Request By:
[NO REQUESTBY IN ORIGINAL]
Opinion
Opinion By: Albert B. Chandler III, Attorney General; James M. Ringo, Assistant Attorney General
Open Records Decision
This matter is before the Attorney General on appeal from the Kentucky Workers' Compensation Funding Commission's partial denial of the July 14, 1999 open records request of Richard S. Park, First Vice President - Investments, Merrill Lynch, for copies of Salomon Smith Barney's and Fund Evaluation Group, Inc.'s presentation materials (presented at a meeting of the Commission on June 23, 1999) and each company's written proposal submitted in response to the Commission's Request for Proposal (RFP) to provide investment performance analysis and consulting services to the Commission.
By letter dated August 12, 1999, Louie Hord, Director of Fiscal Operations, responded on behalf of the Commission, advising Mr. Park:
Enclosed are the materials you requested regarding our RFP for investment consulting services. As you can see, specific portions have been redacted based upon both Salomon Smith Barney's and Fund Evaluation's claim that redacted information is either proprietary or confidential.
Should you have any further questions, please do not hesitate to contact us. We do want to take this opportunity to thank you for your bid and we hope you will consider making another next year when the investment consultation contract is up for renewal.
On behalf of Mr. Park and Merrill Lynch, Jeffrey A. Sexton submitted a letter of appeal to this office from the Commission's partial denial of Mr. Park's request. In his letter, Mr. Sexton stated that Merrill Lynch, Fund Evaluation Group, Inc., and Salomon Smith Barney were all finalists pursuant to a Request for Proposal (RFPs) to provide investment performance analysis/consulting services to the Commission. He indicated that Solomon Smith Barney was ultimately awarded the contract. Mr. Sexton stated that resolution of the matter turned upon the application of KRS 61.878(1)(c)1., pertaining to confidential and proprietary records. He argues that the proposal submitted by Smith Barney does not fall within the strict construction required of that exception and is subject to an open records request.
As authorized by KRS 61.880(2) and 40 KAR 1:030, Section 2, Frank Dickerson, General Counsel, on behalf of the Commission, provided this office with a response to the issues raised in the appeal. In his response, Mr. Dickerson stated:
Subsequent to receiving Mr. Sexton's open records request, the Kentucky Workers' Compensation Funding Commission (KWCFC) reviewed the requested material and was of the impression that certain parts of the material were potentially proprietary and confidential and therefore exempt from disclosure, pursuant to KRS 61.878(1)(c)1, as amended in 1994.
Unsure of the nature and character of parts of the material, the KWCFC asked Smith Barney and Fund Evaluation if they considered any parts of their materials to be exempt from disclosure under KRS 61.878(1)(c)1.
Both companies responded, asserting that parts of the material requested by Mr. Sexton were confidential and/or proprietary. (Exhibits A & B attached; Also see Smith Barney's supplemental letter response marked Exhibit C attached)
Mr. Dickerson stated that after considering arguments presented by both sides and reviewing KRS 61.878(1)(c)1., the Commission concluded that certain parts of the Salomon Smith Barney and Fund Evaluation Group, Inc., materials were, in fact, confidential and proprietary and exempt from disclosure under the exception. Accordingly, he provided Mr. Sexton with copies of the requested materials, with those portions deemed exempt under KRS 61.878(1)(c)1., redacted.
Salomon Smith Barney submitted two responses to the Commission's inquiry as to whether it considered any parts of its materials to be exempt from disclosure under KRS 61.878(1)(c)1; one on July 23, 1999 and one on September 1, 1999. It identified the information in Tabs I - V of its RFP proposal that it considered confidential and proprietary.
Smith Barney asserted that information in Tab I of its proposal was confidential and proprietary because it detailed: the exact process the company employed to provide its clients with development of an Investment Policy Statement; the development of an investment strategy; the philosophy regarding the entire investment process; the qualitative factors and proprietary ranking system used in the evaluating the quality of an investment advisor's process and organization; the investment advisor visit policy, which a lot of consulting firms do not have; and the details of a proprietary software system used to measure investment performance.
Tab II contained information and bios on over 30 employees of the company's Consulting Group division and disclosure of this information placed the company at risk that these talented employees would be pursued by competitors.
Tab III, page 3, detailed the names, contact persons, and telephone numbers of the company's major local clients, which were valuable assets to the company and disclosure of this information would provide an unfair advantage to Merrill Lynch subjecting the clients to possible unsolicited contact and harassment from Merrill Lynch.
Tab IV described in detail the mechanism by which the company's fee was derived, as it would give Merrill Lynch an unfair advantage to know how the company determined the fee. Salomon Smith Barney had disclosed the amount of the fee.
Tab V provided Salomon Smith Barney's research profile and proprietary scorecard ratings on two of the Commission's current money managers and asserted that it knew of no other organization that provided such in depth review and evaluation. The company indicated it had significant concerns that Merrill Lynch brokers would claim the information as their own work since it was their understanding that Merrill Lynch did not perform that type of analysis.
By letter dated July 21, 1999, Fund Evaluation Group, Inc., submitted a response to the Commission and asked that information relative to the company's client lists, references and disclosure of its fee schedule remain confidential, as the items represented proprietary information that the company had provided the Commission in confidence.
In accordance with the requests of Salomon Smith Barney and Fund Evaluation Group, Inc., the Commission redacted the information from each company's proposal, under authority of KRS 61.878(1)c)1., and made the remainder of the proposals available to Mr. Park and Merrill Lynch.
At issue in this appeal is whether the Commission's withholding of portions of the respective RFP proposals of Smith Barney and Fund Evaluation Group, Inc., as exempt under KRS 61.878(1)(c)1., was proper. For the reasons that follow, we conclude that the agency established that the withheld portions were confidential and proprietary matters which fell within the parameters of KRS 61.878(1)(c)1. and properly withheld disclosure of the materials under that exception.
KRS 61.878(1)(c)1. excludes from disclosure:
Upon and after July 15, 1992, records confidentially disclosed to an agency or required by an agency to be disclosed to it, generally recognized as confidential or proprietary, which if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records[.]
In 96-ORD-135, this office, in discussing the application of KRS 61.878(1)(c)1., noted that although the exemption had not generally been construed to exclude bid proposals, once those bids are opened and the vendor selected, the Attorney General had recognized RFP bid proposals which contained secret commercial plans and formulas may qualify for exclusion under KRS 61.878(1)(c)1. Citing OAG 83-256, OAG 88-1, and 92-ORD-1134, at pages 3 and 4 of 96-ORD-135, we explained:
For example, in OAG 83-256 we recognized that a proposal submitted in response to an RFP for an automated certification and issuance system for the food stamp program administered by CHR contained material in which the entity submitting the proposal had a proprietary interest within the meaning of KRS 61.878(1)(c), formerly codified as KRS 61.878(1)(b). At page 6 of that opinion, we noted:
See also, OAG 83-302 (adopting the reasoning of OAG 83-256).
Similarly, in OAG 88-1 we held that a bid proposal submitted in response to an RFP issued by the Finance and Administration Cabinet, Division of Purchases, contained secret commercially valuable plans and formulas which if openly disclosed would permit an unfair advantage to competitors of the entity submitting the proposal, including consolidated financial statements, project narratives, summary experience charts, work plans, and pricing schedules.
In 92-ORD-1134, we identified the distinguishing feature which led to the results in these decisions:
92-ORD-1134, p. 5-6. In the latter decision, we held that the City of Paducah properly relied on KRS 61.878(1)(c)1. in withholding a proposal for an 800 MHZ Trunked Radio Communication System which contained specific detail relative to items of equipment to be used in implementing the system, as well as site selection, charts, maps, and diagrams designed by the entity submitting the proposal for the purpose of carrying out the city's objectives. The city amply demonstrated that the system might serve as a prototype for similar systems elsewhere, and that the entity submitting the proposal therefore had a proprietary interest in that proposal such that disclosure would provide its competitors with an unfair commercial advantage.
The Kentucky Supreme Court has analyzed KRS 61.878(1)(c)1., concluding that the public agencies which had invoked it met their statutory burden of proof.
In Marina Management Services, Inc. v. Cabinet for Tourism, Ky., 906 S.W.2d 318 (1995), the Court held that records containing financial information of privately owned marina operators were exempt from disclosure. The Court reasoned that disclosure would provide an unfair advantage to competitors by allowing them to ascertain the economic status of the marina operators. At page 319 of that opinion, the Court observed:
The records submitted to the Parks Department include information on asset values, notes payable, rental amounts on houseboats, related party transactions, profit margins, net earnings, and capital income. These are records of privately owned marina operators, disclosure of which would unfairly advantage competing operators. The most obvious disadvantage may be the ability to ascertain the economic status of the entities without the hurdles systematically associated with acquisition of such information about privately owned organizations. Further, the facts on the record indicate that the audit statements were disclosed confidentially to Tourism and the Auditors Office. On these facts alone, the exemption clearly applies.
Thus, in Marina , the Court found that the Parks Department adduced sufficient proof to support invocation of the exemption.
Similarly, in Hoy v. Kentucky Industrial Revitalization Authority, Ky., 906 S.W.2d 766 (1995), the Court found:
The financial information required to be submitted by GE in its application to KIRA detailed the company's business and revitalization project. Under administrative regulations adopted by KIRA, such information included a financial history of the corporation, projected cost of the project, the specific amount and timing of capital investment, copies of financial statements and a detailed description of the company's productivity, efficiency and financial stability. . . . It does not take a degree in finance to recognize that such information concerning the inner workings of a corporation is "generally recognized as confidential or proprietary" and falls within the wording of KRS 61.878(1)(c)(2).
Again, the public agency from which access to confidentially disclosed records of a private corporation was sought established that those records were generally recognized as confidential or proprietary.
In 99-ORD-88, this office stated, that in order to qualify for exclusion under KRS 61.878(1)(c)1., public records must be:
1. confidentially disclosed to an agency or required by an agency to be disclosed to it;
2. generally recognized as confidential or proprietary; and
3. of such a character that disclosure would permit an unfair commercial advantage to competitors of the entity that disclosed them.
In the instant case, the information provided in the proposal was required to be disclosed to the Commission by the RFP. This information included the precise formulae or processes which the companies would employ to provide the services the Commission was seeking in RFP, including proprietary ranking systems, policies and software; individual personnel data and bios; company customers and references; fee mechanisms; company research profiles and proprietary scorecard ratings on two of the Commission's current money managers.
In the prior opinions of this office, cited above, we have recognized that RFP proposals, which contain confidential or proprietary information, may qualify for exclusion under KRS 61.878(1)(c)1. Examples of the types of information that was found to have been properly excluded are: "the personnel which will be relied upon and includes biographic information of individuals in the employ of the company, contains charts, maps, diagrams, all of which has been especially designed and organized," (OAG 83-256); "consolidated financial statements, project narratives, summary experience charts, work plans, and pricing schedules," (OAG 88-1); "the method and equipment to be used, and that the bidders demonstrate that they have the personnel and capability to accomplish the objective," (92-ORD-1134).
Based on the above, we find that the information which Salomon Smith Barney and Fund Evaluation Group, Inc., identified in their responses to the Commission and requested to be kept confidential is information generally recognized as confidential or proprietary.
We believe the companies are in the best position to assess the confidential and proprietary nature of the information submitted and whether its release would permit an unfair commercial advantage to their competitors, and that they have successfully demonstrated that the records withheld qualify for exclusion under the cited exception. Accordingly, we conclude the Commission, working in tandem with the two companies, met its burden of proof and properly relied upon KRS 61.878(1)(c)1. and the responses from the companies, along with their reasons for withholding the information, in partially denying Mr. Park's request for the RFP proposals. 1 Marina and Hoy, supra.
The RFP, along with the non-exempt portions of the proposal which were released, supplies sufficient information about the contract to provide investment performance analysis and consulting services to the Commission to satisfy the needs of the public. OAG 83-256.
In addition to the above, documents attached to Mr. Sexton's letter of appeal and Mr. Dickerson's response, both indicate that Mr. Park was provided with a copy of the presentation materials (handouts) which each company passed out during their respective presentations at the June 23, 1999, Commission meeting.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
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