Subcontractors perform a substantial share of federal contract work. Yet when Government action causes additional costs, delays, or a disputed termination, the subcontractor may discover that it cannot pursue its claim directly against the federal agency.
The obstacle is contractual privity.
Ordinarily, the Government contracts with the prime contractor, not its subcontractors. Under the Contract Disputes Act, a subcontractor therefore generally cannot independently appeal a contracting officer's final decision as though it were the Government's direct contractual counterparty.
Two Armed Services Board of Contract Appeals decisions illustrate an important alternative.
In Racer Machinery International, ASBCA No. 64165, the Defense Logistics Agency awarded a contract to the Canadian Commercial Corporation, which subcontracted the underlying work to Racer Machinery.
Following a default termination, Racer attempted to pursue an appeal in its own name. The Government challenged jurisdiction because Racer was not the prime contractor.
The Board agreed that Racer could not remain the named appellant. However, the Canadian Commercial Corporation expressly supported the appeal, and the Board substituted that corporation as the appellant.
The dispute could continue through the Government's actual contracting party.
A related issue arose in The Haskell Co., ASBCA No. 64380, involving a subcontractor claim sponsored by the prime contractor.
The Government challenged the appeal on grounds including sponsorship and certification. The Board examined the parties' conduct and concluded that the prime's support was sufficient. It also held that a defective claim certification could be corrected rather than requiring dismissal of the appeal.
These decisions demonstrate that lack of privity does not necessarily eliminate a subcontractor's opportunity for recovery, provided the prime contractor properly sponsors the claim.
But there is a practical complication.
Sponsorship requires cooperation from a prime contractor that may have limited interest in the subcontractor's dispute. The prime may disagree with the claim, question the amount requested, face conflicting contractual incentives, or be unwilling to assume the costs and responsibilities of litigation.
That is why claim sponsorship should be addressed when the subcontract is negotiated—not after a dispute arises.
A well-designed subcontract should establish how potential Government-caused changes are reported, how supporting evidence is maintained, when the prime will submit or sponsor a claim, who controls prosecution and settlement, how legal costs are allocated, and how any recovery is distributed.
For monetary claims subject to Contract Disputes Act certification requirements, the parties must also address who provides the required certification and what factual support is necessary. A prime cannot simply disclaim its certification responsibilities because the subcontractor maintains the underlying records.
Subcontractors should maintain contemporaneous evidence of Government direction, delay, cost impacts, and communications. Prime contractors should establish a reasonable process for evaluating whether a proposed pass-through claim has legitimate contractual and evidentiary support.
Neither party benefits from discovering the absence of an effective sponsorship mechanism shortly before an appeal deadline.
The broader lesson is straightforward.
A subcontractor's ability to pursue Government-caused losses often depends as much on its relationship with the prime contractor as on the merits of the underlying claim.
Claims cooperation is therefore a material subcontract negotiation issue—not an administrative detail.
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Disclaimer:
This article provides general educational information and does not constitute legal or Contract Disputes Act advice. Subcontractor claims, sponsorship, certification, jurisdiction, appeal deadlines, and pass-through recovery depend on the prime contract, subcontract, applicable legal requirements, and particular facts.