Big deals, bigger fuss

Companies step up protests of large contracts

"Protests have become more important because of consolidation," said Steve Carrier of Northrop Grumman's IT unit."Vendors are applying a more critical eye toward long-lasting procurements."

Olivier Douliery

Is a protest of your latest big win inevitable? If it's a multiyear enterprise deal worth big bucks and for several years, the chances rise precipitously. And the chances of more such contracts drawing protests in the coming year seem like a safe bet.

Government Accountability Office figures show the number of protests increasing modestly for each of the last three years, but the numbers don't tell the whole story. Agencies that have awarded high-profile, winner-take-all IT contracts are finding themselves the targets of protests far more frequently.

These big deals have some basics in common. They are long term, often 10 years or more. They have high-dollar values, regularly in the billions. And they shut out other vendors from a business line or service, such as all telecommunications or Web operations across a department or several agencies.

Experts predict, too, that as the Office of Management and Budget continues to push for consolidation of IT services in the coming year, the number of protests of such buys will increase commensurately.

It's already happening. Take the General Services Administration's E-Travel Quicksilver project, for instance. EDS Corp. protested the $450 million contract to standardize two governmentwide travel systems run by Northrop Grumman Corp. and Carlson Wagonlit Government Travel Inc. The protest forced GSA to reopen the procurement and eventually add EDS to the contract.

Cross-agency initiatives aren't the only victims. The Housing and Urban Development Department's $750 million contract for agencywide IT systems support, known as HUD IT Services, or HITS, has foundered under the weight of protests.

Lockheed Martin Corp., EDS and HUD have spent hundreds of thousands of dollars on lawyers' fees over the course of two protests, both of which GAO upheld for Lockheed Martin. HUD, which originally awarded the deal to EDS in September 2003, has delayed plans to implement new IT hardware and software pending a resolution.

Most recently, three companies protested the Treasury Department's $1 billion enterprise communications contract, awarded to AT&T Corp. last month.

"Large procurements, where there is a sense that if you don't get the contract or one of multiple contracts, you will be excluded from future cash flow in an area for a number of years, are coming under protest more often," said Dan Gordon, GAO's associate general counsel.

"But another reason for the increase in the number of protests is there is more money available at the Defense Department and at the Homeland Security Department," he said, "and when you have more contracts, there are more protests."

Also, more vendors are taking their beefs to GAO to resolve, Gordon said. Companies filed 10 percent more protests last year than they did in 2003, rising from 1,353 in 2003 to 1,483 in 2004.

A recent survey of government contractors found that 13 percent of the companies had filed bid protests within the past year. Of these, 27 percent were successful, according to an annual survey published in October by Grant Thornton LLP, an accounting firm that specializes in government contracting.

"None of the companies that filed bid protests recovered protest costs," the report said.

Agencies are learning to take steps to avoid protest pitfalls, such as documenting the acquisition process, including agency lawyers more frequently, and answering every question of unsuccessful bidders.

"The most important documents are from the source selection and technical support teams," said Hugh Long, a senior lawyer in the Air Force's office of contract litigation. These documents validate the decisions the agency made during the buy's specification and selection phases, he said. Agencies also should use the debriefings to convince unsuccessful vendors that the winning vendor had the best offer and why.

Another growing trend is the use of alternative dispute resolution, so a neutral third party can work out the issues. The ADR approach can radically reduce the expense and time of a full-blown protest, said Elizabeth Grant, the Defense Logistics Agency's associate general counsel for acquisition.

But sometimes a protest is inevitable, said Steve Carrier, vice president for Northrop Grumman's Washington IT unit.

"Protests have become more important because of consolidation," he said. "Vendors are applying a more critical eye toward long-lasting procurements; you don't want to be out of the game for that long."

Even so, GAO's Gordon and other procurement experts said the number of overall protests compared to number of transactions remains small.

In 2003, agencies conducted 37 million buys, including 24 million that were worth more than $25,000. To have only 1,500 protests is statistically insignificant, said David Drabkin, GSA's deputy chief acquisition officer.

But when it comes to the large contracts, Drabkin and others said a lot of companies believe they have nothing to lose by protesting.

"When the size of the contracts goes up, the obvious benefits of bringing a protest grow," said Chris Yukins, associate professor of government contract law at George Washington University Law School in Washington. "The cost of bringing a protest is so small compared to the money spent on putting together the proposal."

Yukins, who spent 15 years in private practice, estimated that a typical GAO protest will cost a vendor between $50,000 and $250,000.

"If the protest forces the agency to make multiple awards to settle the protest, or if the winning vendor decides to subcontract part of the work to the protester, the protest becomes worthwhile," he said.

Joseph Petrillo, partner in Washington law firm Petrillo and Powell, said the stakes are higher for companies when a contract is fundamental to their participation in a specific market niche. But Petrillo said a company must feel they have been wronged and ready to defend that position before filing a protest.

Even then, the decision to protest is not an easy one, Northrop Grumman's Carrier said.

"We have to go through quite a rigorous process to convince management to protest," he said. "With a 10 percent chance of winning, that's quite a bit of money to spend, and you don't want to appear to agencies as a whiner."

Although a vendor can spend a few hundred thousand dollars disputing an award, the costs, real and intangible, can be higher for agencies. A protest can leave a project hamstrung, force employees to wait for upgrades and add work for agency's legal teams.

"The cost to the agency depends on how fast the protest is resolved," DLA's Grant said. "For a vast majority of our protests, it takes just one day worth of lawyer's work. But for those that do not get resolved quickly, it may take up to two weeks of the lawyer's time."

The impact on the projects also varies. E-Travel officials built time into the schedule to accommodate potential protests, said Tim Burke, project manager.

"We lost 90 to 120 days on the schedule because of the protest," Burke said. "There are certain things you can't do, such as testing or independent validation and verification, until the award is final. That is critical before asking an agency to buy the service, so that affected us."

But at HUD, the yearlong delay has affected the entire department. It has held up plans to update technology, such as implementing a Java 2 Enterprise Edition platform with an Oracle Corp. relational database. It also has postponed moving some systems off a 20-year-old mainframe.

Government Computer News Staff Writer Mary Mosquera contributed to this story. Jason Miller is a senior writer with Government Computer News. He can be reached at jmiller@postnewsweektech.com.

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