In this episode, we delve into the Government Accountability Office's (GAO) significant pushback against "loser pays" rules in defense bid protests, a decision with profound implications for small contractors.

For years, Congress has considered various fee-shifting proposals, which would require an unsuccessful protester to reimburse government protest costs and potentially the contract awardee’s lost profits. These ideas have surfaced in multiple National Defense Authorization Acts (NDAAs), including the FY2025 NDAA and earlier FY2024 and FY2018 versions, though none have been enacted into law. The FY2026 NDAA (House version) even includes a new twist, proposing an "incumbent disgorgement" remedy for certain baseless protests by incumbents, but this is narrowly targeted.

However, the GAO has consistently resisted adopting a broad fee-shifting policy without explicit legislation, warning that such a process "could have a chilling effect on the participation of firms in the protest process and federal procurements as a whole," ultimately reducing competition and driving up costs. The agency specifically highlighted that small businesses, which file over 60% of GAO protests, would be especially hard hit, with potential fee penalties being "crippling" for them. GAO maintains that existing tools are sufficient to deter frivolous protests.

This stance is a big win for small and mid-sized businesses. Here’s why:

• Affordable Risk: Under current rules, a losing protest imposes no special financial penalty beyond bid preparation and attorney expenses, plus a $335 filing fee.
• Cost Recovery: If a protest succeeds, GAO can order the agency to reimburse the protester’s reasonable costs, including attorneys’ fees.
• Proven Effectiveness: Protests remain an effective tool, with GAO’s effectiveness rate (sustained outcomes plus agency corrective actions) roughly 52%. This means over half of protesters, including many small firms, obtain some form of relief.
• Level Playing Field: GAO’s position helps ensure that protesting errors in a contract award is a calculated business decision rather than a lottery with ruinous odds, protecting small firms from undue financial risk.

While fee-shifting is currently on hold, legislative interest continues. Small contractors should stay informed on new NDAA bills and be aware of tightening pleading standards for protests. This podcast explores how GAO’s rejection of fee-shifting keeps the bid protest system fair, accessible, and competitive for small businesses in defense contracting.