The Commonwealth, contracts and confidentiality claims

By Alexandra Wedutenko and Catherine Whitby.

Key Points:
Agency officials need to consider the issue of confidentiality at three key points in the procurement process.

Whether or not a contractor's information can be protected from disclosure on the basis that it is confidential often arises for consideration by Commonwealth agency procurement officials and contract managers. This article aims to provide agency officials with a refresher as to:

• what can be classed as confidential
• how to deal with contractor claims of confidentiality in the procurement process; and
• how to minimise the risk of non-compliance with Commonwealth confidentiality guidelines.

A preference for disclosure

The Commonwealth takes the view that, in the interests of transparent and accountable government, information about the award of, and details of, contracts should generally be available for scrutiny. Disclosure requirements take many forms, including gazettal of all contracts with a contract value of $10,000 and compliance with the Senate Order on department and agency contracts (the "Murray Motion"). The Murray Motion requires listing of agency contracts with a contract value of $100,000 or more "entered into by the agency [and] which ha[ve] not been fully performed or which ha[ve] been entered into during the previous 12 months". These lists are then tabled by the responsible minister in the Senate. The details required to be disclosed include:

• the contractor and the subject matter; and
• whether the contract contains provisions requiring the parties to maintain confidentiality of any of its provisions, or that are regarded by the parties as confidential, and a statement of the reasons for confidentiality.

An agency must be able justify confidential treatment (or not) of any contractor information. Frequently, decisions about disclosure are not clear-cut. In the procurement context, agency officials are asked to balance a contractor's interest against the Commonwealth's preference for disclosure. An improperly considered decision or failure to consider Commonwealth requirements can cause detriment to the contractor, impugn an agency's integrity and impact adversely on accountability.

Finance's publication "Confidentiality of Contractors' Commercial Information (Financial Management Guidance 3)" ("FMG3"), referred to at paragraph 7.8 of the Commonwealth Procurement Guidelines, assists agencies to determine whether they can justify confidential treatment of information (we understand FMG3 is being reviewed by Finance. Publication of the revised guidance is expected in August 2007).

FMG3 sets out four tests (based on legal precedent, adopted from an earlier Australian National Audit Office Report) against which claims can be assessed. The tests are:

• Is the information identified in specific terms? (The contractor needs to be able to identify specific pieces of information).
• Does the information have the "necessary quality of confidentiality"? Is there an objective basis for the request? Will protection provide the contractor with an ongoing benefit?
• Would disclosure cause detriment to the contractor (or a third party)?
• Has the information been provided on the understanding that it will remain confidential?

What may be confidential?

Both FMG3 and the ANAO Report suggest the following may be confidential:

• proprietary information (eg information about service delivery mechanisms)
• internal costings or profit margins; and
• pricing structures (if these would reveal profitability).

FMG3 also expressly identifies the following information as unlikely to meet the FMG3 tests:

• performance and financial guarantees
• the content or existence of indemnities
• the price of an item or items
• rebates, liquidated damages and service credit details
• performance measures
• intellectual property rights clauses; and
• payment arrangements.

Each piece of information and the contractor’s claim for confidentiality, however, need to be examined on their merits. There could be valid reasons to support a claim of confidentiality, for example, in relation to a particular indemnity or in relation to certain payment arrangements. In the indemnity context, it may be that release of details of the indemnity could cause commercial damage to the contractor.

So how can I protect myself and my agency?

Agency officials need to consider the issue of confidentiality at three key points in the procurement process, namely:

• developing requests for tender ("RFTs") or similar
• drafting contracts; and
• negotiating contracts with preferred tenderers.

When developing RFTs, agency officials should consider the Finance model RFT clauses on confidentiality.

Whether or not the model clause is used, RFTs should inform potential tenderers:

• of the Commonwealth's accountability obligations (eg. to the ANAO and the Houses of Parliament)
• that in assessing any claim for confidentiality, the agency will consider FMG3; and
• that there may be some circumstances in which in which confidential information will be disclosed.

Agency officials should include a confidentiality clause in contracts, and should also list in a schedule clearly identifying what information is confidential, at least to the Contractor. If a contract does not expressly deal with the issue of confidentiality or deals with it in an ambiguous fashion, in the event of a dispute, courts will look to common law and/or equity. The courts will, in assessing a claim involving confidential information, have regard to the elements of the cause of action for breach of confidence identified by Justice Megarry in the leading English High Court decision of Coco v AN Clark (Engineers) Limited [1968] FSR 415. Those elements are:

• that the information was of a confidential nature;
• that it was communicated in circumstances importing an obligation of confidence; and
• that there was an unauthorised use of the information.

(Note that while all three elements must be satisfied to make out a breach of confidence, only the first two are relevant in determining whether information is confidential information.)

When drafting a confidentiality clause, Agency officials:

• will need to include specific disclosure rights (eg. disclosure to the ANAO) to give the Commonwealth flexibility to meet its accountability obligations; and
• should refer to a contract schedule in which confidential information (if any) is described.

Finally, at contract negotiation, agency officials should consider claims for confidentiality against the FMG3 tests. Only if information meets the FMG3 tests should it be treated as confidential.

Conclusion

There are a number of ways in which agency officials can manage claims for confidential treatment of information. First, agency officials can take preventative action to ensure that contractors are forewarned in RFTs about the Commonwealth's preference for disclosure. Secondly, agency officials can ensure that confidentiality of information is specifically addressed in contracts. The tests set out in FMG3 provide a mechanism against which claims of confidentiality can be assessed. In this way, agency officials can manage risk; they can, through their actions, ensure that agencies comply with their accountability obligations, while ensuring that a contractor's confidential information is dealt with appropriately.

For further information, please contact Alexandra Wedutenko.