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Northrop Grumman Systems Corp. v. National Aeronautics and Space Administration

United States District Court, District of Columbia

September 18, 2018

NORTHROP GRUMMAN SYSTEMS CORPORATION, Plaintiff,
v.
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, Defendant.

          MEMORANDUM OPINION

          RANDOLPH D. MOSS UNITED STATES DISTRICT JUDGE.

         Plaintiff Northrop Grumman Systems Corporation ("Northrop Grumman") brings this reverse-Freedom of Information Act suit against Defendant National Aeronautics and Space Administration ("NASA"). Northrop Grumman challenges as arbitrary and capricious and contrary to law, see 5 U.S.C. § 702, NASA's decision to release, pursuant to the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, two tables included in Northrop Grumman's contract with NASA for the design and manufacture of the James Webb Space Telescope. The case is presently before the Court on NASA's motion for summary judgment, Dkt. 27, and Northrop Grumman's cross-motion for summary judgment, Dkt. 28. For the reasons explained below, the Court will deny NASA's motion for summary judgment and will grant Northrop Grumman's cross-motion.

         I. BACKGROUND

         A. Contract NAS5-02200 & Clause B.7

         Northrop Grumman Aerospace Systems ("NGAS"), the largest of Northrop Grumman's business sectors, "designs and manufactures a ... range of military aircraft, autonomous systems, and space technologies." Dkt. 28-1 at 9-10 n.l. In October of 2002, NGAS was awarded NASA Contract NAS5-02200, see Dkt. 18-1 at 4, to design and manufacture the James Webb Space Telescope ("JWST"), a "$9[] [billion] Program of international significance," Dkt. 18-7 at 97 n.6.[1] The JWST contract was structured as a "cost reimbursement contract" under which NASA agreed to pay Northrop Grumman's costs of performance plus a fee. Dkt. 28-1 at 11-12 (citing 48 C.F.R. §§ 16.301-1, 16.304-16.307). Under such a cost-plus contract, the government agrees to reimburse the contractor for its "direct costs," such as materials for construction and employee wages, and its "indirect costs," including a portion of overhead costs applicable to multiple contracts or to the company as a whole. Id. at 12. To allocate indirect costs, the JWST proposal and contract used a proposed "wrap rate" comprised of "three indirect cost components," id.: "related payroll expense," "overhead," and "general & administrative expense," which were projected for each year of the contract, Dkt. 18-1 at 17. Northrop Grumman was then required to "apply [the] proposed yearly Wrap Rates to [its] actual yearly" labor costs "to determine yearly costs based on the proposed Wrap Rates." Id. "Upon the completion of each calendar year," Northrop Grumman was further required to determine it "actual yearly Wrap Rates." Id. Because the actual rates are audited by the Defense Contract Audit Agency or another government auditor, the actual rate calculation can lag years behind the relevant contract year. See Oral Arg. Tr. at 18 (Rough). As a result, the company bills NASA using the proposed wrap rates until the actual rates are calculated. Id. If the actual rate ultimately deviated from the proposed rate by an agreed upon amount, however, Northrop Grumman could have been required to reimburse NASA for the difference over the allowable amount and, under some circumstances, to pay an additional penalty. See Id. at 18-20, 50 (reflecting the parties' agreement regarding reimbursement and penalties).

         Northrop Grumman's proposed wrap rates are identified in Table 1 to Clause B.7 of the JWST contract, and Table 2 to Clause B.7 provides examples of how the "negative fee incentive" would be calculated if Northrop Grumman's actual wrap rate deviated by the agreed-upon amount from its proposed wrap rate. See Dkt. 18-1 at 17-18. As NASA explained in its Final Decision, Clause B.7 was included "to reduce potential indirect rate creep" over the course of a long-term contract. Dkt. 18-7 at 97.

         B. Administrative Action

         On February 10, 2017, NASA received a FOIA request from FOIA Group, Inc., a commercial service that submits FOIA requests on behalf of third parties. See Dkt. 18-1 at 2. The request sought a copy of the JWST contract with attachments, any modifications from 2004 to 2009, the "source selection statement," and the "[c]omplete[d]" Request for Proposals. Id; Dkt. 18-7 at 94. The requestor later modified its request to exclude the Request for Proposals. Id. at 87, 89.

         By letter dated March 24, 2017, NASA notified Northrop Grumman that it had received the FOIA request and requested that Northrop Grumman "provide [NASA] with a written response stating any objections Northrop Grumman . .. may have to the release of the requested documents." Dkt. 18-3 at 352. The letter further requested that Northrop Grumman "highlight" its objections on copies of the requested documents, which NASA provided along with its letter, and that it "provide the legal basis for those objections." Id. To the extent Northrop Grumman's objections were based on confidentiality, NASA asked that the company "give a detailed explanation as to how the release of the requested information would cause substantial harm to [the] company." Id. Due to its statutorily-imposed deadline for responding to the FOIA request, NASA urged Northrop Grumman to respond by April 4, 2017. Id.

         After receiving a three-day extension of time, Northrop Grumman submitted its letter response on April 7, 2017, along with over a thousand pages of attachments. See Dkt. 18-3 at 360-491, Dkt. 18-4, Dkt. 18-5, Dkt. 18-6, Dkt. 18-7 at 1-76. In its letter, Northrop Grumman objected to the disclosure of a number of portions of the contract, most of which are not at issue in this case. See Dkt. 18-3 at 361-70. As relevant here, Northrop Grumman objected to the disclosure of the two tables found on pages 14 and 15 of Clause B.7 of the contract. Dkt. 18-3 at 370. Specifically, it objected "to the release of its [proposed] wrap rates for 2002 through 2009 and the calculation of the negative fee incentive," which appear in those tables, on the ground that this information is "confidential" and thus exempt from disclosure under Exemption (b)(4) of FOIA. Id. at 363-64, 370. The company explained that the wrap rates disclosed in the contract [XXXXX] Id. at 370. Those rates, moreover, "are closely held within" Northrop Grumman, are "considered proprietary," and are "not shared with competitors." Id. "By knowing [Northrop Grumman's] wrap rates," the company continued, "competitors could use the information to ensure that they bid less than [Northrop Grumman] on competitive proposals [including several identified in Northrop Grumman's letter], thereby jeopardizing [the company's] chances of winning new business." Id. at 370. Northrop Grumman concluded by stressing that "release of the wrap rates ... and the calculation of the negative fee incentive for indirect rates . .. under the FOIA would cause [the company] substantial competitive harm." Id. at 370-71.

         Four months later, on August 30, 2017, NASA informed Northrop Grumman that, "[fallowing detailed discussions with financial and procurement personnel familiar with this clause and the history of the Contract," NASA had decided to disclose the company's proposed wrap rates and negative fee incentive calculation. Dkt. 18-7 at 97. NASA gave six main reasons • for that conclusion: First, it concluded that Northrop Grumman would not suffer competitive harm because the tables included in Clause B.7 merely disclosed the company's projected wrap rates, not its actual wrap rates. Id. Second, NASA reasoned that, "because the calculation [of the negative fee incentive] was shown only through 2009, and [XXXXX] it is highly unlikely that a competitor could" use the information contained in the tables to "extrapolate ... what [Northrop Grumman's] actual rates were through 2009, or [to determine] how they might be applied to future procurements with very different requirements." Id. Third, [XXXXX] Id. Fourth, NASA reasoned that because the JWST contract was a "once in a generation" contract with "no follow-on" contract, and any future contract for a space-based observatory "will contain different requirements," "it is .. . unlikely that competitors could simply incorporate obsolete [Northrop Grumman] wrap rate information contained herein to gain a definitive advantage needed to secure a contract for a related space-based infrared observatory, or other Federal procurement, of this magnitude." Id. at 97 n.6. Fifth, it explained that, for any future contract, "[competition is likely to be based on a variety of factors including cost, past performance, and technical capability" so the wrap rate information "is only one aspect of a myriad number of fluctuating variables relevant to a future contract award." Id. at 96-97 n.6. Sixth, NASA observed that, [XXXXX] the tables "do[] not contain any of [Northrop Grumman's] actual information from the current time period." Id. at 97.

         For all of these reasons, NASA concluded that Northrop Grumman "ha[d] not demonstrated . . . that release of this information is likely to cause substantial competitive harm to" the company and that, accordingly, the "information is releasable under FOIA." Id. at 98 (citing Boeing v. Dep 't of the Air Force, 616 F.Supp.2d 40 (D.D.C. 2009)). Finally, NASA informed Northrop Grumman that its decision "constitute[d] * FINAL AGENCY ACTION * with respect to [the] matter" and that "further comments [would] not be considered." Id. at 106.

         Northrop Grumman wrote to NASA two weeks later-the day before it filed this suit- expressing alarm about "the prospective release of information related to" the JWST contract "that could harm the [company's ability to compete fairly for future contracts, not only with NASA but with many other government agencies." Dkt. 20-3 at 2. It, accordingly, asked that NASA reconsider its "incorrect analysis," which was based on "erroneous factual assumptions," "with respect to a single area of information"-the company's proposed "wrap rates." Dkt. 20-3 at 2. Northrop Grumman argued that [XXXXX] Id. at 3, 8, 10-11. Northrop Grumman further explained that it and its competitors go to great lengths to divine what others are likely to bid on competitive contracts and that knowing or accurately predicting what proposed wrap rates others will use would provide a competitive advantage. Id. at 7-8. Finally, Northrop Grumman argued that disclosure of the proposed wrap rates it included in Clause B.7 would permit its competitors to infer what the company's actual wrap rates were and thus to gain additional insight into its confidential pricing information. Id. at 6. Because it had already issued a "final" decision, NASA did not respond to Northrop Grumman's letter.

         C. Proce ...


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