Subcontractors beware. The Maryland Court of Special Appeals has recently ruled that a subcontractor on a federal project may have to avail itself of a pass-through claim against the government rather than pursue its remedies in a direct claim against the general contractor. In Skanska v. Smith Management Construction, the Court of Special Appeals held that where the general contractor claimed that a portion of the subcontractor's claim may be the result of actions by the government, the subcontractor was bound by the construction claims process under the Federal Acquisition Regulations. It could not proceed directly against the general contractor in court. The court reasoned that the contract language suggested that if the general contractor alleged that the government bore some responsibility for the subcontractor's claim for entitlement then the subcontractor had to pursue its remedies under the Contract Disputes Act set forth in FAR. Consequently, the subcontractor had to pass through its claim and certify it to the contracting officer. If the subcontractor was dissatisfied with the result, it could appeal to the appropriate board of contract appeals or proceed in the Federal Court of Claims.
Significantly, the court noted that the mere contention by the general contractor that the subcontractor's claim was a governmental dispute divested the state court of jurisdiction to consider the subcontractor's claim against the general contractor. Furthermore, the court noted that the nature of the claims, which were for increase to the gross maximum price and for time, were governmental issues, which also created a governmental dispute.
There are inherent risks for a subcontractor in proceeding with a pass through claim. First, the Severin doctrine may preclude a subcontractor's recovery where the owner can show that the subcontractor would have no right to recover against the general contractor. Furthermore, the subcontractor's claim may be presented with other claims and ultimately result in a global settlement irrespective of whether there exists more merit to the subcontractor's particular claim. Ultimately, a subcontractor must be aware of this risk before entering into a contract. For further information, contact Matt Hjortsberg at 410-583-2400
