Public Contract Law Journal

Where the Sunshine Meets the Shade: Using FOIA Exepmtion 4 to Protect Confidential Compliance Information after the 2016 FOIA Improvement Act

by Nathaniel E. Castellano

Nathan Castellano (nathaniel.e.castellano@gmail.com) graduated from The George Washington University Law School in 2015 as a Murray Schooner Procurement Scholar. In April 2016, he began a one-year clerkship with The Honorable Jimmie V. Reyna at the U.S. Court of Appeals for the Federal Circuit.  

Governments must constantly balance transparency and confidentiality —  not too much sunshine, not too much shade. In the United States, the Freedom of Information Act (FOIA)1 illustrates this balancing act between transparency and confidentiality.2 FOIA provides transparency by giving requesters a broad right of access to agency records, but FOIA also provides several exemptions that allow agencies to maintain confidentiality by withholding certain requested records.3

The FOIA Improvement Act of 2016 unnecessarily disturbs FOIA’s balance by codifying several pro-transparency directives without also codifying counter-balancing directives that protect the confidentiality of commercial information submitted to agencies by private parties.4 This imbalance is of particular concern for government contractors, whose competitively valuable compliance practices may be subject to FOIA requests by competitors.

Thankfully, two recent judicial decisions, referred to herein as the Public Citizen decisions,5 provide some assurance that confidential information about contractors’ compliance practices must be withheld from disclosure pursuant to FOIA Exemption 4. Nevertheless, Congress should consider additional FOIA amendments to codify the counter-balancing procedural protections that are currently provided by President Reagan’s Executive Order 12,600.6 Doing so would help restore FOIA’s balance and provide a much- needed sliver of shade to contractors that submit valuable information to the government.

I.  Introduction

The modern business of government contracting is the business of compliance. In the third edition of A History of Government Contracting, James Nagle describes modern federal acquisition as a sea of paperwork.7 All this red tape creates a formidable barrier to entry that stifles competition by preventing new companies from entering the market, but it also serves as one of the means by which entrenched contractors must compete: efficient and effective compliance mechanisms create a more efficient and effective government contractor.8 The stakes are high because “gold standard” compliance systems are often the only way for many contractors to avoid the crippling blows of exclusion from the procurement market due to administrative suspension or debarment, treble damages under the civil False Claims Act (FCA), and criminal liability under the Foreign Corrupt Practices Act (FCPA).9

Thus, it is not surprising that contractors are willing to devote vast resources to developing and implementing corporate compliance systems which become integral to their daily operations and ability to survive in highly regulated, enforcement-heavy industries.10 It also should not be surprising that contractors would see great value in a peek at their competitors’ compliance systems. Those compliance systems are a roadmap to success in the highly regulated government contracts industry.11 What might be surprising is that this compliance information may be but a FOIA request away because many administrative and criminal enforcement actions result in agreements that require contractors to implement compliance programs, obtain third party monitors, and report their compliance efforts to the government.12

This hypothetical is not purely academic. In December 2008, Siemens AG entered into a plea agreement with the U.S. Department of Justice (DoJ) and a settlement consent agreement with the U.S. Securities and Exchange Commission (SEC) to resolve criminal and civil charges stemming from alleged FCPA violations.13 The agreements required independent corporate compliance officers to report sensitive information about Siemens’ compliance operations to the government.14 In July 2013, after the DoJ and SEC concluded that Siemens satisfied its obligations under the settlement agreements, a FOIA request was filed seeking documents relating to the settlement agreements, including documents submitted by Siemens’ corporate monitor.15

Even the most sophisticated contractors may find themselves in a similar situation. To prevent sensitive compliance information from being publicly disclosed pursuant to a FOIA request, contractors must be vigilant in asserting that the information they submit to agencies constitutes confidential commercial information and thus falls within the protections of FOIA Exemption 4. Thankfully, the U.S. District Court for the District of Columbia (DDC) recently published two decisions — Public Citizen I and Public Citizen II — that recognize the important commercial and confidential nature of compliance information submitted pursuant to administrative settlement agreements.16 The court granted protection to many of the records that two health care companies submitted to the government on the grounds that the information therein revealed aspects of the companies’ operations that are integral to doing business in the highly regulated pharmaceutical industry and would result in competitive harm if disclosed.17

While these rulings will help contractors protect their proprietary information, the Obama administration’s commitment to “creating an unprecedented level of openness in Government”18 strengthened the ability of FOIA requesters to obtain agency records — even when the requester is a contractor seeking competitively advantageous information.19 In 2009, President Obama described FOIA as “the most prominent expression of a profound national commitment to ensuring an open Government,” where “the heart of that commitment is the idea that accountability is in the interest of the Government and the citizenry alike.”20 He directed that FOIA be administered with the presumption that in “the face of doubt, openness prevails,” and he directed agencies to “adopt a presumption in favor of disclosure, in order to renew their commitment to the principles embodied in FOIA, and to usher in a new era of open Government.”21

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