The general rule is that a subcontractor cannot bring a claim against the government unless it has contractual privity with the government or is an intentional third-party beneficiary of an agreement. However, subcontractors can typically bring claims against the government if a prime contractor brings the suit on behalf of the subcontractor as a pass-through or sponsored claim. The following case demonstrates the importance for a subcontractor to determine early on what parties it may potentially file a claim against and if it will be able to bring the claim against the government.
A design builder was selected by the United States Army Corps of Engineers to design and construct family housing in Alabama. The design builder entered into a subcontract with a subcontractor to complete the electrical work on the project, but the design builder eventually defaulted on its contract with the Corps and its surety took over the work. The surety hired another contractor to complete the project. The surety executed two agreements with the subcontractor. The first assigned its subcontract to the contractor and the other released the surety from any claims the subcontractor had against it.
The subcontractor completed its work and claimed it was never fully compensated for various change orders. The surety ended up filing a claim for an equitable adjustment with the government, and the government settled the claim with the surety. The subcontractor subsequently sent a claim to the surety seeking payments of over $500,000. The surety responded by stating the majority of the amounts due had been paid, leaving a balance of only approximately $1,000. The subcontractor met with the Corps’contracting officer to try to resolve the payment issues. The contracting officer informed the subcontractor it had no authority to help the subcontractor recover the payments and that the Miller Act was the appropriate remedy for nonpayment by the surety.
The subcontractor then filed a request for help from the Army Services Board of Contract Appeals, which determined it lacked subject matter jurisdiction because the subcontractor was not a contractor as required by the Contracts Dispute Act (CDA). The subcontractor eventually filed suit in the United States Court of Federal Claims seeking monetary relief from the government under the subcontract. The government filed a motion to dismiss, arguing the court lacked subject matter jurisdiction over the contract claims.
The government argued the subcontractor lacked privity of contract and could not bring a claim under the CDA, also asserting the court had no ability to exercise jurisdiction over the claim. The subcontractor conceded it lacked privity of contract with the government, but argued that absent privity a subcontractor may bring claims against the government if the prime contractor brings suit on behalf of the subcontractor as a pass-through or sponsored claim. The subcontractor argued the surety’s settlement with the government constituted a pass-through claim that entitled it to a portion of the settlement proceeds. However, the surety was not a party to the suit filed in the federal claims court, and it maintained it was not liable to the subcontractor for the damages it sought, both of which were required for a valid pass-through claim. The court granted the government’s motion to dismiss for lack of subject matter jurisdiction because the subcontractor lacked privity of contract with the government and there was not a valid pass-through or sponsored claim.
Montano Elec. Contr. v. United States, 114 Fed. Cl. 675, 2014 U.S. Claims LEXIS 105 (Feb. 20, 2014).