The United States agency-level bid protest mechanism: a model for bid challenge procedures in developing nations.

• Author: Troff, Erik A.

1. INTRODUCTION II. THE PURPOSES AND ESSENTIAL ELEMENTS OF AN EFFECTIVE BID PROTEST SYSTEM A. Purpose of Bid Protest Systems B. Elements of an Effective Bid Protest System III. CHALLENGES IN CREATING EFFECTIVE BID PROTEST SYSTEMS IV. BID PROTEST PROCEDURES IN THE MAJOR INTERNATIONAL PUBLIC PROCUREMENT AGREEMENTS A. Agreement on Government Procurement B. North American Free Trade Agreement (NAFTA) C. European Union V. BID PROTEST PROCEDURES IN THE UNCITRAL MODEL PROCUREMENT LAW AND WORLD BANK DEVELOPMENT PROGRAM A. UNCITRAL Model Procurement Law B. World Bank Procurement Reform Efforts VI. AGENCY-LEVEL BID PROTESTS IN THE U.S. PUBLIC PROCUREMENT SYSTEM VII. VIABILITY OF THE U.S. AGENCY-LEVEL BID PROTEST SYSTEM AS A MODEL FOR DEVELOPING NATIONS A. Effectiveness of the U.S. Agency-Level Bid Protest System B. Basis for Transferability to Developing Nations C. Conformity with the International Public Procurement Agreements VIII. CONCLUSION I. INTRODUCTION

   The benefits to a developing nation of structuring its procurement policies, rules, and institutions in a manner that ensures public funds are used efficiently are well understood. (1) When a government is consistently able to acquire the right item, at the right time, and at the right price, it can make more effective use of limited taxpayer funds--both to buy needed goods and services and to direct social and economic development. Nonetheless, outside of the successes of a few nations that are more aptly categorized as transitional rather than developing, the progress of procurement reform efforts in emerging and developing nations has been slow. (2)

   Among the least successful initiatives in procurement reform has been the effort to establish mechanisms by which disappointed offerors (3) can challenge the actions of public procurement officials that do not comply with established procurement rules. (4) Despite robust public procurement development efforts, few developing nations have produced effective bid protest systems. (5) Such public procurement development includes: efforts by the World Bank, the World Trade Organization, and other international organizations; incentives to gain membership in the Agreement on Government Procurement and other regional trade agreements that address government procurement; (6) and assistance offered by the United Nations Committee on International Trade Law (UNCITRAL) (7) in the form of its Model Law on public procurement.

   The reasons for the lack of success in this field are diverse. In some cases, national leaders, although reform-minded, do not have the political capital or will to take on the economic and bureaucratic powers that benefit from a public procurement status quo characterized by favoritism and/or corruption. (8) Thus, they do not pursue efforts to establish bid protest systems that are sufficiently strong and independent to consistently reveal and disrupt existing corrupt practices. In other cases, there is simply a dearth of people with the type of public procurement experience necessary to take on the task of establishing and running a centralized bid protest system. (9) Or, in nations that are able to establish seemingly stable bid protest systems, there may be difficulties finding the balance of efficiency and fairness (grounded in independence and due process) necessary to encourage bidders to invest the time and money required to challenge government decision makers.

   Despite the project's inherent difficulties, however, the quest to establish successful bid protest systems has proceeded apace. Why? Because, as Sue Arrowsmith notes, in order to have an effective procurement system "it is not sufficient that appropriate rules are in place: steps must be taken to ensure that they are applied." (10) Bid protest systems fill this important enforcement role. In the process, they also provide systemic transparency by giving disappointed offerors, independent third parties, and attorneys an opportunity to examine procuring agency records and decisions. From this enforcement and transparency come the fruit of increased contractor participation in the procurement marketplace, more competition, and, ultimately, better products and services for the government buyer.

   At a conceptual level, the fundamental considerations for designing effective bid protest systems are fairly well understood. Such systems are characterized by their speed and efficiency, the meaningfulness and independence of their review processes, and their ability to provide meaningful relief in appropriate cases. (11) When it comes to the task of actually devising and implementing systems that incorporate these elements, however, the path to success is less clear--as evidenced by the wide variation in the form, structure and success of the bid protest systems employed by the world's developed nations. Simply put, a developing nation faces a plethora of difficult choices at the design and implementation stage: How will it ensure overall efficiency and, in particular, speedy remedies? Who will have standing to file protests? What process will be afforded disappointed offerors? Which remedies will be available? How will these remedies be enforced?

   The most important of these choices, however, may well be that relating to forum structure--that is, who (procuring agency personnel, administrative board members, judges) will actually hear and decide bid protests? This structural element is significant for several reasons. First, the manner in which the review process is structured has great bearing on its overall speed and efficiency. For example, courts and administrative boards simply do not produce results as quickly as more informal, agency-level review bodies. Agency-level reviewers have direct access to the relevant data and decision makers, and they are usually empowered to take immediate action to correct improper agency actions. Moreover, unlike courts and boards, the agencies themselves have an economic incentive to resolve protests quickly and at the least possible cost. Second, the various forum options offer differing degrees of independence (i.e., immunity from external influence)--or at least perceived independence. Third, the nature of a protest forum or, more accurately, the makeup of its membership, can determine the extent to which its reviews are truly meaningful. For example, because courts and administrative boards often have diverse dockets, their members may be less likely to have the same public procurement expertise as procuring agency personnel who handle procurement matters on a daily basis.

   The decisive question for a developing nation, which this article examines, is which of the available structural options best integrates the essential elements of an effective bid protest system in the context of existing legal, political, cultural, and economic circumstances "on the ground"? The answer almost invariably given by the international organizations working on procurement reform is that nations should focus their efforts on developing review bodies that are external to the procuring agencies themselves-because such bodies are more likely to be independent. However, while the "independence is paramount" perspective is intuitively inviting, it may not be practically expedient for a developing nation. For while independence is a key component of any effective review system, it does not necessarily follow that the relative benefit of increased independence offered by courts and boards outweighs the benefits of speed, efficiency, expertise, and non-adversarialism offered by agency-level review mechanisms.

   The discussion below proceeds in six parts. Part H considers the purposes and fundamental requirements of an effective bid protest system. Part III examines the challenges that developing nations face in attempting to establish protest mechanisms. Parts IV and V discuss the bid protest systems enforced by various international public procurement agreements as well as those promoted by the World Bank and UNCITRAL. Part VI provides background on the agency-level bid protest procedures employed in the United States under the Federal Acquisition Regulation (FAR), Part 31.103.12 Part VII considers whether an agency-level review mechanism modeled after the U.S. system can suitably serve as a developing nation's primary forum for resolving bid protests and, at the same time, meet the demands of membership in the various international public procurement agreements. The article concludes that although the U.S. agency-level system is flawed in some respects, it offers a superb solution for developing nations.

2. THE PURPOSES AND ESSENTIAL ELEMENTS OF AN EFFECTIVE BID PROTEST SYSTEM

   In order to appreciate the challenges developing nations face in their efforts to establish effective bid protest systems, it is helpful to consider first why bid protest systems exist and what essential elements are required to make them work.

   1. Purpose of Bid Protest Systems

      Fundamentally, bid protest systems, like audit systems, serve a procurement oversight function. (13) They provide a means of monitoring the activities of government procurement officials, enforcing their compliance with procurement laws and regulations, and correcting incidents of improper government action. A bid protest mechanism typically accomplishes the oversight function by means of third-party monitoring. (14) Actual and prospective bidders are "deputized as private attorneys general" (15) and given broad authority to challenge the actions of procurement officials before specially-designated agency officials or administrative or judicial bodies empowered to remedy violations of the procurement rules. (16) Because protestors are motivated by direct economic interests in specific procurement actions, they generally provide more vigorous oversight than do auditors. (17)

      Practically speaking, bid protest systems provide oversight by way of both deterrence and correction. (18)...