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Will Cuts to Defense Spending Mean More Bid Protests?

Over the past year, the Pentagon has cut almost $340 billion in life-cycle costs for major procurement programs, prompting many industry experts to speculate that a major industry consolidation is ahead.  As competition heats up for billion-dollar projects that are still on the table, like the KC-X tanker contract, it remains to be seen how bid protests will be affected.  After all, protesting a contract award is definitely one way to win after losing a bid.

Source: GAO

Over the past five years, bid protests per billion dollars of defense-contracting awards have actually trended down.  While protests were up in the last quarter of 2008 and in 2009, at least 50 percent of the increase in filings is because of section 843 of the Defense Authorization Act, which took effect in May, 2008 and gave GAO authority to hear protests of all task orders above $10 million.

Also, it’s standard procedure at GAO to release the number of protest docket numbers issued in a year as the number of protests filed in a year, which inflates the number of protests GAO actually hears.  This is because when a party files an additional protest or when multiple parties protest the same procurement action, each new filing gets its own docket number, even when they pertain to the same case and are heard at the same time.  Consequently, while GAO lists 1652 filing in 2008, in its 25-year report to Congress, GAO reports that only 1,027 procurement actions were protested.

The downward trend in protests is especially apparent when historic trends are accounted for. Over the past 25 years, bid protests are down almost 50 percent.  Also, notice that bid protests peaked in 1993, the year of Les Aspin’s infamous “last supper,” and began a dramatic decline lasting eight years.

Source: GAO

While it has become easier than ever to protest a procurement decision, GAO’s process has kept up with demand.  Over the past five years, more than 50 percent of DoD protests have been settled within 30 days of filing. Because GAO’s protest process is so dynamic, cases that aren’t dismissed out of hand because of procedural irregularities are often resolved through corrective action by the awarding agency. Even though the number of protests has increased in absolute terms over the past eight years, the success rate of protests dropped to less than 3 percent in 2009, down more than 3 percent from 2007.

So it looks like the number of bid protests is directly correlated to the amount of contracting dollars available.  While you might expect bid protests to go up in response to spending cuts due to increased competition, past data indicates that protests will trend downward as slashed Pentagon budgets sink in.

Because protests are expensive to prepare and frequently dismissed, bid protests are most effective as a business strategy when the stakes are extremely high, i.e. Boeing’s protest of Northrop’s KC-X tanker bid.  Since smaller defense budgets mean fewer large procurements, it looks like we can expect fewer protests after all.

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