When are bid-protest costs recoverable?

A reader raised the following questions: When a company files a bid protest in the General Accounting Office and prevails it may be entitled to recover the costs of pursuing the protest within certain limits. What types of costs are recoverable? What are the limits on recovery? What are the rules for agency-level protests and bid protests filed in the courts?

GAO has claimed jurisdiction over protests by disappointed bidders for more than 70 years. But only since 1985 when the Competition in Contracting Act became effective has GAO been authorized to recommend the payment of bid-protest costs to successful protesters. Since then GAO has provided guidance on this topic through its decisions. Congress imposed new restrictions as part of the Federal Acquisition Streamlining Act of 1994 and are now included in the Federal Acquisition Regulation. The FAR Council on its own initiative has imposed additional limits on bid-protest costs.

Still GAO remains the only forum in which a successful protester is reasonably certain to recover the costs of pursuing a bid protest. For agency-level bid protests no provision allows for the recovery of bid-protest costs. In federal court the only mechanism for recovering attorneys' fees is provided by the Equal Access to Justice Act. But to recover costs under law a successful plaintiff must be a small-business concern and must demonstrate that the government's position in the case was not only incorrect but without any reasonable basis. This can be a very heavy burden.

When a protester wins a GAO protest it is automatically entitled to recover the cost of pursuing the protest including attorneys' fees. But some limits may apply. Procedurally the successful protester submits its cost claim first to the agency which is required to negotiate the amount of the claim in good faith. If the parties are unable to settle the matter GAO can determine the amount to be paid.

For protests filed since Oct. 1 1995 attorneys' fees are capped at $150 per hour for large businesses. Theoretically expert consultant fees are capped for large businesses as well. No caps are applicable to small businesses. According to GAO decisions all costs must be reasonable properly documented and directly related to the protest. For example GAO has disallowed costs incurred in filing and appealing a Freedom of Information Act request where it did not believe the information sought was directly pertinent to the bid protest [See Tripp Scott Conklin & Smith B-243142.5 June 2 1993 93-1 CPD Paragraph 414].

GAO has allowed however the cost of reviewing FOIA responses that were used in preparation of the bid protest [See Diverco Inc. B-240639.5 May 21 1992 92-1 CPD Paragraph 460].

Also GAO has held that costs incurred in filing and pursuing an agency-level protest may not be reimbursed as part of an award to a successful protester in a GAO protest.

Probably the most important limitation GAO imposes is the rule that an agency may avoid responsibility for protest costs if it voluntarily takes reasonably prompt action to correct any deficiency in the procurement process. GAO has ruled that an agency's actions are "reasonably prompt" if it acts on or before the date the agency must file a report on the protest with GAO.

Moreover when a protester alleges multiple segregative grounds of protest it may be entitled to recover costs associated only with the grounds on which the GAO grants relief. However attorneys' fees do not have to be divided between sustained- and denied-protest issues if all the protest issues were related to the core protest allegation that was sustained.

For the most part companies do not decide to pursue a bid protest based on the probability of recovering bid-protest costs they decide to protest based on the merits of their case and the likelihood that they will prevail. But when a company pursues a formal bid protest it is reasonable that the company can recover the costs.

-- Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn in Washington D.C.

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