Section 875 of the FY 2026 National Defense Authorization Act required the Department of Defense to revise the DFARS by June 16, 2026, to establish procedures for withholding up to five percent of payments to incumbent contractors that file GAO protests. The deadline has now passed without a published rule, leaving the statutory withholding authority in place without implementing procedures.
The 180-day window imposed by Section 875 of the FY 2026 National Defense Authorization Act expired on June 16, 2026. Section 875, signed into law on December 18, 2025, directed the Secretary of the Department of Defense (DoD) to revise the Defense Federal Acquisition Regulation Supplement (DFARS) to establish procedures under which a contracting officer may withhold up to five percent of payments owed to an incumbent contractor during the pendency of a protest filed with the Government Accountability Office (GAO).
The five percent withholding under Section 875 applies only when there is an incumbent contractor who has filed a protest with the GAO triggering a stay with an extension or bridge contract. The withholding is capped at five percent during the period of pendency (i.e., period of performance under a contract that was awarded or extended), with amounts permanently forfeited if the GAO dismisses the protest for lacking any reasonable legal or factual basis. Since Section 875 applies only to protests at the GAO, a protest filed at the Court of Federal Claims does not activate the withholding, even if the protester is the incumbent or where the agency extends the prior contract pending resolution.
The statutory authority for the withholding remains in place without the implementing procedures, leaving several questions unresolved. First, the statute authorizes withholding but does not specify whether contracting officers are required to impose the hold or whether they retain discretion to waive it in particular circumstances. Second, the statute does not establish when and how a contractor may be notified of a withholding, what documentation the contracting officer will generate justify the decision, and what internal approvals are required before invoking the authority. Third, there is no procedure in place for partial dismissals: If the GAO dismisses some (but not all) grounds for protest, it is unclear how an agency should handle forfeited amounts. Until the Department of Defense publishes the DFARS revision, incumbent contractors should monitor the proposed or interim DFARS rules for procedures implementing Section 875.
Source: Section 875, National Defense Authorization Act for Fiscal Year 2026, Pub. L. No. 119-60 (Dec. 18, 2025) Read the statute.