Nov. 9 (Bloomberg) -- It’s easy for Bruce Kleinstein and his 30-employee company to escape attention in the $500 billion-a-year federal contracting market. Except at the U.S. government office that arbitrates contract disputes, where he’s known as a regular.
Kleinstein, 70, is president of Philadelphia-based Information Ventures Inc., which organizes conferences and designs websites for the Department of Health and Human Services. He’s filed 92 challenges with the Government Accountability Office in five years, leading all companies including top contractors such as Lockheed Martin Corp. and Boeing Co., according to GAO records provided to Bloomberg.
His cases have come during a surge in protests that may partly reflect heightened competition for a smaller pool of awards. Federal spending on contracts has been declining amid efforts to reduce the nation’s rising debt.
“We’re seeing an environment where government spending is decreasing, and it’s resulting in companies giving greater consideration to protesting,” Mike Mason, a Washington-based partner in the government contracts practice of Hogan Lovells US LLP, said in a phone interview.
Small firms such as Information Ventures have protested a range of alleged problems in the contracting process, from requirements that prevent full competition to being given too little time to submit a bid.
For Kleinstein, who earned a Ph.D. in chemistry and a law degree before starting his contracting company in the early 1980s, the challenges can be a way to help fix flaws in the system, he said in a phone interview.
“I see a lot of stuff that basically in an ideal world wouldn’t necessarily be done that way,” he said. “I may be just a queer duck. Probably I am a little bit of a teacher.”
The number of protests rose 19 percent to 1,708 in the year ended Sept. 30, 2011, from 1,434 in fiscal 2009, as spending on all federal contracts fell 3.6 percent to $531 billion, from $551 billion. Protests to the GAO have risen 64 percent since fiscal 2007.
The increase means the GAO, which also acts as Congress’s investigative arm, is dealing with a bigger case load without additional resources.
“We’re facing tremendous challenges,” Ralph White, the head of the GAO’s bid protest division, said in a phone interview. Protests probably increased again in fiscal 2012, which ended Sept. 30, White said. The agency hasn’t released its statistics for the year.
The rising number of protests is forcing the agency to focus on resolving as many cases as possible through negotiation, rather than by issuing written decisions, White said. When the GAO does rule, it may only address the most important aspects of a protest, he said.
“The fact that a law firm can spin out 87 separate issues doesn’t mean that you have to answer 87 separate issues in a decision,” White said. “We can’t possibly write about them all, and in fact it wouldn’t be a good use of public money to write about them all.”
The higher case load comes as the agency’s budget declined 4.6 percent to $542 million in fiscal 2012 from $568 million the prior year. The agency’s staff was poised to drop below 3,000 people this year to the lowest level in 75 years, the GAO said in a report.
Kleinstein has had “the added benefit of being right” in some of his protests, White said. “I think he has the right to be here.”
Air Force Tanker
The GAO has resolved spats over major weapon programs such as a $35 billion Air Force contract for aerial refueling tankers in which Boeing prevailed against rivals European Aeronautic, Defence & Space Co. and Northrop Grumman Corp. Yet disputes brought by the top contractors make up a disproportionately small share of the agency’s bid protest work.
The top 10 vendors, which received about 28 percent of total contract awards in fiscal 2011, filed 105 protests in the five-year period, or 1.5 percent of the total.
Companies typically file protests either to argue that the government improperly evaluated bids, or to object to the terms of a competition before a winner is decided. In Bloomberg’s analysis, multiple filings by a single company related to the same procurement were counted as one protest.
Among the top 10 contractors, L-3 Communications Holdings Inc. led with 20 protests, making the company eighth in total challenges. L-3’s complaints included a challenge of a $4.6 billion Army contract to provide translators and linguists in Iraq that was eventually awarded to a rival.
Jennifer Barton, a spokeswoman for New York-based L-3, declined to comment.
Northrop Grumman, maker of the Global Hawk drone, filed the second most protests among the top vendors, with 16.
The company “takes very seriously the decision whether to file a protest,” Randy Belote, a spokesman for Falls Church, Virginia-based Northrop, said in an e-mail.
“We carefully evaluate each matter, on a case-by-case basis, considering the merits of our legal position as well as the impact on the acquisition process and our customers,” he said.
By comparison, Chicago-based Boeing, the second-biggest U.S. contractor, filed three protests in the period. One of them successfully overturned the award of the tanker contract to rivals. Northrop Grumman eventually dropped out of the tanker competition, and Boeing beat EADS for the work.
“Protesting is like having a very sharp knife; you have to use it extremely carefully or it can have some unintended consequences,” Todd Blecher, a Boeing spokesman, said in a phone interview. “We look at it as reserving protests for those situations where it’s our conclusion that there’s strong evidence of a real problem in the acquisition process.”
It’s no surprise that the biggest contractors aren’t prolific protesters, according to Mason, the attorney at Hogan Lovells.
“Typically, sophisticated companies are reluctant to sue one of their best customers unless there’s very good reason to do so,” he said.
In one of Kleinstein’s victories at GAO, he successfully argued that the Centers for Disease Control and Prevention erred in deciding to award a contract for analysis of hazardous substances to one vendor instead of several. He also has lodged complaints without filing formal protests, once persuading an official to rethink a language-translation contract awarded on criteria that bidders weren’t given beforehand.
Kleinstein said he believes the Health and Human Services Department has gotten better at following procurement regulations, and as a result he’s filing fewer protests.
“This system that we have is probably the best system that exists anywhere,” he said. “While there are problems, they do get righted.”
The second-most-frequent protester, with 60 in the five-year period, is Jacqueline Sims, owner of JRS Management. The 20-employee company in Lawrenceville, Georgia, provides dental assistants, vocational teachers and musicians for religious services to the federal prison system and the military.
One U.S. agency attorney called her the most litigious person he had ever met, Sims said. Yet she said contractors shouldn’t shy away from protesting when the government doesn’t adhere to contracting rules. Some of her company’s success is due to her protest record, she said.
‘Fearful of Retribution’
“I feel that too many companies are fearful -- they’re fearful of retribution,” she said in a phone interview. “The overwhelming number of times that’s just not the case. Government officials for the most part conduct themselves in good faith.”
Many of Sims’ protests have objected to the terms of competitions rather than allege an improper award decision. Successful protests have helped her clarify her company’s obligations and avoid potential risks such as having to pay higher wages, she said.
One reason more protests are being filed may be that companies see protesting as a way to gain credibility at government agencies, said Larry Allen, president of Allen Federal Business Partners, a procurement consulting firm based in Arlington, Virginia.
Some vendors believe that “if they get the reputation of never protesting anything, then their bids might not be considered,” Allen said in a phone interview.
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