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Court Delays Disclosure of Contract Proposals Under Public Records Act Until Negotiations Are Complete
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October 20, 2008
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Howrey LLP
The City of Los Angeles Department of Airports issued a request for proposals for the lease of a parcel of land at Van Nuys Airport that included hangers, buildings and a fuel farm. Under the RFP, the city would select the successful proposer based on a variety of criteria, including proposed rent, concession fees, use, financial capability, responsibility, management qualifications and experience, reputation, scope of services offered and other factors the department considered appropriate. The department could reject all bids or negotiate with the proposer or proposers found to have submitted the best proposals.
After these negotiations, the department would submit a proposed lease to the Board of Airport Commissioners. The public would have five days to review the proposals and the proposed lease before the board voted on approval. If the board approved a proposed lease for more than five years, the department would have to submit the proposed lease to the City Council for final approval.
The department received eight proposals. After the deadline for submitting proposals but before the department had negotiated with or selected a successful proposer, a law firm engaged in aviation-related business requested review of the proposals under the California Public Records Act.
The department responded that it would make the records available after it had concluded negotiations but before the airport board voted on the department’s recommended award. It noted that such a procedure was commonly followed by government agencies and would allow the public to review the proposals before the board vote. If the proposals were disclosed before negotiations were completed, the department wrote, its ability to negotiate a fair and cost effective proposed contract would be seriously hindered. The city attorney agreed, writing that premature disclosure could give one or more proposers an unfair advantage and could deny the public the best value contract.
The law firm filed a petition in Superior Court seeking an order permitting review of the proposals. The trial court denied the petition, stating that disclosure of the proposals before the department finally selected a proposal would undermine the city’s bargaining position. It noted that disclosure would eliminate proposers’ doubts about what their competitors had proposed.
The law firm appealed, and the Court of Appeal reversed, 2-1. It reasoned that the public had a right to know about the negotiating process and that the city’s bargaining position would not be hurt by disclosure of the proposals.
The California Supreme Court granted review and affirmed the trial court’s refusal to compel disclosure. Michaelis, Montanari, & Johnson v. Superior Court, 38 Cal.4th 1065, 44 Cal.Rptr.3d 663 (2006).
The California Public Records Act (Government Code §§6250, et seq.) generally requires disclosure of a public agency’s record but provides an exception when the public interest in nondisclosure “clearly outweighs” the public interest in disclosure.
The Supreme Court agreed that the public had an interest in healthy competition but found that the petitioner had not explained why public scrutiny cannot take place as effectively after negotiations were complete but before airport board and city council consideration of the proposed lease. It held that disclosure must be made so a reasonable time remains for public input before the final award is made.
The Supreme Court also agreed that disclosure of proposals could impede the city’s ability to negotiate because the proposers would be aware of their relative bargaining positions and thus would be less likely to agree to more favorable terms for the city during negotiations. It noted that a proposer might hesitate to disclose creative, innovative solutions after weighing the threat of misappropriation by competitors. The result could be submission of inferior proposals to the ultimate detriment of the public interest.
The Supreme Court also wrote that its decisions was consistent with analogous federal law and the majority of state statutes and court decisions.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
©2008 Howrey LLP
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