Tales from the National Appeal Chamber: Protection of trade secrets in public procurement | In Principle

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Tales from the National Appeal Chamber: Protection of trade secrets in public procurement

Trade secrets are a sensitive aspect of public procurement proceedings. They limit the principle of openness of proceedings, but protect sensitive information about the contractor’s business. When granting or denying a request to keep certain information secret, the contracting authority should carefully assess the contractor’s arguments, to prevent abuse of this institution. Despite entry into force of the new Public Procurement Law, this issue is still alive, as evidenced by the recently published ruling of the National Appeal Chamber of 29 March 2021 (case no. KIO 720/21).

Factual state

The contracting authority was conducting a public procurement procedure for translation services. During the proceedings, the contracting authority received five bids falling within the amount that the contracting authority intended to allocate to performance of the contract. However, one of the bids differed significantly in price from the others, so the contracting authority decided to summon the contractor to explain its abnormally low price. The contractor submitted the relevant documents to the contracting authority, but citing trade secrets, made a reservation that the information should not be disclosed. The contracting authority accepted the contractor’s request and decided to keep all information provided to it confidential.

Another contractor disagreed with the decision to grant confidentiality and appealed to the National Appeal Chamber (KIO). In the appellant’s view, only the translators’ personal data (name, home address, personal identity number (PESEL), tax number (NIP) and business name) could constitute a trade secret under the Unfair Competition Act. The appellant argued that making all the documents provided to the contracting authority confidential prevented the appellant from analysing the contractor’s bid in terms of an abnormally low price and potentially as an instance of unfair competition. The appellant also claimed that translation services are standard in nature, and thus the bidder could not rely on an innovative method of performing the contract or specific knowhow, the disclosure of which could expose the contractor to harm.

Exception to the rule

The chamber upheld the appellant’s objections. When considering the appeal, the chamber first pointed out that Art. 18(3) of the Public Procurement Law, on which the contractor based its request for the explanations to be kept confidential, is an exception to the principle of openness. Pursuant to Art. 18(1)–(2) of the act, a contract award procedure is public, and the contracting authority may limit access to information connected to the contract award procedure only in cases specified in the act. Such a case is referred to in Art. 18(3), which indicates that information constituting a trade secret within the meaning of the Unfair Competition Act of 16 April 1993 should not be disclosed if a contractor, along with submitting the information, reserved that it may not be disclosed and demonstrated that the information constitutes a trade secret.

According to the chamber, the openness of proceedings is a fundamental principle of public procurement procedures. This arises from the right of every citizen, enshrined in Art. 61 of the Polish Constitution, to obtain information on the activities of public authorities, especially when they are disposing of public funds. As a consequence, limiting the principle of openness is possible only in strictly defined situations indicated by the parliament. Art. 18(3) of the Public Procurement Law is such an exception. This is because the parliament allows contractors to reserve information constituting a trade secret, if the contractor asserts the reservation no later than the deadline for submission of bids and demonstrates that it meets the prerequisites for classification as a trade secret.

What is a trade secret?

Pursuant to Art. 11(2) of the Unfair Competition Act, a trade secret is understood as technical, technological or organisational information of an undertaking or other information of economic value that is not generally known to persons usually dealing with this type of information or is not easily accessible to such persons. To benefit from this provision, the person entitled to use or dispose of such information must take steps, with due diligence, to keep it confidential.

Thus, specific information may be deemed a trade secret if three conditions are all met:

  • The economic value of the information has been demonstrated.
  • The information has not been disclosed to the public.
  • The contractor has taken measures to keep the information confidential.

In the opinion of the chamber, the concept of a trade secret, as an exception to the fundamental principle of openness of public procurement proceedings, should be interpreted narrowly. Moreover, as the chamber pointed out, “Undertakings deciding to operate in the public procurement market and entering the regime based on the principle of openness should be aware of the consequences of submitting to the procedures laid down in public procurement regulations. The transparency of such proceedings entails the need to disclose certain information about their activities. That this may be information that a contractor would prefer not to make public for reasons of a specific business policy does not provide sufficient grounds for claiming that each and every piece of such information constitutes a trade secret.” As a consequence, it is up to the contractor to demonstrate that certain information should be kept confidential despite the general principle of openness of the procedure.

The justification for the ruling also indicated that contractors may not treat the right to protect certain information as a tool preventing competing contractors from assessing bids and documents submitted in the procedure. The chamber emphasised that this right must not be abused, and its use should be limited to the situation of a real threat to legitimate economic interests.

Contracting authority’s duty of care

Admittedly, the obligation to provide evidence rests on the contractor, but as the chamber pointed out, the contracting authority is also obliged to exercise due diligence. Before the contracting authority complies with a contractor’s request to treat certain information as a trade secret, it should verify the bidder’s position as to the nature and status of the information.

The chamber further pointed out that in verifying the bidder’s position, the contracting authority cannot unreflectingly accept the contractor’s subjective statements, but should ground its decision on objective reasons.

Thus, the contracting authority should first verify the contractor’s arguments and the evidence submitted to support them, and only then decide to keep the contractor’s explanations confidential. Indeed, the explanations offered are often general and do not address a particular course of action. Then, the contracting authority must verify whether these general and frequently repeated arguments give specific reasons for making certain information confidential.

Economic value of information

When reserving certain contents as a trade secret, the contractor must demonstrate to the contracting authority that the information has a specific economic value.

As indicated by the chamber, “This value can be expressed positively, through the recognition of a specific good as an intangible asset (for example, a trademark, copyright, or some unique organisational solution having a permanent application and creating a certain value), having a specific value that can be recognised in specific monetary units…. In a particular situation, this value may also be reflected in the potential damage that a contractor could suffer if the information were disseminated more broadly.”

In short, economic value is the value of information in circulation. This value has an objective dimension extending beyond the specific procurement proceedings.

Other bidders should be able to test the competitor’s explanations

In deciding to declassify the information included in the contractor’s explanations, the chamber reasoned that other contractors should be able to verify the correctness of the price assumptions adopted by the bidder as regards the costs of the contract. The principle of openness of the tender procedure must be strictly observed by both the contracting authority and the contractors who decide to participate in the tender procedure.

Consequently, in the opinion of the National Appeal Chamber, the possibility of verifying the valuation of contract performance costs by other contractors implements the principle of openness and guarantees reliable and objective analysis of the offers of other contractors. This is the only way to ensure the selection of a contractor who will properly execute the contract, and not cut corners to meet the incorrectly calculated costs of the contract.

Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners