Frivolous Bid Protests Come With Risks

The great jurist Oliver Wendell Holmes Jr. once wrote that those who contract with the federal government should expect to have to “turn square corners” in their dealings.

Many procurement laws and regulations that govern government contracts, such as the Procurement Integrity Act, the False Claims Acts, and the recently enacted mandatory disclosure rules, ultimately focus upon contractor ethics and integrity. Before an award can be made, the contracting agency must determine that contractor’s “responsibility,” not just its technical and financial capabilities and capacities to perform successfully, but also whether it has a satisfactory record of business ethics and integrity.

But what of government contracting personnel? Do the same requirements for ethics and integrity apply in procurement dealings?  The FAR § 3.101-1 sets forth the general principle that all, “Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none.”

The official conduct of government contracting personnel must withstand the “Washington Post Test”; i.e., that conduct “must, in addition, be such that they would have no reluctance to make a full public disclosure of their actions.”

Government contracting personnel can never act in bad faith against a contractor with the “specific and malicious intent” of harm, or otherwise act in such a grossly negligent manner as to constitute constructive bad faith. Government contracting personnel are presumed to act in good faith, so a very high standard of proof is needed to establish that an agency’s procurement actions were undertaken in bad faith.

Other principles of law, however, provide contractors the right to challenge government procurement actions that were not “above reproach,” without having to prove bad faith. At the same time, contractors seeking to challenge procurement actions are expected to act with ethics and integrity and not pursue frivolous actions calculated simply to delay procurements and procurement decisions.

The Court of Federal Claims has long bound the government to an implicit contract of “fair and honest dealing” in accepting bids and proposals, ruling that breaches of this contract warrant the grant of protest relief. This principle has been expanded by additional laws strengthening the court’s authority to review contested procurement actions for government conduct alleged to be “arbitrary and capricious, or an abuse of discretion.”

That said, contractors who pursue frivolous actions before the court are subject to sanctions and the dismissal of the action with prejudice.

The Government Accountability Office has heard bid protests since 1919. The Competition In Contracting Act of 1984 empowered GAO to decide bid protest cases and gave contractors a powerful tool — the automatic stay. As well as requiring “full and open” competition — with seven exceptions — a major purpose of CICA was to empower contractors essentially as “private attorneys general” to police the government’s procurement actions.

For that reason, GAO is relatively lenient in hearing cases that appear to lack merit on their face and will not summarily dismiss on the government’s request before the record is fully developed; that leniency, however, does not extend to patently frivolous actions.

Since CICA’s enactment, actual or prospective bidders and offerors can file pre-award GAO protests challenging defects, ambiguities, or other objectionable aspects of a solicitation, or post-award protests challenging the agency’s award to a competitor. Pre-award protests must be filed before the date and time set for receipt of bids or proposals. Under 31 U.S.C. § 3553(c), a timely filed GAO pre-award protest automatically freezes the agency from making award, but not from receiving and evaluating bids and proposals, until GAO decides the protest, which it must do within 100 calendar days of the protest. The only exception: an agency showing of “urgent and compelling circumstances” precluding this delay.

Post-award protestors can get an automatic stay of performance pending a GAO decision within 100 days if (i) protest is filed within five calendar days of a requested debriefing that is granted, or (ii) within 10 days of contract award, whichever is later. Under 31 U.S.C. § 3553(d), the agency must halt all performance pending GAO’s decision unless it (i) demonstrates “urgent and compelling circumstances” demanding continued performance, or (ii) determines that “the best interest of the United States” warrants continued performance.

If the agency “overrides” the automatic stay of performance based on (ii), and GAO then grants the protest and recommends award to the protestor, the agency will not be permitted to overturn the decision by arguing substantial termination costs.

A GAO bid protestor by “clear and convincing evidence” must show either that the agency’s conduct violated a law or regulation or that it was unreasonable. “Unreasonable” requires more than simply showing that GAO or another third party might have decided it differently, but rather, that no reasonable person would have done what the agency did (e.g., awarding a best value procurement to an offeror with a lower technical rating and a higher price than that of the protester). Since the standard of proof at GAO, like the Court of Federal Claims, is high, overturning even sometimes improper government actions is not always easy; sometimes no hard evidence exists to show conclusively a violation of statute or regulation, or unreasonable conduct.

Returning to where this started, the government and contractors both invest heavily in the lead up to contract formation, and both are expected to behave ethically towards one another with complete integrity. And, while certain unscrupulous practices still need policing by stricter dismissal rules or more vigorous application of ethical considerations by the protester itself, increasingly, laws and regulations restrain unsavory contractor behavior and impose potentially severe penalties for non-compliance, and government officials too are being held to the highest standards of impartiality, fairness, and reasonableness in all procurement decisions, and corrective action.

Richard L. Moorhouse is a shareholder (moorhouser@gtlaw.com) and William M. Jack (jackw@gtlaw.com) is a senior associate at Greenberg Traurig LLP. The views expressed are solely those of the authors.

Topics: Defense Contracting, Defense Contracting