There is a quiet way to discourage people from challenging the government, and it is not to forbid the challenge. It is to attach a price to it. Section 875 of the Fiscal Year 2026 National Defense Authorization Act, signed into law in December 2025, does exactly that. It directs the Department of Defense to revise the DFARS to create procedures for withholding up to five percent of payments owed to an incumbent contractor that files a bid protest at the Government Accountability Office and continues to perform under an extension or bridge contract while the protest is pending. If GAO later dismisses the protest for lacking any reasonable legal or factual basis, the incumbent forfeits the withheld amount. The DFARS implementation is due within 180 days of enactment, which puts the rule, and the protest risk calculus, in front of contractors right now.
The framing is about frivolous protests, and that framing deserves scrutiny, because, really, what does that mean? The stated target is the incumbent who files a weak protest not to vindicate a real procurement error but to trigger the automatic stay, hold onto the work through a bridge contract, and run out the clock. That behavior exists and those protests do occur and have occurred, and no one should defend it. But a rule justified by the frivolous case does not necessarily stay confined to the frivolous case. And that is where the problem lies. Thus, the question worth asking is not whether Section 875 can deter abuse. It is whether the rule, as it will actually be administered, also deters the protests the system is supposed to welcome–the ones that catch real agency error.
Start with the data, because the premise is shakier than the rhetoric suggests. GAO told Congress that DoD protests have declined roughly 48 percent over the last decade and that less than two percent of procurements are protested at all. GAO, asked by the FY2025 NDAA to study a loser-pays model, declined to recommend one. The agency closest to the protest system looked at the numbers and concluded the problem the rule addresses is not a growing one. A reform aimed at a shrinking sliver of activity, over the objection of the body that runs the process, invites the question of what it is really designed to do.
The mechanics are where the chilling effect lives, and they have to be read carefully. The forfeiture trigger, dismissal for “lack of any reasonable legal or factual basis”, is a high bar. Relatively few protests are thrown out as frivolous in that strict sense; that standard describes a protest with essentially nothing behind it. So if forfeiture were the whole rule, the practical reach would be narrow, and the defenders of the rule are right to say so. But forfeiture is not the whole rule. The withholding comes first, and the withholding does not wait for a frivolousness finding. The five percent is held back when the protest is filed and performance continues. The contractor feels the withholding regardless of how meritorious the protest turns out to be. Forfeiture is the rare outcome; the withholding is the routine one.
That sequencing is the point. A contractor deciding whether to protest does not get to assume its protest is among the strong majority that will never be called frivolous. It has to weigh a near-certain cash-flow hit, five percent of payments on the very work keeping it afloat during the stay, against the value of challenging an award it believes was decided wrongly. For a large prime, five percent of a bridge contract may be an irritant. For a small business whose margins are thin and whose bridge revenue is the bridge, a five percent withholding during the months a protest takes is the difference between a manageable quarter and a painful one. The deterrent does not fall evenly. It falls hardest on the contractors least able to absorb it, which are often the ones for whom the lost contract matters most.
The open questions in the statute make the chilling effect worse, not better, because uncertainty is its own deterrent. Section 875 does not say whether the withholding will be mandatory or discretionary. It does not say whether a contracting officer must withhold on every qualifying protest or only some, or whether a dollar threshold will separate the two. It does not resolve what happens on a partial dismissal–where GAO tosses some protest grounds as baseless but sustains the protest on others. Does the contractor forfeit because one argument failed, even though it was right about the rest and the award was in fact flawed? A contractor cannot price a risk it cannot define, and when the downside is unclear, the cautious move is not to file. Ambiguity deters more broadly than a clear rule would.
There is also a genuine statutory wrinkle that may narrow the rule or may become a fight. As enacted, payments may be withheld and forfeited only where the agency “was prohibited from awarding a new contract” under 31 U.S.C. 3553(c) — that is, the pre-award stay situation. But many protests are filed after a new contract has already been awarded, in which case the agency was not prohibited from awarding anything. Read literally, the rule may not reach the post-award bridge scenario at all. How DoD writes around that in the DFARS will determine whether Section 875 is a narrow tool or a broad one. The drafting choice, not the statute alone, decides the rule’s true scope– which is exactly why the rulemaking is the thing to watch.
None of this means a bid protest is a costless right that should never carry consequences. A protester who files something truly baseless to game the stay imposes real costs on the awardee and the agency, and deterring that is legitimate. But the protest system is not primarily an abuse problem. It is an accountability mechanism. The automatic stay and the right to protest exist so that the government follows its own procurement rules, and so that a contractor who watched an award go sideways has somewhere to point that out before performance is locked in. GAO’s own data on why it sustains protests, including flawed technical evaluations, unreasonable cost or price evaluations, describes real agency errors that protests catch. A rule that makes contractors think twice before filing does not only deter the frivolous protest; it deters the protest that would have surfaced a mistake the government would rather not have surfaced.
That is the heart of the concern. The value of a protest system is not measured only by the protests that are sustained. It is measured by the discipline the possibility of protest imposes on agencies that know their evaluations may be reviewed. When you raise the cost of filing, you do not just screen out the weak protests. You raise the threshold every contractor applies before challenging anything, including the awards that deserve a second look. The agency error that no one can afford to protest is not corrected. It is simply not contested. A quieter protest docket is not the same as a cleaner procurement system, and it would be a mistake to read declining protest numbers as proof that the rule is working when the more likely reading is that fewer challenges are being brought.
The practical takeaways for contractors: First, watch the DFARS rulemaking rather than the statute, because the implementing language — mandatory versus discretionary withholding, any dollar threshold, the treatment of partial dismissals, and how DoD handles the 3553(c) “prohibited from awarding” limitation — will decide whether this rule is a minor consideration or a real one. Second, if the rulemaking is open for comment, that is the moment to be heard; the final clause, not the headline, is what will appear in contracts. Third, in the meantime, build the five percent withholding into the business case for any protest involving a bridge or extension, and be honest about cash-flow exposure during the stay, especially for smaller firms. Fourth, do not let the rule deter a protest that has a genuine basis. The forfeiture standard is frivolousness, which a well-grounded protest does not meet, and a protest that catches a real evaluation error is exactly the kind the system is built to hear.
The government has a legitimate interest in deterring abuse of the protest process. What it does not have is a costless way to do it. Every dollar of friction added to the front end of a protest deters the meritorious challenge along with the frivolous one, because the contractor deciding whether to file cannot yet know which one it holds. If Section 875 is written narrowly, it may discipline the small set of bad-faith filings it was sold to address. If it is written broadly, it will quiet a great many challenges that the procurement system depends on hearing. The difference will be decided not in the statute Congress passed, but in the DFARS language DoD is drafting now ,and that is precisely why contractors should be paying attention before the rule, rather than after.
