Freedom of information legislation can expose firms contracting with public bodies to commercial disadvantage. A recent appeal court ruling recognises this

Openness and transparency are on the government’s agenda. So how does this affect companies that contract with the government - do they also have to be open and transparent about their contracts?

What about commercially sensitive information such as profit levels and detailed financial arrangements? If a company is contracting on an open book basis, all this will be disclosed, but in many cases contracts are based on a competitive tender, which is not open book at all. 

The Freedom of Information Act (FoIA) obliges government bodies such as local authorities to disclose on request all contract details unless genuinely confidential. This is bad news for any company seeking to maintain its commercial position, because a competitor could make an FoIA application and find out the rates charged with a view to undercutting its rival the next time that contract went out to tender. Local authorities and other public bodies have struggled to understand that lowest price is not the same as best value, so this could have a big impact. 

Protest groups are entitled to make an FoIA application.The Environmental Information Regulations (EIR) also apply to contracts involving environmental issues such as the processing of municipal waste, with similar disclosure obligations.

Commercial confidential information may well constitute the life blood of a company

Finally, the Audit Commission Act (ACA) provides some scope to seek information about a local authority’s accounts, although there are restrictions as to the timing and extent of information that can be required and those who can request it.

The tribunal that considers disputes about disclosure, initially the information commissioner in relation to FoIA and EIR applications, has until recently taken a wide view of the legislation. The information commissioner has frequently held that the public interest in knowing the details of these contracts is greater than the interests of the company in maintaining the confidentiality of its commercial information. 

It now appears the tide is beginning to turn. In a recent case in the Court of Appeal, Veolia vs Nottinghamshire council, the court considered a wide-ranging application for disclosure that had been made by a local protester, who was objecting to the construction of an energy-from-waste facility. The protester had previously made an application under EIR, and the Court of Appeal case concerned a later application under ACA about the same facility.

In the EIR hearing, the information commissioner stated that some of the information requested should not be disclosed as it had been imparted to the county council in circumstances that gave rise to an obligation of confidence. This included detailed financial modelling information and information that would affect the future negotiating positions of the parties.

The commissioner held that the public interest in maintaining confidentiality outweighed the public interest in disclosure in relation to specific systems and technical matters; the costs and profits of contractors; the claw-back of costs (for example, from the sale of by-products) and technical manual matters. 

The Court of Appeal confirmed this approach and held that confidential information “is a well recognised species of property, protected by the common law … commercial confidential information may well constitute the lifeblood of an enterprise.” It held that “it is plain that there is a strong public interest in the maintenance of valuable commercial confidential information … if the penalty for contracting with public authorities were to be the potential loss of such confidential information, then public authorities and the public interest would be the losers, and the result would be potentially anti-competitive”.

The Court of Appeal went on to consider whether the Public Procurement Regulations required disclosure of confidential information and held that they did not.

Companies working for public authorities will welcome the recognition that disclosure of this kind of commercial confidential information is not required under the ACA. The same principles are therefore likely to be applied in relation to applications under FoIA and EIR .

Gillian Birkby is head of construction at law firm Fladgate