Contract disputes reach 15-year high

For the fourth consecutive year, the number of bid protests filed with the Government Accountability Office has increased significantly, a trend some analysts attribute to recent growth in federal procurement spending and the rising value of individual contract awards.

In fiscal 2010, contractors submitted 2,299 protests, according to statistics GAO released to congressional leaders last week. This represents a 16 percent increase over fiscal 2009, when contractors filed 1,989 contract award challenges. The 2010 figure was the highest since 1995, when there were 2,529 protests.

All but 73 of the 2010 cases have been closed; most were dismissed based on procedural rules, withdrawn by the protester, or resolved through mediation before GAO reached a decision. Of the 441 cases that did make it to the final stage, GAO decided 82, or 19 percent, in favor of the company that filed the protest. That figure is up slightly from fiscal 2009 but down significantly from fiscal 2006, when the sustainment rate peaked at 29 percent.

While the sustainment rate remains relatively low, contractors have found other ways to settle the disputes in their favor. Very often, agencies will eliminate the middle agent and renegotiate directly with the contractor. The 2010 effectiveness rate -- based on a contractor receiving "some form of relief from the agency," frequently the reopening of the contract -- was 42 percent, the data show. That's more than double the sustainment rate.

Agencies heeded GAO's recommendation in all but three cases in 2010, each of which were filed by small firms operating in Historically Underutilized Business Zones. A 2009 GAO decision found HUBZone contractors legally had a preference over other types of small businesses when competing for set-aside contracts. The Obama administration disagreed and instructed agencies to ignore GAO's recommendation. Congress restored small businesses parity in September.

The swell of bid protests coincides with an overall increase in the federal government's contract spending in recent years.

A February 2009 Congressional Research Service report found the number of contracts signed between fiscal 2001 and fiscal 2008 increased by almost 600 percent to more than 4 million, while the total value of those contracts nearly doubled. During that same period, the number of bid protests increased by 37 percent, CRS found. The majority of all contract actions, however, were not disputed.

"Spending on contracts has gone higher and higher and that has led to an increase in the total number of bid protests," said Ralph White, who heads GAO's bid protest division.

There are other possible explanations for the spike in contract protests. Some analysts point to the increased dollar value of individual awards and longer contract durations, which make it harder for firms to let go of contract opportunities.

"These are tough economic times and they are getting tighter in the government space," said Rich Rector, chairman of the government contracts practice at the Washington law firm DLA Piper. "It could drive people not to be as sanguine when they lose a contract."

GAO's jurisdiction over contract reviews also has expanded in recent years. In 2007, Congress instructed the watchdog to hear protests for task and delivery orders on existing multifirm contracts, public-private job competitions under Office of Management and Budget Circular A-76, and Transportation Security Administration contracts.

Of the nearly 2,300 fiscal 2010 bid protests, 189 were related to GAO's new authority over task and delivery orders. In 2009, contractors filed 168 task order protests. GAO no longer keeps separate data on TSA contracts, White said, and there is a governmentwide moratorium on A-76 competitions.

The bid protest figures also can be somewhat deceiving because GAO counts each supplemental filing by a protesting party as a new case. Nonetheless, the supplemental protests filed annually represent a relatively small percentage of the total, White said.

CORRECTION: A previous version of this story contained inaccurate historical information about the year with the highest number of bid protests.