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    Government Contracting Database

    Subcontractor Claims and Prime Contractor

    A subcontractor is not permitted to submit a claim directly since the subcontractor is not in privity of contract with the government. However, a subcontractor may present a claim through the sponsorship of the prime (the claim remains in the name of the prime). The act of attaching an SF 1411 to a subcontractor’s cost submission places a prime contractor in a position similar to a contractor certifying a subcontractor claim. Significantly, the Board has held that:

    In the usual government construction contract, the prime contractor is not required to assist in the government’s defense of a claim by the subcontractor nor must the contractor wholly agree with every part of the claim in order to submit the subcontractor’s claim to the government. The 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. Turner Construction Company for and on behalf of Industrotech Constructors, Inc., ASBCA No. 25447, 84-1 BCA ¶ 16,996; see also M.K. Ferguson Co. v. United States, No. 12-57 C, 2016 WL 1551650, at *7 (Fed. Cl. Apr. 14, 2016).

    It is important for a prime contractor not to file a claim on behalf of a subcontractor for an amount which exceeds the prime’s potential liability to the subcontractor. The government cannot be liable to the prime contractor for any more than the prime’s liability to the subcontractor. Contractors who ignore this requirement risk prosecution for fraud.

    In many cases, a prime contractor will seek to settle its underlying dispute with the subcontractor as a condition to sponsoring the subcontractor’s claim before the government agency (subject to the warning in the previous paragraph). Such an agreement, which usually includes a release, is accomplished through a settlement agreement known as a “liquidating agreement.”

    Updated: August 8, 2018

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