Keep a Pass-Thru Claim Burning, Don’t Extinguish Liability

Prime contractors, have you ever submitted a subcontractor’s claim to a public owner? Subcontractors, have you ever wanted to submit a claim against the government, but you had no contract with the government?

Generally, if the prime has or could have at least some liability (even potentially), then the prime can “pass-thru” the sub’s claim against the government.

A pass-thru claim will fail if the prime has severed or extinguished all liability for the claim between itself and its sub. This can be done by language that may already be in the subcontract or by a later agreement of release or settlement.

But, the same subcontract with the right language or a later agreement between the prime and sub (e.g., liquidation agreement) can preserve liability to keep a pass-thru claim alive.

A short success story:

A prime contractor on a project in Slick Rock, Colorado for the U.S. Dept. of Energy agreed to remediate uranium mill tailings. The prime submitted a pass-thru claim by one of its subcontractors against the Government (the Sub’s claim “passed-thru” the Prime to the Government).

The Government’s efforts to dismiss the claim failed because the prime had to pay whatever recovery it got from the Government to the sub. Only when the recovered amount (no matter how small) was paid, by the Government to the prime and then from the prime to the sub, was the prime’s liability extinguished. Until that point, the fire of the claim kept burning.

M.K. Ferguson Co., et al. v. U.S., Ct. Fed. Claims, No. 12-57C (April 14, 2016)

Published On: July 12, 2017

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