Another controversial issue relating to highway PPP arrangements is the confidentiality of any proposals or other bid and negotiation materials. This is an area where the interest in transparency must be balanced with the interest in protecting the confidentiality of any trade secrets or other proprietary information. Most jurisdictions have freedom of information or open records laws that compel the release of procurement information to the public unless the information qualifies for a specific exclusion from disclosure, such as information that is determined to be confidential and proprietary. The type of material generally protected from disclosure under these laws includes balance sheets, financial statements, trade secrets, and other commercially sensitive financial information that the private entity may submit as evidence of its qualifications.
The USDOT Model Legislation contains sample state legislative provisions that establish a mechanism for dealing with confidentiality issues. Under the USDOT model approach, the private bidder is authorized to submit information as part of a solicited or unsolicited proposal that is designated as confidential or proprietary under the applicable open records law. The recipient public agency would be required to determine if it agrees with the confidentiality designations made by the bidder. To the extent that the public agency agrees with the bidder's designation, the public agency is required not to disclose such information and to take other appropriate steps to protect confidentiality. To the extent that the public agency disagrees with the bidder's designation, the bidder would have the opportunity to appeal the agency's determination or withdraw that information from its proposal.201 As noted above, several states have laws that explicitly protect the confidentiality of solicited and unsolicited PPP proposals and any information disclosed during negotiations.
The negotiation phase of a PPP agreement raises sensitive confidentiality issues, particularly in controversial projects involving long-term arrangements between the public and private sectors. There is an inherent conflict between the private sector's expectation of confidentiality and the public's demand for information about the negotiations. This conflict can be heightened if there are public concerns about the integrity or transparency of the process. The negotiation of a contract initiated by the submission of an unsolicited proposal will generate additional concerns about the appearance of impropriety. Thus, there will be strong pressure on the public-sector negotiators to make information about the negotiations available to the public.
On the other hand, the private sector has a legitimate interest in the confidentiality of its proprietary information during ongoing negotiations. In the current U.S. market, there are only a handful of private companies that are bidding on the large-scale PPP opportunities in the highway sector. Therefore, there is intense concern among those bidders about the public disclosure of negotiating strategies, financial information, or other cost and technical proposals. The confidentiality issues during the bidding and negotiation phase are complicated by the involvement of various participants in large-scale PPP transactions. In addition to the private-sector bidders and the sponsoring state or local agency, the participants may include federal agencies such as FHWA, financial underwriters, bond rating agencies, and all of the various financial and legal advisors to the participants. Therefore, it is imperative that all participants understand and appreciate the applicable federal and state open record and sunshine laws, the confidentiality expectations of the various participants, and the dynamics of commercial negotiation and public decision making.
To address these confidentiality concerns, many PPP transaction participants develop a standard form of confidentiality and nondisclosure agreement (confidentiality agreement) that applies to any information submitted as part of the bid and negotiation process. The confidentiality agreement will obligate any authorized recipient of confidential information to undertake certain precautions that are designed to prevent unauthorized disclosure of such information to the media or the public. It is not unusual for PPP bidders to designate all of the information they provide during the bid and negotiation process as confidential and proprietary, and the obligations set forth in any confidentiality agreement would apply unless the public agency makes a determination that certain information does not qualify for confidentiality protection under applicable law.
The involvement of a federal agency such as FHWA in a PPP project raises some unique issues relating to confidentiality. As a general matter, any document submitted to a federal government agency becomes a "government record" subject to public disclosure under the Freedom of Information Act (FOIA) unless a specific exemption under FOIA applies. FHWA has recognized that, with respect to any PPP proposal that may be submitted under SEP-15, private-sector entities may be reluctant to propose innovative ideas if there is a risk of disclosure under FOIA. FHWA also has recognized that many documents submitted to it as part of its evaluation of a PPP on a federal-aid highway project will not necessarily be relied upon by FHWA as part of its decision-making process under SEP-15. Thus, FHWA has established a procedure whereby it reviews documents relating to a proposed PPP project offsite and deter-mines which of those documents it believes will qualify for confidentiality protection under FOIA. When the formal PPP proposal is submitted to FHWA, only those records identified as qualifying for confidentiality protection will be submitted and the other sensitive records will not become "government records" subject to disclosure under FOIA.202
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201 See USDOT Model Legislation at § 1-102(g), 1-103(c)-(d), available at http://www.apta.com/about/committees/public_private/documen ts/legis_model.pdf.
202 See Jan. 26, 2005, Memorandum from D.J. Gribbin, Chief Counsel of FHWA, to Assistant Chief Counsels of FHWA.