August 5, 2014 Article

Government Contracting and Procurement Update: Public Access to Trade Secrets in Proposals and Bid Documents in Maine

Those doing business with the State of Maine need to know their way around public records laws. What is the risk that sensitive business information included within a bid response to a request for proposal (RFP) may become public after the bid is opened? What steps may be taken to maintain the confidentiality of sensitive business information and trade secrets? What legal recourse does a bidder have to protect trade secrets contained within a bid? A recent Superior Court decision by Justice M. Michaela Murphy of Maine's Business and Consumer Court in a so-called "reverse-FOIA" case where a private party sued the state to prevent disclosure of information, The Lewin Group, Inc. v. Dept. of Health and Human Services, BCD-AP-14-01 (March 13, 2014), serves as a cautionary tale and highlights uncertainties in the law.

What does Maine competitive bid law say about public access to the contents of proposals? Under Maine law, "Each bid, with the name of the bidder, must be entered on a record. Each record, with the successful bid indicated, must be open to public inspection after the letting of the contract."[1] The regulations also provide that once the contracting agency has issued a notification of award, all proposals become public record. "All proposals shall be sequestered…until notification of award by the contracting agency after which time they become public record."[2] Public access to information in proposals after an award has been made serves the dual purposes of allowing a disappointed bidder sufficient information to challenge the award of a bid to a competitor as well as transparency and accountability in government contracting.

Are trade secrets in a proposal submitted to a state agency confidential? In general, trade secrets are not public records in Maine, but the Maine Supreme Court has yet to address whether trade secrets in a proposal are confidential. The Lewin Group decision suggests that bona fide trade secrets contained in proposals may be entitled to confidentiality. A trade secret is information: (1) that derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) that is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

What do requests for proposals say about public access? In Maine, requests for proposals typically contain language making clear that following the announcement of an award decision all information in a proposal may be considered a public record. In The Lewin Group, the Court quoted language in the RFP stating:

"Following announcement of an award decision, all submissions in response to this RFP will be considered public records available for public inspection pursuant to the State of Maine Freedom of Access Act[ ]. In the event a request is made to produce any proposal, the Department will notify the bidder that the Department will produce the proposal unless the bidder takes steps it deems necessary to prohibit production. The Department will not undertake to determine whether any proposal or part of any proposal is confidential or otherwise protected from disclosure."

In some instances bidders have submitted questions to the agency during the bid access about public access to the contents of their bids and agencies have provided additional guidance.

Is failure to designate records submitted to an agency a waiver of the right to object to public disclosure? According to The Lewin Group, the answer is no. "[W]hile it would have been prudent for Lewin to indicate in some manner all the documents it contended were proprietary, the designation is not absolutely necessary." The Court concluded that "[d]esignating some documents, but not all documents, is not a waiver" of the bidder's right to assert confidentiality for those documents not previously labeled as confidential.

What is the standard of review in a reverse-FOIA action in Maine? Acknowledging that the Maine Supreme Judicial Court has not yet clearly addressed the standard of judicial review in reverse-FOIA cases, The Lewin Group finds that a person challenging denial of access to a public record under the Freedom of Access Act is entitled to de novo review. But a reverse-FOIA action to enjoin an agency from releasing records is subject to a clear error standard of review under the Administrative Procedure Act. Under the Act, the court reviews agency decisions for errors of law, abuse of discretion, or findings not supported by substantial evidence in the record – a high bar to overcome. Under that standard, "The court shall not substitute its judgment for that of the agency on questions of fact." By contrast, a party appealing the denial of access to a public record under the Freedom of Access Act is entitled to a trial de novo – the court is to give no deference to agency fact-finding and must decide the facts on a clean slate.

The result is that a party seeking to enjoin an agency from disclosing records to the public may find that agency findings of fact will be tough to disturb on appeal. Ordinarily the Court will limit the record on appeal to the evidence developed before the agency. The take-away is that a business concerned about confidentiality must make its case to the agency and cannot assume that it will have the opportunity to add evidence in support of a trade secret claim after filing an appeal.

In The Lewin Group, the Court upheld the state's decision to release documents claimed to be proprietary, pointing out that plaintiff had not convinced the agency, prior to the filing of an appeal in court, that its information was a trade secret. The standard of review prevented the court from "second-guess[ing]…factual finding[s]" by the agency. Under Justice Murphy's asymmetric standard of review, if an agency rejects the contention by a bidder that certain information constitutes a trade secret the bidder faces an uphill battle to convince a court otherwise.

For further information, please contact Sigmund D. Schutz at Preti Flaherty's Portland, Maine office at 207-791-3000.

[1] 5 M.R.S. § 1825-B(6).
[2] 18-554 C.M.R. Ch. 110 § 2(A)(v).