Can a subcontractor submit federal claims?

A company representative raised the following issue: Can a subcontractor on a government contract submit a claim directly against the U.S. government? If so, what are the procedures?

Claims against the federal government that are based in contract are governed primarily by the Contract Disputes Act of 1978 (41 U.S.C. & Sect; 601-613). According to the CDA, "All claims by a contractor against the government relating to a contract shall be in writing and shall be submitted to the contracting officer for decision." [41 U.S.C. & Sect; 605(a).]

A federal contracting officer must issue a decision on any claim of less than $100,000 within 60 days of receiving a contractor's written request. [41 U.S.C. & Sect; 605(c)(1).] When a contractor's claim is for more than $100,000, the contracting officer has 60 days from the receipt of the certified claim to "issue a decision or notify the contractor of the time within which a decision will be issued." [41 U.S.C. & Sect; 605(c)(2).] A failure by the contracting officer to issue a decision on a claim within the required period will be deemed as a decision by the officer to deny the claim. [41 U.S.C. & Sect; 605(c)(5).]

For most types of contracts once the contracting officer has issued a final decision— or there is a deemed denial— the contractor may seek further review in two forums: A contractor may file an appeal with the appropriate agency board of contract appeals within 90 days from the receipt of the contracting officer's final decision (41 U.S.C. & Sect; 606), or the contractor may initiate an action in the U.S. Court of Federal Claims within 12 months from receipt of the contracting officer's final decision. [41 U.S.C.

& Sect; 609(a)(1) and (3).] The Court of Appeals for the Federal Circuit has exclusive jurisdiction over appeals from final decisions of agency boards and from final decisions of the Court of Federal Claims. [28 U.S.C. & Sect; 1295(a)(3)-(4).]

Direct subcontractor claims are not authorized by the CDA because there is no "privity" of contract between the government and the subcontractor. Specifically, there is no direct relationship between the parties. [See United States v. Johnson Controls Inc., 713F.2d 1541 (Fed. Cir. 1983).]

A subcontractor can make a claim against the government only if it is authorized or "sponsored" by the prime contractor. (See Batteast Construction Co., ASBCA No. 30452, 89-3 BCA : 21,933.) A prime contractor can sponsor a subcontractor's appeal only if the prime contractor may be liable to the subcontractor for the amounts claimed. If the subcontractor releases the prime contractor from liability, the prime contractor cannot pursue an appeal in behalf of the subcontractor. [Severin v. United States, 99 Ct. Cl. 435, 442-43 (1943).]

However, this "Severin Doctrine" can be defeated by a "conditional payment provision" that reserves the subcontractor's claim against the prime contractor to the extent that the prime contractor may recover from the government. (See Hardrives Inc., No. IBCA-2319, 93-2 BCA : 25,779.) Furthermore, the Severin Doctrine is limited to claims that the government has breached its contract with the private party. It is inapplicable to claims for equitable adjustments asserted under the express remedies clauses, such as the "Changes Clause" found in most government contracts. (See Caddell Construction Co., ASBCA No. 46231, 95-2 BCA : 27,772.)

The courts and boards of contract appeals will look to the totality of the evidence to determine whether a subcontractor claim has been sponsored by the prime contractor. (See Algernon Blair Industrial Contractors, ASBCA No. 25277, 83-2 BCA : 16,737.)

Ordinarily, sponsored subcontractor appeals are pursued in the name of the prime contractor. However, a timely appeal filed in the name of the subcontractor may be sufficient to establish jurisdiction as long as the prime contractor's sponsorship can be shown. (See Foster Co. of Greenville, ASBCA No. 28955, 84-2 BCA : 17,481.)

An interesting dilemma arises in these cases with respect to the CDA's requirement that the "contractor" must certify all claims over $100,000 as accurate, complete and duly owed to the contractor. These certifications must be made by the prime contractor. A certification by the subcontractor is insufficient. (See Raymond Kaiser Engineers Inc./Kaiser Steel Corp., a Joint Venture, ASBCA No. 34133, 87-3 BCA : 20,140.)

However, in such cases the courts and boards have held that the prime contractor is not required to "wholly agree with every part of the claim in order to submit the contractor's claim to the government." (See Turner Construction Co., ASBCA No. 25447, 84-1 BCA : 16,996.) Rather, the prime contractor is "only required to believe at a minimum that there is good ground to support the subcontractor's claim. Good ground does not mean that the prime contractor must consider the claim certain; it merely means that the claim is made in good faith and is not frivolous or a sham." [See Tayson Construction Co., ASBCA No. 41016, 91-2 BCA : 23,710 (quoting Turner Construction).] However, when a certification is required, the prime contractor must use the prescribed language in its certification.

Peckinpaugh is a member of the government contracts section of the law firm Winston & Strawn, Washington, D.C. Readers are encouraged to submit topics by e-mail to carl@carl.com.