Study: Contractor Protests Have Negligible Impact on Defense Acquisitions

Defense contractor protests draw disproportionate media attention even though most of them get resolved relatively quickly without causing major disruptions to military procurement programs.
That is one of the takeaways from a new study by the Congressional Research Service that analyzes trends in bid protests filed with the Government Accountability Office.

CRS defense acquisition specialist Moshe Schwartz and legislative attorney Kate Manuel took a deep dive into bid protest trends across the federal government in response to growing congressional interest in the subject. In recent years, lawmakers have become alarmed by blaring headlines about high-profile contractor protests, prompting both the House and Senate in their respective versions of the 2016 National Defense Authorization Act to direct the Pentagon to commission an independent study of bid protests.

Schwartz and Manuel crunched bid protest data from fiscal year 2001 to 2014. In their July 21 report, they find that while the number of bid protests is growing against civilian agencies, Defense Department contracts are now less likely to be protested and, when challenged, are less likely to be ruled by GAO in favor of contractors than is the case with civilian agency contracts. They note that protests against civilian agencies are increasing at a faster rate than protests against Defense.

Under federal law and regulations, contractors can challenge an agency award decision if they believe that the solicitation or the award was unlawful. GAO can dismiss, deny or sustain a protest. Congress requires GAO to resolve disputes within 100 calendar days of the protest being filed. GAO said protests in 2014 were resolved on average within 39 days.
Protests against the Defense Department over the 13-year period studied by CRS have not been detrimental to acquisitions programs, the data shows.

While the number of bid protest cases against the Defense Department increased from 600 in 2001 to 1,200 in 2014, most were dismissed, withdrawn by the protester or negotiated before GAO issued an opinion. GAO issued rulings in only 23 percent of them. In those cases, GAO sustained 11 percent of the protests. During that period, an average of 4 percent of protests filed against Defense received a favorable ruling by GAO.

Over the past four years, the number of protests filed with GAO has been constant — 2,206 in fiscal year 2011 compared to 2,269 in 2014. Most were dismissed, withdrawn by the protester or settled before GAO issued an opinion.

Protesters face tough odds. In recent years, the percentage of protests won by contractors against the Defense Department has dropped by more than half. From 2001 to 2008, GAO sustained an average of 5 percent. From 2009 to 2014, GAO sustained about 2 percent of all protests filed. In 2014, 13 percent of protests were sustained, the lowest rate since 2001. And even when GAO sustains a protest, the company is not guaranteed to win the contract in question.

CRS analysts found that Defense Department procurements are less likely to be protested than those of the rest of the government. From 2008 to 2014, DoD accounted for almost 70 percent of all government contracts but just 55 percent of total protests against the federal government.

Also, protests against DoD are sustained at a lower rate than the rest of the government. From 2008 to 2014, 2.5 percent of protests against DoD were ruled in favor of contractors, compared to 5 percent of protests against civilian agencies. Protests against civilian agencies are growing at a faster rate than those against Defense.

When defense programs are delayed, protests themselves are not the reason, the study said. The impact a protest could have on a program’s schedule mostly occurs outside the 100-day period. Agency actions to address the complaint can delay contract awards for weeks or months. The Navy’s next generation jammer development contract, for instance, was delayed by six months when GAO sustained a protest and recommended the Navy reevaluate proposals.

Even though most protesters lose in GAO rulings, contractors frequently benefit from filing a complaint as contracting agencies may voluntarily act to correct the allegation charged in the protest.
The increasing willingness of agencies to voluntarily take corrective action is one of the most significant trends in bid protests, the study said. Actions include rewriting contract requirements or amend request for proposals. In cases when they believe the procurement was done properly, some agencies still agree to meet with the protesting party to clarify why it lost.

Greater efforts to negotiate disputes have increased the so-called “effectiveness rate” of bid protests. That is the percentage of protesters that obtain relief either through a protest being sustained or voluntary action taken by an agency. From 2001 to 2014, the effectiveness rate of GAO protests grew from 33 to 43 percent. It has averaged 42 percent over that past five years. The relatively large share of protests that are resolved via settlement is a significant trend, the study said.

One possible explanation for the higher effectiveness rate is the unpredictable nature of GAO opinions. Agencies tend to voluntarily take corrective actions rather than wait for GAO to sustain a protest.

Another way to read this, CRS noted, is that corrective action reflects agency risk aversion and fear of losing a protest. In this context, the high likelihood of protests being resolved through voluntary actions encourages companies to file protests. Under this line of thinking, if agencies allowed more cases to be decided on the merits, companies might be less inclined to file protests.

The ups and down of government spending also influence the rate of protests as contractors are more motivated to challenge awards when they see fewer opportunities. When federal spending was on an upswing from 2001 to 2008 — spending grew 100 percent — protests increased by 35 percent. The trend reversed from 2008 to 2014 when government spending dropped by 25 percent and protests increased by 45 percent.

CRS noted that the data that GAO provides to Congress over-represents the number of procurements protested. When more than one protest is filed in connection to a single procurement, each protest is counted separately.  In 2014, GAO processed 2,269 filings but only 2,135 procurements were protested.

The study also delved into the psychological warfare between agencies and contractors.

Federal procurement officials’ aversion to protests drives behavior that may or may not benefit contractors. The prospect of companies filing a protest influences agency behavior in ways that affect contractors sometimes positively but also negatively.

The threat of protests may motivate agency officials to do more rigorous market research, hold a competition instead of awarding a sole-source contract, or conduct more thorough and fair competitions. But fear of protests also could prompt officials to structure contracts in ways that are less likely to be protested, such as using “lowest price technically acceptable” as award criteria, instead of a best-value competition when best value may be more appropriate. 

Topics: Defense Contracting, Defense Contracting, Procurement, Defense Department