I sometimes suggest that a government subcontract include a so-called “pass-through” dispute resolution provision, in which the prime contractor agrees to sponsor its subcontractor’s claims against the government. A recent Armed Services Board of Contract Appeals case demonstrates why pass-through provisions can be so important.
In its decision, the ASBCA held that a subcontractor lacked a valid claim against the government–and therefore, had no ability to pursue relief at the ASBCA.
The ASBCA’s decision in Shavers-Whittle Construction, LLC, ASBCA No. 60025 (2016) involved a multiple-award task order contract between the U.S. Army Corps of Engineers and DQSI corporation. In October 2010, DQSI subcontracted with Shavers-Whittle Construction, LLC to perform work under two of the task orders.
In October 2014, Shavers-Whittle wrote to the contracting officer to allege that DQSI owed Shavers-Whittle nearly $500,000. In later communications, Shavers-Whittle alleged that DQSI had obtained the prime contract by fraud, and argued that the Corps should terminate DQSI’s prime contract and settle with DQSI’s subcontractors. However, Shavers-Whittle’s letters did not demand that the Corps pay Shavers-Whittle any amount, nor did the letters include the certification required by FAR 33.207.
The Corps responded to Shavers-Whittle in April 2015. The Corps informed Shavers-Whittle that the prime contract would not be terminated, and encouraged Shavers-Whittle to “pursue your remedies through the Federal and State Courts enforcing the terms and conditions of your subcontracts.”
Shavers-Whittle then filed an appeal with the ASBCA. In its appeal, Shavers-Whittle sought “voiding” of the prime contract between DQSI and the Corps, as well as “payment of all monies due” Shavers-Whittle.
The Corps filed a motion to dismiss the appeal. The Corps argued that the ASBCA lacked jurisdiction because Shavers-Whittle was a subcontractor.
The ASBCA wrote that “[f]or the Board to exercise jurisdiction over an appeal under the [Contract Disputes Act], the appeal must be filed by a contractor . . . that is, a non-governmental party to a government contract.” Here, Shavers-Whittle “admits that it did not have a contract with the government,” and “invokes no recognized exception to the general rule . . . that a subcontractor cannot bring a direct appeal against the government.” The ASBCA granted the Corps’ motion and dismissed the appeal.
As the Shavers-Whittle case demonstrates, a subcontractor ordinarily lacks the ability to file a valid claim against the government, because the subcontractor does not have a direct contractual relationship with the government. It is not clear from the decision whether the subcontract between DQSI and Shavers-Whittle contained a pass-through provision, but if so, the parties did not use it here.
In many cases, a pass-through provision can eliminate the jurisdictional problems faced by subcontractors; in a pass-through claim, the prime contractor nominally is the claimant. Pass-through provisions can be beneficial to prime contractors too–after all, if the subcontractor is prohibited from filing valid claims against the government, the subcontractor is likely to bring those claims against the prime contractor, even when the government is really the one to blame.