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Wednesday, June 19, 2013

Private Attorneys General and frivolous protests

I have often made the claim that we outsource the policing of defects in the procurement system to protestors, and that frivolous protests are frivolously over-hyped.

Now comes Danial I. Gordon, currently Associate Dean for government procurement law at the George Washington University, and formerly administrator of the Office of Federal Procurement Policy. So you don't have to take it from some small island lawyer who dabbles in local procurement. Take it from a pro. 

His paper, Bid Protests: The Costs are Real, but the Benefits Outweigh Them, is soon to be published in the American Bar Association Public Contract Law Journal, and freely downloaded at the link below. Here's a few tidbits intended to tempt you to read the whole piece.  And if you are a student of procurement law, you must read it for the citations and explanatory footnotes.

Bid Protests: The Costs are Real, but the Benefits Outweigh Them

In the U.S. federal procurement system, bid protests have existed since the 1920s. Despite its longevity, however, critics have come to characterize the bid protest process as costly and overly complex. This Article explains why, in the author’s view, the benefits of the bid protest system substantially outweigh the burdens it imposes on the procurement system.

In 1925, a company wrote to the GAO alleging that Panama Canal officials had issued a solicitation with specifications for a truck that were “wired” to a particular brand name and that thereby unfairly precluded the complaining firm from fair consideration for the contract. The GAO requested the agency’s views on the matter, and, when the Canal authorities admitted that they had used the specifications of one company’s truck in the solicitation, the GAO issued the first published bid protest decision, ruling that the challenged solicitation was unlawful. For many years, courts did not consider bid protests, so that the GAO (and the contracting agencies themselves) represented the only place to file a protest.

For more than a decade now, the only places outside the contracting agency where disappointed bidders have been able to file protests have been the GAO and the Court of Federal Claims. One forum is administrative and the other is judicial. In any event, having two fora hear bid protests may be healthy for the procurement system.

It is worth looking outside the United States, because the protest process has received substantial attention around the world in recent years. A protest system has come to be seen as a required part of a good public procurement regime. Perhaps most interesting is the attention bid protests have received during the past twenty years in the European Union (EU). Not mentioned in the EU’s Public Procurement Directives, protests were first addressed by the European Commission in what is known as the Remedies Directive. The Remedies Directive has had an enormous impact, requiring all member states to have a forum that considers protests. Furthermore, the Court of Justice of the European Union has also issued decisions that have reshaped the protest process in the EU. Of particular importance was the Alcatel decision that led to the requirement (codified in Article 2a of the 2007 revision to the Remedies Directive) that there be a “standstill” period (typically ten days) between the announcement of a potential awardee and contract signing to allow a window for filing protests.

What about the mantra we often hear about increases in protest numbers? It is true that the GAO has reported a substantial increase in the number of cases filed over the past few years, but even if the numbers doubled, from .5% of procurements to 1%, it would still mean that something like 99% of procurements are not protested. Thus far, among the hundreds of thousands of federal procurements that occurred in FY 2010, there were only 45 procurements for which the GAO sustained bid protests. What happened in those 45 procurements, after the GAO sustained the protests? Did the protester that was successful in the GAO litigation succeed in obtaining the contract? The answer: rarely.

Protests impose litigation costs on the parties, including attorney costs, although the author is unaware of data regarding those costs. Moreover, even when a bid protest is denied, it usually holds up the protested acquisition. The automatic stay for protests filed with the GAO can last up to 100 days and even the most promptly dismissed protests may trigger a CICA stay that is in place for at least a few days. In short, the CICA stay does disrupt procurements. Moreover, the fact that a protest has triggered a CICA stay does not mean that the procurement will be on hold for 100 days.
Most protests are resolved well before the 100th day, which is the maximum length of time the GAO has for resolving a protest. In 2009, the GAO reported to Congress that it “consistently closed more than half of all [Department of Defense (DoD)] protests within 30 days.”

A CICA stay may end because the protester has withdrawn the protest, or because the GAO has dismissed the case.1 When an agency takes corrective action, that also ends the stay, but, of course, the corrective action itself will generally delay progress in the procurement. Even for the minority of protests that make it to the published decision stage, the GAO has reported that, on average, it issues a decision within 80 days. Truly long procurement delays lasting for months really only occur when the GAO issues a decision sustaining a protest and the agency implements the GAO’s recommendation, which typically calls for the agency to re-do at least part of the competition for the contract.

Finally, in the author’s view, there is adequate justification for a substantial delay in a procurement where the GAO has determined that the agency violated procurement law, and that the violation has harmed the protester. At the very least, any delay that such an agency’s unlawful action has caused should not be blamed on the bid protest system.

Critics of the protest system may also view the GAO’s authority to recommend that successful protesters be reimbursed the costs of filing and pursuing their protests, including costs attributable to attorneys’ fees, as another cost of associated with bid protests. This situation arises only when the GAO finds that a protest is clearly meritorious, which means that the contracting agency violated procurement law to the detriment of the protester, and when the agency has unduly delayed taking corrective action. In the author’s view, reimbursing protesters for their actions as “private attorneys general” is justifiable.

critics point to abuse of the protest system in particular contexts as causes for concern. Specifically, there are persistent complaints that abuse arises in the form of “frivolous” protests, and the author has often heard calls for imposing sanctions on firms that file frivolous protests. In the 2009 report to Congress on DoD procurements, the GAO responded to a request from the House Armed Services Committee to address frivolous protests filed in connection with DoD procurements. The GAO pointed out that the fact that a protest is denied or even dismissed does not mean that it is frivolous; instead, the GAO expressed the view that only a protest filed in bad faith should be viewed as frivolous. It did point out, however, that contracting agencies rarely assert that protests are frivolous. In a footnote, the GAO indicated that the last reported decision noting that an agency had characterized a protest as frivolous was issued in 1996, and that in that case, the agency subsequently acknowledged that the evaluation scheme used in the protested procurement was flawed.

The GAO also expressed concern that any effort to impose sanctions on frivolous protests (such as imposing a fine or requiring the protester to reimburse the Government for costs incurred in defending against the protest) would risk “the unintended consequence of discouraging participation in federal contracting and, in turn, limiting competition.” The GAO also pointed out that penalties could not properly be imposed on “frivolous” protesters without adding a new layer of litigation, for which the GAO would then need to determine whether protesters had filed their protests in bad faith. Besides the burden that such litigation would place on the GAO, distracting it from its focus on resolving protests as quickly as possible, a new layer of litigation could impose additional costs on agencies and protesters, the burden for which might fall disproportionately heavily on small businesses and protesters not represented by counsel that may have protested in good faith but acted with a misunderstanding of the facts or the law. The appropriate response, in any event, would appear to be to press the GAO to continue (or intensify) its efforts to resolve protests promptly, not to create a new round of litigation about the imposition of sanctions, and certainly not to limit or abolish vendors’ right to have an independent body consider their claims of unlawful action by contracting agencies.

Benefits of the Protest Process: First, protests introduce a relatively low-cost form of accountability into acquisition systems by providing disgruntled participants a forum for airing their complaints. Protesting firms decide which procurements are to be investigated: if no one protests, then neither the GAO nor the Court of Federal Claims would look into a procurement. While reliance on audits by government officials would also inject accountability into the workings of procurement systems, it may be more efficient to focus on procurements where a participant is dissatisfied by a government agency’s conduct; that is what the “private attorney general” model of a protest provides. In blunt terms, if no one is dissatisfied with the way the Government conducted a procurement, then it may not be a wise use of auditors’ time to investigate it.

Second, by being directly responsive to participants’ complaints, protests can increase potential bidders’ confidence in the integrity of the procurement process, and thereby lead more players to participate, thus increasing competition. Increasing competition, in turn, can translate into bidders offering lower prices, higher quality, or both, to contracting agencies.

Third, protests can increase the public’s confidence in the integrity of the public procurement process. While the public only rarely focuses on public contracting, having a protest process mentioned in the press – as happened when The Boeing Company successfully protested the Air Force’s award of a tanker contract to Northrop Grumman151 - may raise the public’s trust in the fairness of the Government’s acquisition system and the way it spends taxpayer funds.

Fourth, because protests are a known avenue for complaints, their availability empowers those in contracting agencies who face pressure to act improperly. Thus, if a Contracting Officer were to be pressed by users within an agency to award a solesource contract to a favored firm, the Contracting Officer, who may lack the bureaucratic clout to resist the pressure, could point to the risk of a successful protest as one additional reason to follow the statutory and regulatory requirements for competition.

Fifth, protest decisions, because they are public, and have been released publicly since the GAO issued the first one in 1926, provide a high level of transparency into what is happening in the federal procurement system; protest decisions can often provide more useful information than databases. This is particularly the case where protests demonstrate how problematic certain issues are.

Finally, the fact that protest decisions are published and widely read by practitioners brings an additional benefit: the decisions provide guidance, particularly to agency counsel and attorneys representing potential protesters, as well as to their clients.
Conclusion: The Costs of the Bid Protest System are Overstated, and the System’s Benefits Outweigh Them

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