How the US GAO’s Bid Protest Process Works and Why Defense Contractors Abuse It

In 2004 the GAO changed its name from the Government Accounting Office to the Government Accountability Office. Along with the name change came an aggressive approach to combat fraud, waste and abuse in the US government contracting process.

Probably the most prominent role the GAO plays in the contracting process is ruling on disputes over contract awards. Although the GAO is a part of Congress, it has the authority to rule on contracting awards by the Executive Branch. While the GAO can’t compel the Executive Branch, i.e. the Pentagon and individual services for defense contracts, to comply, it has the power of Congress backing it up.

This free-to-view DID Spotlight article takes a look at the GAO’s authority and process for reviewing defense contract protests, the effects its decisions have, charges of process abuse, alternative protest venues, some major defense contract decisions, and the future of the GAO bid protest review process.

The GAO’s Bid Review Powers

No longer content with bean counting, the GAO has beefed up its review of weapons programs and expanded its review of disputes over contract awards. As then US Comptroller General David Walker wrote in 2004 [PDF]:

“The days of accountants in green eyeshades … are long gone. Although GAO does serve as the lead auditor of the U.S. government’s consolidated financial statements, financial audits are only about 15 percent of GAO’s current workload. Most of the agency’s work involves program evaluations, policy analyses, and legal opinions and decisions on a broad range of government programs and activities both at home and abroad.”

The GAO’s bid protest review power was first recognized in law in the Competition in Contracting Act (CICA) of 1984. That act gave the Comptroller General the authority to review protests of contract awards by US federal agencies. The act also set a 90-day deadline for review of contract disputes; that deadline was extended to 100 days by a 1996 amendment.

Under the CICA, the Comptroller General reviews bid protests to “determine whether a solicitation, proposed award, or award complies with statute and regulation.” The agency then issues a recommendation, which either upholds or denies the protest.

In 2008, the GAO’s authority was expanded to include protests regarding task and delivery orders in access of $10 million. Previously, US federal law prohibited task order protests, except in very limited circumstances.

Formal Briefs Not Required: The Protest Process

Under the GAO bid protest regulations, a contractor can protest the following:

“a solicitation or other request by a Federal agency for offers for a contract for the procurement of property or services; the cancellation of such a solicitation or other request; an award or proposed award of such a contract; and a termination of such a contract, if the protest alleges that the termination was based on improprieties in the award of the contract.”

The protest – which can be filed before a contract is awarded, during the solicitation phase, or after the award – must be based on an allegation of illegality or impropriety on the part of the awarding federal agency.

Certain contract issues cannot be protested with the GAO, including procurement integrity issues not reported to the agency by the bidder within 14 days of discovery, award of subcontracts, and suspension or debarment of the contractor from bidding.

A protest can be filed by an “interested party,” which means an actual or prospective bidder or other party with a direction economic interest in the procurement. The process begins when the disgruntled interested party files a written protest with the GAO. For protests of contract awards, the protester must file the protest with the GAO no later than 10 days after the award of the contract. If a “debriefing” of the contract award is held for the bidders, then the disgruntled party has 10 days after the debriefing to file the protest.

The disgruntled bidder can challenge the contract award initially with the agency that awarded the contract. In that case, the bidder has an exemption from the 10-day GAO deadline until the agency rules on the bidder’s protest. Once the bidder hears the agency’s decision on the appeal, it has 10 days to file a protest with the GAO if it is not satisfied with the agency’s judgment. This can add time and expense to the implementation of contracts.

The protesting bidder does not have to file formal briefs or technical pleadings with the GAO and can represent itself. However, the protest must have the following information in the protest:

• include the name, street address, e-mail address, and telephone and facsimile numbers of the protester (or its representative, if any);
  
• be signed by the protester or its representative;
  
• identify the agency and the solicitation and/or contract number;
  
• set forth a detailed statement of the legal and factual grounds of protest, including copies of relevant documents;
  
• set forth all information establishing that the protester is an interested party for the purpose of filing a protest;
  
• set forth all information establishing the timeliness of the protest;
  
• specifically request a ruling by the Comptroller General; and
  
• state the form of relief requested.

If the GAO determines that the protest has legal merit and is filed on time (within 10 days of the contract decision), it notifies the contracting agency of the protest. The agency is then required to file a report with the GAO responding to the bidder’s complaints. The protesting contractor then has an opportunity to reply to the agency report through written comments.

During the course of a protest, the GAO may hold a hearing to examine the complaint. The GAO usually conducts a pre-hearing conference to decide the issues that will be considered at the hearing, to identify the witnesses who will testify, and to settle procedural questions. After the hearing, all parties are allowed to submit written comments.

Decisions, Decisions: GAO Rules

After the record is complete, the GAO issues a decision, which must be made within 100 days of the filing of the original protest, although most are decided within 30 days, according to the GAO. A copy of the GAO decision is sent to all parties participating in the protest.

The GAO can only rule on whether the federal agency complied with procurement statues or regulations and has sufficient documentation to support its decision. The office cannot rule on the merits of the agency’s judgment in awarding the contract.

The GAO may sustain the protest (which means that the agency violated a procurement statute or regulation and that the violation prejudiced the protester), in which case it will recommend that the agency take one of the following action:

• refrain from exercising its options under the contract,
  
• recompete the contract,
  
• issue a new solicitation,
  
• terminate the contract, or
  
• award the contract consistent with the requirements of statutes or regulations.

Alternatively, GAO may deny the protest or dismiss the protest without even reviewing the matter.

The GAO can also decide that the protest should be settled through an alternative dispute resolution process. This may take the form of either negotiation assistance, where the GAO attorney offers to assist the parties in reaching an agreement to resolve the matter, or outcome prediction, where the GAO attorney advises the parties of the attorney’s view of the likely outcome based on the record, so that the likely unsuccessful party may take appropriate action to resolve the protest.

In addition, the GAO may recommend that the agency pay the costs for the contractor filing the protests. These costs could include attorney, consultant, and witness fees. The agency either agrees to pay the costs or sends a report to the Comptroller General explaining its reasons for not paying.

Stay, Just a Little Bit Longer: Contract Delays

SIT … STAY

An attractive aspect of the GAO bid protest process for losing bidders is that the GAO imposes an automatic stay on implementation of the contract.

However, a similar stay does not result when protests are filed with the Court of Federal Claims, another venue for losing bidders to protest contract awards. Rather, bid protesters filing suit in the Court of Federal Claims must meet the court’s requirements for a temporary restraining order or a preliminary injunction in order to effect a delay of the agency’s procurement activities similar to that occurring automatically when a GAO protest is filed.

This difference between bid protests at GAO and those at the Court of Federal Claims has prompted critics to worry that the stay triggered by GAO protests encourages contractors to game the system.

Critics charge that contractors knowingly file frivolous protests with GAO in order to harass their competitors and delay awards, or in the hopes of obtaining short-term contracts from the government while the GAO is reviewing the protest.

The federal agencies concerned can override the GAO stay because of urgent and compelling circumstance or because the contract performance is in the best interest of the United States. Agencies must inform GAO of their override decisions, but the GAO cannot prevent an agency override.

However, an override of a GAO stay can be appealed to the Court of Federal Claims. More often than not the court has ruled against the override, finding that the agency did not meet the standards of urgent and compelling need or best interests of the United States.

Prometheus Unbound: What Happens Next?

Prometheus Bound
(C) 2006, Scott Eaton

One major drawback for the protestor is that the GAO’s decisions are not binding on the federal agency. However, the vast majority of the GAO recommendations are implemented.

According to CRS and GAO data, there were only 4 cases from FY 2001 to FY 2009 were the GAO recommendations were not fully adopted by the federal agency. During that same time period, over 12,200 protests were filed with the GAO.

If an agency does not follow a GAO recommendation, it has 60 calendar days to notify the Comptroller General and the “cognizant” congressional committee that it will not fully implement the recommendations.

This is where the teeth of the GAO decision are. Members of Congress do not take kindly when they feel their authority is being challenged. Just ask anyone who has ignored a committee subpoena.

One option Congress has is to cut off money for the contract. Or Congress could hold hearings on the contract, hearings that could get quite uncomfortable for the agency personnel who made the contract award and the decision not to implement the GAO’s recommendations.

Lies, Damn Lies, and Statistics: Recent Trends

GAO Protests, FY2005-2009
(click to view full)

Critics of the GAO bid protest process advocate slapping penalties on protesters who make frivolous protests.

The GAO’s own statistics show that there has been a significant increase in the number of protests filed with the office over the last few years. According to GAO stats, during FY 2009 1,989 cases were filed with the GAO, which included 1,898 protests and 91 requests for reconsideration. This is up a whopping 20% from FY 2008. In fact, the number of bid protests cases filed has been steadily increasing since FY 2006.

While there is no way to tell how many of these, if any, were “frivolous,” the increase indicates that the losing bidders are turning to the GAO process more and more, suggesting a “what do we have to lose” mentality.

The GAO opposes penalties for losing bidders. In a 2009 report to Congress, the GAO said that it promptly closes protests it determines are without merit.

“GAO does not need to determine that a protest is “frivolous” to promptly close it, and, in our view, making such a determination could add substantial costs to the protest process and have the unintended consequence of discouraging participation in federal contracting and, in turn, limiting competition.”

According to a 2010 report, the GAO showed that in nearly half, 45%, of the protests filed, the protester obtained some form of relief, which could be either a decision sustaining the protest with the agency complying with GAO’s decision or a voluntary corrective action by the agency prior to the GAO decision. The rest were denied or dismissed. This fact, the GAO claims, indicates that the process is working.

Appealing Prospect: From the GAO to the Courts

If the protester is not happy with the GAO’s recommendations, it has the option to ask for a reconsideration. However, the reconsideration process doesn’t result in a stay of the contract’s implementation.

From FY 2001 to FY 2009, the GAO received a total of 709 requests for reconsideration. But the GAO rarely changes its recommendations on reconsideration.

So the next step for the contract award protest process, which can become extremely time-consuming, is to appeal to the Court of Federal Claims. The appeal is not of the GAO’s decision but of the original federal agency decision concerning the contract award. However, the GAO’s decision can be included as part of the appeal.

In deciding on the appeal, the court considers whether the agency:

• relied on factors Congress did not intend it to consider;
  
• failed to consider an important aspect of the problem; or
  
• offered an explanation for its action contrary to the evidence before it, or so implausible it could not be ascribed to a difference of opinion or the result of agency expertise.

Not many decisions of the GAO are appealed to federal court. According to CRS stats, a total of 126 bid-protest decisions involving a prior GAO decision were ruled on by the federal court (resulting in published decisions) from FY 2001 to FY 2007.

Protesters can go directly to the Court of Federal Claims without a prior GAO decision. Over this same time period, the court issued a total of 276 bid protest decisions, indicating that more than half of the decisions were cases in which the protester went directly to the court.

For protesters using the federal court directly for a bid protest, there is good news and bad news. The good news is that the court’s decisions are binding. The bad news is that using the court is expensive (lawyers’ fees, courts costs, etc.) and lengthy (there is no set time limit for the court to make a decision). And there is no automatic stay of the contract implementation by the court.

Case Study: CSAR-X Canceled for Convenience

HH-47 Concept
(click to view full)

There have been a number of major GAO decisions on bid protests that have fueled the controversy over the filing of frivolous protests and accusations of abuse of the process.

One such example was the controversy surrounding the $10-15 billion competition to replace the USAF’s HH-60G Pave Hawk combat search-and-rescue helicopter (CSAR-X).

In November 2006, the USAF awarded the CSAR-X contract to Boeing to supply its H-47 Chinook helicopter. Two of the losing bidders, Sikorsky and Lockheed Martin, filed protests with the GAO over the Boeing award. On Feb 26/10, the GAO sustained the protests, and recommended a recompete of the CSAR-X program.

The USAF complied and launched a recompete of the CSAR-X program. During the recompete process, Lockheed Martin submitted a second GAO protest, in June 2007, this time before the award was made, arguing that the changes to the CSAR-X RFP did not comply with the GAO’s recommendations. Sikorsky followed suit on July 2/07, protesting the USAF estimates of fuel-cost specifications in the RFP.

The GAO again sustained the protests and another round of bidding kicked off at the end of 2007. However, the Pentagon’s Inspector General began an audit into “key performance parameters” in the CSAR-X RFP in March 2008. A further series of amendments to the RFP were issued throughout 2008. Due to adverse findings by the Pentagon audit, Defense Secretary Gates decided to cancel the program “for convenience” in April 2009.

The initial GAO decision on the CSAR-X program, which began the long train of events that led to its cancellation, caused some USAF officials and others to question the GAO bid protest process. In February 2008, USAF General Bruce Carlson, then commander of the Air Force Materiel Command, charged that the GAO process cost the Pentagon hundreds of millions of dollars and delayed vital military programs. He blamed the ease of filing a protest as the reason for the delays and additional costs.

Gen. Carlson estimated that the GAO protest process had cost the USAF $800 million in the CSAR-X RFP. To reduce these costs in the future, he called for imposing penalties on losing protesters to discourage the filing of frivolous protests.

The GAO responded that it had the power to dismiss summarily protests that were frivolous and said that imposing penalties would discourage losing bidders who might have legitimate complaints from submitting protests.

Case Study: KC-X’s Transatlantic Troubles

KC-135
(click to view full)

Another well-known instance of a GAO bid protest decision creating controversy was its decision to uphold a Boeing protest over the $35 billion KC-X aerial tanker RFP.

The RFP for the USAF’s next generation tanker, intended to replace the aging KC-135, pitted Team Boeing’s KC-767 Advanced (767-200 derivative) vs. Team Northrop Grumman’s KC-30B (Airbus A330-200 derivative). In February 2008, Team Northrop Grumman, which included European aerospace giant EADS, won the contract to build the KC-X tanker.

Not missing a beat, Boeing filed a protest with the GAO right after the USAF debriefing of bidders was completed in March 2008. A months-long PR battle ensued, involving Boeing and Northrop Grumman. In June 2008, the GAO sustained Boeing’s protest and called for a recompete of the RFP. It recommended [PDF]:

“The Air Force reopen discussions with the offerors, obtain revised proposals, re-evaluate the revised proposals, and make a new source selection decision, consistent with the GAO’s decision. The agency also made a number of other recommendations including that, if the Air Force believed that the solicitation, as reasonably interpreted, does not adequately state its needs, the Air Force should amend the solicitation prior to conducting further discussions with the offerors; that if Boeing’s proposal is ultimately selected for award, the Air Force should terminate the contract awarded to Northrop Grumman; and that the Air Force reimburse Boeing the costs of filing and pursuing the protest, including reasonable attorneys’ fees.”

In response, Pentagon chief Gates announced in July 2008 that he had decided to move the procurement from the USAF to the Pentagon and launched Round 2 in the KC-X RFP battle. However, with the election approaching and a new administration coming to power, Gates decides in September to cancel the RFP.

After mulling a 5-year delay to the KC-X RFP, the Obama administration, with Gates still in charge of the Pentagon, announced that it would move ahead with Round 2 (DING!) and let the USAF take the heat, that is, run the procurement, after all. In September 2009, the draft version of the second KC-X RFP was released. This was followed in February 2010 by the final version of the second round RFP.

However, this time Northrop Grumman refused even to submit a bid. In a March 8/10 statement, the original winner said:

“After a comprehensive analysis of the final RFP, Northrop Grumman has determined that it will not submit a bid to the Department of Defense for the KC-X program. We reached this conclusion based on the structure of the source selection methodology defined in the RFP, which clearly favors Boeing’s smaller refueling tanker and does not provide adequate value recognition of the added capability of a larger tanker, precluding us from any competitive opportunity.”

The revised RFP also generated a strong response from the European Union, which charged that the US procurement process (and the GAO?) was protectionist, implying that the Pentagon had succumbed to pro-Boeing lobbying efforts by leading members of Congress.

EADS, however, indicated that it might be willing to submit a bid if it could receive a 3-month extension of the May 10/10 RFP deadline. The Pentagon said it would give EADS 60-days if the company indicated its intention to bid. On April 20/10 EADS said it would bid on the RFP with or without a US partner.

The Messy Future

So is the GAO an independent sentinel standing guard over the Pentagon’s rocky procurement process, plagued by backroom deals between procurement officers and deep-pocketed contractors? Or is the GAO a meddlesome arm of Congress, delaying much needed weaponry and supplies and costing the US taxpayers billions of dollars in wasteful RFP recompetes? The answer, of course, is: it depends on who you talk to.

Critics, like USAF Gen. Carlson, argue that the GAO encourages losing bidders to prolong the contract award process because the bidders have nothing to lose by filing a protest. This results in additional expense for the military service or federal agency and delays badly needed weapon systems.

The remedy from their perspective is to impose penalties on companies that abuse the GAO bid protest process, particularly companies that file “frivolous” protests. Of course, that brings up the issue of who determines when a protest in frivolous. The GAO? They claim they already dismiss protests that are frivolous. The military service? The courts? And how much would the penalties be? These are not issues that are addressed in detail by the critics.

Defenders of the GAO argue that the mere possibility of a review keeps procurement officers in line. And a review of the procurement process by an independent agency keeps everyone on their toes. The need for a check on federal agencies’ spending power is obvious, supporters say.

However, supporters of the GAO need to come to terms with the fact that the number of GAO bid protests are surging, suggesting that losing bidders are using the process even when they might not have a legitimate beef. And the delays in the procurement process caused by GAO decisions are well documented, as illustrated by the 2 cases presented here.

Perhaps there is no easy answer. Like the broader US government system itself, the checks and balances in the US procurement process are needed to keep everyone honest and prevent one side from gaining too much power. However, the trade-off is that the process is expensive, inefficient, and messy.

Additional Readings and Sources

• GAO – Bid Protests website.

• GAO – Bid Protest Regulations.

• DID (April 23/10) – Penalties for “Unwarranted” GAO Protests?

• CRS (March 15/10) – GAO Bid Protests: An Overview of Timeframes and Procedures [PDF].

• Federal Times (July 21/13) – How bid protests are slowing down procurements.

• Government Contracts Blog (Feb 17/10) – Understanding GAO’s Bid Protest Timing Rules: A Concise Summary For The Uninitiated.

• DID (Feb 15/10) – FMTV 2010-2015: Oshkosh Wins The Re-Compete.

• GAO (Jan 8/10) – Comptroller General Report to Congress for FY 2009 [PDF].

• GAO (April 9/09) – Report to Congress on Bid Protests Involving Defense Procurements [PDF].

• GAO (2009) – Bid Protests at GAO: A Descriptive Guide [PDF].

• DIA (2009) – Protests at GAO: An Introduction [dead link].

• Project on Government Oversight (Feb 21/08) – Fines for Bid Protests? No Way!

• CRS (Feb 2/09) – GAO Bid Protests: Trends, Analysis, and Options for Congress [PDF].

• DID (June 25/08) – KC-X: GAO Sustains Boeing Protest.

• Federal Construction Contracting Blog (March 8/08) – Bid Protests to GAO to be Allowed on Task Orders in Excess of $10 Million.

• DID (Feb 25/08) – Penalties for “Unwarranted” GAO Protests?.

• DID (Dec 10/07) – L-3 Out, Dyncorp-McNeil in for $4.65B Iraq Translation Contract.

• Army Lawyer (Nov 1/07) – Late is late: the GAO bid protest timeliness rules, and how they can be a model for boards of contract appeals.

• DID (Aug 23/07) – The US Army’s $20B ITES-2 Contract.

• Wisconsin Law Review (January 2007) – A Critical Reassessment of the GAO Bid-Protest Mechanism.

• GAO (2001) – Alternative Dispute Resolution in Bid Protests at GAO [PDF].

• BNA’s Federal Contracts Report (April 1/91) – GAO’s New Bid Protest Rules: Too Much Process or Not Enough? [PDF].

• US Congress (Feb 28/85) – Hearings on the Constitutionality of GAO’s bid protest function.

tag: gaoprotest