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

Plain-English summary

Representative Clarke Tucker asked whether the Little Rock School District could redact pricing data (pre-construction fee rates, labor burden rates, insurance rates) from construction-management contracts in response to a FOIA request. The contractors had asserted the redactions were proper under the "competitive advantage" exemption in Ark. Code Ann. § 25-19-105(b)(9)(A).

Attorney General Leslie Rutledge gave a structured answer that, in practice, made redaction hard to sustain.

First, the bar was high. To invoke the exemption, the contractor had to make a specific factual showing of "actual competition and the likelihood of substantial competitive injury." Generic statements that the rates were "very competitive in nature" and would give competitors "an unfair advantage" were not enough.

Second, the federal case law was unfavorable to the contractors. Federal courts had repeatedly held that "disclosure of prices charged the Government is a cost of doing business with the Government." Pricing data was treated differently from technical proposals, profit margins, audit results, or inventory data, because making contract prices public did not reduce the incentive of bidders to compete for government work.

Third, the AG could not actually decide the redaction question, because it was a factual one that required input from the contractors and a determination by the records custodian. The AG's role was to lay out the legal framework. Applied to that framework, however, the AG's clear suggestion was that conclusory claims like the ones submitted would not sustain redaction.

The AG also addressed an open issue about the legal standard. Some federal courts apply a more lenient test (the "Critical Mass" test) for information voluntarily provided to the government. Whether that test applied in Arkansas was unsettled, but it would not help these contractors anyway, because pricing data submitted to win a government contract is treated as required, not voluntary, even under the more lenient test.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What is the "competitive advantage" exemption?
A: Ark. Code Ann. § 25-19-105(b)(9)(A) shields from FOIA disclosure "[f]iles which, if disclosed, would give advantage to competitors or bidders." Two leading FOIA commentators (Watkins and Peltz) described it as protecting "trade secrets and other proprietary information that businesses submit to governmental entities to satisfy regulatory requirements or for other purposes."

Q: What test must a contractor meet to invoke it for pricing data?
A: The Arkansas Supreme Court in Pharmacy Assocs. adopted the federal National Parks standard: disclosure must be "likely to cause substantial harm to [the] competitive position" of the party from whom the information was obtained. The contractor does not have to prove actual harm, but must show "actual competition and the likelihood of substantial competitive injury." Conclusory or generalized assertions are not enough; specific factual or evidentiary material is required.

Q: Why is contract pricing harder to protect than other data?
A: Federal cases (Racal-Milgo, AT&T Info. Sys., Center for Public Integrity) hold that disclosing prices does not deter bidders from competing for government work. The benefit of winning the contract still outweighs the cost of having pricing data disclosed. Cases that have protected information from disclosure typically involve more sensitive data: profit margins, audit results, inventory balances, or technical proposals revealing how a contractor would perform the work.

Q: What is the alternative basis for the exemption (the "impairment" prong)?
A: The National Parks test has two prongs. One is "substantial harm to the competitive position" of the data provider (discussed above). The other is "impair[ing] the Government's ability to obtain necessary information in the future." The AG noted Pharmacy Assocs. allowed the impairment prong, but said it typically protects "novel ideas" and "highly sensitive" or "proprietary" information, not pricing. Orion Research applied the impairment prong to technical proposals; Racal-Milgo declined to apply it to prices.

Q: What is the "Critical Mass" test, and does it apply here?
A: The Critical Mass test from the D.C. Circuit treats voluntarily-provided information as confidential under federal FOIA "if it is of a kind that would customarily not be released to the public by the person from whom it was obtained." The 8th Circuit (which covers Arkansas) acknowledged the test in Madel v. DOJ. Whether it applies to Arkansas's competitive advantage exemption is unsettled. The AG used this opinion to modify her own earlier Op. 2016-054 to the extent that opinion suggested the Arkansas Supreme Court had adopted Critical Mass.

Q: Does it matter that the contracts here were for construction management, not goods?
A: Not really. The cases the AG cited covered the full spectrum of government contracting, including construction. The principle is that pricing in any government contract is generally subject to disclosure, because the government has a strong interest in transparent procurement and the contractor's incentive to bid is preserved.

Q: What did the AG instruct the custodian to do?
A: The AG told the custodian (the school district) to demand specific, factual evidence from the contractors before sustaining the redactions. The custodian, not the AG, was the factfinder. If the contractors could not articulate specific competitive injury beyond generic concerns, the redactions should not stand.

Background and statutory framework

Arkansas's FOIA, Ark. Code Ann. § 25-19-101 et seq., creates a strong presumption of disclosure for records held by public entities. The "competitive advantage" exemption is one of the narrow categories where disclosure is denied. Like most exemptions, it is read narrowly, and the burden is on the party resisting disclosure.

The AG's analytical framework drew heavily on federal FOIA jurisprudence, because Arkansas courts have aligned their reading of the state competitive-advantage exemption with the federal trade-secrets exemption (5 U.S.C. § 552(b)(4)). The federal cases have been generally hostile to attempts to shield pricing data from disclosure.

The opinion is a useful checklist for FOIA custodians dealing with confidentiality assertions: ask for specific evidence, look skeptically at pricing claims, distinguish pricing from technical or proprietary information, and remember that the burden runs uphill against the party seeking nondisclosure. It is also a checklist for contractors wanting redaction: generic concerns will not work; the submission needs to identify particular competitors, particular vulnerabilities, and a particular causal chain from disclosure to injury.

Citations

• Ark. Code Ann. § 25-19-105(b)(9)(A)
• Ark. Code Ann. § 25-19-105(a)(1)(A)
• 5 U.S.C. § 552(b)(4)
• Ark. Dep't of Fin. & Admin. v. Pharmacy Assocs., 333 Ark. 451 (1998)
• National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974)
• Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992)
• Madel v. U.S. Dept. of Justice, 784 F.3d 448 (8th Cir. 2015)
• Racal-Milgo Gov't Sys., Inc. v. Small Bus. Admin., 559 F. Supp. 4 (D.D.C. 1981)
• McDonnell Douglas Corp. v. U.S. Dep't of Air Force, 375 F.3d 1182 (D.C. Cir. 2004)
• Op. Att'y Gen. 2016-053
• Op. Att'y Gen. 2016-054 (modified by this opinion)

Source

• Landing page: 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