NPR 's Planet Money Crane FOIA Appeal Letter

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June 4, 2012

Freedom of Information Act Appeal, DO

Disclosure Services

Department of the Treasury

Washington, D.C. 20020

Re: FOIA request to Treasury OIG for contract audit report

Dear FOIA Officer:

This is an appeal under the Freedom of Information Act, 5 U.S.C. 552, requesting

access to and copies of the Treasury Office of Inspector Generals (OIG) audit report OIG-11-

026, Contract Audit Regarding Crane & Companys Price Proposal in Response to Solicitation

No. BEP-10-0001 (the Audit). I made my initial request on April 13, 2012, and a copy of my

initial request letter is attached hereto as Exhibit A.

On May 15, 2012, I received a response to my request in a letter signed by R.K. Delmar,

denying my request. A copy of the denial letter is attached hereto as Exhibit B.

I appeal the denial of my request. The portions of the Audit that contain information

relating to profit percentages and costs attributable to particular segments of Crane & Companys

(Cranes) price proposal are not exempt from disclosure under 5 U.S.C. 552(b)(4)

(Exemption 4).

Exemption 4 protects matters that are trade secrets and commercial or financial

information obtained from a person and privileged or confidential. 5 U.S.C. 552(b)(4).

However, FOIA's exemptions do not obscure the basic policy that disclosure, not secrecy, is the

dominant objective of the Act. Dept. of Air Force v. Rose, 425 U.S. 352, 361 (1976). Thus,

any FOIA exemption must be narrowly construed. Id. A proper construction would require

disclosure of the information requested. Even if similar information might be exempt in other

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cases, the information I requested is not exempt from disclosure, because of Cranes unique

status and relationship with the Department of Treasury (DOT) and the reasons set forth below.

I.

THE INFORMATION IN THE AUDIT WAS NOT OBTAINED FROM APERSON UNDER EXEMPTION 4

In your denial, you explained that businesses are considered persons for the purpose of

the [Exemption 4] definition. While that may be true, the specific information that I am

requesting is part of a broad, comprehensive analysis that was assembled by DCAA after it

retrieved the necessary information from DOT. Because DCAA did not receive the information

directly from Crane, but rather used the information as part of a government-generated analysis

of Cranes contract with DOT, that information was not obtained from a person within the

meaning of Exemption 4.

Courts have held that information produced by the government is not obtained from a

person and thus does not come within the scope of Exemption 4. See Buffalo Evening News,

Inc. v. Small Bus. Admin., 666 F. Supp. 467, 469 (W.D.N.Y. 1987) (ordering disclosure and

rejecting agencys argument that the agency obtain[ed] information concerning the status of

[the] loan from the small business itself [and] merely compiles and records the data supplied

by the business through its loan payment activity).

One analogous case is particularly demonstrative. In Philadelphia Newspapers, Inc. v.

Dept. of Health & Human Serv., the plaintiffs sought access to results within HHSs audit of

medicare billing practices of Clinical Practices of the University of Pennsylvania (CPUP). 69

F.Supp.2d 63, 65 (D.D.C. 1999). Judge Robertson explained that Exemption 4 did not apply to

HHS spreadsheets that were generated from contractor-furnished raw data. Id. at 66-67. The

court dismissed HHSs claims that the information was obtained from CPUP because it was

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based on CPUPs raw data, holding that [a]n audit is not simply a summary or reformulation

of information supplied by a source outside the government. It also involves analysis, and the

analysis was prepared by the government. Id. at 67.

For the same reasons, exemption 4 does not apply to the data requested in this case. The

fact that DCAA could conceivably use information shown in the Audit to generate some of the

same information does not mean that the DCAA-generated Audit reflecting the final information

from Cranes proposal and DOTs solicitation were submitted by Crane. Crane is wholly an

outsider to the auditing process between DCAA and DOT, and has no control over the

information that is discovered and published in the audit process. Similar to the information at

issue in Philadelphia Newspapers, even though some or all of the raw data that Crane provided

as part of its bid proposal was included in the Audit , the consolidation, organization, expression

and analysis of that information was prepared by DCAA. DOT has therefore not shown that the

requested information was submitted by a person.

II. CRANE DID NOT VOLUNTARILY SUBMIT ITS PROFIT MARGIN AND COSTINFROMATION AND THEREFORE THE TEST FOR VOLUNTARILY-

DISCLOSED MATERIALS DOES NOT APPLY

A. 48 C.F.R. 15.408 creates a legal obligation for Crane to submit its profitmargin as part of its bid proposal.

In your denial, you said that Crane supplied its profit margin and cost information

voluntarily as a proposal, and that such information should be protected because that type of

information is not usually made publicly available. Based on our analysis of the relevant case

law and government procurement regulations, we conclude that you have mistakenly contended

that the lower bar governing voluntarily disclosed information applies to this case.

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In National Parks and Conservation Assn v. Morton (National Parks I), 498 F.2d 765

(D.C. Cir. 1974), the D.C. Circuit established a two-part test for determining whether

commercial or financial information submitted to an agency is confidential under Exemption 4.

The court explained that commercial or financial matter is confidential for purposes of the

exemption if disclosure of the information is likely to have either of the following effects: (1) to

impair the Government's ability to obtain necessary information in the future; or (2) to cause

substantial harm to the competitive position of the person from whom the information was

obtained. Id. at 770. Seventeen years later, in Critical Mass Energy Project v. NRC, 975 F.2d

871 (D.C. Cir. 1992), the court narrowed the reach of the two-part test, confining it to cases in

which a FOIA request is made for financial or commercial information a person was obliged to

furnish to the Government. Id. at 880. The court concluded that Exemption 4 would protect

voluntarily submitted commercial or financial information if it is of a kind that the provider

would not customarily release to the public. Id.

Because the contracts between DOT and Crane were negotiated, government

procurement rules applicable to negotiated acquisitions apply. See 48 C.F.R. 15.000. The

federal courts recognize the Federal Acquisitions Regulations (FAR) to have the force and

effect of law. Davies Precision Machining, Inc. v. United States, 35 Fed. Cl. 651, 657 (Fed. Cl.

1996). Table 15-2 of 48 C.F.R. 15.408 explains that for price proposals in which certified cost

or pricing data are required, an offeror must provide on the first page of the pricing proposal,

[p]roposed cost; profit or fee; and total. 48 C.F.R. 15.408, Table 15-2, General Instructions

(A)(6). Thus, Crane was required by law to submit information pertaining to its profit margin as

part of its bid proposal. The D.C. Circuit has explained that the determination of whether a

submission was voluntarily submitted or required by the agency must be supported by actual

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legal authority, rather than parties beliefs or intentions. Ctr. For Auto Safety v. Natl Highway

Traffic Safety Admin., 244 F.3d 144, 149 (D.C. Cir. 2001). The directions for bid proposals in 48

C.F.R. 15.408 create this necessary legal authority. While Crane could choose to place itself

into the pool of potential bidders for paper currency contracts, once it chose to do so, it was

required to submit a proposal in accordance with the requirements of FAR. Thus, Critical Mass

does not apply here.

B. Even without the obligation under 48 C.F.R. 15.408, Crane still would havebeen required to submit the information to DOT.

Additionally, your characterization that Crane submitted its profit margin and cost

information voluntarily lacks merit because it fails to take account of the unique relationship

between Crane and BEP. Crane has supplied the United States Treasury with its currency paper

since 1879.1

Under 31 U.S.C. 5114, the Secretary of the Treasury is given the authority to

make contracts for United States currency. Before a change in the statute took effect on

December 23, 2011, the Secretary was restricted in his procurement efforts in that contracts had

to be made for a period of not more than four years.2

In 2006, Crane demonstrated the

significance of this four-year restriction to its business relationship with DOT, when it protested

the Bureau of Engraving and Printings (BEPs) solicitation offers for six-year contracts. See

Crane & Co., Inc., 2005 WL 3682359 (Comp. Gen. Jan. 18, 2006). GAO found that such

solicitations violated the plain language of 5114(c), but also acknowledged that its reading of

the statute may be anticompetitive. Id. at *8, n.13.

1 Currency & Security Papers, Crane & Co., http://www.crane.com/about-us/currency-paper?RPL (last visited May

23, 2012).2See Crane & Co., Inc., 2005 WL 3682359 at *5, n.6 (Comp. Gen. Jan. 18, 2006) (As originally enacted, thestatute read as follows: The Secretary of the Treasury is authorized, in his discretion, to enter into a contract for the

manufacture of distinctive paper for a period not to exceed four years. Act of July 1, 1916, ch. 209, 39 Stat. 277.5


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Potential paper currency suppliers had indicated to BEP that a four-year period was an

inadequate payback period for production of paper currency.3

Thus, BEP proposed an

amendment to strike the four-year limitation from the statute.4

As concern about the lack of

competition in the paper currency market grew, Congress amended the statute to lift the four-

year restriction. The change in 5114(c) lifted the four-year restriction, and the first sentence of

the provision now says that [t]he Secretary may make a contract to manufacture distinctive

paper for United States currency and securities. (Amendment).

The statutory restrictions effectively ensured that Crane would be the sole supplier of

paper currency for DOT. As such, any financial data that Crane submitted before the statutory

amendment was an integral part of the negotiating process between Crane and BEP. In a

bilateral relationship, such as the one that Crane and DOT shared, information such as profit

margins tends to become more essential to the negotiating process and shifts more towards the

required information side of the line rather than the voluntary one. Accordingly, the

Exemption 4 standard for voluntary submissions outlined in Critical Mass does not apply to this

case. Instead, the two-partNational Parks test should determine the status of the information I

am trying to obtain. Resolution of this issue in favor of DOT requires it to prove that: (1) Crane

actually faced competition, and (2) Crane was likely to suffer substantial competitive injury from

disclosure. See National Parks & Conservation Assn v. Kleppe (National Parks II), 547 F.2d

673, 679 (D.C. Cir. 1976).

3See U.S. Department of the Treasury FY 2012 Budget in Brief at 88 (Feb. 14, 2012), available at

http://www.treasury.gov/about/budget-performance/budget-in-brief/Documents/FY2012_BIB_Complete_508.pdf.4Id.

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III. THE DISCLOSURE OF CRANES PAST FINANCIAL INFORMATION IS NOTLIKELY TO IMPAIR DOTS ABILITY TO OBTAIN SIMILAR INFORMATION IN

THE FUTURE

Under the government-impairment prong of theNational Parks test, DOT or any other

government agency seeking the type of information at issue in this case will not be harmed in

receiving similar information in the future. Past paper currency market participants have made

strong efforts to enter the paper currency market, and BEP believes that the Amendment will

result in more competition. Courts have found that there are sufficient external incentives for

a government contractor to submit pricing information as part of a contract bid despite the risk of

disclosure because disclosure of such information is merely the cost of doing business with the

government and the financial rewards for contractors ensure continued government access to the

price information. Am. Mgmt. Services, LLC v. Dept. of the Army, 2012 WL 215046 at *20

(E.D. Va. Jan. 23, 2012) (citingRacal-Milgo Government Systems, Inc. v. Small Business

Admin., 559 F.Supp. 4, 5-6 (D.D.C. Dec. 28, 1981); Center for Public Integrity v. Dept. of

Energy, 191 F.Supp.2d 187, 195-96 (D.D.C. Mar. 26, 2002).

The threat of the disclosure of non-harmful bidding information like what I am seeking

here will not deter rational marketplace actors from competing for government contracts. Any

determination to the contrary would be inconsistent with other district court decisions, which

have found that it is unlikely that companies will stop competing for lucrative government

contracts simply because contract information is disclosed. See McDonnell v. Douglas Corp. v.

NASA, 981 F.Supp. 12, 15 (D.D.C. 1997) (Government contracting involves millions of

dollars[,] and it is unlikely that release of this information will cause [the government] difficulty

in obtaining future bids.), revd on other grounds, 180 F.3d 303 (D.C. Cir. 1999); accord

Martin Marietta Corp. v. Dalton, 974 F.Supp. 37, 40 (D.D.C. Aug. 8, 1997) (explaining that

[g]overnment contractors, including Martin Marietta, will continue bidding for [agency]

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contracts despite the risk of revealing business secrets if the price is right.);Racal-Milgo, supra

559 F.Supp. at 6 (Disclosure of prices charged the government is a cost of doing business with

the Government. It is unlikely that companies will stop competing for Government contracts if

the prices contracted for are disclosed.). As the 2006 GAO bid protest suggests, competitors

were interested in competing for these contracts, but struggled to do so, because of the statutory

hurdles. SeeCrane & Co., Inc., supra, 2005 WL 3682359 at *8.

While the type of information sought in this case need not necessarily be made available

in all circumstances, any data in the Audit that references bidding or internal information during

the pre-Amendment period does not fall within the scope of Exemption 4. If the same

information were sought from a post-Amendment government audit, then that case might present

a different question. However, DOT does not need to make that determination in order to

conclude that the information I seek is not protected under Exemption 4. The prospect of

disclosure in this case presents a problem for would-be bidders only if their current proprietary

data were to be released. However, I am merely requesting data that would be largely irrelevant

to post-Amendment bidding competitions. The GAO bid proposal and complaints from other

potential competitors suggests that there will now be a strong interest in the market for paper

currency services now that the burdensome statutory requirements have been lifted. Because of

the strong interest in the paper currency market and the loosened statutory requirements, DOT

should find that the governments interests would not be harmed by the release of the requested

information.

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IV. CRANE WAS NOT ACTUALLY COMPETING FOR PAPER CURRENCYCONTRACTS WITH BEP BECAUSE POTENTIAL COMPETITORS WERE

EFFECTIVELY BARRED FROM ENTERING THE PAPER CURRENCY

MARKET

Under the second prong of theNational Parks test, neither Crane nor DOT can establish a

likelihood of competitive harm based on the disclosure of the requested data in the Audit because

there is no evidence that shows that Crane was actually competing for printing currency contracts

prior to the Amendment. TheNational Parks test requires a showing of actual competition, not

future or potential competition. Niagara Mohawk Power Corp. v. U.S. Dept. of Energy, 169

F.3d 16, 19 (D.C. Cir. 1999).

Congresss mere loosening of the statutory requirements for BEPs procurement of

contracts is not sufficient to demonstrate that Crane had any meaningful competition before the

amendments to 5114(c). In National Parks I, the court found the National Parks and

Conservation Associations argument in favor of disclosure to be compelling when it argue[d]

that disclosure [could not] impair the [defendant] concessioners competitive position because

they have no competition. National Parks I, supra, 498 F.2d at 770 (emphasis added). After

the case came back on appeal after remand, the court in National Parks IIconcluded that the

defendants would not suffer competitive harm from the release of copies of their financial

records to the NPCA. National Parks II, supra, 547 F.2d at 681-82. Existing concessioners

enjoyed a statutory renewal preference and a compensable possessory interest in any structure

they created on government land. Id. at 681-82. The court explained that the concessioners

possessory interest effectively shut out competitors from seeking contracts:

This compensable possessory interest, where it has been incorporated into a

current concession contract, poses a considerable, even insuperable, barrier to

competition at the contract renewal stage, since it usually requires that either thePark Service or another private business seeking to outbid the existing

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concessioner must be willing to acquire the interest at a reconstruction cost

greatly in excess of book value.

Id. at 681-82. Citing these barriers to entry, the D.C. Circuit reversed the lower courts finding

that release of the financial information would cause damage to the defendants in their contract

renewal efforts. Id. at 682. See alsoCooper v. Dept. of the Lottery, 266 Ill. App. 3d 1007, 1013-

14 (Ill. App. Ct. 1994) (finding that under Illinois Freedom of Information Act, which was

similar to the federal Freedom of Information of Act, an entitys status as a legal monopoly

ensured that it could not suffer competitive harm if portions of advertising and promotion plan

were disclosed).

Similar to the evidence found to create a monopoly in National Parks II, there is specific

factual evidence that prior to the Amendment, Crane was never truly competing in the paper

currency market. In a 1998 report, the GAO explained that several manufacturers had told the

government that they would compete in the paper currency market if the legal restrictions were

amended to allow 1) foreign-owned companies to compete in the market and 2) the granting of

contracts for more than a four-year period.5

The insistence of would-be competitors to amend

5114(c), the aspiration of BEP to gain meaningful competition, and the effort of Massachusetts

congressmen to kee[p] the production process as close to home as possible6

all indicate that

competitors had significant barriers to entry in the paper currency market, analogous to those

which were found to prevent meaningful competition inNational Parks II.

V. THE DISCLOSURE OF CRANES PROFIT MARGINS AND COSTINFORMATION, AS SUPPLIED IN THE AUDIT, WOULD NOT BE LIKELY TO

CAUSE SUBSTANTIAL HARM TO CRANES COMPETITIVE POSITION

5 See U.S. Govt Accountability Office, GAO/GGD-98-181, Currency Paper Procurement: Meaningful Competition

Unlikely Under Current Conditions 22 (1998).6 Keeley McCarty, Flip the Coin to the Fed: A Comment on the Dysfunctional Relationship Among the Federal

Reserve System, Congress, and the United States Mint, 64 Admin. L. Rev. 315, 326 (2012).

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To satisfy its burden of proof in this case, DOT must provide specific factual or

evidentiary material justifying nondisclosure. National Parks II, supra, 547 F.2d at 679

(quoting Pacific Architects & Eng'rs, Inc. v. The Renegotiation Board, 505 F.2d 383, 385

(D.C.Cir.1974)). Mere conclusory opinion testimony is not sufficient. The D.C. Circuit has

expressly rejected that it imposes per se rules for certain contract items. See McDonnell Douglas

v. U.S. Dept. of the Air Force, 375 F,3d 1182, 1193 (D.C. Cir. 2004) (Our analysisdoes not

come close to a per se rule that contract line-item prices may never be revealed to the public

through the [FOIA]. )

In Boeing Co. v. U.S. Dept. of Air Force, Judge Kessler of the United States District

Court for the District of Columbia explained that the release of past data does not present the

same potentially harmful effects as does the disclosure of present data. 616 F.Supp.2d 40, 49

(D.D.C. May 18, 2009). In that case, the Air Force received a FOIA request in 2004 that sought

a copy of the Air Forces contract with Boeing as well as the Source Selection Decision

Document. Id. at 42. Boeing objected to the release of pricing information, specifically its

wrap-around rates, which included both labor rates and profit rates. Id. at 43. The Air Force

overruled Boeings request and permitted the release of pricing information for the period

between 1996 and 2004, but withheld prices for the years 2005-2012. Id. Boeing brought a

reverse-FOIA suit, contending that release of the pricing information would allow for

underbidding by competitors who could estimate Boeings future pricing information if they had

knowledge of Boeings labor rates. Id. The court concluded that while release of the data from

2005-2012 would have helped competitors underbid Boeing, the release of the data from 1996-

2004 would only harm Boeing to the extent that it could be used to extrapolate future data. Id.

at 49. The court upheld the Air Forces determination that competitors could not use past data to

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make reliable future predictions, and thus it concluded that the Air Force had not acted arbitrarily

in disclosing the data from the time period prior to the FOIA request. Id.

Similar to the wrap-around rates disclosed inBoeing, the information sought here is only

of historical value. Exemption 4 may cover any data pertaining to profit margins that Crane

submitted subsequent to the Amendment. However, because of the unique relationship that

Crane enjoyed with BEP prior to that change in the statute, the disclosure of any data that Crane

submitted prior to the Amendment does not have the same potential anticompetitive effect. See

Hercules, Inc. v. Marsh, 839 F.2d 1027, 1030 (4th Cir. 1988) (concluding that a contractors

claims of competitive injury for release of government record were deemed speculative and

remote when contract was not awarded competitively). Most, if not all, data in the Audit will be

reflective of Cranes internal finances under a wholly different paper currency market than what

exists after the Amendment. Competitors will not gain an advantage over Crane in the paper

currency market by knowing Cranes sole-source profit margins. Cranes profit rate could, and

likely will be, completely different under the new statutory scheme under 5114(c). DOT has

failed to make the requisite showing that competitors could use any underlying data in the Audit

for a competitive advantage. Additionally, BEP has all but admitted that the paper currency

market had barriers to competitive entry because of the four-year limitation, not because

competitors lacked knowledge as to the underlying data in Cranes financial reports. Thus, the

likely reason that competitors were struggling in this market had little to do with Cranes strategy

in bidding for contracts, but everything to do with the statutory scheme under 5114(c).

Consequently, the data from past contract audits will not allow competitors to underbid future

contract bids from Crane to BEP.

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VI. CONCLUSIONFor the foregoing reasons, I respectfully request that DOT reverse its May 15 decision

and provide me with the information requested in the Audit.

This appeal comes from a tax-exempt, non-profit membership corporation, consisting of

licensees of noncommercial educational radio stations. I would appreciate your communicating

with me by telephone, rather than by mail, if you have questions regarding this appeal. You are

also authorized to discuss this request with anyone in the Office of the General Counsel as well.

Thank you for your consideration of this appeal.

Sincerely,

David Kestenbaum

Economics CorrespondentNational Public Radio