The Real Story on Protests - Part II

Coincidentally, the current issue of National Defense magazine landed on my desk this morning. The sidebar on page 8 is titled “Tension Over Industry Protests Boils Over as Companies Manage to Overturn Contract Awards.” In it, the author attributes a remark to a senior executive from one of the largest defense contractors during a discussion of “the dramatic increase in the number of protests that are being sustained.” The executive is quoted as saying “This is not good. It motivates companies to protest.”

Really. Seriously?

I don’t question that a dramatic increase in success of any strategy might provide an incentive for companies to try it. I question the basic premise. A dramatic increase in successful protests? From what data? Take a look at yesterday’s Blog post: http://govcontoday.deltek.com/2010/02/real-story-behind-gao-protests.html.

Here are the raw data on protests drawn directly from the GAO’s annual report to the Congress. This table is a summary, but you can read all the reports in full detail at http://www.gao.gov/decisions/bidproan.htm.

Please look at the first column of the table and note the number of protests sustained (won by the contractor) in 2009. It’s 57. Now read across, going back in time, and note how the numbers are changing. When you get back to 2001, you’ll see that there were 66 protests sustained. Where is that “dramatic increase?” In fact, except for 2002 and 2003, the number of protests sustained every year is higher than 2009.

What’s really interesting is the success rate. If you compare the number of successful protests to the number filed, the result is less than three percent, a nine year low. Of course, filings can be misleading. GAO doesn’t actually considered all the protests that are filed. In fact, most protests are dismissed as untimely, for lack of grounds or for lack of standing. Some are just withdrawn by the protestor. The percentage of protests considered and decided by a GAO decision ranges from fifteen to twenty-seven percent. And, yes, that also represents a nine year low.

Finally, if you consider protests sustained as a percentage of protests filed, that ranges from just over eighteen percent to slightly less than thirty percent. For 2009, the rate was just over eighteen percent. Only 2002 and 2003 were lower and only by a couple of percentage points.

It would appear that as a strategy, protesting is not a particularly good bet. And, it is frequently an expensive one both monetarily and in terms of customer good will.

As far as contractors’ motivation to protest is concerned, a dramatic increase in success might very well produce one. The thing is, there is no increase – dramatic or otherwise!

The Real Story Behind GAO Protests

The total number of protests filed with the GAO has risen steadily from 2001 (when there were 1,146) to 2009 (when there were 1,989) except for small dips in 2005 and 2006. Over the entire period, total filings are up by more than 73%.

Much has been written about how the new ability to protest delivery orders has contributed to this increase. Even more has been written about how these additional protests will “clog the system” and delay vital acquisitions.

Here’s the real story.

The total number of protests actually considered is up only 1.3% (from 311 in 2001 to 315 in 2009) and the number of successful protests (those sustained by the final GAO decision) is down more than 13% from 66 in 2001 to only 57 in 2009.

Here’s a summary of all GAO protest activity for the last nine fiscal years derived from the GAO’s Bid Protest Annual Report to the Congress at http://www.gao.gov/decisions/bidproan.htm:

Procurements are delayed only slightly (and usually not at all) by a protest that is dismissed or withdrawn. Given that virtually the entire increase in filings is comprised of unsuccessful protests dismissed or withdrawn before they could even be considered, the real effect of the increase in total filings is negligible. In fact, considering the increase in the total procurement budget over that period and the (even larger) increase in the number of procurement transactions, the effective protest rate is really down.

Protests considered by the GAO delay procurements in most cases, but in the case of protests denied, the delay is 90 days or less and the procurement then proceeds as originally planned.

Protests sustained by the GAO can and often do result in major delay as the procurement is restructured, reevaluated or even re-competed. In rare cases the entire procurement could be cancelled. The number of procurements so affected in 2009 (57) is very small and is down more than 13% since 2001. In fact, the number of protests sustained is at a six year low. We have to go back to 2003 to find a year with fewer protests sustained.

In simplest terms, every protest represents a claim by a contractor that the Government’s acquisition workforce has made a mistake. And, every time the GAO sustains a protest, they are agreeing with that claim.

The total Federal procurement budget is much higher than nine years ago. The total number of procurement actions is higher still. The fact that the number of successful procurement protests is down over that period is a direct reflection of the diligence and professionalism of the people that do this work and make these decisions. They don’t get enough credit.

That’s the real story. And that’s the one we should be talking about.

DCAA in the Hot Seat (Again)

The Senate Committee on Homeland Security and Governmental Affairs held a hearing yesterday on the troubles at DCAA. I’m sure you remember the hearing last year at which it was suggested that perhaps DCAA should be removed from DOD and made an independent Federal agency.

The hearing last year was prompted by a very critical GAO report (GAO-08-857) accusing DCAA of failure to adhere to Generally Accepted Government Auditing Standards (GAGAS) in their reports and opinions. That report was limited to a review of 14 audits, all performed by the Western Region of DCAA. Because of the limited scope of the review, the hearing panel requested that GAO perform a follow up review with a larger scope to determine whether, in fact, the problems were unique to the Western Region or systemic.

DCAA’s reaction to the whole sequence of events was an unprecedented “crackdown” on contractors.

The follow-up report (GAO-09-468) reviewed an additional 69 DCAA audits including 37 internal control reviews. On page 14 of the report, there is a deceptively short paragraph that summarizes the results. Here it is in full text.

“We found audit quality problems, including GAGAS compliance problems, with all 37 audits of contractor internal controls and the 4 incurred cost and the 2 request for equitable adjustment audits we reviewed at 7 FAOs across the 5 DCAA regions covered in this audit. In addition, none of the 26 cost-related assignments we reviewed from these same FAOs included sufficient testing to identify contractor overpayments and billing errors.”

Needless to say, the hearing yesterday went badly for DCAA. As the hearing began, Senator Claire McCaskill (D-MO) tweeted:

“Gonna be some tuf ?s for witnesses in a few at this hearng. Unbelievable problms at Def Contrctng Agncy. Top of my head is about to pop off.”

And, that was before the testimony began. In fact, Senator Joe Lieberman (I-CT), the Chairman of the Committee, set the tone for the hearing in his opening remarks when he said “Perhaps it’s time for us to consider separating DCAA from the Department of Defense and making it an independent auditing agency.” He actually said the same thing last year at the first hearing and I blogged about it at the time. This time, GAO included the same recommendation in their report.

It could happen, but frankly it’s not my biggest worry.

I worry about another “crackdown?”

After the last GAO blast, DCAA issued some of the most stringent (and anti-contractor) audit guidance memos in the history of the agency. Check out the December, 2008, memos and my blog on the subject.

Then they picked a fight with the Defense Contract Management Agency (DCMA) for what they believe is a virtually complete disregard for their recommendations. That quickly turned into a shooting war and generated its own hearing; this one before the Commission on Wartime Contracting. The panel concluded that the relationship between the two agencies was “dysfunctional” and they appeared to give strong support to DCAA Director April Stephenson’s request for “accountability (at DCMA) when DCAA’s findings are ignored.”

And, that’s the part of this whole issue that bothers me the most. DCAA has already become very adversarial. The latest GAO report and round of hearings may result in even more stringent audit guidance and an even more adversarial posture toward contractors (if that’s possible). If Congress or DOD implements something to make DCAA’s audit report recommendations virtually mandatory…

Well, let’s just say “It’s going to be a tough time to be a Government contractor.”

By the way, representatives from Flour, Dyncorp and KBR all testified that the Wartime Contracting Commission hearing and all made statements that appeared to support the concept of a single Federal audit agency.

I see disturbing trends here. I see DCAA becoming more adversarial and more insular. I see them become nearly all-powerful when it comes to oversight of contractor systems. And, I see the distinct possibility that they could become an independent agency with even fewer checks and balances over their excesses than exist now.

And, yes, I have already seen excesses arising out of the new audit guidance and I see more on the way.

A very tough time.