Opinion No. 2016-134
March 7, 2017
The Honorable Clarke Tucker
111 Center Street, Suite 1900
Little Rock, AR 72201-4403
Dear Representative Tucker:
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.�
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.
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.
Ark. Code Ann. � 25-19-105(a)(1)(A) (Supp. 2015) (�Except as otherwise specifically provided by this section or by laws specifically enacted to provide otherwise, all public records shall be open to inspection and copying by any citizen of the State of Arkansas during the regular business hours of the custodian of the records.�).
Ark. Code Ann. � 25-19-103(7)(A)�(Supp. 2015) (defining �public records�). The presumption can be rebutted if the records do not �constitute a record of the performance or lack of performance of official functions.�� Id. See�Op. Att�y Gen. 2012-001 (noting that �records held by a public entity are rebuttably presumed to be �public records� under the FOIA.�).
Ark. Code Ann. � 25-19-105(b)(9)(A) (Supp. 2015).
 John J. Watkins & Richard J. Peltz, THE ARKANSAS FREEDOM OF INFORMATION ACT 164 (Arkansas Law Press, 5th ed., 2009).
Arkansas Highway & Transp. Dep�t v. Hope Brick Works, Inc., 294 Ark. 490, 496, 744 S.W.2d 711, 714 (1988).
Ark. Dep�t of Fin. & Admin. v. Pharmacy Assocs., 333 Ark. 451, 458, 970 S.W.2d 217, 220 (emphasis added) (quoting National Parks & Conservation Ass�n v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974)). �
333 Ark. at 455, 970 S.W.2d at 219.
The issue before the Court in Pharmacy Assocs. was whether DF&A could claim the competitive advantage exemption. Id. at 454,t 218. The trial court found the exemption to be inapplicable when the records at issue are �owned� by the government or when the government has no �proprietary interest� in the information. Id. at 454-55, 970 S.W.2d at 218. The Court reversed, holding that the competitive advantage exemption can be claimed by the State in those circumstances.
 Id. at 459, 970 S.W.2d at 221.The federal law exempts �trade secrets and commercial or financial information obtained from a person and privileged or confidential.� 5 U.S.C. � 552(b)(4).
In National Parks, supra, n. 6, the District of Columbia Circuit Court of Appeals held that commercial or financial information is �confidential� under 5 U.S.C. � 552(b)(4) if disclosure is likely to either �impair the Government�s ability to obtain necessary information in the future� or �cause substantial harm to the competitive position of the person from whom the information was obtained.� 498 F.2d at 770.
333 Ark. at 458-59, 970 S.W.2d at 220 (citing National Parks and Orion Research Inc. v. EPA, 615 F.2d 551 (1st Cir. 1980)).
333 Ark. at 459, 970 S.W.2d at 221.
Compare Ctr. for Pub. Integrity v. Dep�t of Energy, 191 F. Supp. 2d 187, 196 (D.D.C. 2002) (citing Racal�Milgo Gov�t Sys., Inc. v. Small Bus. Admin., 559 F. Supp. 4, 6 (D.D.C. 1981), wherein court found no impairment because �[i]t is unlikely that companies will stop competing for Government contracts if the prices contracted for are disclosed.�) with Orion Research, Inc., 615 F.2d at 554 (finding disclosure of technical proposals submitted in connection with government contract could impair government�s ability to obtain proposals for bidders in the future).
The Arkansas Supreme Court in Pharmacy Assocs. did not mention another, less stringent test for determining whether commercial or financial information is �confidential� under the federal FOIA. As I have previously noted, federal courts have recognized a different standard for information voluntarily provided to the government. Op. Att�y Gen. 2016-053 (citing Critical Mass Energy Project v. Nuclear Regulatory Comm�n, 975 F.2d 871 (D.C. Cir. 1992) and Madel v. U.S. Dept. of Justice, 784 F.3d 448 (8th Cir. 2015)). See also Watkins & Peltz, supra n. 4, at 178. Under that standard, �voluntary� information is �confidential� under the 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.� Critical Mass, 975 F.2d at 878. Because this federal test is not mentioned in Pharmacy Assocs., it has not been established that the test applies under Arkansas�s competitive advantage exemption. Attorney General Opinion 2016-054 is hereby modified to the extent it can be read to suggest the Arkansas Supreme Court has adopted the Critical Mass test. It may also bear noting that several state courts have explicitly rejected the more lenient federal test as inconsistent with the broad right of access afforded by their open records laws. See N.D. Op. Att�y Gen. L-17 (1998) (and cases cited therein); Matter of New York Regional Interconnect, Inc. v. Oneida County Indus. Dev. Corp., 873 N.Y.S.2d 513 (2007). In any event, even acknowledging the Critical Mass standard, the Court�s approach to the competitive advantage exemption in Pharmacy Assocs. is consistent with the general view that financial and commercial information contained in government contracts is not �voluntary.� See, e.g., Trifid Corp. v. National Imagery & Mapping Agency, 10 F. Supp. 2d 1087, 1098 (E.D. Mo. 1998) (�Financial and commercial information contained in government contracts is uniformly held to be �required� [i.e., not voluntary] in the context of FOIA exemption � analysis.�); McDonnell Douglas Corp. v. NASA, 895 F. Supp. 319 (D.C.C. 1995) (pricing information submitted to obtain a government contract held not voluntary). This general view supports the conclusion that regardless of whether the Critical Mass test is theoretically applicable, the National Parks test is properly applied to the case at hand involving rates and fees included in a construction management contract. In other words, as stated above, the issue is whether release of the information will cause substantial competitive harm.
Gulf & Western Industries, Inc. v. U.S., 615 F.2d 527, 530 (D.C. Cir. 1979 (citing National Parks and Conservation Ass�n v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976)).
 Op. Att�y Gen. 2016-053. Accord Watkins & Peltz,�supra�n. 4, at 171 (citing previous Arkansas Attorney General Opinions).
See, e.g., McDonnell Douglas, 895 F.2d at 326 (conclusory affidavit that competitor would be able to underbid contractor if pricing information was disclosed failed to explain how a competitor might deduce information that would cause substantial competitive harm); Lykes Bros. Steamship Co., Inc. v. Pena, No. 92-2780, 1993 WL 786964 (D.D.C. 1993) at *6 (noting that the ones seeking nondisclosure �are required to make assertions with some level of detail as to the likelihood and the specific nature of the competitive harm they predict.�).
Racal�Milgo Gov’t Sys., Inc., supra n. 14, 559 F. Supp. at 6. See also Gen. Dynamics Corp., Space Sys. Div. v. U.S. Dep�t of Air Force, 822 F. Supp. 804 (D.D.C. 1992) (same); AT&T Info. Sys. v. GSA, 627 F. Supp. 1396, 1403 (D.D.C. 1986) (noting �strong public interest in release of component and aggregate prices in Government contract awards.�). But see Gulf & Western Indus., Inc. v. U.S., 615 F.2d 527, 530 (D.C. Cir. 1979) (finding that information revealing contractor�s profit rate, actual loss data, and general and administrative expense rates was properly withheld because competitors would be able to �accurately calculate [the contractor�s] future bids and its pricing structure from the withheld information.�); McDonnell Douglas Corp. v. U.S. Dep�t of Air Force, 375 F.3d 1182, 1189 (D.C. Cir. 2004) (release of �option year prices� would likely cause substantial competitive harm).
 Ctr. for Pub. Integrity v. Dep�t of Energy, 191 F. Supp. 2d 187, 95 (D.D.C. 2002) (citations omitted).