Dispute over DLA’s Qualified Products List ends in court

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The Qualified Products List maintained by the Defense Logistics Agency turned ugly for one small business when it received a corrective action notice and things went down-hill from there. But the issues are about more than disputed small parts. For how it all ended up in court, procurement attorney Joseph Petrillo joined Federal Drive with Tom Temin.

Interview transcript:

Tom Temin: And Joe, you’re gonna have to walk us through this one because even though the details are maybe a little arcane, there is implication for every contractor in what happened here, isn’t there?

Joe Petrillo: Absolutely. As you mentioned, the Defense Logistics Agency runs the qualified products list. And in order to supply certain items to the Department of Defense, a contractor has to be, or subcontractor, has to be on that list for that product. And in order to get on the list, you’ve got to show that you’re going to be able to make the part and meet the quality requirements of the Department of Defense. You’re also subject to audit. And that’s where this case started. After an audit, a company called Lax Electronics doing business as Automatic Connector received some deficiency notices. And for some of their products, some connectors, they went ahead and tried to file a corrective action report saying what they do about them, but the situation went south from there. At least Automatic Connector claims that DLA didn’t take action on the reports. DLA then directed the company to file a deficiency notice with GIDEP, which is a automated platform for reporting quality and other problems with DoD parts.

Tom Temin: Defects and so forth go up on that GIDEP.

Joe Petrillo: Exactly. And Automatic said, no no there’s nothing wrong with our parts. So DLA kicked them off the QPL. Now they’re not in a position to supply those items to the Department of Defense. They went ahead and because they felt they had been treated unfairly by DLA, filed a bid protest case at the court of federal claims. Now, the government said that the case wasn’t within the jurisdiction of the court. And the issue here is whether or not the protester can show that the alleged violation of law was in connection with a procurement. And in this case, the Defense Department said, well this particular determination was resulting from an audit in general and not with regard to a specific procurement.

Tom Temin: Interesting, even though there was a long procurement history with that company.

Joe Petrillo: Exactly. And in terms of the law in this area, a 1999 case by the appellate court, the Federal Circuit, seemed to indicate that the test was fairly broad. But then in 2018, another case suggested that maybe the Defense Department was right, maybe you need to show a connection to a particular procurement for the violation. So the upshot was the trial court agreed with the government’s position and dismissed the case. They transfer the case to the federal district court in New York, because it might have had jurisdiction under the Administrative Procedure Act. I looked up the court records in New York just to see what happened and basically nothing much happened. But the company filed a separate case in New York, which was identified as related, in which they alleged that this whole thing was the product of a grudge that some inspector had from DLA with the companies and DLA inspector had some vendetta they wanted to exercise against the company. Well, be that as it may, the company appealed the dismissal of the case to the Federal Circuit.

Tom Temin: And it seems like we’re at halftime here, because what happened after that?

Joe Petrillo: Okay. So while the appeal was pending, and a lot of things were going on, the Federal Circuit decided another case we discussed some months ago, Acetris. That case concerned whether customs department, country of origin rulings were determinative under the Trade Agreements Act. But another issue that was addressed in that case was this question of in connection with a procurement. And in that case, the Federal Circuit expressed some doubt about the 2018 case, the Geiler case that the government had relied upon. As way of background, the Geiler case was issued as a non precedential opinion. So it didn’t bind what the court did in the future. And therefore, it’s kind of a very weak case to be relying on. The Acetris case set the stage though for what the court did in this situation. Basically, the Federal Circuit said that if you could point to procurements that you wanted to compete for, but couldn’t because of the alleged violation of law, and that especially is the case where you have repeated procurements like the connectors here, then you meet the test, and the court of federal claims has bid protest jurisdiction.

Tom Temin: Got it. So it came back to the original court with a ruling somewhere else saying yes, you do have jurisdiction. Therefore, you need to hear the Automatic Connector case that you originally kicked out.

Joe Petrillo: Exactly. So basically, the appellate court sent it back to the trial court and said, go ahead and proceed with this case and give the contractor his day in court on these allegations. There was a procedural issue that has to get resolved first, and that is the interested party test. But there I think the Acetris precedent helps as well.

Tom Temin: So therefore, Automatic Connector will get its day in federal district court.

Joe Petrillo: Absolutely. And the lesson here I think of greater application is that when you have disqualification on a programmatic sense that applies across the board, so long as you can show how that’s impairing your ability or preventing you from competing on specific government contracts, you’re going to be able to get your day in court in a bid protest suit.

Tom Temin: I guess this could also apply in General Services Administration multiple award schedule deals to where there might be repeat business on an ongoing basis from time to time. And suddenly you’re disqualified for some audit purpose.

Joe Petrillo: I think that’s right. I think that the intention here is that if the alleged violation of law is one that’s going to affect a procurement in a very meaningful way, then the presumption should be that the company should have a day in court on its allegations.

Tom Temin: And what is not resolved, though, I guess, here is the earlier issue of why the Defense Logistics Agency never responded to the company’s report responding to its original order to find out there’s some defect. And then that was followed up rather than a response by a disqualification. So it seems like there’s a process that the Defense Logistics Agency unfairly overlooked.

Joe Petrillo: Sure, well the contractor now has to prove its case and has to show that it was treated unfairly and inappropriately in this area. And well we’ll see what happens with that.

Tom Temin: And the court in New York that you cited that you looked into the history said there might have been a vendetta between an auditor and the company. And that seems like a place that the company should really try to pin its hat to because you can’t have vendettas, you have to just stick to the facts, right, when it comes to contractor dealings.

Joe Petrillo: Right. It’s very hard to prove that type of case. But there are situations in which the proof is is adequate and you can show that some personal antagonism has affected or caused a negative decision.

Tom Temin: And by the way, these types of connectors used in military applications can cost hundreds of dollars a piece, even though they’re only two inches across or an inch across. These are not things that you would be able to get normally at a place like Radio Shack, if there still was a Radio Shack.

Joe Petrillo: Exactly. Well, the military is an interesting customer for a lot of things that they’re buying. There’s a great deal of care taken to make sure that there’s no failure of an item because it could have catastrophic consequences.

Tom Temin: Joseph Petrillo is a procurement attorney with Petrillo and Powell in Washington. Thanks so much.

Joe Petrillo: Thank you, Tom.

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