Federal Circuit Holds that Challenge to Agency Decision Removing Contractor from Government Supply List Falls within COFC’s Bid Protest Jurisdiction; LAX Electronics, Inc. v United States, Fed. Cir. 2020-1498

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Appeal of COFC decision dismissing a protest is vacated in part and affirmed in part. The contractor filed a protest with COFC challenging an agency decision to remove its parts from the government’s approved supply list. The COFC found that it lacked bid protest jurisdiction because the decision to remove parts from the list was not made “in connection” with a procurement as required by the Tucker Act. The Federal Circuit, however, held that protester had alleged sufficient facts to show that it but for its removal, it would have able to supply the government with parts in a continuous series of procurements. This was sufficient to fall within the “sweeping scope” of the Tucker Act’s “in connection with” language. The court affirmed dismissal of a second claim alleging violation of FAR provision, reasoning that the protester’s allegations did not actually articulate a violation of that provision.

LAX Electronics supplied electronic connectors to contractors and to the government. For many years the Defense Logistics Agency (DLA) listed LAX on its Qualified Parts List, which designates government-approved sources of supply. In 2019, DLA audited LAX’s facilities and found several violations of DLA’s standards related to electrical parts. DLA ordered LAX to stop shipment and production of certain connectors. LAX attempted to take corrective action to address DLA’s concerns, but to no avail. DLA removed two of LAX’s connectors  from its supply lists.

LAX filed a protest with the Court of Federal Claims challenging its removal from the list. LAX asserted two claims. First, LAX alleged DLA had removed its parts without complying with procedures in the Department of Defense Manual, which allows a supplier to correct an issue with item to the government’s satisfaction. LAX contended DLA had deprived the company of an opportunity to correct the problems with its connectors. Second, LAX alleged the DLA had failed to comply with FAR 9.205(a), which provides that when an agency determines a qualification requirement is necessary, the agency must give a company sufficient time to arrange for qualification before award. LAX claimed it had not been allowed an opportunity to qualify its connectors.

The government moved to dismiss LAX’s protest for lack of subject matter jurisdiction. The COFC granted the motion. With respect to LAX’s first claim alleging violation of the DoD Manual, the COFC found that the removal of LAX’s parts from the list was not made in connection with any identified procurement. Accordingly, it did not fall with the COFC’s bid protest jurisdiction under 28 U.S.C. § 1491. Although the COFC found that this claim fell outside of the court’s bid protest jurisdiction, it did not dismiss the case outright. Instead, the COFC transferred the claim to federal district court for the Eastern District of New York.

As to the second claim for failure to comply with FAR 9.205(a), the COFC found that LAX had failed to state a claim. The COFC reasoned that FAR 9.205(a) only applies when an agency decides to propose a new qualification. It does not apply when, as here, a previously qualified bidder is removed from a supply list. LAX appealed to the Federal Circuit.

The Federal Circuit reversed the COFC with respect to the first claim. The court reasoned that the phrase “in connection with” in 28 U.S.C. § 1491 is sweeping in scope. Any non-frivolous allegation of statutory or regulatory violation in connection with a procurement is sufficient to establish jurisdiction.

The COFC had based its decision on an unpublished Federal Circuit opinion, Geiler/ Schruddle & Zimmerman v. United States, 743 F.App’x 974. In that case, the protester challenged the revocation of its service-disabled veteran-owned small business status. The court found that the “in connection” requirement was not met because the protester had not challenged a specific procurement or even alleged it had been preparing a bid for a specific procurement that required SDVOSB status. Because the protester could not identify any future procurements on which it planned to bid, the COFC lacked bid protest jurisdiction.

But in this case, the court found that LAX had alleged far more the Geiler protester. LAX’s complaint alleged that the company had regularly sold its parts to DLA, that DLA regularly issued procurements for these parts, and that DLA had continued to issue procurements for these parts after LAX’s parts were removed from the supply list. This went well beyond the allegations in Geiler. LAX had established that it had supplied, and but for its removal would have supplied, a continuous series of government procurements. This was sufficient to establish COFC’s bid protest jurisdiction.

The court affirmed the dismissal of LAX’s second claim but not on the same grounds as the COFC. FAR 9.205(a) requires an agency to give a contractor time to arrange for qualification before award. The court reasoned that what LAX was challenging was not a denial of what FAR 9.025(a) requires. Rather, the gravamen of LAX’s claim was the DLA had failed to respond to is proposed corrective action before removing the company’s parts from the list, not that it had been denied time to qualify before any particular contract award. Because the facts alleged did not suggest an entitled to relief based on a violation of FAR 9.205(a), dismissal of that claim was appropriate.

LAX is represented by Justin Huffman of Camardo Law Firm, P.C.  The government is represented by Reta Emma Bezak, Jeffrey B. Clark, Deborah Ann Bynum, and Robert Edward Kirschman of the Department of Justice.

COFC - LAX Electronics