Procurement protests are a huge drain on productivity and finances, and often result in a few minor territorial adjustments.
This story is part two in a three-part series. Read part one, Government vs. Private-Sector Procurement: An Unfair Comparison, here.
Why does our government get procurement outcomes like the HealthCare.gov website and $600 toilet seats? One of the biggest reasons is the protest process, which adds a dimension of risk and uncertainty that isn’t part of private procurement at all. This process needs to change.
I experienced a protest first-hand as Secretary of the Department of Management Services for the state of Florida. We were procuring health care for state employees. I had inherited a very tight timeline; we had to run the procurement and get everyone insured before the mandated open enrollment deadline.
We designed a county-by-county procurement, wherein at least two health-care companies would be assigned to provide coverage in each county, so employees would have a choice. Many carriers tendered bids. One carrier didn’t receive the amount of business that they thought they should have under this setup, so they filed a protest.
A protest is a particular species of lawsuit. Like a lawsuit, once a protest is filed, there is a discovery process and you have to produce your documentation. However, the losing supplier can launch the protest on broad, generalized grounds such as that the procurement was not “fair and appropriate.” This opens the process to abuse.
The protesting party can use the discovery period to comb through all the documentation for evidence to back up its assertion. Some companies have openly stated that they use the discovery period in the hope of gathering information on their competitors. This is all legal.
As a result, with any government procurement you have to build in an extra 90 days at the end of your timetable for awarding the contract to allow for protests. Furthermore, in the end, the contract may not be the same as the original award because negotiations take place during the protest process. So there is a great deal of risk, uncertainty and potential for escalating costs.
In our health-care protest, if we didn't resolve it quickly and hold a proper open enrollment for all eligible employees, they would all have been forced to go into a PPO plan, which would have been more expensive for everyone.
Because I was coming from the private sector and this was my first time through the protest process, I had to quickly assess the situation. Questions included the ability of inside counsel to advance this aggressively, and whether we would be “out-lawyered.” I was particularly concerned that the lead counsel for the protesting company had worked in our department years ago and knew how we did things.
All things considered, we decided to retain outside counsel. We hired the biggest guns we could afford, at the same time preventing them from working with our adversary.
In the end, we prevailed, mostly on the basis of legal maneuvering.
The protesting company had been awarded an injunction that precluded us from signing contracts that had already been negotiated with the other service providers in many counties. But during the legal process, there were certain windows during which that injunction was not in effect; during these windows, we were able to sign those contracts.
Working this way, we eventually got contracts in place for every county, and the only contracts that we didn't sign were with the company that protested. Then they had no more leverage, which effectively ended the protest.
We came up with a winning strategy and made all the right moves, but in the end, no one really won. It was a huge drain on productivity, it cost taxpayers a bundle in legal fees for the state to defend the process, required an accelerated open enrollment process for employees and in the end resulted in a few minor territorial adjustments — certainly nothing to justify the time, effort and expense.
The protest process did not identify any material flaws in the procurement, and that is a critical point. There never was any evidence of that in the first place; it was really about an unhappy supplier trying to work the process to their advantage. And within the current rules, they were fully entitled to do that.
Unfortunately this story is far from uncommon, and far from the worst protest I’ve ever heard of. Many government procurement protests go on for years before they're resolved.
The protest process was put in place to ensure fairness and transparency, and in my experience, the people who run government procurement processes work extremely hard to make their procurements fair and transparent.
But the protest process itself is not always fair and transparent. Not only is it abused by unhappy suppliers, it introduces delays, adds millions of dollars to the price tag for everything the government buys, and often thwarts the originally intended outcome of the procurement.
To make real change, we need to start by requiring the protesting party to present evidence-based charges up front when they launch the protest. Then, there should be a review of just the points that have been brought forward, not an open-ended discovery process where you get to go on a fishing expedition through all of the documents and submissions, and add what you find to your protest.
Ironically, the main obstacle to changing this seems to be the suppliers themselves. Many suppliers see benefit in this process, and supplier groups spend a lot of money lobbying legislators to keep the rules the way they are.
People in government don’t believe the public is well-served by the way protests work. Government agencies have lobbyists too, but they can’t give legislators money. Legislators may listen to government agencies, but at the end of the day, it seems they listen a little bit harder to donors.
Jack Miles is the former Secretary for the Department of Management Services for the state of Florida and served as the Chief Procurement Officer of several Fortune 100 firms. He serves on Coupa Software’s Visionary Council.