Senate Seeks to Disincentivize Certain Protesters in 2017 National Defense Authorization Act

Albert B. Krachman and Lyndsay A. Gorton

Krachman, Albert. B. Lyndsay A. GortonOn June 14, 2016, the Senate passed the National Defense Authorization Act (“NDAA”) for Fiscal Year 2017, S. 2943, by a vote of 85-13.  The final bill grants to the military a $602 billion budget, and includes what Senator Harry Reid has called “several needed reforms,” which include bid protest reforms.  The bill, drafted by the Senate Armed Services Committee (“SASC”), includes language that would amend statutes related to bid protests at the Government Accountability Office (“GAO”) to require a “loser pays” scheme and the withholding of profits on bridge contracts.  President Obama has threatened to veto the NDAA when it crosses his desk due to provisions unrelated to the proposed bid protest reforms.

The House of Representatives passed its version of the NDAA on May 18, 2016, by a vote of 277-147.  The House bill, H.R. 4909, does not include similar bid protest-related provisions to those in the Senate bill, and only requires that the Secretary of Defense enter into a contract with 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.

In contrast, the SASC version of the NDAA includes several provisions that appear to be aimed at discouraging protests by certain unsuccessful bidders.  For example, the Senate NDAA would amend the United States Code to require the protester to pay costs on unsuccessful protests when filed by a party with over $100M in revenue for the previous year.  Another proposed provision would require incumbent contractors who protest the loss of their contracts to deposit any profits from a bridge contract to an escrow account, the funds from which would be collected by the government if the protest is unsuccessful.  In practical terms, that would require a contractor to continue performing the same work under the contract for several months with a significant potential that the contractor would earn zero profit.  Like the House version, the SASC NDAA includes a provision requiring a report on bid protests from an independent entity, but, unlike the House version, it prescribes what the report must contain in more explicit terms.  The SASC required report would have to include several analyses of bid protest trends, including the number of protests filed, what proportion of those protests are successful, and how many protests are filed at various dollar amount thresholds.

As noted in the House bill, the bid protest process serves a “valuable role” in helping to ensure the integrity of federal government contracting.  Now, however, if the Senate passes the SASC version of the NDAA, government contractors with over $100M in revenue would be forced to include in their cost-benefit analyses the potential costs of protesting an award against the potential success of the protest.  It is important to note, however, that for large contracts, these potential costs are unlikely to drive the decision.  In small dollar-value procurements, an unsuccessful bidder may determine that although some part of the procurement was fundamentally inaccurate, the costs are simply too high to be worth the fight.  Though the bill includes no such language, if the bill passes as written, then it seems that the government should lower the threshold for reimbursement of costs if the protester is successful.

The SASC NDAA’s proposed language also raises the question of why the same standard stated in the Federal Acquisition Regulation (“FAR”) is not being used here.  FAR 33.102(b) provides circumstances under which a protester has to pay costs, but neither that section nor the FAR in general is referenced in the newly passed NDAA.