Large Contractors May Need to Reimburse the Defense Department for the Cost of Bid Protests

Both the House and Senate have passed their own versions of the 2018 National Defense Authorization Act (NDAA). Thee are, as always, differences in the two bills which will now have to be worked out in conference committee. The provision in the House version requiring the Defense Department to contract out 25 percent of its incurred cost audits in lieu of performing them in-house by DCAA (Defense Contract Audit Agency) is not in the Senate version (see 2018 NDAA Passes House). For the rest of this week, we will examine a few provisions that appear in the Senate version that are not in the House version.

A provision that will certainly cause some contractors to think hard about their bid protest strategies is a requirement to reimburse the Defense Department for the Department's cost in processing a protest at the Government Accountability Office (GAO).  Two things have to happen. First, all of the elements of the protest are denied in an opinion issued by the GAO. And second, it applies only to contractors with revenues in excess of $100 million in the previous year. That is $100 million in total revenues, not $100 million in revenues from Government contracts or $100 million in revenues from cost-type contracts.

No one really knows how much it cost the Government to process a bid protest case. The Government does not collect the hours spent on such activities. However, one would suspect that it is significant. And what is the Government's billing rate? DCAA's billing rate is greater than $150 per hour so that might give a clue. So if the Government spends 100 hours processing a case, the bill to the contractor, assuming it is a large contract and its claims are denied, would be $15,000 (that estimate is probably significantly understated). Perhaps this provision will be a deterrent to frivolous bid protests.

The precise wording the Senate bill reads as follows:
__________________________________________________________

‘‘§ 2340. Government Accountability Office bid protests

     ‘‘(a) PAYMENT OF COSTS FOR DENIED PROTESTS.—

          ‘‘(1) IN GENERAL.—A contractor who files a protest described under paragraph (2) with the Government Accountability Office on a contract with the  Department of Defense shall pay to the Department of Defense costs incurred for processing a protest at the Government Accountability Office and the Department of Defense.

          ‘‘(2) COVERED PROTESTS.—A protest described under this paragraph is a protest—

               ‘‘(A) all of the elements of which are denied in an opinion issued by the Government Accountability Office; and
               ‘‘(B) filed by a party with revenues in excess of $100,000,000 during the previous year.

     ‘‘(b) WITHHOLDING OF PAYMENTS ABOVE INCURRED COSTS OF INCUMBENT CONTRACTORS.—

          ‘‘(1) IN GENERAL.—Contractors who file a protest on a contract on which they are the incumbent
contractor shall have all payments above incurred costs withheld on any bridge contracts or temporary contract extensions awarded to the contractor as a result of a delay in award resulting from the filing of such protest.

          ‘‘(2) DISPOSITION OF WITHHELD PAYMENTS ABOVE INCURRED COSTS.—

               ‘‘(A) RELEASE TO INCUMBENT CONTRACTOR.—All payments above incurred costs of a protesting incumbent contractor withheld pursuant to paragraph (1) shall be released to the protesting incumbent contractor if—
                    ‘‘(i) the solicitation that is the subject of the protest is cancelled and no subsequent request for proposal is released or planned for release; or
                    ‘‘(ii) if the Government Accountability Office issues an opinion that upholds any of the protest grounds filed under the protest.

               ‘‘(B) RELEASE TO AWARDEE.—Except for the exceptions set forth in subparagraph (A), all payments above incurred costs of a protesting incumbent contractor withheld pursuant to paragraph (1) shall be released to the contractor that was awarded the protested contract prior to the protest.

               ‘‘(C) RELEASE TO DEPARTMENT OF DEFENSE IN EVENT OF NO CONTRACT AWARD.— Except for the exceptions set forth in subparagraph (A), if a protested contract for which payments above incurred costs are withheld under paragraph (1) is not awarded to a contractor, the withheld payments shall be released to the Department of Defense and deposited into an account that can be used by the Department to offset costs associated with Government Accountability Office bid protests.’’.