Information Commissioner orders disclosure of information from public/private sector contract

Key Points:

• This decision of the Information Commissioner (5 June 2008, Plymouth Primary Care Trust, FS50084359) shows the approach to a request for financial information in a contract between public and private sector bodies. In particular, the decision deals with the applicability of the exemptions for confidential and commercially sensitive information.
   
• Most of the information sought was ordered to be disclosed. A limited amount of financial information (consisting of the service provider's financial models) was found to fall within the confidentiality exemption. The Trust was also justified in withholding information on bidders' financing strategies, on the basis that it was commercially sensitive.
   
• The Commissioner's application of the exemption for commercially sensitive information shows that real evidence of prejudice will be required for the exemption to be engaged. Where it is argued that disclosure would harm subsequent negotiations, the degree of similarity between the two sets of negotiations will be an important factor.

Background

The contract had been entered into by the Department of Health, a number of Primary Care Trusts and the Service Provider, Care UK Afrox. It related to the provision of an independent treatment centre at which NHS patients would receive certain treatments from private sector healthcare providers. The request also covered correspondence with the Department of Health relating to the contract. In refusing to disclose the information sought, Plymouth PCT (the "Trust") relied on a number of exemptions but the Commissioner's decision focuses in particular on the exemptions under sections 41 (confidential information) and 43(2) (commercially sensitive information) of the Freedom of Information Act.

Section 41

As we reported in our e-bulletin of 24 January 2007 (click here) the Information Tribunal has previously found that concluded contracts fall outside the scope of the confidentiality exemption because terms which have been negotiated and agreed by a public authority cannot be information "obtained from a third party" as required by s.41. However, the Tribunal acknowledged that contracts may contain some information (such as a schedule of technical information belonging to the third party) which could be characterised as having been "obtained" by the public authority from the other party to the contract.

In this case, the Trust relied on s.41 in withholding information in a schedule to the contract, namely financial models setting out the Service Provider's financial projections for the proposed duration of the contract. This included information on the projected number and pricing of procedures to be carried out under the contract and details of the Service Provider's projected revenue, overheads, cash flow, investment, financing, taxation, profit and loss accounts and balance sheets. The Commissioner accepted that most of the information within the schedule was capable of falling within s.41 as it was obtained from the Service Provider and had not resulted from negotiations between the parties or been stipulated by the Trust. The exception to this was the information relating to volume and pricing of procedures, which therefore fell to be considered under s.43 (2) (as to which see below).

Having found that most of the information in the schedule was capable of protection from disclosure under s.41, the Commissioner then considered whether disclosure would give rise to an actionable breach of confidence. He concluded that it would. The information, being of a commercially sensitive nature and not otherwise available, had the necessary "quality of confidence". The contract contained an express confidentiality clause but even without that, the Commissioner found that the information had been communicated to the Trust in circumstances creating an obligation of confidence.

The only remaining issue was whether the Trust would have had a public interest defence to any breach of confidence claim. The Commissioner concluded that it would not. In his view, disclosure of the information in question would not have made a significant contribution to the public's understanding of whether the contract represented value for money – the overall pricing structure would be of more significance and he had already found that this was not covered by s.41. On the other hand, disclosure of very detailed information about the Service Provider's financial calculations and assumptions could have harmed its position in tendering for future contracts and given competitors an unfair advantage, resulting in the public not obtaining value for money. The information in the financial models (except pricing information) could therefore properly be withheld.

 Section 43(2)

In addition to the pricing information contained in the schedule, the Trust relied on s.43 (2) as the basis for withholding a significant amount of other financial information, including: financial penalties payable by the Service Provider for performance target failures; amounts payable on termination of the contract; default interest rates; insurance requirements and a detailed business case for the centre which assessed the bids which had been made for the contract.

In order for the s.43 (2) exemption to be engaged, the public authority relying on it must first demonstrate that disclosure would, or would be likely to cause commercial prejudice. Recent decisions of the Commissioner and the Information Tribunal show that this can be a difficult hurdle to overcome. In this case, the Trust argued that the commercial interests of the Department of Health and the Service Provider, as well as its own, were at risk. The Commissioner disagreed.

The Commissioner undertook a detailed analysis of the Trust's arguments on commercial prejudice, concluding that the exemption was not engaged in respect of most of the withheld information because the parties' commercial interests were not likely to have been prejudiced by disclosure at the time the request was made.

• Shortly after the request was made, the Government announced its decision to commission a second wave of independent treatment centres. One of the Trust's main arguments was that disclosure of the pricing information would prejudice the parties' positions in relation to the procurement process for this second wave of contracts (and other contracts which it was negotiating separately). The Commissioner found that the contract covered by the request was unique, being based on a single generic model contract developed by the Department of Health. There were a range of variables to which the Trust could point in order to justify a departure from the prices in this contract when negotiating on pricing for other contracts.
   
• The Commissioner rejected the argument that disclosure would have a harmful effect on the procurement process for the second wave of contracts. He found that in this highly competitive market, by the time detailed bids had to be made in respect of the second wave, the disclosed information would be over a year old and prices were likely to have changed considerably. The disclosed information would therefore be of limited use to competitors.
   
• The Commissioner also rejected further arguments, including that disclosure would stifle innovation, lead to poor quality of service and reduce the pool of bidders for future contracts.
   
• The only part of the information which the Commissioner found was covered by s.43 (2) covered details of the bidders' proposed financing strategies, including the amount of proposed borrowing and the identity of the lenders. The Commissioner agreed that disclosure would have been likely to prejudice the commercial interests of those bidders who had participated in the procurement process. He also found that the greater public interest lay in withholding this information. The main argument in favour of disclosure was the public interest in the issue of whether independent treatment centres represent value for money. However, the Commissioner was not convinced that disclosure of information on the bidders' financing strategies would have assisted the public in assessing whether value for money had been achieved.

Commentary

In summary, therefore, the Commissioner found that the Trust had been correct to withhold the information in the financial models, with the exception of that relating to pricing and volume of procedures. It was also justified in withholding the information on bidders' financing strategies. However, the remainder of the information sought was ordered to be disclosed. The decision shows the Information Commissioner's willingness to undertake a detailed analysis of information which is subject to a request, in order to ensure that exemptions are not applied in a "blanket" way but carefully considered in relation to the different types of information in question. It also shows (consistently with earlier decisions) that any public authority seeking to rely on the exemption for commercially sensitive information must be able to produce persuasive evidence of the risk of prejudice. It will assist the case for non-disclosure considerably if confidential and/or commercially sensitive information is identified, with reasons, early in any procurement process.

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance.

© Herbert Smith LLP 2008