Conferees Will Determine Fate of Defense Bill Provision to Deter Frivolous Contractor Bid Protests

As House and Senate negotiators prepare to meet and forge the final version of the fiscal 2018 defense authorization bill, one of many issues to be resolved involves the costs of contractor bid protests.

Long concerned about costly weapons system schedule delays from prolonged protests by unsuccessful bidders, senators, as they have in past bills, inserted language in their fiscal 2018 National Defense Authorization Act that would affect the three-decade-old bid protest process in two ways:

• Companies larger than $100 million in the previous year’s revenues who file unsuccessful protests against contract awards to a competitor would henceforth be required to pay the Defense Department the costs of processing the protest at Defense and at the Government Accountability Office, which adjudicates the protests. That’s the “loser pays” provision.
• Second, the Senate bill calls for incumbent contractors who file a protest to have all payments above incurred costs withheld on any bridge contracts or temporary contract extensions awarded to that contractor as a result of a delay in award resulting from the filing the bid protest. The language is not in the House version.

The goal, wrote three attorneys at Thompson Hine LLP, would be to “shift some costs of the protest system to the private sector, and [the provision] is clearly intended to reduce the frequency of protests by large companies (and of large awards).” Some protests are considered by critics to be “frivolous,” and on “autopilot” in a way that hinders good government.

The most recent GAO tally shows that protests have risen for the past three years, including a 6 percent hike from fiscal 2015 to 2016, when 2,789 protest-related cases were filed, and 22.6 percent of such cases were sustained.

Bid protests, which date back to the 1984 Competition in Contracting Act, give losing bidders another chance to make their case. GAO—which announces results of protests on its website—is among the critics of the Senate language, the authors of which are not publicly known.

Comptoller General Gene Dodaro, in a Sept. 7 letter to Senate Armed Services Committee leaders John McCain, R-Ariz., and Jack Reed, D-R.I., warned that the new provisions would “negatively affect the ability of defense agencies and contractors to raise and respond to bid protests in a meaningful way, which will necessarily reduce the value of the protest process to the procurement system.” GAO auditors, Dodaro continued, may be compelled to seek a reduction in the time currently allotted by statute for DoD agencies to respond and for contractors to reply,” which would render those responses “less robust.”

GAO took no position on the “loser pays” language, the comptroller said, but warned that his agency would have to develop new ways to collect the new information and allocate its resources—and it might have to get involved in litigation.

An analysis of GAO’s work by the Wiley Rein law firm last year minimized those concerns, stating that the congressional watchdog “still resolves protests involving DoD quickly—our analysis shows that GAO has disposed of more than 50 percent of DoD protests filed since 2014 within 30 days or less, just as it did in 2003-2008.”

 Dan Stohr, a spokesman for the Aerospace Industries Association, which represents the major weapons makers, said that “rather than discouraging frivolous bid protests, this provision would create a disproportionate burden on companies that file protests in good faith. They invest significant time and resources to consider the facts very carefully and make an informed business decision whether to protest a particular contract award.  We agree strongly with the GAO.”

The Professional Services Council, which represents 400 contractors, sent senators a letter in August opposing the loser-pays language and the withholding of payments. “This provision will undercut the fundamental purpose of the bid protest process—to hold agencies accountable for following the law and their procurement procedures—and would create a clear conflict of interest where government could appear to be given a financial reward for ruling against a protester,” the letter said. More effective in curbing frivolous protests, the council wrote, is another of the bill’s provisions to “enhance post-award debriefing rights and amend the timelines for GAO consideration of bid protests.”

Michael Fischetti, executive director of the National Contract Management Association, said, “It is not clear that this proposal would accomplish its intended objectives, and changes in current authorities should be made with extreme caution.” His group is “curious as to how many contractors in recent years fit the situation this provision addresses. Specifically, what forms of industry activity is this meant to address?” Fischetti asked. “We do know that since 2005, ‘bid protests’ have roughly doubled with an average 20 percent sustainment rate, but are DoD statistics higher?  Are the larger government contractors this proposal appears to address a large percentage of the concern?”

The GAO’s costs resulting from a protest “aren’t likely to stop the protesting of large procurements,” he added. “Once the data surrounding these issues is better understood, the proper balance between a fundamental right in government contracting (that being the ability of participants to protest) can be addressed.”

Correction: This article has been corrected to fix an error in the Professional Service Council's statement about the loser pays provision.