As U.S. government contracts dwindle, losers protest more

April 29, 2012

The U.S. government’s push to reduce spending on contracts has left it fending off the most challenges in 16 years from unsuccessful bidders.

Contractors filed 2,353 protest-related cases during the last fiscal year with the Government Accountability Office, which arbitrates contract disputes.

That’s up 18 percent from the 1,989 cases filed when federal contract spending peaked in fiscal 2009 and the most since 1995, when more than 2,500 were filed, according to GAO data.

Federal contract spending has declined as agencies seek cuts as part of efforts to reduce the U.S. deficit. With fewer opportunities, companies such as UnitedHealth Group and IBM have fought for lost work.

“There is no denying the impact of a tough economy on a company’s willingness to protest,” Ralph White, the GAO’s managing associate general counsel for procurement law, said in a phone interview.

Government contract spending declined 3.6 percent to $531.9 billion in the fiscal year that ended Sept. 30, from a record $551.8 billion in fiscal 2009.

At the same time, the United States is awarding fewer contracts as agencies cut costs by consolidating work. There were 933,357 direct contract awards last year, down 38 percent from fiscal 2007.

It often makes economic sense to challenge a lost contract, said Larry Allen, president of Allen Federal Business Partners, a procurement consulting firm in Arlington County. It might cost less than $100,000 to file a protest, while the payoff may be an agreement for millions or billions of dollars.

“There are fewer decent-sized procurement opportunities out there right now, so companies want to make sure they have exhausted all their options if they are not selected as the original winner,” Allen said in a phone interview. “Government contract attorneys certainly aren’t going hungry right now.”

In addition to the economic downturn and the increase in contract spending after 2000, the GAO’s expanded jurisdiction may be contributing to the boost in protests, White said.

One of the biggest protests last year came from UnitedHealth, the largest U.S. health insurer by revenue. The Minnetonka, Minn.-based company unsuccessfully protested its loss of a $23.5 billion military health contract to Humana.

New York-based IBM and at least four other companies, including a General Dynamics unit, last summer challenged their exclusion from a $12 billion technology contract with the Department of Veterans Affairs. GAO officials in August dismissed both protests.

Taxpayers benefit from increased protests because the extra layer of scrutiny helps ensure that the process is fair and that an agency is getting the best value, said Alan Chvotkin, executive vice president of the Arlington-based Professional Services Council, which represents more than 300 vendors.

“I’m a fan of protests,” Chvotkin said in a phone interview. “I think that when used properly they do hold the government accountable for following the rules.”

“That’s a good thing because Lord knows the government has lots of opportunities to hold the contractor community accountable.”

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