News & Events

Bid Protests – A Growing Trend Among Government Contractors

While sequestration and broader budgetary constraints have certainly had a significant impact on the slowdown in contract awards this year, the large increase in the number of bid protests filed with the Government Accountability Office (“GAO”) can also be cited as a key factor in the delays.  From FY2001 to FY2008, total government procurement spending (adjusted for inflation) increased at a faster rate (over 100%) than the number of protests filed (35%). However, since FY2008 this trend has reversed, as total government spending decreased more than 10% through FY2012, while total protests have increased 45%.(1)  The trend has also started to emerge with pre-award bids, as evidenced by the recent protests for the OASIS procurement.

As government contractors compete for an ever-smaller slice of the pie given the current budgetary environment, incumbents are increasingly turning to protests as a means to prolong contract performance.  During the protest period, a stay of the current award or performance is often enabled, allowing incumbent contractors to continue work and maintain legacy pricing levels.  As a result, incumbents maintain steady revenue streams and more favorable margins in the near-term.

Long-term, the ability to retain legacy work is becoming more and more challenging.  The growing number of bid protests and continued desire for lowest price technically acceptable contracts encourage a competitive environment that is becoming more difficult for incumbents to overcome.  Examples of what were thought to be strong incumbents getting displaced on a recompete seem to becoming commonplace in this market – two notable recent instances include SRA losing the FDIC contract recompete to CSC and Wyle losing the NASA Human Health and Performance contract to SAIC.  In some instances, incumbents also know too much about the client expectations / mission needs which motivates a higher price, or have been traditionally unwilling to cannibalize their own labor through the introduction of efficiencies or technologies which competitors introduce at the recompete.

These trends have further fueled skepticism from buyers as recompete win rates and above market margins continue to be challenged during diligence.  A 90+% recompete win rate no longer carries the same weight as it may have in the past, and little credit is being given for contracts generating margins based on favorable legacy pricing structures.  However, a strong business development pipeline and access to prime, full and open contract vehicles with long-term runway, and clear competitive advantages in technology or business approaches helps to alleviate concerns related to reliance on significant upcoming recompetes.

(1) Congressional Research Service: “GAO Bid Protests: Trends and Analysis” (August 9, 2013)