A recently issued Amendment to the proposed FY2026 NDAA would call for the U.S. Secretary of Defense to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to require the withholding of payment to incumbent contractors that file deficient bid protests at the Government Accountability Office.
Takeaways
- Under the proposed statute, the Secretary of Defense must create procedures to withhold money due an incumbent contractor if the GAO determines the contractor’s bid protest lacks “any reasonable legal or factual basis.”
- The amount withheld cannot exceed 5% of the amount owed to the incumbent contractor for performance during the protest.
- The proposed statute does not impact agency-level protests or protests before the U.S. Court of Federal Claims.
For more than a decade, Congress has questioned whether the number of bid protests filed with the Government Accountability Office (GAO) has caused unnecessary delay and expense in U.S. Department of Defense (DoD) procurements, often calling for reforms to limit their impact. Section 875 of the proposed FY2026 NDAA represents the latest effort by Congress in that regard and what some may call yet another attempt to curtail a vital oversight mechanism.
In the FY2017 NDAA, Congress commissioned RAND to complete a “comprehensive study on the prevalence and impact of bid protests on DoD acquisitions,” hoping to determine DoD’s loss of resources to bid protest costs, contracting costs and scheduling delays. RAND was also to investigate a “concern that the current process may encourage frivolous protests.” RAND’s study ultimately identified “tension between DoD’s need to move forward with procurements and companies’ need for information about how a contract award decision was made.” The study also found that “less than 0.3 percent” of contracts were protested and concluded that a steady-over-time effectiveness rate of protests at GAO suggested “that firms are generally not filing protests without merit.”
While industry had hoped that the RAND report had put concerns over the protest process to bed, Congress renewed this line of attack in Section 885 of the FY2025 NDAA, signed into law in December 2024, which asked GAO to propose a fee shifting process for unsuccessful DoD protests based on benchmarks such as government costs and lost profits for the awardee. This created significant concern amongst industry, who pointed out that the number of DoD protests was already declining. GAO ultimately agreed with industry, telling Congress that “DOD protests at GAO have declined 48 percent over the last 10 years and less than 2 percent of procurements are protested.” GAO also informed Congress that it “does not endorse creating a fee shifting process for bid protests because existing statutory authorities and bid protest procedures are sufficient to efficiently resolve and limit the adverse impacts of protests filed without a substantial legal or factual basis.” GAO warned Congress that imposing a fee shifting process could “have a chilling effect on the participation of firms in the protest process and federal procurements as a whole,” and could pose unique harms to small businesses. GAO cautioned further that “this would have a deleterious impact not only on the transparency and accountability of the procurement system, but also potentially reduce competition for the government’s requirements, which in turn could drive up the prices paid for goods and services.” GAO further explained that a fee shifting process based on benchmarks rather than case-by-case analysis “would not result in an equitable distribution of costs.” Industry, in large part, lauded GAO’s response.
Against that backdrop, the U.S. House of Representatives released its Amendment to S. 1071, the FY2026 NDAA. Section 875 of the proposal requires the U.S. Secretary of Defense to revise the DFARS to withhold payment from incumbent contractors that file bid protests which GAO determines lack “any reasonable legal or factual basis.” The proposed language also limits the amount withheld to 5% of the amount owed to the contractor for performance during the period that was awarded or extended due to the protest. The proposed language does not address protests raised before the agency or before the U.S. Court of Federal Claims.
While the final implementation of Section 875 remains to be determined, the worst-case scenario appears to have been avoided for now. Rather than adopting a broad fee-shifting regime, Section 875 reflects a more limited approach that targets a narrow subset of protests and caps the potential financial impact on incumbent contractors. With that said, Congress continues to be skeptical of the bid protest system despite industry and GAO’s view that it remains essential to maintaining transparency and accountability.
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