Losing contract bidders increasingly turn to protests

If at first you don’t succeed — protest!

A growing number of government contractors are appealing contract awards that don’t go their way.

When the Army failed to select Oshkosh and its team to take part in a competition for the next-generation Humvee, the Wisconsin-based company saw enough problems with the process that it backed an official protest with the Government Accountability Office.

The appeal failed, and it was not long before Oshkosh found itself on the defensive after BAE Systems and Navistar filed protests over Oshkosh’s win in another competition for Army trucks.

BAE and Navistar prevailed, only to lose to Oshkosh again when the contract was rebid.

Appeals are now an accepted part of the process, a chance to win work that seemed lost or at least to pressure the government into further negotiation.

“Oshkosh has been on both sides of that,” said R. Andrew Hove, president of Oshkosh’s defense business.

Many protesters say appeals are necessary when the goverment makes flawed assessments or doesn’t follow its own rules.

The GAO represents the first line of appeal. Once a protest is filed, the agency has 100 days to hear the case and make a ruling. Though the process is typically a paper exercise, the GAO holds hearings in about 10 percent of cases. Its recommendations are not binding, but they are almost always adopted.

According to a GAO report, the agency saw 1,989 bid protests filed in fiscal year 2009, up 20 percent from the 1,652 filed a year earlier. And the 2008 numbers were up 17 percent from the year before.

Stanton D. Sloane, president and chief executive of Fairfax-based contractor SRA International, said many competitors — particularly incumbent contract-holders — find little reason not to appeal to the GAO.

“If they lose a contract, there’s almost a strong incentive to protest,” said Sloane, who supports adding disincentives to the process. “If you can delay changeover from one company to the next — however long you delay it, that’s additional revenue.”

There’s some debate about whether companies are actually protesting more often. Some say the numbers are up because the number of contracts has increased and the GAO’s jurisdiction has expanded to include more types of contract decisions. A 2009 report by the Congressional Research Service found that federal government contract actions have steadily increased from about 500,000 in 2001 to roughly 4 million in 2008.

“You make more opportunities for protesting to be available — you’re going to get more protests,” said Kevin M. Plexico of Input, a company that analyzes the government contracting market.

Whether the protests are successful depends on how you look at the results. The percentage of cases in which the GAO overturned a decision fell to 18 percent in 2009, down from a recent high of 29 percent in 2006. But the government often doesn’t want to leave a contract’s fate in the hands of the GAO, so it takes steps to address the concerns of the protesting company. In fact, the number of cases in which the protester received some relief swelled to 45 percent in 2009, and 140 cases were resolved through alternative dispute resolution.

“Nobody wants to be the next front-page story, where a major procurement gets overturned by GAO,” said Rand L. Allen, a Wiley Rein partner who represented Boeing in its successful protest of a contract award for an aerial refueling tanker, a contract the Air Force is currently rebidding.

For losing companies, there are sometimes strong reasons to protest.

The government in recent years has been awarding more contracts known as task orders that create a pool of contenders for work that could last for years. These contract vehicles raise the stakes, because if a company isn’t part of them, it could be shut out of a program for an extended time period, Plexico said.

There are still plenty of reasons not to protest, including the cost and time required to pursue one.

Though successful protesters are generally reimbursed by the agency — as recommended by the GAO — losing ones are not.

“I guess it’s all relative,” said William L. Walsh Jr., a government contracting attorney at law firm Venable. “If there’s success at the end, a legal bill for $100,000 or $200,000 may not break the bank, but on the other hand, it’s a lot of money for a small or medium-sized company to spend, particularly if the protest is deemed unsuccessful.”

Additionally, companies are often concerned protests could hurt their relationships with government agencies.

“The main reason that companies are reluctant and hesitant to do it is you’re potentially messing up your relationship with that particular customer,” Plexico said. But there can be safety in numbers if multiple contractors protest, he added.

In Oshkosh’s case, Hove said he didn’t think the protest hurt the company’s reputation — perhaps demonstrated by the fact that it received two major awards not long after.

“I don’t think necessarily you get penalized by protesting. You may get penalized by how you conduct yourself during the protest, but that’s a different thing.”

Allen said companies need to take a serious look at the best-case result of a protest. The GAO almost never directs an award to the losing bidder; an upheld protest generally means the competition will be reevaluated or reopened. For instance, BAE Systems and Navistar won their protests in the Army’s medium tactical vehicle competition, but — after reevaluating — the Army once again awarded the contract to competitor Oshkosh.

“Very often, you win the battle but still lose the war,” Allen said.

Linda Hudson, who leads BAE Systems’ U.S. operations, said the company doesn’t regret filing the protest but that it damaged some of the firm’s relationships with the government.

“They’re not irreparable, but they’re strained, and we’re doing our very best to fix that and move beyond the protest,” she said.

Also, Walsh said protests at times prevent company officials from focusing on the rest of their businesses.

“It’s an intense process, so it can be distracting to top management,” he said. “It’s a big decision for a company to make, even the large ones.”

Companies also need to be prepared for additional scrutiny, Allen said. “You need to make sure that your own house is clean,” he said.

With protests unlikely to ebb any time soon, Plexico said there’s a new understanding that they are now “part of the playing field.”

And not everyone agrees that’s a bad thing. Marcia G. Madsen, a partner at Mayer Brown and the former chair of a congressionally mandated panel that reviewed the federal procurement system from 2005 to 2007, said the number of protests is relatively low considering the billions of federal dollars spent annually. Additionally, she contended the process provides important civil oversight for the spending process, delivering much-needed transparency.

Though the system delays programs, there is no clear alternative, said Michael R. Golden, now an attorney with Pepper Hamilton’s government contracts practice. Golden was previously the GAO’s managing associate general counsel for procurement law and spent more than 30 years at the agency.

“It’s an independent, impartial process,” he said.

After finding himself on both sides of the issue, Hove agrees.

“Bottom line is, we really don’t have qualms against the basic process as it’s laid out,” he said.

– by Marjorie Censer – The Washington Post – Monday, June 14, 2010