GAO Bid Protests Filed by Incumbents: Ripe Challenges or Sour Grapes

FY26 NDAA Purports to Impose New Penalties on Incumbent Contractors Who File Baseless GAO Bid Protests

On December 18, 2025, President Donald J. Trump signed into law the National Defense Authorization Act for Fiscal Year 2026 ("FY26 NDAA"), authorizing a defense budget of over $900 billion for the coming fiscal year. Section 875 of the FY26 NDAA requires the Pentagon to implement procedures to penalize incumbent contractors for filing bid protests lacking "any reasonable legal or factual basis" at the Government Accountability Office ("GAO"). The apparent purpose of Section 875 is to deter incumbent contractors from filing reflexive GAO bid protests for the sole purpose of extending incumbent performance for the duration of such protests.

Congress has previously considered whether to impose penalties on unsuccessful protesters, but the FY26 NDAA marks the first legislation purporting to penalize incumbent contractors for filing unsuccessful bid protests. For the reasons discussed below, however, it appears unlikely that Section 875 will have a significant chilling effect on future bid protests by incumbent contractors.

GAO Protest Background

A GAO bid protest is a formal legal process through which an interested party may challenge various procurement actions, including an agency's evaluation and award decision. When a protest of an award is timely filed (generally within ten days of award or within five days of a required debriefing), the Competition in Contracting Act ("CICA") imposes an automatic stay of performance of the newly-awarded contract while the protest is pending. Confronted with an automatic stay, agencies typically extend the incumbent contractor's performance-either by exercising remaining options in the incumbent contract or otherwise executing a sole-source bridge contract to the incumbent. GAO operates under a statutorily mandated schedule, which requires GAO to render a decision within 100 calendar days of the protest's filing.

Because of CICA's automatic stay provision and the prospect of several months of additional performance, GAO historically has been an attractive forum for incumbent contractors seeking to continue their incumbent performance after losing the competition for the follow-on contract.

New Penalties in the Form of Withholding and Possible Forfeiture

Section 875 authorizes defense agency contracting officers to withhold up to five percent of the total amount that otherwise would be paid to the incumbent contractor during the pendency of a protest if the following conditions are met:

• The protest is filed at GAO, not at the agency or at the U.S. Court of Federal Claims.
• The protester is the incumbent contractor, meaning it holds a defense contract for goods or services that are the same as, or substantially similar to, those being acquired under the protested procurement.
• During the protest, the defense agency extends the incumbent contract or enters into a bridge contract with that incumbent contractor to continue performance because a CICA stay has been implemented.
• The payments subject to withholding are made under that extension or bridge contract during the pendency of the protest.

In short, if an incumbent defense contractor files a GAO protest challenging a follow-on contract award and continues performance under an extension or bridge contract during the protest period, the contracting officer may withhold up to five percent of the payments payable under that contract.

Moreover, Section 875 states that "payment amounts withheld … during a period of pendency resulting from a bid protest … shall be forfeited by the incumbent contractor upon the determination by [GAO] to dismiss such bid protest based on a lack of any reasonable legal or factual basis becoming a final determination." In other words, if GAO dismisses the protest based on a determination that the protest lacked any reasonable legal or factual basis, amounts that are withheld will be forfeited. A dismissal becomes final after the reconsideration period has expired or GAO has ruled on a request for reconsideration, whichever is later.

DFARS Implementation Within 180 Days

Section 875 requires the Pentagon to revise the Defense Federal Acquisition Regulation Supplement ("DFARS") within 180 days of enactment of the NDAA to implement the new procedures set forth in Section 875. Importantly, the FY26 NDAA itself does not impose an immediate withholding of contract payments; rather, its effect will depend on how DoD implements Section 875 through DFARS rulemaking.

Practical Implications for Defense Contractors

1. Limited Scope, Lack of Clear Impact

While Section 875 reflects a novel policy change that would appear to disincentivize incumbents from filing bid protests, it is not clear that it will have any such effect.

First, Section 875's penalties relate only to GAO bid protests of defense procurements that also involve contract extensions or bridge contracts for incumbents. Section 875 does not address civilian agency procurements, nor does it address protests filed in other forums, such as the Court of Federal Claims.

Second, and more important, the forfeiture provision of Section 875 applies only where a GAO protest by the incumbent is dismissed for "failure to state any reasonable legal or factual basis." Relatively few protests are dismissed solely on such a basis, which amounts to a finding that the protest in question was frivolous. By contrast, Section 875 does not call for forfeiture where an incumbent protest was denied on the merits or dismissed on another basis. Nor does Section 875 require forfeiture where GAO dismisses perhaps some-but not all-of an incumbent protester's grounds as lacking any reasonable legal or factual basis. Notably, in order to meet GAO's basic pleading standard, "protesters must provide, at a minimum, credible allegations that are supported by evidence and are sufficient, if uncontradicted, to establish the likelihood of the protester's claim of improper agency action." Warfighter Focused Logistics, Inc., B-423546, et al., Aug. 5, 2025, 2025 CPD ¶ 169 at 4 n.3; see also 4 C.F.R. § 21.5(f). Thus, protesters already are incentivized to avoid filing protest grounds lacking any reasonable legal or factual basis because GAO, applying its existing pleading standards, routinely dismisses such allegations at an early stage in the protest process. See, e.g., Roku Management Consulting, LLC, B-423683, July 29, 2025, 2025 CPD ¶ 165 (dismissing protest failing to meet GAO's pleading standards in response to the agency's request for summary dismissal).

1. Limited But Increased Financial Risk

While the prospect of ultimate forfeiture may be low, incumbent contractors must be aware of the prospect of a five percent withholding of revenue from a contract extension or bridge contract and should factor such a withholding into their business planning accordingly.

1. Key Implementation Questions Remain

The FY26 NDAA itself does not impose immediate penalties on incumbent contractors. Several questions regarding the new penalties will be answered only upon the Pentagon's implementation of Section 875 through forthcoming DFARS rulemaking. Most important, it remains unclear whether defense agency contracting officers will be directed to implement a five percent withholding with respect to all contract extensions or bridge contracts issued to incumbent protesters or whether contracting officers will simply have discretion to do so.

Conclusion

Section 875 of the FY26 NDAA represents a novel legal development impacting incumbent defense contractors as they consider whether, and where, to file bid protests. Ultimately, Section 875's impact is likely to be limited. Nevertheless, defense contractors should continue to monitor the Pentagon's implementation of Section 875.

Notably, Section 875 follows earlier congressional consideration of protest reform in Section 885 of the FY25 NDAA, which directed GAO and the Pentagon to propose changes to the bid protest process, including "loser pays" mechanisms that would shift protest-related costs to unsuccessful protesters. In response, in a July 2025 report to Congress (B-422717), GAO observed that bid protests of defense agency procurements have declined significantly over the past decade and explained that sufficient data was unavailable to develop reliable cost benchmarks for shifting protest-related costs. GAO proposed to clarify its pleading standard to emphasize that protest allegations must be supported by credible evidence but did not endorse the creation of a fee-shifting regime, noting that existing statutory authorities and procedures are designed to address protests lacking a substantial legal or factual basis. GAO's findings were the subject of a congressional oversight hearing in mid-2025, at which GAO officials testified regarding the report and the implications of cost-shifting proposals. Against that backdrop, Section 875 reflects a more limited legislative approach, focusing narrowly on payment withholding and forfeiture in specific incumbent protest scenarios.

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