Congress recently concluded the conference on the 2018 National Defense Authorization Act (NDAA), resolving the differences between the House and Senate versions of the FY18 NDAA passed earlier this year.

Pilot Program Will Require Contractors to Reimburse the Department of Defense for Protest Processing Costs

Among other significant procurement provisions in the bill that came out of conference, Section 827 of the 2018 NDAA includes a three-year pilot program that will require that large Department of Defense (DoD) contractors – those with revenue in excess of $250 million during the previous year in FY17 constant dollars – reimburse DoD for “costs incurred in processing covered protests” if a protest is “denied in an opinion” issued by the Government Accountability Office (GAO). This provision, which is similar to legislation proposed by the Senate last year, reflects Congress’ belief that contractors are taking advantage of the GAO protest system by filing frivolous protests that are delaying properly awarded contracts and imposing unnecessary costs on DoD. As it appears now, the provision will take effect two years after the bill is signed.

It Is Unclear Which Costs the Department of Defense Considers to Be Associated with Protest Processing

It is difficult to gauge what impact this provision will have on protests, other than to say any loser-pays provision that applies to only GAO protests will almost certainly result in more bid protests being filed at the Court of Federal Claims. There is no definition included in the short pilot program provision, which appears at the end of this post, as to what DoD should consider “costs incurred in processing covered protests.” If all of the time spent working on a protest for legal and contract administration staff is included, those costs could potentially grow to six figures. In order to properly evaluate the risks associated with filing a protest subject to this fee shifting provision, it is therefore vital that DoD issue clear guidance regarding what it considers those costs to be prior to the effective date of the pilot program.

Will the Fee Shifting Provision Curb Bogus Protests?

Some commentators have questioned whether the loser-pays provision will, as Congress hopes, discourage the filing of frivolous GAO protests. Most government contractors, particularly those with revenue over $250 million a year, understand the protests process, engage experienced protest counsel, and are reluctant to file protests that could be deemed frivolous out of concern for the potential harm to their reputation. Rather than discouraging frivolous protests, the net impact of this fee-shifting provision, which is triggered simply by a protest being denied rather than by a GAO determination that the protest was frivolous, may well be to discourage protests involving potentially meritorious grounds.

Further, the GAO protest process already allows for summary dismissal of protests that are frivolous. Under this approach, protests that are clearly untimely or lack merit are often resolved prior to DoD incurring significant costs. Encouraging agencies and the GAO to make greater use of this procedural measure rather than shifting the costs of protests could accomplish Congress’ goal of reducing the negative impact of frivolous protests.

While Congress’ desire to reduce the number of frivolous protests is admirable, the fee shifting provision focused on the largest government contractors will likely not have the desired effect. Rather, it may well discourage the filing of protests by large companies where there are legitimate questions about the proprietary of contract awards. In addition, it will likely cause larger companies to file more bid protests at the Court of Federal Claims, which is not covered by this loser-pays provision. Unlike filing protests at the GAO, a protest filed at the Court of Federal Claims does not result in an automatic stay of performance of the protested contract, but the Court does have the authority to enjoin the contract and the government has been known to voluntarily stay performance pending the resolution of the protest.

In sum, while Congress is well intentioned in its attempt to reduce the impact and cost of frivolous GAO protests, it is not clear that the fee shifting provision will have the desired effect. Nor is it clear that this new tool is needed. But until regulatory guidance is issued, it is not possible to gauge the true impact of the provision.

If you have any questions about protest filings, please contact the author or a member of the Government Contracts practice at Bass, Berry & Sims.

SEC. 827. PILOT PROGRAM ON PAYMENT OF COSTS FOR DENIED GOVERNMENT ACCOUNTABILITY OFFICE BID PROTESTS.

(a) PILOT PROGRAM REQUIRED.—The Secretary of Defense shall carry out a pilot program to determine the effectiveness of requiring contractors to reimburse the Department of Defense for costs incurred in processing covered protests.

(b) DURATION.—The pilot program shall—

(1) begin on the date that is two years after the date of the enactment of this Act; and

(2) end on the date that is five years after the date of the enactment of this Act.

(c) REPORT.—Not later than 90 days after the date on which the pilot program under subsection (a) ends, the Secretary shall provide a report to the Committees on Armed Services of the House of Representatives and the Senate assessing the feasibility of making permanent such pilot program.

(d) COVERED PROTEST DEFINED.—In this section, the term “covered protest” means a bid protest that was—

(1) denied in an opinion issued by the Government Accountability Office;

(2) filed by a party with revenues in excess of $250,000,000 (based on fiscal year 2017 constant dollars) during the previous year; and

(3) filed on or after October 1, 2019 and on or before September 30, 2022.