The proverbial “Golden Rule” of public procurement is that all public transactions be conducted with the utmost integrity and without any appearance of impropriety. For many years, in support of this goal, federal government contractors were encouraged — but not required — to disclose instances of known or suspected misconduct or fraud in the award or performance of a government contract. In exchange for making this kind of “voluntary disclosure,” a contractor prosecuted for the reported misconduct or fraud would receive a lesser penalty or fine than would have been levied if the misconduct or fraud was brought to light by other means.
In 2008, the FAR Council promulgated a new rule that requires federal government contractors to disclose to the contracting agency’s Office of Inspector General and responsible Contracting Officer, in connection with the award, performance or closeout of a federal government contract, all “credible evidence” that a principal, employee, agent or subcontractor of the contractor has committed a violation of criminal law involving fraud, conflict of interest or bribery, or a violation of the civil False Claims Act. This new rule requiring “mandatory” contractor disclosures properly was acknowledged at the time as a “sea change” and “major departure” from the voluntary disclosure scheme it replaced.
There was no shortage of criticisms of the new FAR rule, including, among other things, a concern that disclosures of this nature could be obtained under the Freedom of Information Act. To assuage that concern, the FAR Council included the following language in the final rule:
The Government, to the extent permitted by law and regulation, will safeguard and treat information obtained pursuant to the Contractor’s disclosure as confidential where the information has been marked “confidential” or “proprietary” by the company. To the extent permitted by law and regulation, such information will not be released by the Government to the public pursuant to a Freedom of Information Act request, 5 U.S.C. Section 552, without prior notification to the Contractor.
But would the FAR Council’s concession provide the protection contractors were hoping for? As of the date of this article, that question has not yet been answered by a court, but the answer may very well be “no.”
The Freedom of Information Act (FOIA) was enacted in 1988 to implement a policy of broad public disclosure of government documents in order to ensure “an informed citizenry, vital to the functioning of a democratic society.” At the same time, however, “Congress realized that legitimate [g]overnmental and private interests could be harmed by release of certain types of information.” Accordingly, there were included within the FOIA nine statutory exemptions to the FOIA’s disclosure requirements.
To contractors, probably the most important exemption is Exemption 4, which protects from disclosure under the FOIA “confidential commercial or financial information” received by governmental authorities from private persons or commercial entities. Information is “commercial” if it pertains or relates to or deals in any way with commerce. Commercial information is “confidential” if it is either (1) likely to impair the government’s ability to obtain the information in the future, or (2) likely to cause substantial competitive harm to the person from whom the information was obtained.
Where the person from whom commercial information was obtained is able to demonstrate that he provided that information “voluntarily” to the government and that he does not customarily release that information to the public, it is per se confidential for purposes of Exemption 4 and should not be disclosed by the government in response to a FOIA request. On the other hand, commercial information obtained by the government “involuntarily” from a person is confidential for purposes of Exemption 4 only where disclosure of that information by the government poses substantial harm to the competitive position of the person from whom it was obtained.
As probably seems obvious, whether information is submitted voluntarily or involuntarily is determined by the existence or absence of legal authority requiring the contractor’s submission of information to governmental authorities. For example, in Center for Auto Safety v. National Highway Traffic Safety Administration (NHTSA), the NHTSA issued “Information Requests” to airbag manufacturers and importers that purported to require the recipients to disclose information relative to the physical and performance characteristics of airbags. The notices included language that indicated “[f]ailure to respond promptly and fully… could subject [the recipient] to civil penalties.”
Later, the Center for Auto Safety (CAS) submitted a FOIA request seeking access to the information NHTSA obtained. NHTSA disclosed some but not all of the requested information, alleging that the withheld information was protected under Exemption 4. CAS sued to compel NHTSA’s disclosure of the withheld documents.
On summary judgment, the district court concluded that NHTSA had failed “to obtain prior approval from the Office of Management and Budget” for issuance of the information requests and, as a result, the requests could have been ignored without penalty by the recipients. Because NHTSA could not have compelled the recipients’ compliance with the requests, any disclosures made in response to them were voluntary — and per se confidential— and not mandatory within the meaning of the FOIA. CAS appealed and the Court of Appeals for the D.C. Circuit affirmed, concluding that “actual legal authority, rather than the parties’ beliefs or intentions, governs judicial assessments of the character of submissions [as voluntary or involuntary].”
Against this backdrop, a court presented with the question of whether a mandatory contractor disclosure is protected under Exemption 4 could reasonably conclude that the disclosure is “mandatory” within the meaning of the FOIA, and protected from disclosure only if the contractor can demonstrate release of the disclosure would cause substantial harm to his competitive position. For that reason, contractors are well-advised to consult with knowledgeable counsel in determining whether and how to make a disclosure under the FAR. For example, where the contractor is uncertain whether his information meets the (amorphous) “credible evidence” standard in the FAR, he could make a non-FAR, voluntary disclosure that may be easier to protect under the FOIA’s Exemption 4.