This is the sixth of an eight-part series addressing cutting-edge strategies for Certified Claims under the Contract Disputes Act (CDA). Certified Claims are the primary avenue available to government contractors to recover damages due to changes, delays, inefficiencies, and other government-caused issues – a particularly important point for contractors seeking to maintain positive cashflow while facing the prospect of an economic slowdown or recession.
As discussed elsewhere in this series, the CDA offers contractors a jurisdictional avenue to bring Claims when the government causes time/cost impacts on a federal project. Such Claims rarely exist in a vacuum – those government impacts inevitably flow down and affect subcontractors providing services on the project.
A subcontractor (which has a direct contractual relationship with the prime) does not hold a contract with the government and therefore (in the vast majority of cases) may not bring a direct CDA Claim. However, that does not necessarily mean that subcontractors lack a remedy for the impacts that they experience during the project.
It is important for both prime contractors and subcontractors to understand how to effectively navigate the contract disputes process and prepare/pass through properly vetted subcontractor claims.
Direct Subcontractor Claims against the Government
The nature of subcontracts on federal projects usually does not allow for direct claims by a subcontractor against the government. In fact, it is the official policy of the government to not deal directly with subcontractors.
However, in rare and limited cases, the Court of Federal Claims and Boards of Contract Appeals have found that a subcontractor may bring a direct claim against the government. The key is a direct relationship with the government – but again, those circumstances (which typically arise through direct government action or approval of third-party beneficiary status) are very rare.
Indirect or Pass-Through Subcontractor Claims
The vast majority of subcontractor claims will be indirect or pass-through claims sponsored by the prime contractor.
For a prime contractor to sponsor a claim, following elements must be considered:
- Sponsorship: A recent ruling by the Armed Services Board of Contract Appeals found that the prime contractor appropriately sponsored the claim that had been prepared by the subcontractor’s attorney. The claim was signed by the prime contractor and placed on the prime contractor’s letterhead. Therefore, the Board concluded that the subcontractor “properly brought its claim through and with the consent of [the prime contractor], and in [the prime contractor]’s name.”
- Claim Vetting and Validity: Claims that are mere disputes between a prime contractor and its subcontractor are not valid claims to bring against the government. It is an important part of the prime contractor’s role to evaluate subcontractor claims to ensure that they are properly asserted against the government and made in good faith.
Key Takeaways for Subcontract Drafting and Review
Contractors may not have future disputes in mind when drafting or reviewing subcontract agreements – but they should. Seemingly routine subcontract provisions can have a major impact on a subcontractor’s ability to recover future damages.
Most notably, under the Severin Doctrine, a broad exculpatory clause included in a subcontract can negate the contractor’s ability to sponsor an otherwise valid subcontractor claim. If the subcontract makes the contractor immune from any liability to the subcontractor, then Courts and Boards hold that there is no harm to the contractor (and therefore no controversy to litigate against the government under the CDA).
The Severin Doctrine has some notable limitations, so it is important for subcontractors to carefully review all subcontract provisions. An appropriate initial review of the subcontract can help facilitate the pass-through claim and dispute resolution process in the future.
Come back next Tuesday (December 13) when I’ll discuss the role of the CDA in CPARS performance evaluations.
Nick Solosky is a Partner in Fox Rothschild’s Government Contracts Practice Group. You can reach Nick directly at NSolosky@FoxRothschild.com or 202-696-1460.