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TechnicallyAcceptable

Correcting for the Automatic Incumbent Protest Incentive

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Narrative:

Have you noticed that on larger contracts there appears to be strong profit incentive for an incumbent to protest? For example: the profit made during a 100-day stay of performance with GAO far outweighs the cost filing and preparing a protest. Light research suggests the average cost to protest utilizing outside counsel is between $15K – $70K, depending on the complexity of the acquisition, and if there is prolonged back-and-forth. The profit generated during a 100-day stay of performance on a larger contract would be many times more than the litigation/legal fees. Even if the protesting incumbent loses their case, they may still receive tremendous benefit from the stay of performance. Assuming that many corporate decision-makers have come to the same conclusion, and they do not have a strong ethical objection to doing so, there appears to be a substantial profit incentive to protest.  

While no quantitative analysis of ratios has been performed, from personal observation it is almost a guarantee that the incumbent will protest on a contract recompete if they are not the awardee when over $100M TCV.

Hypothesis:

If the automatic profit incentive to protest for an incumbent is removed, incumbent protest rates will decrease, as frivolous questionable arguments will not be brought forth as often. 

Proposed solution:

Create a clause that effectively changes the contract type when the incumbent protests to something akin to a cost-type contract (understanding that this occurs in commercial contracts as well), with fee  known and controlled. The incumbent does not receive payment of fee until after the protest is resolved.

1.       If the protest is upheld, or the agency takes corrective action, the protesting incumbent receives the fee + cost was reimbursed throughout performance.

OR

2.       If the protest is denied, the protesting incumbent receives no fee. Only cost will be reimbursed (throughout performance).

 

What do you think? Way off?

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49 minutes ago, TechnicallyAcceptable said:

Narrative:

Have you noticed that on larger contracts there appears to be strong profit incentive for an incumbent to protest? For example: the profit made during a 100-day stay of performance with GAO far outweighs the cost filing and preparing a protest. Light research suggests the average cost to protest utilizing outside counsel is between $15K – $70K, depending on the complexity of the acquisition, and if there is prolonged back-and-forth. The profit generated during a 100-day stay of performance on a larger contract would be many times more than the litigation/legal fees. Even if the protesting incumbent loses their case, they may still receive tremendous benefit from the stay of performance. Assuming that many corporate decision-makers have come to the same conclusion, and they do not have a strong ethical objection to doing so, there appears to be a substantial profit incentive to protest.  

While no quantitative analysis of ratios has been performed, from personal observation it is almost a guarantee that the incumbent will protest on a contract recompete if they are not the awardee when over $100M TCV.

Hypothesis:

If the automatic profit incentive to protest for an incumbent is removed, incumbent protest rates will decrease, as frivolous questionable arguments will not be brought forth as often. 

Proposed solution:

Create a clause that effectively changes the contract type when the incumbent protests to something akin to a cost-type contract (understanding that this occurs in commercial contracts as well), with fee  known and controlled. The incumbent does not receive payment of fee until after the protest is resolved.

1.       If the protest is upheld, or the agency takes corrective action, the protesting incumbent receives the fee + cost was reimbursed throughout performance.

OR

2.       If the protest is denied, the protesting incumbent receives no fee. Only cost will be reimbursed (throughout performance).

 

What do you think? Way off?

While you are wishing, why not make it only direct costs being reimbursed if the protest is not sustained?While you are wishing, why not make it only direct costs being reimbursed if the protest is not sustained?

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One improvement: the rule would not apply to "nontraditional defense contractors (NDCs)". NDCs would be defined as contractors who are not currently performing or who have not performed within the last year a CAS-covered contract or subcontract.

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Another “great thinking” compliment.  Just receiving profit/fee for 100 days greatly underestimates benefits too.  During that period the contractor recovers overhead, G&A, salaries and fringe benefits for their employees.  The company likely has a good idea if they will prevail in a protest or not.  Assuming they feel the protest is weak, this gives them time to transfer good employees to new projects.  If they need to take good employees away from the contract, it doesn’t really hurt them because they know the protest is lost.

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GAO's automatic stay provision is in 31 U.S. Code § 3553. Review of protests; effect on contracts pending decision.

The process is kicked off by 31 USC 3553 (b)(1) which states:

Quote

(b)(1)  Within one day after the receipt of a protest, the Comptroller General shall notify the Federal agency involved of the protest.

The automatic stay provision is at 31 USC 3553 (c)(1)here:

Quote

(c)(1) Except as provided in paragraph (2) of this subsection, a contract may not be awarded in any procurement after the Federal agency has received notice of a protest with respect to such procurement from the Comptroller General and while the protest is pending.

Below that is the agency waiver provisions, etc.

My initial thought was to take the automatic out of the stay provision and require GAO to determine whether they will invoke a stay or not.  That would be somewhat similar to what the Court of Federal Claims (COFC) does in authorizing a restraining order.  However, that takes time.  Huh, why does GAO get an automatic stay when the COFC has to decide based on a set of rules.

Then look at what formerfed posted:

Quote

Just receiving profit/fee for 100 days greatly underestimates benefits too.  During that period the contractor recovers overhead, G&A, salaries and fringe benefits for their employees.

If fee or cost and fee is witheld on a frivolous protest, does that kick off the disputes clause.  Should the Boards of Contract Appeals determine what frivolous is too?  I was stumbling around google and found this article from The Procurement Lawyer published by the American Bar Association.  Have fun with that one.

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Good thoughts, but just a couple caveats to consider:

1) An incumbent will only get an extra 100 days of profit if they protest on the last day of the contract.  If the government awards a follow on contract 2 months before the end of the existing contract, then the incumbent will only get an extra 40 extra days.  Focusing on awarding a contract with adequate lead time for a new contractor to prepare for performance (especially on $100M+ contracts) will reduce the monetary benefit provided by a stay of performance.

2) Agencies frequently take corrective action, not because they have no chance of winning, but because taking corrective action is easier and faster than litigating the case.  Denying fees if the protest is dismissed, but granting them if the agency takes corrective action heavily incentivizes the government not to take corrective action.  This will significantly increase protest litigation creating more work for the agency, contractors, and the GAO.

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Point of clarification:

1) Does this scenario assume the incumbent is awarded some type of "Bridge" contract for continuity while the protest is being sorted out?

2) if 1) is true, then would that "Bridge" contract be awarded based on an approved J&A, citing 10 U.S.C. 2304(c)(1) as implemented by FAR 6.302-1 -- Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements? Or, possibly 10 U.S.C. 2304(c)(2) as implemented by FAR 6.302-2 Unusual and Compelling Urgency?

Assuming Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements...

I have long wondered how only one source could possibly be true?  Wouldn't there be two sources...(1) the Incumbent and (2) the successful awardee of the contract under protest?  On that point why would the Government have to award the "Bridge" contract to the incumbent?  Couldn't the Government as easy conclude only the successful awardee of the contract under protest as the Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements?  Surely the GAO automatic stay of performance doesn't extend to the "Bridge" contract.  If it did we wouldn't have so many of those "Bridge" contracts awarded.  Without the almost guaranteed "Bridge" contract the incumbent incentive to protest would be erased.

Basically, there is no need for a new clause. Only a shift in thinking of how to approach the problem of incumbent incentive to protest.  If the incumbent knows they will get a "Bridge" contract for protesting then they will protest.  If the Government removed the incentive of awarding "Bridge" contracts to incumbents and instead awarded the "Bridge" contracts to the successful awardee of the contract under protest, then the incentive will have been successfully removed.  Perhaps a step to far is stop awarding "Bridge" contracts altogether.  However, it would be just as effective.

Finally, I have seen this scenario in the real world and successfully deployed this tactic.  It worked for our team once upon a time.  The result was the incumbent dropped the protest and the rest is history as they say.

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3 hours ago, Dominicke Ybarra said:

On that point why would the Government have to award the "Bridge" contract to the incumbent?  Couldn't the Government as easy conclude only the successful awardee of the contract under protest as the Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements?  Surely the GAO automatic stay of performance doesn't extend to the "Bridge" contract.  If it did we wouldn't have so many of those "Bridge" contracts awarded.  Without the almost guaranteed "Bridge" contract the incumbent incentive to protest would be erased.

Basically, there is no need for a new clause. Only a shift in thinking of how to approach the problem of incumbent incentive to protest.  If the incumbent knows they will get a "Bridge" contract for protesting then they will protest.  If the Government removed the incentive of awarding "Bridge" contracts to incumbents and instead awarded the "Bridge" contracts to the successful awardee of the contract under protest, then the incentive will have been successfully removed.  Perhaps a step to far is stop awarding "Bridge" contracts altogether.  However, it would be just as effective.

RE: Dominicke Ybarra

Great insight, thank you for sharing this.

What about clearance processing times for the new contractor employees? Does your agency have a clearance requirement for new contractor employees? It takes us upwards of 60-90 days during good times to clear personnel in which case the "Bridge" contract would almost expire.

What do you think? How have you overcome this in the past?

 

 

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9 hours ago, Dominicke Ybarra said:

Point of clarification:

1) Does this scenario assume the incumbent is awarded some type of "Bridge" contract for continuity while the protest is being sorted out?

2) if 1) is true, then would that "Bridge" contract be awarded based on an approved J&A, citing 10 U.S.C. 2304(c)(1) as implemented by FAR 6.302-1 -- Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements? Or, possibly 10 U.S.C. 2304(c)(2) as implemented by FAR 6.302-2 Unusual and Compelling Urgency?

No.  In my experience, the gap in services caused by a protest is usually bridged by exercising the Option to Extend Services under FAR 52.217-8.  In fact, FAR 37.111 specifically cites delays in award due to a protest as one of the reasons to include and exercise the -8 option.

If the -8 clause is not in the contract, or all six months of the option period have been performed, the agency cannot automatically extend performance through a bridge modification/contract.  First, it must determine whether there is sufficient time to compete the "bridge" requirement and potentially bring in a new contractor without resulting in a break in service.  If there is not sufficient time, the agency may issue a sole-source extension of the existing contract supported by the appropriate J&A/memo limiting competition.  Seavac Int'l, Inc.-Reconsideration, B-231016 (Sept. 19, 1988) ("The sole-source extension of an existing contract, pending the outcome of a competitive procurement, is justified where ongoing needed services otherwise would be interrupted, the agency reasonably decides that only the incumbent can meet its needs with respect to timeframe, and the extension was not caused by a lack of advance planning.")  If there is sufficient time to compete the bridge requirement and bring in a new contractor without a break in service, then the bridge requirement should be competed.
 

 

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10 hours ago, Dominicke Ybarra said:

Surely the GAO automatic stay of performance doesn't extend to the "Bridge" contract.  If it did we wouldn't have so many of those "Bridge" contracts awarded.

A -8 modification is under the terms of, and authorized by, the predecessor contract.  It is explicitly continued performance of the old contract, not an override of the stay and performance of the new contract.

However, a bridge contract awarded to the proposed awardee may be considered a de facto override of the stay if the bridge is for the same services and under the same or substantially similar terms as the protested contract and the bridge reduces the length/value of the protested contract.  Access Sys., Inc. v. United States, 84 Fed. Cl. 241, 243 (2008) ("This case is therefore unlike traditional override cases in that we are asked to decide whether the bridge contract represents the functional equivalent of an override. We have not been presented with any decisions discussing this question, but in our view the relevant question is whether the bridge contract shares the same character or function as a formal override and, thus, whether the bridge contract could prejudice plaintiff in its protest before the GAO or in subsequently performing the work if it is successful in its protest.")
 

 

 

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