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Friday, July 31, 2015

Frivolous claims of protest costs

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.

Congressional Research Service 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.

When defense programs are delayed, protests themselves are not the reason, the study said.

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 Most were dismissed, withdrawn by the protester or settled before GAO issued an opinion. In recent years, the percentage of protests won by contractors against the Defense Department has dropped by more than half.

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. The relatively large share of protests that are resolved via settlement is a significant trend, the study said.

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

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.

The study also delved into the psychological warfare between agencies and contractors. 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.
The Congressional Research Service, as its name implies, is for Congress. CRS does not generally make the reports directly available to the public. Thus, hattip and credit to Sandra I. Erwin who wrote the above blog post on national defense magazine.org for doing a very complete job of cataloging the main findings of the report, titled GAO Bid Protests: Trends and Analysis.  

Although I was initially able to obtain a copy of the report with the aid of our local Delegate to the House, Congresswoman Madeleine Bordallo (because I live on Guam, I and my fellow Guamanian citizens have no representation on the floor of Congress and no representation in the Senate), the report has now found its indirect way online.

As the report (Number R40227) explains,
This report is one of two providing Congress with background on the GAO bid-protest process. It analyzes (1) trends in bid protests filed with GAO, (2) why companies protest, (3) the impact bid protests have on acquisitions, (4) the most common grounds for GAO to sustain a protest, and (5) trends in bid protests filed against DOD. Its companion report, CRS Report R40228, R40227, by Kate M. Manuel and Moshe Schwartz, provides background and an overview of the time frames and procedures in a GAO bid protest.
Also see Making Sense Out of the Recent Congressional Study on Bid Protests, written by lawyers from the firm Holland & Hart LLP, published on the website of the National Law Review.
Yes, GAO bid protest filings have risen in recent years. No news there.

CRS also looked at the “effectiveness rate.” CRS tried to explain why the effectiveness rate for GAO protests is so high. One theory cited by CRS is that agencies usually take corrective action after GAO has indicated that it is going to sustain the protest. But the data uncovered by CRS does not support that theory.

Another CRS theory for this high effectiveness rate is the “predictable nature of GAO opinions.” Based upon this theory, CRS concluded that “the effectiveness rate is a rough measure of the number of protests that have actual or potential merit.” That seems about right to us. GAO often (but not always) sustains protests that have merit. Agencies take corrective action where it’s necessary. No controversy there.

CRS looked at the impact of protests on contract awards and implementation. CRS found that in 2014, the average time it took for GAO to resolve a protest was 39 days. CRS also found that more than half of GAO protests were resolved before the agency even filed its report responding to the protest (due 35 days after the protest filing). Those cases were resolved by dismissal or withdrawal of the protest. The average time for those cases was 21 days.

CRS did not look behind those numbers to separate out dismissals for agency corrective action and the GAO’s summary dismissal of protests that are untimely, lacking detail, or that otherwise fall outside GAO’s protest jurisdiction (e.g., contract administration issues). Maybe it should have. Such analysis might have yielded useful results.
Protests that are summarily dismissed on jurisdictional or procedural grounds are over and done. There is no further impact to the procurement. Protests that are dismissed for agency corrective action will have further impact (and delay) on the procurement. But CRS didn’t undertake that analysis. Instead, CRS took another path.
CRS concluded that agency actions to respond to protest issues (through corrective action or where protests are sustained by GAO) “can delay contract awards for weeks or months, costing millions of dollars and delaying delivery of goods and services.” But CRS cited to only one old (2007) DOD memorandum and one article about a procurement impacted by a GAO decision to support that conclusion. It seems to us that CRS’s conclusion was worthy of more detailed study. Certainly, the important conclusion for consideration by lawmakers – that delays from protests cost agencies millions of dollars – should have been based upon more extensive supporting data.

Yes, bid protests cause delays in procurements. Yes, delays are longer when agencies have to go back and fix errors. But there are some simple conclusions to be drawn from CRS’s statistics, too.
CRS showed that 43% of GAO protests had sufficient merit to result in a sustain or an agency determination to undertake voluntary corrective action to rectify identified or potential flaws in the procurement process.  Shouldn’t those procurements be corrected no matter the delay?
CRS also showed that 57% of protests lack merit and that more than half of protests are resolved within 21 days. That sure sounds like the delay in a lot of protest cases is limited to 21 days. What are the costs in dollars of a 21 day delay on a procurement?
The longer delays and higher costs come from post-protest actions that drag out the process beyond the time the protest is pending. Those delays are not really “caused” by the protest. Rather, they are caused by the contracting agency’s mistakes. That is not just a semantic argument.

Our takeaway from this is that CRS statistics show a procurement and GAO protest system that is working effectively. Concerns over protest-related delays in the government’s ability to acquire necessary products and services is understandable and rational.
But don’t forget, agencies already have tools to deal with that. They can override the automatic stay of contract performance triggered by a GAO protest, and should do so when it’s in their best interest, or when their need for the solicited goods or services is urgent.
Read the article at the link; I've taken some editorial liberty, as usual in the posts here.

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