TIPS – Australian Government Link

1. Even if a procurement process does not involve seeking submissions from potential suppliers, entities should ensure that before potential suppliers provide information, they are made aware of the Australian Government’s reporting and disclosure obligations and the entity’s position in relation to dealing with commercially sensitive information. This could be done using a draft contract or through other forms of communication with potential suppliers.
2. Entities should take care to ensure that when dealing with potential suppliers they do not make representations about maintaining the confidentiality of suppliers’ commercial information that are inconsistent with the request documentation or the draft contract.

Tips – Case Studies on the Confidentiality Test

Business/delivery methodology

3. A potential supplier has identified as confidential in its submission the specification of how it delivers its services.  The potential supplier claims (and the entity agrees) that the methodology has been developed using its “smart” (original or innovative) solution and disclosure is likely to result in competitors adopting the methodology, diminishing its commercial value and adversely affecting the potential supplier’s competitive position in the market. Only the potential supplier and a small number of its employees know the methodology. In the approach to the market, potential suppliers were invited to specify what, if any, information they sought to protect as confidential.
4. Assessment of the information against the confidentiality criteria would see:
   • Criterion One – Met
     • The information is specifically identified, comprising information on the service delivery methodology for the services.
   • Criterion Two – Met
     • The information has the quality of confidentiality as the information is known only to a small number employees and continuing non-disclosure of the “smart” methodology provides the potential supplier with a competitive advantage.
   • Criterion Three – Met
     • Disclosure of the information is likely to adversely impact the potential supplier’s commercial interests as its competitors would be able to compete for work either using or adapting the methodology, which would remove the potential supplier’s competitive advantage in this area.
   • Criterion Four – Met
     • Since the entity has invited potential suppliers to specify what information is to be kept confidential and the service delivery methodology has been specified, it appears that the information was provided on the understanding that the information would be kept confidential.
     • Accordingly, it would be open to an entity to decide that the service delivery methodology meets the criteria of the Confidentiality Test.  If an entity decided that the information should be protected as confidential the entity could agree to include an appropriate confidentiality clause in the contract.

Service level measures

5. Service based contracts may contain measures to reward good service delivery and to reduce payment for poor service delivery.  The measures set the levels for a reward/reduction regime.
6. A potential supplier requests that service level measures be treated as confidential on the basis that disclosure would enable competitors to estimate its cost structure and therefore damage its commercial interests.  The service level measures have been specifically developed for the proposed contract and are not known to anyone except the supplier and the entity.  The entity has not made any representations, either in the tender documentation, or verbally, to the effect that the service level measures would be treated as confidential.
7. Analysis of the service level measures against the criteria for confidentiality indicates that they do not meet the test:
   • Criterion One – Met
     • The information identified as confidential is specific in so far as it includes the service level measures in the contract.
   • Criterion Two – Not met
     • Although the information is not widely known, the supplier’s pricing structure could not be estimated by reference to these measures alone.  The relevant clause merely sets targets for the supplier.
   • Criterion Three – Not met
     • Disclosure of the service level measures is unlikely to cause unreasonable detriment to the supplier, taking into account the conclusions in the previous point.
   • Criterion Four – Not met
     • A mutual understanding of confidentiality of the service level measures does not exist at this point.
     • Whilst the service level measures in this simplified example would not be confidential based on the above analysis, agencies should be conscious that the quantum of financial imposts or rewards raises similar issues to those applicable to pricing information.  For example, contracts that provide for profit to be at risk or shared depending on performance may disclose the supplier’s underlying cost structure.

Pricing information

8. Each request for confidentiality of pricing information should be considered on its merits.
9. Generally, the fact that disclosing pricing information would make life more difficult for the supplier is not sufficient reason.  For example, a potential supplier may claim confidentiality on the basis that it does not want its competitors to know its prices.  However, transparency of such information could, potentially, lead to increased competition and better value for money outcomes for the Government.
10. The examples below focus on assessing whether individual elements of a pricing methodology would be confidential.  Although a specific element may be assessed as not meeting the confidentiality criteria, the complete methodology may nevertheless warrant protection if it meets the test for confidentiality, for example because it provides sufficient information to make a reasonable estimate of a supplier’s profit margin.

Total price

11. In contract negotiations, a potential supplier of human resource services asks an agency to maintain the total price of a proposed contract as confidential on the basis that release of the information would enable its competitors to estimate future bids by the organisation.  In previous discussions with the potential supplier, the agency indicated that the Australian Government is required to report the contract price on AusTender. The request for tender also highlighted this requirement. 
12. Analysis of the request indicates that the claim does not meet the test for confidentiality:
    • Criterion One – Met
      • The information identified as confidential is specific, being the total price of the contract. 
    • Criterion Two – Not met
      • The total price does not have the quality of confidentiality after a contract is signed.  Despite the potential supplier’s claim, the information is not commercially sensitive in a contract because it does not provide sufficient detail to enable competitors in the market to determine the potential supplier’s cost structures and profit margins.
    • Criterion Three – Not met
      • Disclosure of the total price would not damage the service supplier’s commercial interests given the issues raised in the previous point.  In relation to the potential supplier’s claims, future bids by the organisation would need to address the statement of requirements, which may involve the provision of different services, service levels, and possibly, use of different service delivery methods.  Accordingly, disclosure of the total price in this case is unlikely to provide sufficient information for the potential supplier’s competitors to determine the likely price of future bids by the supplier.
    • Criterion Four – Not met
      • An understanding of confidentiality does not exist between the agency and potential service supplier at this point.
      • Based on this analysis, it would generally not be appropriate for an entity to agree to a request to maintain confidentiality as not all of the criteria have been met.

Price of individual items or groups of items

13. While prices for individual items or groups of items of property or services would not generally be confidential, there may be some exceptions.  Confidentiality would not be appropriate if the pricing information is generally known.  However, if individual prices for items forming part of the contractual requirements would disclose underlying costs and profit on that item or other commercially sensitive information such as special discounts, (see below), a potential supplier may legitimately claim that the information is confidential.
14. A simple example of a case where a unit price would not be confidential is where a potential supplier has advertised the price that will be charged in a catalogue:
    • Criterion One – Met
      • The information identified as confidential is specific information.
    • Criterion Two – Not met
      • The information on the price of the item is publicly advertised and, as such, non‑disclosure would not provide the potential supplier with any ongoing benefit.
    • Criterion Three – Not met
      • Disclosure of the information is unlikely to adversely affect the commercial interests of the potential supplier, as the price is already publicly available.
    • Criterion Four – Not met
      • In the absence of any explicit agreement that the unit price would be maintained as confidential, there would not be a mutual understanding of confidentiality.
      • Based on this analysis, it would not be appropriate for an agency to agree to a request to maintain confidentiality as the criteria have not been met.

Discounts

15. A potential supplier may claim confidentiality of pricing information for reasons other than those discussed above.  For example, it may be providing the entity with a considerable discount.  The potential supplier may properly seek confidentiality of the discount information if it can establish that it would suffer unreasonable detriment if the level of discount offered were disclosed.  For example, the potential supplier may be able to demonstrate that its financial interests would be prejudiced if its other customers were to know of and seek similar levels of discount as those available to the entity, or that disclosure of discount information would enable competitors to determine the actual cost of the property or services.
16. As discounts may or may not be confidential, depending on the circumstances, entities should consider requests to maintain confidentiality of such information on a case-by-case basis.