United States District Court, District of Columbia
RANDOLPH D. MOSS UNITED STATES DISTRICT JUDGE.
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
Contract NAS5-02200 & Clause B.7
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
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).
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.
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.
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,
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.
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.
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.
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.