Filing a bid protest and ultimately recovering bid preparation and proposal costs after winning may not be a primary concern for contractors as they pursue a new contract. However, a recent Court of Federal Claims decision provides useful, but often overlooked, guidance for government contractors hoping to recover costs in such situations. This blog summarizes the Court’s decision in ARxIUM, Inc. v. United States [1] and suggests best practices for contractors to maximize cost recovery and improve bid preparation processes in the future.

ARxIUM comes on the heels of a successful protest. In the initial protest, the Court found that the agency arbitrarily excluded the protester from the competitive range. The agency thereafter took corrective action by amending the solicitation in a manner that precluded the protester from competing for award. The Court concluded the protester was entitled to award of bid preparation and proposal costs and directed the protester to submit to the government “a detailed reckoning” of such costs. The Court requested that the parties return to Court only if they could not reach an agreement on the amount of the recovery.

The protester sought to recover $80,164.48, which it broke down into three cost buckets: (1) employee time and labor, (2) legal advice and counsel, and (3) opportunity costs. The government agreed to pay a majority but not all of the first category of costs and did not agree to pay any costs from the remaining two categories. So the parties returned to the Court.

The Court generally agreed with the government’s position and awarded the protester $20,442.74, approximately one quarter of the amount it sought:

Regarding employee time and labor costs, the Court found that although the protester “did not keep time records like a law firm, records in this form are not necessary to support a small business’s request for proposal costs.” The protester provided “the fully burdened hourly rate for each of the ARxIUM employees who worked on plaintiff’s proposal,” “descriptions of the time spent by ARxIUM employees in preparing the proposal,” and a declaration describing “the work performed and the reasonable methodology . . . adopted to estimate the time taken to perform the various tasks involved.” Given this support, the government “agree[d] with nearly ninety percent of the employee costs” and the Court found the costs “well-explained, documented, and justified.” The Court, however, declined to award any recovery for costs incurred after the agency had revised the solicitation and which “did not result in a revised proposal submission.”

Regarding the legal advice and counsel costs, the government argued that the protester could not recover such costs because “legal fees are only recoverable under the Equal Access to Justice Act, 28 U.S.C. § 2412.” The Court disagreed, noting there may be “otherwise proper circumstances” in which a protester may recover bid preparation and proposal costs for work performed by an attorney—although the Court declined to identify any such circumstances. The Court, however, held that the protester was not entitled to the legal fees it claimed because it incurred those costs after it had submitted its proposal and, thus, the costs were not considered proposal preparation costs.

Regarding the opportunity costs, the Court squarely rejected the protester’s claim, holding such costs would represent a “double recovery” and liked the claim to one for “lost, anticipated profits”—a type of recovery that is not available in bid protests.

No contractor ever wants to file a protest, but protests are a typical part of the procurement process. To ensure that your company can recover as much as possible in the event of a successful protest, ARxIUM suggests you keep as detailed a record as possible of all proposal preparation activities. Having a system in place prior to pursuing a contract, which allows employees to track time contemporaneously, is desired but not required for recovery. At a minimum, contractors should be able to identify specific employees and corresponding fully burdened rates, describe the tasks those employees performed (making sure to only account for the time spent preparing, submitting, or supporting the proposal efforts), and reasonably estimate for how long each employee performed those tasks. It is also important to keep records of any proposal preparation work that other “agents,” potentially including attorneys, perform, as those costs may be recoverable as well. Finally, a successful protest does not entitle a contractor to lost profits or “opportunity” costs.

Even if your company does not end up protesting a procurement, diligently tracking the time spent preparing proposals is not an exercise in futility. The extra data may reveal inefficiencies and help improve proposal preparation processes, which may ultimately result in more contract wins.

While the discussion of bid and proposal costs in ARxIUM was tangential to the merits and could be overlooked, it contains nuggets of gold for contractors. If you have questions about filing a bid protest or bid protest-related matters, please contact Katie Burrows or Eric Valle, the authors of this blog, or another member of PilieroMazza’s Bid Protests or Government Contracts practice groups.

[1] ARxIUM, Inc. v. United States, No. 17-1407C, 2023 WL 1428625 (Fed. Cl. Jan. 24, 2023)