little Rock high school. Among the responsive documents are contracts with two construction companies for construction management services. The construction companies claim that certain information in those contracts should be redacted pursuant to Ark. Code Ann. § 25-19-105(b)(9)(A) as "files that would give advantage to competitors or bidders."

The redactions proposed by the construction companies include rates and fees for various aspects of their construction management work such as the "pre-construction fee rate," the "labor burden rate," and the rates for various types of insurance. The construction companies believe that this information is exempt from FOIA disclosure because these fees and rates are very competitive in nature and would provide an unfair advantage to competitors if disclosed.

You have asked for my opinion on "whether the redactions [proposed by the construction companies] are appropriate under Ark. Code Ann. § 25-19-105(b)(9)(A) or whether the FOIA requires disclosure of the un-redacted contracts."

RESPONSE

The intensely factual nature of the competitive advantage determination precludes resolution in the context of an Attorney General opinion. The necessary factual review must be undertaken by the custodian of the records with input from the one claiming competitive harm. Generalized allegations will not suffice. Rather, in my opinion, the contractors in this case must submit specific factual or evidentiary material showing the likelihood of substantial competitive injury from disclosure of the fees and rates that are included in their contracts with LRSD. I believe such a showing may be difficult, given case law from other jurisdictions holding that the disclosure of contract prices is the cost of doing business with the government. I cannot decide the matter, however, because the question is ultimately factual and I cannot act as a factfinder in issuing official opinions. My opinion must consequently be limited to a review of the applicable legal analysis.

DISCUSSION

The FOIA requires that a custodian must disclose "public records" upon receiving a valid FOIA request, unless some exception specifically shields the records from disclosure. Records "maintained in public offices or by public employees within the scope of their employment" are "presumed to be public records." The contracts at issue in the hands of LRSD plainly meet the FOIA's definition of "public records" and are subject to public disclosure, absent an applicable exemption.

The exemption you have asked about applies in relevant part to "[f]iles that if disclosed, would give advantage to competitors or bidders":

It is the specific intent of this section that the following shall not be deemed to be made open to the public under the provisions of this chapter: . . . [f]iles which, if disclosed, would give advantage to competitors or bidders.

This is the so-called "competitive advantage" exemption.

As stated by two leading commentators on the FOIA, this exemption "protects trade secrets and other proprietary information that businesses submit to governmental entities to satisfy regulatory requirements or for other purposes." It is "intended to prevent competitors from obtaining information about others seeking the same type of work or furnishing material to the state." The Arkansas Supreme Court has said that "the exemption may be invoked for the benefit of the person who has provided commercial or financial information if it can be shown that public disclosure is likely to cause substantial harm to his competitive position."

Pharmacy Assocs. involved an unsuccessful bidder's attempt to obtain the winning proposal for a pharmacy-benefit management contract from the Arkansas Department of Finance and Administration (DF&A). The proposal, which was incorporated into the winning contract, contained financial data and other information regarding projected savings and strategies. The Arkansas Supreme Court did not decide the competitive advantage issue because it was not properly raised in the appeal. Nor has the Court since had occasion to decide whether particular records are exempt under section 25-19-105(b)(9)(A). But it seems clear from Pharmacy Assoc. that the Court will look to federal precedent construing the "parallel" federal FOIA confidentiality provision when addressing Arkansas's competitive-advantage exemption. And more specifically, in my opinion, the exemption's application to the proposed redactions at issue in your request for my opinion will turn on whether disclosure is likely to cause substantial harm to the contractors' competitive position.

I recognize in this regard that an alternative basis for exempting records pursuant to section 25-19-105(b)(9)(A) is the likelihood that disclosure will impair the government's ability to obtain necessary information in the future. As noted in Pharmacy Assocs., "[f]ederal courts have . . . recognized that government entities have a special interest in protecting a bidder's confidential information." It appears that the Court in Pharmacy Assocs. was referring, however, to "novel ideas" and information that is "highly sensitive" and "proprietary," the concern being that forcing the State to release this type of information could "be detrimental . . . to [the State] in the quality of information it receives" in future bids.

In the case of pricing information, however, it has been held that the benefits accruing to bidders from contracting with the federal government make it unlikely that an agency's future contracting ability will suffer impairment due to disclosure of that type of information. The fees and rates that are at issue in your request for my opinion appear to fall into this category of contract price information. Accordingly, while factual issues could conceivably arise, it seems that the government's ability to obtain this information is not at issue, and that the relevant test is whether disclosure will cause substantial competitive harm.

To show substantial harm, the companies resisting disclosure need not show actual competitive harm. All that need be shown is actual competition and the likelihood of substantial competitive injury. Conclusory or generalized allegations will not suffice, however. As I have previously noted, specific factual or evidentiary material must be presented showing actual competition and the likelihood of substantial competitive injury from disclosure of the records.

I cannot determine as a matter of law whether the competitive advantage exemption applies so as to prevent disclosure of the fees and rates in question. The test is highly factual and requires specific input from the one seeking the exemption. The responsibility of review falls on the custodian of the records, who must in turn rely upon supporting information submitted by the one claiming competitive harm.

You report that the construction companies believe the fees and rates are "very competitive in nature" and that they would give an "unfair advantage to competitors if disclosed." My research indicates that these kinds of conclusory and generalized assertions are unlikely to sustain the burden of showing a likelihood of substantial competitive injury. Additionally, federal courts have found that the "disclosure of prices charged the Government is a cost of doing business with the Government." One court has observed that "[t]hose cases in which the courts have not required disclosure of information relating to government contractors typically involved requests not for prices but for more sensitive data, such as audits . . . , profit margins and inventory balances . . . ."

Existing case law thus leads me to suspect that it may be difficult to sustain the burden of showing a likelihood of substantial competitive injury from disclosure of the contractual fees and rates that are at issue. I am not positioned, however, to decide the matter, because the question is ultimately factual and I cannot act as a factfinder in issuing official opinions.

Sincerely,
LESLIE RUTLEDGE
Attorney General