GAO’s Pushback on Defense Bid Protest Fees: What It Means for Small Contractors
Congress keeps floating the idea—but GAO isn’t buying it. Despite years of pressure, the Government Accountability Office (GAO) still won’t support a “loser pays” rule in defense bid protests. That’s a big win for small and mid-sized businesses who rely on protests to challenge unfair awards without risking financial ruin.
At stake is whether small contractors should pay government costs or lost profits if they lose a protest. GAO just made it clear: not without a new law.
In plain terms, “fee-shifting” is a policy idea that would make protestors reimburse the government (and sometimes the awardee) if their protest fails. This idea shows up almost every year in Congress—most recently in the FY2025 NDAA (Section 885), which directed GAO to study a loser-pays model. The FY2024 version even proposed a three-year pilot. But none of these proposals have stuck. Every time, Congress has backed off before imposing actual cost penalties.
GAO’s newly released Section 885 report (July 2025) underscores why. The agency warned that fee-shifting would likely deter small businesses from filing protests at all—especially the smallest firms, which already face steep legal costs. GAO noted that more than 60% of its protest caseload comes from small businesses, and fee penalties “would likely be crippling.” The agency reiterated its neutral stance and emphasized that no internal policy change will happen without explicit legislation.
That’s not to say the issue is dead. The FY2026 NDAA (House version) includes a new twist: it would let the Department of Defense file a Contract Disputes Act claim against incumbent contractors if GAO dismisses their protest as baseless—essentially clawing back bridge contract profits. But this is narrowly targeted and doesn’t apply to all protestors. The Senate’s NDAA draft omits any such provision. For now, fee-shifting remains just a policy concept—not the law.
So why should small businesses care?
Because they’re the ones who protest the most—and often win. Between FY2021–FY2024, small businesses filed over half of all GAO protests. And while only about 16% were formally “sustained” last year, the real success metric is broader: roughly 52% of cases resulted in some form of relief (a win or agency corrective action). Those are real results, and GAO’s opposition to fee-shifting helps ensure those doors stay open.
Here’s what small contractors should keep in mind:
No current penalty for losing: Aside from legal and filing fees, you won’t owe DOD or the awardee a dime if your protest is denied—unless Congress changes the law.
Win = cost recovery: If your protest succeeds, GAO can order reimbursement for reasonable legal costs.
Better documentation matters: GAO is tightening its standards—protests now need credible, well-supported claims from day one. Keep detailed records.
Protest strategically: Consider alternative venues like agency-level protests when appropriate. GAO decisions typically take 100 days.
Stay alert: Fee-shifting isn’t active, but Congress could revive it. Track NDAA provisions—especially Section 818 of H.R.3838—and watch for new protest rulemaking.
Bottom line: GAO’s pushback is good news for small firms. It keeps the protest process affordable, fair, and accessible—without punishing those who step forward when something smells off in an award decision. While the conversation around protest reform isn’t over, GAO’s stance helps level the field for smaller competitors in defense contracting.
For insights on how CMMC is reshaping the future of defense contracts, check out our post :CMMC 2.0 Is Here—What Small Contractors Need to Do Now
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