Section 804 of the House-enacted version of the National Defense Authorization Act for Fiscal Year 2024 would establish a “loser pays” pilot program to require contractors to reimburse the Department of Defense for costs incurred in “processing” bid protests that are ultimately denied by the Government Accountability Office. The accompanying House Armed Services Committee report explains the provision’s intent as “curtailing wasteful contract disputes.”
This is not the first time Congress has tried such an approach. Section 804 is nearly identical to a pilot program included in the FY 2018 NDAA. Congress repealed that pilot before it could be implemented, however.
Bid protests have been a feature of the federal acquisition framework for decades–a mechanism by which contractors can challenge the way an agency solicits offers for, or awards, a contract. Many in the defense industrial base view the bid protest system as providing necessary transparency and accountability in the contracting process, including to ensure that the government follows the law and its own procedures.
Section 804 seems to begin from the premise that there is a public interest in deterring bid protests. Critics of the protest system claim that contractors use bid protests to “game the system.” By filing excessive and/or weak protest allegations, they say, contractors–particularly incumbent contractors–impede timely awards with which they disagree. There is significant question whether the data actually support this supposed need for deterrence, however, and dialing back a system by which private companies can protest a government contract decision is likely to have a range of unintended and negative consequences.
As currently structured, the pilot program would apply only to protests of Department of Defense contract actions. DoD acquires roughly $400 billion in products and services from contractors every year–about as much as all other federal agencies combined. A 2018 RAND study found protests of DoD procurements to be exceedingly uncommon, however: Between 2008 and 2016, less than 0.3% of all DoD contracts were protested. Moreover, GAO statistics show that in approximately half of all protests filed, protesters got some form of relief, be it voluntary corrective action by the agency or a sustain on the merits by GAO. Particularly when taken together, those data support the idea that the bid protest system serves a necessary and important oversight function, improving the integrity and quality of government contracting actions.
There is also significant uncertainty about how the pilot program would work in practice, were it implemented. As envisioned by House Section 804, bid protests filed with GAO on or after October 1, 2025 would be subject to the three-year pilot program. Only bid protests rendered final during the program’s three-year term would be covered. Section 804 defines a “final” protest as one in which GAO has issued a decision denying the protest, and either the time for “appeal” of that decision has expired, or an “appeal” has been filed and the process has completed. It is not clear what is meant by “appeal,” however, because existing law and regulation provide no ability to “appeal” a bid protest decision from GAO. That language may be intended to refer to protests that are re-filed at the U.S. Court of Federal Claims, but that still leaves uncertainty about how the program would work in practice.
Other questions remain as well. For instance, how will the costs to be reimbursed by the losing contractor be quantified? In 2018, DoD did not track, and RAND could not extrapolate, any data associated with DoD’s costs to “process” bid protests. As another example, how will the pilot apply if GAO sustains a protest in part and denies it in part?
Other criticisms that attended this pilot program’s predecessor–and prompted its repeal–apply with equal measure today. In an apparent effort to exempt small businesses and target larger companies, section 804 excludes from the pilot program any bid protest filed by a contractor with annual revenues at or below $250 million. The 2018 RAND report found that small businesses accounted for at least half of all protests received by GAO, however, and that small business protests were far more likely to be denied than those filed by larger companies.
Interestingly enough, RAND’s recommendations in its 2018 report mirrored what defense contractors have been saying for years: To manage the number of bid protests that are filed, DoD and other federal agencies should improve the quality of post-award debriefings they provide. According to RAND, “[i]t became clear over the course of our study that too little information or debriefings that are evasive or adversarial, or failing to provide required reasonable responses to relevant questions, were likely to lead to a bid protest.” It’s been more than five years since Congress last probed the adequacy of the government’s post-award debriefings, and although certain agencies have made improvements in their processes, much remains to be done.
Section 804 first appeared in the HASC Chairman’s Mark of the FY 2024 NDAA, survived an extensive Committee and floor amendment process untouched, and was adopted without change on the House floor. The Senate-enacted NDAA contains no similar provision. Accordingly, the ongoing conference in which Senate and House leaders iron out the differences between their respective bills will determine whether the section 804 pilot survives, and if so, the form it will take.