Are bid protest fears overblown? Dan Gordon thinks so

Are bid protests a good thing? That’s the central question of a new paper by a George Washington University law professor and former Obama administration official.

Dan Gordon, associate dean for government procurement law studies at GW and former administrator of the Office of Federal Procurement Policy, comes to the conclusion that the costs of bid protests are overstated while the benefits are under appreciated.

Part of Gordon’s lengthy paper addresses what he calls misperceptions about bid protests statistics, particularly the view that protests are very common and have become a business tactic.

He argues that the number of protests is dwarfed by the number of contracts awarded.

Gordon takes issue with the way the Government Accountability Office counts protests. A contract can have pre-award protests and post award protests, as well as supplemental filings. Each filing is counted as a protest, even though they all involve the same contract.

He uses GAO numbers to create the ratio that there are 1.6 filings for each protested procurement, so in 2008, GAO handled 1,652 protests involving 1,027 procurements. In 2011, GAO handled 2,353 protests involving 1,470 procurements.

He also extrapolates from some Air Force contract numbers to estimate that there 200,000 contracts across the government each year.

Using that number, Gordon calculates that only 0.51 percent of contracts were protested in 2008, and 0.74 percent were protested in 2011.

Gordon uses these numbers to argue that protests are rare. He has a point, but I think that he too quickly dismisses the significance that there was a 70 percent increase in protests between 2006 and 2011.

Gordon does some further analysis where he tracks the number of protests against the value of all contracts:

In fiscal 2006, there were 1.92 protests for each billion dollars in federal contracts. By 2011, there were 2.74 protests per billion.

But instead of being alarmed at the rate of increase, Gordon argues that there are still fewer than three protests for every billion dollars in contracts.

Gordon does present some pretty compelling data from GAO that very few protests are actually sustained, and that it is rare for a protester to go on and win the contract. Using numbers from 2010, Gordon says GAO only sustained protests involving 45 procurements. Of those 45, only eight contracts went on to be won by a protester, though some award decisions are still being made.

Stats like that beg the question, why protest?

Gordon also looks at GAO’s “effectiveness rate,” which combines the number of sustained protests with the number of agencies taking a voluntary corrective action before GAO makes a decision. That effectiveness rate is 42 percent.

But the ultimate outcomes of those voluntary actions aren’t tracked by GAO, so there is no way to know if the protester ultimately won the contract.

A factor that Gordon doesn’t explore, and for which data likely doesn’t exist, is when the winning contractor and the protestor work something out, and the protesting company joins the winning company’s team.

We’ve seen this on some large contracts, such as when Science Applications International Corp. made room for Northrop Grumman on a $2.5 billion State Department contract. That was in 2011.

Anecdotally, we hear that happens with some frequency. I recall seeing some data about this at a conference sometime in the last year, but I can’t find it. If someone has that info, please share.

An interesting finding of Gordon’s analysis is that bid protests really have little impact on the government in terms of delays. Few protests take the entire 100 days that GAO has to investigate and render a decision. Most decisions are made within 30 days.

The only contracts with significant delays are ones that are sustained, and the recommendation from GAO compels the agency to reopen the bidding and award decision process. Those delays are justified, according to Gordon, because GAO has found a violation of procurement laws and regulations.

I found Gordon’s argument that the benefits of protests outweigh the negatives to be compelling. He describes protests as a low-cost form of accountability, and says that they can increase the public confidence in the procurement system.

The current system also offers transparency because GAO publishes its protest decisions, and those decisions also provide guidance to contractors and agencies, particularly their legal teams.

I agree with most of Gordon’s points except for where he too quickly dismisses the increasing number. The fact that protests are growing at a faster rate than the market overall indicates a problem to me.

But read his paper and you be the judge.