House and Senate Propose Alternative Visions Of Bid Protest Reform

Every year, Congressional debates over the Department of Defense (DoD) budget provide a stage for current reform efforts and policy initiatives. This year, in considering the Fiscal Year 2017 National Defense Authorization Act (FY17 NDAA), both the House and Senate Armed Services Committees (HASC and SASC) have placed Government Accountability Office (GAO) bid protests challenging DoD contract awards under the microscope—but their proposed approaches differ widely. The HASC has proposed an outside audit of all GAO protests of DoD contract awards, with an eye towards identifying delay to the contracting process and opportunism by incumbents.¹ Significantly, the HASC prefers to await the results of this study before implementing any systemic changes. The SASC's FY17 NDAA bill (S. 2943) goes much farther, faster. The SASC proposes to impose costs on losing protesters, inflict penalties on losing incumbent protestors, and largely eliminate the jurisdiction of the GAO to hear protests of DoD task order awards.²

On May 4, 2016, the HASC released its markup of the NDAA (H.R. 4909). The HASC version of the NDAA contains two protest-related provisions.³ First, the HASC would require DoD to engage “an independent entity with appropriate expertise” to review the bid protest process for major defense acquisition programs.⁴ The review would generally survey the duration and impact of bid protests, and specifically examine “whether bid protests are frequent by, or provide financial benefits to, incumbent contractors.” Industry commentators have asserted that incumbent contractors are liable to pursue protests at GAO related to their current work because the GAO’s automatic stay rules may force the agency to issue interim (or “bridge”) contracts to the incumbency—thereby preserving a few more months of revenue, regardless of the merits of the protest.⁵ Second, the HASC proposed to eliminate the sunset provision on the Congressional grant of jurisdiction to GAO to hear protests of task orders awarded under non-DoD multiple-award contracts (GAO jurisdiction over DoD task orders was made permanent in 2013).⁶ This recommendation by the HASC contrasts sharply with the SASC markup; as discussed below, SASC has proposed to eliminate or strictly limit the authority of GAO to hear protests of DoD task order awards.

The SASC released its NDAA bill text on May 18, 2016, after completion of the full committee markup that took place on May 11-12.⁷ The Senate’s version goes well beyond studying the impact of bid protests, and proposes to affirmatively change the landscape for companies considering protests of DoD contract awards. A spokesman for the SASC stated that the SASC’s protest reforms are targeted at “serial protesters” who protest out of financial interest alone, regardless of the impact on the acquisition process. According to the aide, the SASC was trying to put in place “disincentives [and] incentives” to limit such protests.⁸ In their version of the NDAA, the SASC recommended three notable changes to existing bid protest procedures.

First, SASC proposed to revise GAO’s jurisdiction over task and delivery order protests under 10 U.S.C.  § 2304c(e). Currently, issuance of a task or delivery order over US$10 million may be protested at GAO just as a stand-alone contract award may be.⁹ The SASC markup proposes to eliminate that jurisdiction altogether in favor of submissions to the Task and Delivery Order Ombudsman appointed by the DoD, pursuant to the authorizing statute for DoD task order contracting.¹⁰ The option to file a complaint with an agency Ombudsman is not a new one—though it is infrequently used due to a widespread perception that the Ombudsman has little power or influence to change contracting outcomes as well as the reality that the ad hoc nature of an Ombudsman’s authority renders that route less predictable and more subject to agency internal politics, as compared with review by an outside agency such as GAO.¹¹

The SASC’s next proposal—to impose a general “English Rule” for protest costs¹² against large contractors—appears more directly targeted at the threat of bad faith, or “serial protesters.” SASC’s proposal includes two provisions imposing costs on failed protesters.¹³ First, large contractors would be required to “pay to the [GAO] costs incurred for processing” any protest where “all of the elements of [the protest] are denied in an opinion issued by [GAO].”¹⁴ The actual impact of this rule may not be large, given the volume of written decisions issued by GAO. For example, in 2015, GAO issued 587 written decisions, of which 12% were sustained, leaving only 519 of 2,496 protesters subject to the new rule.¹⁵ However, this rule would essentially operate as a presumption that any unsuccessful protests were filed frivolously, which many defense contractors may find troubling given the limited information available to debriefed contractors contemplating protest.¹⁶ Moreover, it is unclear if this measure would provide a disincentive to the posited “serial protesters.” Such protesters could avoid costs by seeking ADR and withdrawing protests before issuance of a written decision, but after the bulk of the delay of protest litigation has already been incurred.

More targeted is the SASC’s proposal to disincentivize frivolous protests by incumbent contractors relating to award of their current work to another contractor. The new section proposed by SASC seeks to deter profiteering by incumbents who may take advantage of the automatic GAO protest stay to obtain “bridge” contracts and continue generating revenue while the protest is pending. Where an incumbent contractor’s protest “results in the issuance of a bridge or temporary contract,” any payment issued under that bridge contract in excess of actual costs incurred by the incumbent—i.e., no profit or fee—would be held in escrow pending the outcome of the protest.¹⁷ If the solicitation is cancelled or the GAO issues an opinion sustaining the protest, the withheld funds will be released to the incumbent protester. If these exceptions are not met, the withheld funds are released to the awardee of the protested contract. In other words, if an incumbent protests the loss of a contract and is not successful, the profit and fee due to the incumbent protester under its bridge contract will be paid to the protester's competition.

This raises multiple questions. As a practical matter, what if a bridge contract is awarded but the incumbent contractor is one of multiple protestors? Did the bridge contract “result” from the incumbent’s protest, such that profit and fee should be withheld? As a legal matter, can the government properly pay to an awardee contractor funds incurred under a contract to which the awardee is not a party? What if the agency takes corrective action in response to an incumbent protest? Roughly one third of GAO protests are resolved by agency “corrective action” whereby the agency agrees to take steps to correct an issue identified by the protester, and in response to which the GAO simply dismisses the protest without issuing a sustain decision.¹⁸ Under the terms of the SASC markup, will an incumbent’s earned fees and profit be delivered to its competition, even after the incumbent protester convinces the agency that its protest has merit and the agency takes corrective action as a result? 

These questions and others will no doubt be on the table when the House and Senate come together to determine the final shape of the NDAA. Initial indications from Congress are that the differences in the HASC and SASC versions reflect a real disagreement between the two houses regarding how fast to move on bid protest reform. For the House contingent, the HASC-proposed study represents an important initial step that may bear fruit next year while a broader acquisition reform bill is being considered. The SASC, obviously, feels ready to take action now. These issues will be debated in the eventual conference negotiations that will take place over the next several months. But it is not clear at this time what provisions of either proposed bill are likely to make it to the president’s desk, or what will happen to the bill once it gets there.

The administration has already threatened to veto the NDAA due to various objections identified in an official statement of position on the HASC markup.¹⁹ In previous years, however, veto threats have led to the president signing a revised bill. It is perhaps worth noting that the administration’s comments on the proposed House bill did not criticize (or mention, even) the more limited bid protest provisions in the HASC version, which may indicate that the administration is not focused on the protest reform issues presented by this year’s bill. The administration has not yet commented on the more far-reaching measures proposed by the SASC.

The fate of the FY 2017 NDAA may change the landscape for companies seeking to avail themselves of the GAO bid protest process, especially the sweeping provisions proposed by the SASC, and we will continue to monitor the status of the NDAA negotiations as they move forward and as the Senate debates S. 2943 on the floor.

Related Topics

• Senate Proposes Yet Another Cost Accounting Standards Board for Government Contractors (Arnold & Porter Advisory)
• ASBCA Confirms Narrow Definition of An "Expressly Unallowable" Cost Under the FAR and CAS (Arnold & Porter Advisory)
• ASBCA Issues Sweeping Decision on Cost Impacts for Changes in Cost Accounting Practices Involving Government Contracts (Arnold & Porter Advisory)