By Dietrich Knauth
Law360, New York (September 27, 2013, 7:32 PM EDT) — As U.S. defense companies ramp up their search for opportunities abroad, getting familiar other nations’ evolving bid protest practices can be a helpful step in ensuring they are treated fairly in competitions, experts say.
The U.S. procurement system is unique in its long history of allowing prospective contractors to challenge government contract decisions, and despite domestic criticism of the delays and litigiousness that sometimes result, other nations continue to look to the U.S. as they establish or amend their own versions of bid protests.
Protest systems are increasingly seen as essential to a good public procurement framework, and are encouraged by the United Nations Commission on International Trade Law, the World Trade Organization and the U.S., which insists that partners in free trade agreements, including the North Atlantic Free Trade Agreement, have some kind of bid protest system.
“Bid protests are a standard part of procurement reform all around the world now,” said Daniel Gordon, associate dean for government procurement law at George Washington University. “A bid protest mechanism is typically an unusually efficient way of attaining both transparency and accountability in government contracting.”
Advocates of the U.S. system say allowing private companies to enforce procurement rules increases transparency, reduces corruption and encourages competition, allowing governments to get better value for their purchases. But to take advantage of bid protests in other nations, U.S. companies will have to keep in mind that the rules and culture surrounding bid protests can vary significantly.
Here are four tips for U.S. defense companies looking to take advantage of bid protests abroad:
Recruit Local Counsel
As they adjust to decreased U.S. military spending, American defense companies will have to do business in nations where bid protests are not as ingrained in the procurement process.
Although many countries seem to model their protest systems on the U.S., the rules won’t be the same everywhere. In the U.K., for example, protests are handled in court. In Germany, procurement protests go to specialized administrative bodies.
“Every country is different, and even within the E.U., the 28 member countries have different laws, including different protest laws,” Gordon said. “They have 28 different ways of solving problems.”
Contractors should partner with local counsel to help them navigate the different rules, according to Allen Green, a partner at McKenna Long & Aldridge LLP.
“As you move outside the U.S., E.U. and Canada, you’re really entering into public procurements that are much less transparent. They’re going to have, to varying degrees, some form of protest procedures, but the likelihood of success is something that companies are going to have to think about and work through with knowledgeable local counsel,” Green said.
Adjust Your Expectations
The U.S. bid protest system is stronger in many ways than other nations’, and U.S. companies will have to adjust their expectations when getting involved in protests abroad.
The U.S. allows protests to negate or overturn contract decisions, even after the signing of a contract, and offers an automatic stay that halts work on procurements that are protested at the U.S. Government Accountability Office, which handles most U.S. bid protests and is generally seen as a fast and cheap option for protesters.
American contractors can also protest in the U.S. Court of Federal Claims, which offers legally binding rulings through more extensive litigation and can serve as a backup if a GAO protest fails. Such a system is rarely present in other nations.
In growing markets like China, India, Korea, the United Arab Emirates and Saudi Arabia, U.S. companies will have to temper expectations that bid protests will be as effective as they are in the U.S., Green said.
“If all goes south and you’ve been badly treated, there’s going to be a much narrower spectrum and much less done than there is the U.S.,” Green said.
In places with less transparent governments, protests could be a dicey proposition even when procedures are in place. University of Maryland law professor Daniel Mitterhoff recently studied a Chinese bid protest that was ignored by the Chinese government for nearly seven years because it fell into a legal grey area between two of China’s multiple bid protest systems.
“In some countries it doesn’t look like there’s a lot of progress toward a meaningful, effective protest system even when they exist on paper,” Gordon said.
Monitor Developing Bid Protest Regimes
Companies should keep an eye on markets that are developing or have recently developed bid protest regimes. Bid protests are growing at an uneven pace across the globe, according to Gordon, who has witnessed the rise of bid protests firsthand.
As the former head of the bid protest division at the GAO, he was consulted by foreign governments interested in setting up their own protest mechanisms, including Norway, Turkey and Tanzania, all of which have protest systems now. He has continued that outreach as an academic, recently working with officials from Vietnam, Morocco, Algeria, Libya and Tunisia — and says international interest in bid protests remains strong.
“Besides an interest in improving legal systems abroad, American companies want to export, and you want to have a solid procurement system overseas to ensure that American companies are treated fairly,” Gordon said of the Commerce Department’s interest in promoting bid protests overseas. “You don’t want to have corruption and you don’t want to have favoritism.”
Ralph White, who currently heads the GAO’s bid protest team, said foreign visitors continue to ask GAO about its protest policies. Not only does the U.S. have the longest tradition of hearing bid protests — a system that began informally in the 1920s and was codified by regulations in the 1970s and the Competition in Contracting Act in 1986 — the U.S. also spends far more on contracts than any other nation, making it a natural source of best practices for protests, White said.
“We end up with visitors from all over the world coming to Washington from other governments. Invariably, they want to talk about bid protests and they are fascinated and amazed that the U.S. government will put itself through this process,” White said. “The idea that you could challenge who it is the Defense Department is giving contracts for missile defense, they’re just amazed by it.”
For governments challenged by corruption and bribery, bid protests are seen as a crime-fighting tool, in a way that they aren’t in the U.S., which will help spur more countries to adopt them, Gordon said.
“Why exactly does having a police car on the side on the side of the road prevent people from driving 80 miles per hour? At least on the margins it causes people to be somewhat more careful,” Gordon said. “Crime hates sunshine, and [protests] provide sunshine to the contracting process. It provides vitamin T, it provides transparency.”
Prepare for Backlash and Reforms
While governments value the transparency and accountability that protests bring, they also struggle with the delays and litigiousness that are part of the package. The U.S. has seen frequent calls for reform, including ideas like charging a fee for “frivolous” protests, raising the dollar-value threshold for which contracts can be protested, and a U.S. Department of Defense proposal that would force contractors to choose between the GAO and the Court of Federal Claims, rather than allowing them to retain the court as a backup plan.
As protests rise across the globe, other governments will face similar pushback, Gordon said. Ten years ago, while Gordon was at GAO, the government of Norway invited him to give advice on setting up a protest forum. It was successful, but after the forum was in place, Gordon said he began to hear familiar complaints out of Norway’s government.
“Within the first two or three years of setting up the bid protest forum there was criticism that there were too many bid protests being filed, and I had to chuckle to myself, because I’d been hearing the same criticism back at home,” Gordon said. “Government officials will always tell you that there are too many protests.”
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