When subcontractor claims arise on a federal contract, it is not uncommon for the prime to then assert those claims as pass-through claims against the government. In such circumstances, it is important for subcontractors to remember that while they have rights to proceed against the prime contractor for those claims, it is ultimately up to the prime contractor whether to prosecute the claims as pass-through claims against the government. And if the prime does pass-through the claims, and the claims are denied, it is ultimately up to the prime whether to appeal that decision. If the prime refuses to appeal, the subcontractor cannot file an appeal on its own.
Recently, in Binghamton Simulator Co., the Armed Services Board of Contract Appeals (ASBCA) dismissed a subcontractor’s attempt to directly appeal from a contracting officer’s decision denying the subcontractor’s pass-through claim. In that case, the prime contractor refused to sponsor the subcontractor’s appeal, even though (according to the subcontractor) the disputes clause of its subcontract required the prime to sponsor the appeal. In dismissing the subcontractor’s appeal, the ASBCA noted that it was irrelevant whether the subcontract required the prime to sponsor the appeal, because ASBCA did not have jurisdiction to resolve a dispute between a prime contractor and its subcontractor regarding interpretation of the terms of their subcontract. For ASBCA, the only issue was whether the prime had sponsored the appeal, and because it had not the appeal had to be dismissed.
From a subcontractor’s perspective, this case does not lessen the need for including a clause in the subcontract requiring the prime to sponsor an appeal of a pass-through claim. If such a clause exists, and the prime refuses to pass-through the claim to the government, the subcontractor all of a sudden has an easier breach of contract claim to make against the prime. From a prime’s perspective, this case highlights that primes may not always want to automatically pass-through (and appeal) every claim that a subcontractor asserts. A prime should diligently assess the merits of any subcontractor claim before passing it on to the government. The prime should also consider the risks of not passing the claim through (likely that prime would stand in the government’s shoes if sued by the subcontractor), versus the risks and disadvantages of passing the claim through (such as impairing the prime’s relationship with the government).
Image courtesy of Flickr (licensed) by Mark Fischer