Protecting Proprietary Information in Proposals

Proprietary information is often disclosed in proposals, regardless of whether a company is responding to a commercial or government request for proposal (“RFP”). In responding to a commercial RFP companies are free to negotiate whatever contractual provisions they deem necessary to protect proprietary information. In responding to government RFPs, however, the rules governing proprietary information are primarily provided for in statutes and regulations. As such, companies know, or at least should know, what is acceptable and required by the government.

Statutes and agency regulations govern the conduct of government officials and employees that receive proposals from prospective contractors. Under the Trade Secrets Act, it is a criminal offense for a federal government official or employee to disclose trade secret or confidential commercial or financial data to any extent not authorized by law. A “trade secret” under this statute is defined as any formula, pattern, device, or compilation of information that is used in one’s business, and gives him an opportunity to gain an advantage over competitors who do not know or use it. The Economic Espionage Act also protects proprietary information. It makes the misappropriation or theft of trade secrets by any person a crime. Further, the Procurement Integrity Act prohibits federal procurement officials from disclosing proposal information to any person other than those persons authorized to receive such information. Proposal information includes cost or pricing data, indirect costs, direct labor rates, and properly marked proprietary information concerning manufacturing process, operations, or techniques. The prohibitions of the Procurement Integrity Act do not, however, apply do not continue after contract award or cancellation of the procurement.

In addition to the statutes, the Federal Acquisition Regulations require that government officials protect all proposals from unauthorized disclosure throughout the source election process. Offerors submitting proposals in response to a competitive RFP may mark data included in their proposals with a restrictive legend. The legend restricts the use of the data to the evaluation of the proposal. FAR 52.215-1(e) provides that “offerors that include in their proposals data that they do not want disclosed to the public for any purpose, or used by the Government except for evaluation purposes, shall—

  1. Mark the title page with the following legend:
    This proposal includes data that shall not be disclosed outside the Government and shall not be duplicated, used, or disclosed—in whole or in part—for any purpose other than to evaluate this proposal. If, however, a contract is awarded to this offeror as a result of—or in connection with—the submission of this data, the Government shall have the right to duplicate, use, or disclose the data to the extent provided in the resulting contract. This restriction does not limit the Government’s right to use information contained in this data if it is obtained from another source without restriction. The data subject to this restriction are contained in sheets [insert numbers or other identification of sheets]; and
  2. Mark each sheet of data it wishes to restrict with the following legend:
    Use or disclosure of data contained on this sheet is subject to the restriction on the title page of this proposal.”
    Offerors may seek to have the government execute a non-disclosure agreement. Although the government is not prohibited from entering into such agreements, it is often highly resistant to do so. Contracting officers can generally point to the statutes and regulations as adequate protection for an offeror’s data.

Although the government is required to release certain information contained in a proposal in response to a request for information under the Freedom of Information Act (“FOIA”) or during debriefings, proprietary information is protected from release if it falls under what is commonly referred to as “Exemption 4” of the FOIA. Exemption 4 protects “trade secrets” and “privileged or confidential commercial or financial information” from disclosure. Under the exemption, trade secret is defined as “a secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort.” Additionally, commercial or financial information is exempted if it is confidential. Confidential means that the information is not customarily released to the public and the release would cause competitive harm or would impact the government’s ability to obtain such information in the future. In addition to the restrictive legend provided by the FAR, an offeror should consider including the following FOIA legend on its proposals:

“This proposal contains trade secret and confidential business or financial information exempt from disclosure under the Freedom of Information Act.”

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