Incumbents face new risks in filing bid protests under 2026 NDAA

The federal market inched a little closer to a “loser pays” setup for bid protests in the recently-signed 2026 National Defense Authorization Act.

The NDAA includes a provision that targets incumbent contractors who file protests after losing a recompete.

When a protest is filed, there is an automatic stay stopping work under the new contract. The work stays with the incumbent until the protest is resolved.

Whether true or not, there is a feeling in the market that incumbents protest a loss to get the stay and extend their time and revenue from the contract. Sometimes a bridge contract is awarded to the incumbent so the customer can continue work.

The 2026 NDAA will allow the Defense Department to withhold up to 5% of payments while the protest is being heard at the Government Accountability Office.

If the protest is dismissed due to a lack of any reasonable legal or factual basis, the government keeps the withheld payments.

DOD needs to develop regulations and go through a formal rulemaking process, as well as updates the Defense Federal Acquisition Regulations. The NDAA sets a six-month deadline for DOD to get the rules in place.

Stephen Bacon, an attorney at the law firm Rogers Joseph O’Donnell, said more companies could bypass GAO and go to the U.S. Court of Federal Claims.

“This provision only kicks in if you protest at GAO, so at least in high stakes incumbent protests, it may be that clients want to go to the court to avoid the potential penalty,” he said.

The decision to protest and what grounds to protest can be a complicated process.

“A lot goes into a protest strategy,” Bacon said.

In a protest at GAO, agencies only respond with information tied to specific protest grounds and they can heavily redact the information they provide.

Companies and their attorneys often follow a “kitchen sink” type of strategy.

“You file a protest on every evaluation factor, and price and best value,” Bacon said. “Because you’re not going to get the records of what happened if you don’t protest those factors.”

The new NDAA provisions could change the calculus, but it’s not known yet what will be considered a frivolous protest.

For example, a company could raise protests on four factors and GAO could dismiss one of them.

Will that NDAA provision kick in and penalize the company? This unknown could drive more companies to the courts, according to Bacon.

“At the Court of Federal Claims, it's a complete open book. The agency is required to produce the full administrative record of the procurement,” he said. “That's all the proposals submitted, all of the underlying evaluation materials, source selection decision document, all of it unredacted.”

The NDAA provisions do little to get at one big issue that drives many companies to file protests – poor quality of debriefings.

The Defense Department conducts what are called “enhanced debriefings,” where more information is turned over to the losing companies. But civilian agencies do not.

As a result, the number of protests involving defense contracts have fallen at a faster rate than the overall decline in protests.

“A lot of times clients want to protest just to get more information about what happened,” Bacon said. “That’s not the only reason but they feel like we don’t know what happened here, we think something is wrong and so it forces their hand into filing a protest.”

Unfortunately, the 2026 NDAA does nothing to address what is behind filing many protests in the first place.