The economic downturn in the construction industry did more than create razor-thin profits – it also raised the stakes of competition by introducing specialized Freedom of Information Act (“FOIA”) companies that competitors hire to obtain competitors’ commercial and financial information in an effort to obtain an edge for future contract awards. A recent case, Honeywell Technical Solutions v. Department of the Air Force, 779 F.Supp.2d 14 (D.D.C. 2011), illustrates how FOIA can be utilized by competitors seeking a competitive advantage and how best to protect the contractor from this legal form of business espionage.
In 2000, the Air Force issued an RFP to maintain and evolve the Air Force Satellite Control Network. The RFP contained a performance-based Statement of Work that only described the desired outcomes of the contract; accordingly, offerors were allowed to recommend what they deemed did and did not need to be done and then propose solutions showing how to achieve the goals described in the Statement of Work. The RFP also required the offerors to identify the proposed cost for applicable contract line items and the award fee percentage for each.
In response, Honeywell established its own Statement of Work, Integrated Master Plan, and Integrated Master Schedule that defined unique technical solutions for achieving the outcomes defined in the RFP. While Honeywell’s submission led to the Air Force awarding it the contract, it also apparently led Honeywell’s competitors to hire The FOIA Group, Inc., a company that advertises its success in obtaining FOIA expertise by providing clients “competitive information and government documents…” through expertly-crafted FOIA requests.
In 2005, The FOIA Group, Inc. provided the Air Force with a FOIA request in which it sought a copy of the contract, including Honeywell’s performance-based Statement of Work; technical and financial information, including estimated hours, core hours, hourly rate, and estimated cost; and Honeywell’s total estimated costs plus award fee for each contract line item and the estimated hours, estimated cost, related funding values, and task descriptions contained within the modifications, delivery orders, and work authorizations.
Despite Honeywell’s objections to the release of such information, the Air Force determined that Honeywell failed to demonstrate how such production would cause Honeywell any substantial competitive harm. Honeywell immediately filed a complaint in September 2005 seeking an injunction to block the release, which ultimately led to the Air Force and Honeywell filing Motions for Summary Judgment to finalize the issue.
The predominant issue addressed by the court was whether the technical and financial information sought was protected from release since such information would reveal the unique, substantive work solutions that competitors could then replicate; the manner in which Honeywell allocates its resources; and the “granular cost elements”, e.g., skilled labor rates, material costs, profit rates, which Honeywell’s customers could use to lower costs of certain goods and services in future negotiations with Honeywell.
Was the Information Provided Voluntarily or Involuntarily
In considering the release of such information, the court focused on whether the information requested was provided voluntarily or involuntarily. If the commercial or financial information was involuntarily submitted to the government to achieve compliance with the RFP, that information would be protected from disclosure only if disclosing the information 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 submitter. If the information is submitted voluntarily, then the information is protected only if it “would customarily not be released to the public by the person for whom it was obtained.”
In reaching its decision, the court noted the involuntary information sought would cause substantial harm to Honeywell’s competitive position as Honeywell was poised to compete against the same competitors who sought the FOIA information on four similar government contracts in the near future. The court also blocked the release of the technical and financial information it deemed to be involuntarily provided as such information would reveal how the work was to be done, how Honeywell allocates its resources, and how Honeywell might bid on future contracts.
The Honeywell decision is instructive as to how best protect a contractor’s information from falling prey to an expertly-crafted FOIA request.
First, recognize that any information submitted to a government agency may be subject to a FOIA request. Accordingly, do not submit anything other than what is specifically required. Should a contractor submit anything other than the strictly-required information – thus voluntarily providing such data – the contractor should attempt to have the agency recognize such information as voluntarily submitted to avoid any subsequent challenges.
If a contractor is planning to designate certain information as confidential, it is imperative that the contractor utilize internal controls to demonstrate that the contractor itself treats such data as confidential. Accordingly, a contractor should initiate and document the internal controls utilized to protect the distribution or disclosure of the confidential information. As an additional layer of protection, the contractor should request the agency recognize and designate such information as confidential. Another option would be to include a provision in the proposal or contract that defines certain information as confidential.
Should an agency inform a contractor that it intends to distribute information to competitors, the contractor should demonstrate that the information requested is protected from production by demonstrating that the requested information reveals how the work is being done, how resources are allocated, or how cost and profit elements are derived. This argument will posture the contractor for successfully demonstrating that such production would substantially harm its competitive advantage, thus preventing the information from being released to competitors.