How To Reduce the Growing Number of Bid Protests

With bid protests increasing by almost 50 percent since 2008, many industry observers and policymakers may be tempted to place the blame for procurement slowdown -- particularly in the defense industry -- squarely on the contractors. Yet to do so to the exclusion of the other key player in this equation -- the Defense Department -- ignores that bid protests have proliferated largely as a result of the way government does business.

It may be the case that some government contractors file frivolous protests in order to hang onto a contract they once held but subsequently lost, or in an effort to extract concessions from the government, such as the opportunity to start or continue work while the protest is resolved. However, bid protests are a game of high-stakes poker for most contractors. Protests are expensive, and protestors are prohibited from billing their protest costs against their contracts. Even if the Government Accountability Office sustains a protest (and awards the successful protestor its protest costs), a contractor may still need to go through the bidding process all over again, and there is no guarantee that it will win the second time around. In addition, the GAO retains the power to summarily dismiss a protest it deems frivolous, ultimately rendering any effort put into filing a protest a waste of resources. In other words, bid protests do not just slow down the government; they also slow down business for contractors.

The truth is, most government contractors file bid protests largely out of necessity and/or business strategy. With shrinking budgets and constrained resources, government contractors are competing for an ever-smaller slice of the pie. Moreover, many of these defense contractors have developed such a specialized service offering that they cannot readily offset decreasing government activities with commercial opportunities. They simply do not have the capacity or resources to make the switch to a new or different market. Bid protests have become a means of allowing contractors to stay in business longer in an environment of uncertainty.

Improving and accelerating the procurement process, then, should originate with the Defense Department itself. But they, too, are mired in economic challenges.  In April, Joint Chiefs Chairman Gen. Martin Dempsey said: “We’ve been living with unconstrained resources for 10 years, and, frankly, we’ve developed some bad habits.” With infrastructure and personnel costs increasing, the cost of doing business for the Defense Department is higher than ever. Aggravating the problem, there have been furloughs, hiring freezes and staff cuts, leaving fewer contract specialists available to oversee a smoother bidding process. At the same time, regulations surrounding the acquisition process from start to finish have grown more administratively burdensome, for both DoD officials and contractors alike.

So what can be done to improve the procurement process to decrease the number of bid protests? On a macro level, agencies should ramp up their efforts (already underway) to identify and implement efficiencies. This means rebalancing resources across operations to dedicate an appropriate amount of time and effort to the procurement process, which needn’t affect the amount of money available for contract awards. Rather, agency resources should be used to hire and train better qualified staff to efficiently manage the procurement process.

Agencies also need to be more transparent in their solicitations for any new product or service. Some bid protests are an effort by contractors to peer behind the technological curtain, so to speak. Along with navigating an already challenging regulatory environment, contractors must also be savvy enough to decipher agency requests for increasingly sophisticated products and services. Bidding on ambiguous work statements generally leaves contractors without a clear sense as to why they lost a contract. For this reason, a solicitation should be explicit in its requirements and award decision criteria, and when the agency decision is made, the basis should be straightforward, thorough and justifiable.

Finally, agencies should consider splitting up contract awards where feasible. While this will not always be possible, awarding multiple contracts for a single product or service would allow more contractors to receive a share of the government’s business, albeit a smaller one than they had hoped. (In like manner, contractors sometimes settle a protest among themselves whereby the winning bidder agrees to subcontract out portions of the award.) By allowing for multiple awards in an initial solicitation, agencies may be able to diminish the likelihood of a protest. Of course, this approach does not work in all circumstances.

None of these measures will completely eliminate bid protests, because bid protests are a feature of the procurement process, not a flaw. They are a safeguard that ensures fair competition in the award of government contracts. All government contracting involves a certain degree of subjective judgment, and there needs to be a corrective process in place to account for any incomplete, unclear or unfair decisions. Perhaps, then, we should focus less on trying to discourage protests and more on finding efficiencies that would reduce the need for them.

William Keating is a managing director with the Government Contracting practice at BDO USA, LLP. He works with clients in almost all business sectors, such as aerospace and defense and information technology, as well as with law firms representing government contractors. His over 35 years of consulting, accounting and auditing experience has included clients in the United States, Europe and Asia.

Peter McDonald is a director of the Government Contracting practice at BDO USA, LLP. A retired Army JAG officer with a background in procurement, his accounting work has focused on helping government contractors on matters ranging from audit problems to claims and bid protests.