The GAO's Bid-Protest Mechanism: Effectiveness and Fairness in Defense Acquisitions?

Abstract:     
What are bid-protests? What functions do they perform? This article proposes that government contracting, especially the source-selection process, gives rise to a particularly intractable set of transactional hazards: governmental opportunism, involving elected officials and public employees, and third-party opportunism, involving businesses engaged in protesting decisions made by public employees. It shows how the first of these hazards can be addressed by third-party intervention and how third-party intervention leads to third-party opportunism. It argues that existing arrangements governing the source-selection process, primarily the GAO’s bid-protest mechanism, effectively mitigate the consequences of governmental opportunism and, owing to this mechanism’s design, reduce the direct harm resulting from third-party opportunism as well. More formally put, it concludes that this mechanism works to minimize the sum of the costs of opportunistic behavior in the source selection process and of the costs of protecting against it and, therefore, that these governance arrangements are effective solutions to the idiosyncratic transactional hazards associated with government contracting.

Number of Pages in PDF File: 25

Keywords: Governance, Bid protests, GAO, Defense acquisition, Procurement, Fairness, Opportunism, Transaction costs

JEL Classification: H57, H83

working papers series