Texas Supreme Court allows price information in procured government lease to remain confidential

Excerpts from an Editorial in Dallas Morning News: Texas court ruling lets government keep contracts secret, inviting corruption to fester (Aug 10, 2016)

A linchpin to government accountability lies in the old admonition to "follow the money." But that's an impossible task when the law says the government -- and companies doing business with government -- can legally hide the trail.

The fallout from a June 2015 ruling by the Texas Supreme Court is becoming painfully clear as key details of government contracts, once routine items of public disclosure, are instead being withheld as guarded state secrets. (To be clear: This is not a matter of protecting business trade secrets from unfair exposure. Provisions for protecting proprietary information existed in the Texas Public Information Act prior to the Boeing decision.)

A random sampling: Costs of a Kaufman County school district's food service contract. The number of Uber drivers ferrying passengers around Houston. And, amusingly, in an anxiety-inducing sort of way, the amount the city of McAllen paid singer Enrique Iglesias for an hour-long outdoor concert to lead off its annual holiday parade last December.

All result from from a 7-1 opinion by the state's highest court, made over the objections of Attorney General Ken Paxton's office. The decision expanded the acceptable reasons for withholding information about contracts between government and private businesses.

Public accountability matters, and transparency is where accountability starts.

The withheld, non-public information in this case was certain financial terms of a 20 year lease of government property to Boeing. The Texas Public Information Act contains an exception to disclosure which applies to information "that, if released, would give advantage to a competitor or bidder.”

The Texas Attorney General had long held that this exception applies only to procurement information, and is meant to protect government interests, not private ones. The Texas Supreme Court rejected both ideas, based on the unqualified simple language of the particular code section. It also rejected the Attorney General's assertion that someone objecting to disclosure must prove substantial advantage to a competitor; the Court said "substantial" was asking too much. The Court accepted Boeing's employee's assertion that competitors would obtain an advantage by using that information to allow them to obtain better lease terms at another location, and, overruling the Attorney General's determination and the findings of the trial court, made the factual determination that disclosure of the information "would give advantage to a competitor" of Boeing.

The Court seemed particularly persuaded that

The information, which the court of appeals ordered disclosed, could not be disclosed by the Air Force under the federal Freedom of Information Act. The D.C. Circuit has rejected three such requests in the last sixteen years. See Canadian Commercial Corp. v. Dep’t of the Air Force, 514 F.3d 37, 38 (D.C. Cir. 2008) ... While disclosing bids after a contract award may rarely give competitors any advantage, the federal cases indicate that the aerospace industry is different because the disclosure of current contract prices gives competitors a distinct advantage by telling them precisely how to undercut the current contractor when contracts are re-bid. Canadian Commercial Corp., 514 F.3d at 42.

Thus, the Court comes awfully close to saying, without actually saying it, that a lease of aerospace industry lands, as a matter of law, contains information which give competitors an advantage. Perhaps, not a significant advantage, but a distinct one.

The Canadian Commercial Corp case is good authority for the Court's holding, at least in part. That case held that "line item pricing" in a government contract is commercial confidential information that fits within the exception to disclosure requirements of federal FOIA and Trade Secrets law. But, the case also said there was a requirement of a showing of substantial competitive disadvantage.

"Commercial or financial information obtained from a person involuntarily "is `confidential' for purposes of the exemption if disclosure [would 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.""

But there is another issue, and one which is not addressed by the Canadian Commercial case, but was pointed out in its concurring opinion. If essential terms of a contract need not be disclosed because of the "specter of competition" (see this case, following Canadian Commercial), then the exception would swallow the generally recognized rule that government contracts are essentially elements of a procurement record, and public information.

TATEL, Circuit Judge, concurring (citations, etc. omitted):
I agree with my colleagues that under our reverse-FOIA case law, the Exemption 4 test applies to line-item government contract prices like the ones at issue here. Because the Air Force has merely renewed arguments we have already rejected, I join the court's decision.

That said, I believe Judge Garland had it right in his McDonnell Douglas v. Air Force dissent. Not only did he persuasively critique how the court there applied the
National Parks competitive harm test to facts closely resembling the record here, but he also rightly questioned "whether it makes sense to regard prices actually paid by the government as trade secrets `of any person' under the Trade Secrets Act or as confidential commercial or financial information `obtained from a person' under Exemption Four of FOIA." After all, given that FOIA's primary purpose is to inform citizens about "what their government is up to, it seems quite unlikely that Congress intended to prevent the public from learning how much the government pays for goods and services. Moreover, the Air Force, as its position in this case well demonstrates, would prefer to disclose contract line-item and option prices because in a competitive bidding environment such information may well save money for the government and the taxpayers who fund it. By contrast, entities whose interests lie in charging government agencies as much as possible, or in preventing others from charging less for the same services, would prefer to keep such data confidential.

Thus, applying the National Parks competitive harm test to agreed-upon prices in government contracts "may bar disclosure of such prices in the very situation in which the public interest in disclosure is at its apogee." Like Judge Garland, I find that result troubling and inconsistent with FOIA's fundamental objective. But believing the question settled in this circuit, I am compelled to join the court's conclusion that the Air Force must keep the requested pricing information free from public scrutiny.

And there's one more objection I have, if, as Canadian Commercial asserts, for information to be considered confidential, it must be involuntarily disclosed. No one holds a gun to a bidder's head making him or her compete for government business. Choosing to take part in bidding is a voluntary act. 

I note that the regulations adopted on Guam, based on the ABA Model Procurement Code, specifically say that prices, in an IFB, are not to be withheld from public inspection.