GAO Addresses Potential Bid Protest Fee-Shifting Provision in Report to Congress

The GAO recently issued a report to Congress on potential changes to its bid protest function (the report was required by Section 885 of the FY 2025 National Defense Authorization Act). In one section, GAO addressed potential options for implementing a “loser pays” mechanism for bid protests challenging Department of Defense (“DoD”) procurement actions. Here are GAO’s key observations on this proposal:

• Existing Competition in Contracting Act (CICA) framework is sufficient
  • GAO believes the current CICA framework and its own related Bid Protest Regulations already provide effective tools to resolve frivolous protests.
  • Imposing penalties (like through a fee-shifting mechanism) could harm small businesses and reduce participation in federal contracting.
• Benchmarks are impractical
  • There is insufficient data to create reliable benchmarks for DoD’s protest-related costs and contractor’s lost profits.
  • Costs of protests vary, making standardized benchmarks inequitable and potentially inaccurate.
• Impact on small businesses would be significant
  • Over 60% of bid protests are filed by small businesses, so a fee-shifting provision could disproportionately affect them.
  • GAO suggests Congress consider exemptions or thresholds (e.g., revenue-based) but warns this could lead to additional litigation over contractor size status.
• Consider fee-shifting for specific protest types
  • If it does proceed with this idea, Congress might focus fee-shifting on incumbent contractors who protest primarily in order to extend their incumbent performance (so-called “strategic” protests).
• Potential threats to GAO’s independence
  • If GAO were to receive reimbursement from unsuccessful protesters as part of any fee-shifting mechanism, it could create a conflict of interest.
  • GAO’s impartiality might be questioned if it benefits financially from dismissing protests.
• Two potential alternatives addressing “strategic” protests filed by incumbent contractors – DoD contract clause and expansion of GAO’s “recommendation” authority
  • Congress could require DoD to include a clause in its contracts allowing it to recoup or withhold profit/fee from incumbent contractors who file unmeritorious protests.
    • Such an approach would target strategic protests and could use the existing Contract Disputes Act framework – if clause were triggered, DoD could file a CDA claim for disgorgement of profit/fee.
    • But DoD opposed this option due to costs, administrative burden, and potential harm to competition.
  • Congress could authorize GAO to recommend the payment of costs to DoD and the awardee whose contract was stayed during a protest, if GAO found the protest to be lacking a “reasonable factual and legal basis.”
    • But this approach would bring challenges – DoD does not currently track protest-related costs, and a statutory change to GAO’s authority under CICA would be necessary (i.e., GAO does not currently have the authority under CICA to recommend one private party to reimburse the government or another private party).

In sum, if GAO has anything to say about it, we won’t be seeing a “loser pays” mechanism for bid protests anytime soon, and if one is eventually implemented, it will likely be narrowly tailored to a specific type of bid protest.