November 28, 2017

FY 2018 National Defense Authorization Act Pushes Bid Protest Reforms

6 min

Bid protest reform has long been a focus of Congress, and this year is no exception. The National Defense Authorization Act (NDAA) for fiscal year (FY) 2018, which is awaiting signature from the President, contains several important bid protest-related reforms. For those tracking the more aggressive bid protest reforms that have been floated recently, including those contained in the Senate's version of the NDAA, the final bill out of conference has pared down many of those potential changes. Nevertheless, this year's NDAA contains several changes that reflect continuing congressional oversight and scrutiny of the bid protest process that likely will lead to broader reform efforts at the agency level, before the Government Accountability Office (GAO), and at the Court of Federal Claims.

Ongoing and Parallel Reform Efforts

Section 809 of the FY 2016 NDAA (as amended in 2017) required the Secretary of Defense to "establish an independent advisory panel on streamlining acquisition regulations." The Section 809 Panel has two years to develop recommendations for the amendment or repeal of such regulations necessary to improve the functioning of the acquisition system and ensure the continuing financial and ethical integrity of defense procurement programs. The Section 809 Panel has already released an Interim Report and Supplemental Report with preliminary findings and will hold its next full panel meeting on December 12-13, 2017. Among numerous recommendations across the acquisition system, the Section 809 Panel is expected to recommend significant changes to the bid protest process.

Following up on the energy created by the Section 809 Panel, Section 885 of the FY 2017 NDAA required the Secretary of Defense to "enter into a contract with an independent research entity that is a not-for-profit entity or a federally funded research and development center with appropriate expertise and analytical capability to carry out a comprehensive study on the prevalence and impact of bid protests on U.S. Department of Defense (DoD) acquisitions, including protests filed with contracting agencies, the Government Accountability Office, and the Court of Federal Claims." The RAND Corporation has been tasked with conducting this study. Pursuant to the Act, the RAND Corporation is expected to submit a preliminary report outlining the results of the study, along with related recommendations, to the Secretary of Defense and the congressional defense committees by November 30, 2017.

FY 2018 NDAA Proposed Reforms

Despite the fact that Congress is currently awaiting analysis and recommendations from both the Section 809 Panel and the RAND Corporation study that will affect bid protests, the FY 2018 NDAA pushes forward with several reforms to bid protest procedures for DoD procurements. The final bill implements a number of changes to post-award debriefings of DoD procurements and proposes to create, for the first time, a cost-shifting mechanism for certain unsuccessful protests.

1. Post-Award Debriefings for DoD Procurements

Section 818 of the NDAA provides for "Enhanced Post-Award Debriefing Rights." Among other requirements, certain post-award DoD debriefings must include "at a minimum…the agency's written source selection award determination, redacted to protect the confidential and proprietary information of other offerors." The requirement will apply to DoD awards in excess of $100 million. Additionally, small businesses and "nontraditional contractors" (defined as entities that have not performed, for at least the one-year period preceding a DoD solicitation, any contract or subcontract that is subject to full coverage under the cost accounting standards) will be entitled to request an enhanced debriefing in the case of an award exceeding $10 million.

The enhanced debriefing provisions also entitle disappointed offerors to submit follow-up questions within two business days of receiving a post-award debriefing and require the agency to respond in writing within five business days. The NDAA specifically states that a debriefing will not be considered concluded for purposes of filing a bid protest and obtaining a stay of performance until the day the agency delivers its written responses to the disappointed offeror.

The move toward enhanced debriefings seeks to address a common complaint by federal contractors regarding the poor quality of debriefings and lack of useful information disclosed by the agency. The expectation is that disappointed offerors will be less inclined to file a bid protest if they receive more information about the award decision. Much of this reform's success, however, will be dependent upon the degree to which the agency provides transparent responses and meaningful information, whether through the amount of information redacted from the source selection decision, or through the responsiveness to the offeror's questions.

Given the fact that the new enhanced debriefing provision will impact the timeliness of certain protests, it is essential that contractors understand the circumstances under which these new provisions apply.

2. Cost Shifting for Denied Protests of DoD Procurements

The conference version of the bill eliminates an earlier, widely criticized provision requiring incumbent DoD contractors to disgorge profits on any bridge or temporary contracts issued, if their unsuccessful protest resulted in a delay requiring a bridge or temporary contract. The bill softens, but does not eliminate entirely, a provision of the Senate NDAA that would have required contractors with $100M in annual revenue to reimburse DoD for costs incurred in defending against a protest that ultimately is denied by the GAO. Section 827 of the final bill retreats from this provision, which was unpopular with industry, instead calling on the DoD to conduct a three-year pilot program "to determine the effectiveness of requiring contractors to reimburse the Department of Defense for costs incurred in processing covered protests." The agreed bill increases the triggering revenue threshold from $100M to $250M in yearly revenue, thus sparing many contractors from this penalty.

The three-year pilot program will apply to protests filed with the GAO after October 1, 2019. The details of the pilot program are to be worked out by DoD, including the type of "costs" to be covered and how DoD intends to measure them. At the very least, this pilot program will directly impact the decision of large businesses (annual revenue greater than $250M) to file protests with the GAO and/or keep them pending until the GAO issues a decision denying the protest. Especially if the "cost" penalty is significant, many affected protesters likely will elect to file protests in the Court of Federal Claims. Given the two-year delay before implementation, and the ongoing work of the Section 809 Panel and RAND study, it is also possible that Congress will implement additional reforms before this pilot program even begins.

Further Considerations

Although the final NDAA has retreated from many of the aggressive reforms proposed in recent years, it reflects continued congressional interest in bid protest reform. These new changes, when signed into law, will affect only DoD procurements and only certain covered procurements and protesters. Federal contractors should continue to monitor developments and understand how reforms may impact their potential bid protest rights and remedies.