Government Acquisition Waste
June 23, 2010
by: Steven Reiss

Wastewatcher, June, 2010

When purchasing necessary items, the government buys from private businesses, both large and small.  For contracts greater than $100,000, companies go through a convoluted and highly regulated bidding process, which allows losing bidders to file a protest with the Government Accountability Office (GAO).  The protest filing procedures are complicated and costly.  Although the number of protests is lower than it was in the mid-1990s, they have risen over the past four years. 

Government agencies such as the Department of Defense (DOD) are involved in the biggest acquisitions, which seem most susceptible to waste and confusion.  In the labyrinth of bids, counterbids, and protests over who will build the new Air Force aerial refueling tanker, a June 14, 2010 Washington Post article cited a misleading DOD acquisition strategy that prompted the GAO to uphold Boeing’s bid protest in 2008.  The tangled tale of the tanker illustrates a major problem with large government contracting deals; too often the criteria for the contracts are unclear.  This puts a huge and unnecessary burden on the GAO, participating companies, and ultimately, taxpayers. 

While the House of Representatives passed the Improve Acquisition Act in April, 2010 to cut costs in defense procurement, it may not save as much money as intended.  One amendment approved by the House stipulates that a contracting officer can switch vendors if he or she can obtain a savings of 15 percent or more and another amendment requires them to weigh cost more heavily than in the past.  While this may sound like competitive bidding, the combination could encourage companies to lowball the DOD and purposefully underestimate the costs of a project, only to ratchet them up later.  Furthermore, this will inevitably lead to more protests and potentially wasted money if the agency switches contractors mid-project. The House bill adds requirements and regulations that will increase the cost of doing business and bog down an already sluggish procurement process that often takes years to complete.  The Senate has not acted on the bill.

The DOD’s lucrative contracts can encourage fierce competition among firms, but the confusion inherent in the process also serves to encourage protests.  According to a December 2009 GAO report, since fiscal year (FY) 2006, the number of protests filed increased steadily from 1,326 in 2006, to 1,989 by 2009.  Approximately 5 percent of bid protests are formally sustained.  In that unlikely scenario, the bidding process must begin all over again.
 
According to another Washington Post article, companies that can afford to protest spend approximately $100,000 to $200,000 on average in legal fees and more often than not, the re-bidding process results in the same contractor being picked.  This indicates that the vast majority of protests are frivolous, and cost taxpayers and contractors countless millions and an unquantifiable amount of time and labor.   Analysis from the Government Contract Legal Forum may indicate why so many contractors protest even when the odds are against them; the percentage of all bid protests that receive some government reimbursement has been increasing since FY 2006, to the present rate of 45 percent.  In addition to the potential reimbursement, an incumbent contractor can slow down the switch to a new contractor and continue to benefit from the original agreement while the GAO hears the protest case.

The government’s current acquisition process for contracts greater than $100,000 is rife with complexity and vague criteria that have the potential to waste hundreds of millions of dollars and delay procurement schedules for years.  Although the system has improved with the decline of no-bid and cost-plus contracts, there is still plenty room for waste and the problems seem to grow with the numbers of protests.