Government Contracts Monitor

Perilously Pricey Protests – Which Way Will Congress Go?

July 17, 2016

On June 14, 2016, the Senate passed the National Defense Authorization Act for Fiscal Year 2017, S. 2943 (NDAA). The bill includes what Senator Harry Reid characterizes as “several needed reforms” notably, for our readers, bid protest reforms. The bill includes language that would amend statutes related to bid protests filed with the Government Accountability Office (GAO) to require a “loser pays” structure as well as the potential for zero profit on bridge contracts.

Specifically, the Senate bill would amend the United States Code to require protesters to pay costs on unsuccessful protests in instances where the protesting party has in excess of $100M in prior year revenues. Another provision would require incumbent contractors who protest the loss of their contracts to deposit any and all profit from a bridge contract into an escrow account. These funds would be paid over to the government if the protest was unsuccessful. Thus, as passed, the Senate bill would require a contractor to continue performing the same work for several months with the risk that the contractor would earn zero profit. The profit withholdings would be returned to the incumbent contractor only if the “subject of the protest is canceled and no subsequent request for proposal is released or planned for release,” or GAO “issues an opinion that upholds any of the protest grounds filed under the protest.”

The House-passed version, House bill, H.R. 4909, does not include similar bid protest language. Instead the House opts for a process under which the Secretary of Defense would retain an “independent entity with appropriate expertise to conduct a review of the bid protest process related to major defense authorization programs.” The “independent entity” would be required to submit interim findings on bid protest trends by March 1, 2017, and a final report of findings by July 1, 2017.

The bid protest process has long been considered as serving a valuable role in helping to ensure the integrity of federal government contracting. The biggest potential impact may come in a reduction in the number of protests in small dollar-value procurements where the risks may be considered too high to be worth the fight. The Senate bill may also increase the already high number of voluntary corrective actions taken by agencies.

The language adopted by the Senate in its version of the NDAA reflects well-recognized, longstanding criticism regarding the impact of protests on defense procurements. In this regard the reforms take dead aim at frivolous protests filed by punishing incumbent contractors that challenge the government’s award decision in order to retain the work until the protest is resolved, sometimes for years. Although there are many legitimate reasons to file protests, today protests are viewed as too numerous and crippling to the overall procurement process. Protests are to be used to make certain the government makes follows applicable law, regulation and the terms of its solicitations and makes a fair and objective decision but, according to certain lawmakers, “the system has spiraled out of control”.

One key problem with the Senate bill is that where it is clear an agency has taken corrective action as a result of a flaw raised by an incumbent protestor, it seems irrational and unfair that the contractor should forfeit the withheld profit simply because GAO did not have the opportunity to issue an opinion upholding the protest. This problem is highlighted by GAO’s 2015 bid protest statistics which show that, although GAO sustains only 12 percent of all protests filed, the bid protest effectiveness rate, which includes protests where an agency takes voluntary corrective action, is 45 percent.

Stay tuned.

Attorneys

Lindsay Simmons