Opinion ID: 186249
Heading Depth: 2
Heading Rank: 3

Heading: Option Year Prices

Text: 13 McDonnell Douglas argues release of the option year prices in the contract would likely cause it substantial competitive harm for two reasons. First, McDonnell Douglas anticipates its competitors would use their knowledge of those prices in an effort to convince the Air Force to rebid the contract rather than exercise its option annually to renew it. As the Air Force points out, however, McDonnell Douglas failed to make this argument before the agency. Whether the Final Decision of the Air Force was arbitrary and capricious must be determined solely upon the basis of the arguments and information before the agency at the time. See Walter O. Boswell Mem'l Hosp. v. Heckler, 749 F.2d 788, 792 (D.C.Cir.1984) (If a court is to review an agency's action fairly, it should have before it neither more nor less information than did the agency when it made its decision). McDonnell Douglas's argument that only the agency — and not the party challenging the agency's decision — is prohibited from advancing a post hoc argument is simply incorrect. See Military Toxics Project v. EPA, 146 F.3d 948, 957 (D.C.Cir.1998) (by failing to raise argument to agency appellant forfeited the argument and may not raise it for the first time upon appeal). 14 Second, McDonnell Douglas argues disclosure of the option prices in the contract likely will cause it substantial competitive harm because, in the event the Air Force does decide to rebid the contract, its competitors will be able to use that information to underbid it. The Air Force responds with two reasons for which rebidding is unlikely. First, option years of contracts are usually exercised, and a contract to service military aircraft is even less susceptible to a new competition on the basis of price than most [contracts]. Second, under the standards mandated by the [Federal Acquisition Regulations], the option years of the contract will be exercised unless the market changes considerably, in which event McDonnell Douglas would also necessarily change [its] pricing strategy and thereby greatly diminish any potential competitive value of knowing the option year prices. Now it is McDonnell Douglas's turn to point out that neither of these considerations played any role in the decision here under review: the Air Force never suggested McDonnell Douglas would not likely be harmed because the contract would not likely be rebid. We do not rely upon counsel's post hoc rationale for upholding an agency's action. See Bowen v. American Hosp. Ass'n, 476 U.S. 610, 626-27, 106 S.Ct. 2101, 2111-12, 90 L.Ed.2d 584 (1986); Yukon-Kuskokwim Health Corp. v. NLRB, 234 F.3d 714, 718 (D.C.Cir. 2000). 2 15 The Air Force also suggests three reasons even a rival bidder that did know McDonnell Douglas's option year prices would not know what it would take to underbid McDonnell Douglas. First, the Air Force claims a rival would never know the exact price to beat because McDonnell Douglas's nominal option prices are subject to revision pursuant to the Economic Price Adjustment Clause in the contract. As McDonnell Douglas points out, however, the index used to determine the final option price in each option year is identified on the face of the Adjustment Clause and is publicly available. If the option year prices in the contract were released, then it would be a matter of simple arithmetic to calculate the adjusted option year prices. See Greenberg v. FDA, 803 F.2d 1213, 1218 (D.C.Cir.1986) (combination of allegedly confidential information and publicly available information sufficient evidence of competitive harm to defeat summary judgment motion). 16 Second, the Air Force contends a rival's price, to be attractive, would have to be lower than McDonnell Douglas's bid by enough to offset the costs of disrupting operations. This transaction cost argument, however, did not figure in the agency's decision that McDonnell Douglas would not likely be harmed by release of its option year prices, and hence can play no part in our review. 17 Finally, the Air Force argues that, even if it does rebid the contract, McDonnell Douglas is unlikely to suffer competitive harm because the new bid price would be only one of several evaluation factors for award of the new contract. The RFP for the existing contract listed the six criteria for evaluating bids — logistics, maintenance/repair/modifications, management, safety/fire protection, quality, and cost/price — which were to be weighted equally in selecting the winning bid. The Air Force contends, therefore, any rebid contract would be awarded to the bidder that offered the best value based upon all six factors and not necessarily to the bidder with the lowest price. 18 As Boeing correctly points out, we considered and rejected this argument in McDonnell Douglas Corp. v. NASA, 180 F.3d 303 (1999). In that case the agency argued disclosure of the contested information would not cause McDonnell Douglas to be underbid because price is only one of many factors used by the government in awarding contracts. Id. at 306. We thought the argument too silly to do other than to state it, and pass on, id., but the argument's resurrection here suggests we should take greater pains to explicate the problem with the Air Force's position. 19 Simply put, release of the option year prices in the present contract would likely cause McDonnell Douglas substantial competitive harm because it would significantly increase the probability McDonnell Douglas's competitors would underbid it in the event the Air Force rebids the contract. See Gulf & W. Indus., 615 F.2d at 530 (substantial competitive harm likely where disclosure would allow competitors to estimate, and undercut, its bids). Because price is the only objective, or at least readily quantified, criterion among the six criteria for awarding government contracts, submitting the lowest price is surely the most straightforward way for a competitor to show its bid is superior. Indeed, price is by statute the only factor that  must be considered in the evaluation of a proposal. 10 U.S.C. § 2305(a)(3)(A)(ii) (emphasis added). Whether price will be but one of several factors to be weighted equally in any future RFP, therefore, is necessarily somewhat speculative. 20 The Air Force nonetheless presses the view, which the district court accepted, that its present argument differs markedly from the argument we rejected in NASA. McDonnell Douglas, 215 F.Supp.2d at 208. The district court restated the Air Force's present argument as follows: even if underbidding were to occur, the fact that price is just one of many factors means that the effect of the underbidding would be diluted by other factors. Id. The district court reasoned that unlike the NASA, which had argued competitors would not underbid McDonnell Douglas, the Air Force acknowledged that competitors might underbid McDonnell Douglas but argued the Company would not be harmed because the Air Force would consider nonprice factors in awarding the contract. Id. The district court clearly used the term underbid to mean bid a lower price, but that is not how we used the term in NASA ; there underbidding refers to making a bid more attractive overall, not with respect only to price, so it will be chosen by the Government. See NASA, 180 F.3d at 303 ([T]he agency `reasoned' that underbidding due to the disclosure would not occur because price is only one of the many factors used by the government in awarding contracts). Obviously, any competitor would try to bid a lower price than McDonnell Douglas; the NASA was not so foolish as to deny that. Instead, the agency there made the same argument as does the Air Force here, viz., that the NASA would not accept a bid merely because it offered a lower price but instead would consider nonprice factors in selecting the winning bid. We rejected this argument summarily in NASA, and we reject it again here for the reason given in the preceding paragraph. 21 We conclude disclosure of McDonnell Douglas's option year prices would likely cause McDonnell Douglas substantial competitive harm by informing the bids of its rivals in the event the contract is rebid. 3 Consequently, the option year prices fall within the scope of Exemption 4, and the decision of the Air Force to release them was contrary to law.