House Bid Protest Reform Vs. Senate Bid Protest Reform
Law360, New York (May 31, 2016, 5:35 PM ET) -- Every year, congressional debates over the U.S. Department of Defense budget provide a stage for current reform efforts and policy initiatives. This year, in considering the Fiscal Year 2017 National Defense Authorization Act, both the House and Senate Armed Services Committees (HASC and SASC) have placed Government Accountability Office 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 toward identifying delay to the contracting process and opportunism by incumbents. 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.
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.
First, the HASC would require the DOD to engage “an independent entity with appropriate expertise” to review the bid protest process for major defense acquisition programs. 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 the 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.
Second, the HASC proposed to eliminate the sunset provision on the congressional grant of jurisdiction to the 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). This recommendation by the HASC contrasts sharply with the SASC markup; as discussed below, the SASC has proposed to eliminate or strictly limit the authority of the 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. 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. In its version of the NDAA, the SASC recommended three notable changes to existing bid protest procedures.
First, the SASC proposed to revise the 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 $10 million may be protested at the GAO just as a stand-alone contract award may be. 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. 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 the GAO.
The SASC’s next proposal — to impose a general “English Rule” for protest costs against large contractors — appears more directly targeted at the threat of bad faith, or “serial protesters.” The SASC’s proposal includes two provisions imposing costs on failed protesters. 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].” The actual impact of this rule may not be large, given the volume of written decisions issued by the GAO. For example, in 2015, the GAO issued 587 written decisions, of which 12 percent were sustained, leaving only 519 of 2,496 protesters subject to the new rule. 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. Moreover, it is unclear if this measure would provide a disincentive to the posited “serial protesters.” Such protesters could avoid costs by seeking alternative dispute resolution 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 the 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. If the solicitation is canceled 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. 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. 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, so continue to monitor the status of the NDAA negotiations as they move forward and as the Senate debates S. 2943 on the floor.
 H. Rep. 114-537 at 195, 348 (Sec. 831, 1862), https://www.congress.gov/114/crpt/hrpt537/CRPT-114hrpt537.pdf.
 S. Rep. 114-255 at 211 (Sec. 819, 821), https://www.congress.gov/114/crpt/srpt255/CRPT-114srpt255.pdf.
 H.R. 4909, https://www.congress.gov/114/bills/hr4909/BILLS-114hr4909rh.pdf.
 H. Rep. 114-537 at 195 (Sec. 831). A major defense acquisition program (MDAP) is a program that is anticipated by DoD to require a total appropriation of more than US$300 million (or is specifically designated by DoD as an MDAP). 10 U.S.C. § 2430(a).
 See, e.g., Bruce Tsai, “Targeting Frivolous Bid Protests by Revisiting the Competition in Contracting Act’s Automatic Stay Provision,” NCMA Journal of Contract Management, Fall 2015 at 129, http://www.ncmahq.org/docs/default-source/default-document-library/articles/jcm15---article-07 (criticizing protests by incumbents where "their only goal is to stay the follow-on contract"). Tsai's proposed remedy—elimination of the GAO automatic stay for large awards—s not under consideration by either HASC or SASC.
 H. Rep. 114-537 at 348 (Sec. 1862).
 S. 2943, http://www.armed-services.senate.gov/imo/media/doc/S2943%20-%20Committee-Passed%20NDAA.pdf.
 Connor O'Brien, “Senate NDAA pushes ‘loser pays’ on bid protests,” Politico, May 16, 2016 (subscription only).
 10 U.S.C. § 2304c(e)(1); see Goldbelt Glacier Health Servs., LLC—Reconsideration, B-410378.3, Feb. 6, 2015, 2015 CPD ¶ 75 at 2.
 S. Rep. 114-255 at 211 (Sec. 819); see also 10 U.S.C. § 2304c(f). The current DoD Task Order and Delivery Ombudsman is Claire Grady, DoD’s Director of Defense Procurement and Acquisition Policy. The change in jurisdiction under the draft bill would take effect when DoD establishes " a process for reviewing such complaints" by the Ombudsman.
 See W. Ginsberg, F. Kaiser, “Federal Complaint-Handling, Ombudsman, and Advocacy Offices,” CRS Report No. RL34606, Congressional Research Service, Aug. 4, 2009 at 21, www.fas.org/sgp/crs/misc/RL34606.pdf (“[Ombudsman’s offices] reflect certain fundamental characteristics of American national government: dispersed and decentralized power, the absence of uniformity and standardization among similar institutions, and competition between the executive and legislature for control over government organizations and operations.”).
 The “English rule” is a requirement that a losing litigant must pay the winner’s costs and attorney’s fees. See Black’s Law Dictionary (10th ed. 2014)
 S. Rep. 114-255 at 211 (Sec. 821).
 S. 2943 at 492.
 See GAO Bid Protest Annual Report to Congress for Fiscal Year 2015, B-158766, Dec. 10, 2015 at 1, 5, www.gao.gov/assets/680/674134.pdf.
 This problem is compounded by the fact that GAO routinely declines to hear challenges to incomplete or improper debriefings. See, e.g., Healthcare Tech. Solutions Int'l, B–299781, July 19, 2007, 2007 CPD ¶ 132 at 5. The Air Force has attempted to address the problem of limited information with the extended debriefing program, with some success. See Interagency Alternative Dispute Resolution Working Group, “AF Extended Briefings,” http://www.adr.gov/adrguide/08-afedp.html.
 S. 2943 at 493-94.
 See GAO Bid Protest Annual Report to Congress for Fiscal Year 2015, B-158766, Dec. 10, 2015 at 2, 5. GAO’s effective rate represents “some form of relief from the agency, as reported to GAO, either as a result of voluntary agency corrective action or our Office sustaining the protest.” An overall effectiveness rate of 45%, less a sustain rate of 12%, implies that 33% of protests in FY 2015 were resolved by corrective action.
 Executive Office of the President, “Statement of Administration Policy, H.R. 4909-National Defense Authorization Act for Fiscal Year 2017,” May 16, 2016 at 1, https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/114/saphr4909r_20160516.pdf.