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Introduction
Just as private sector construction contracts may generate claims and lawsuits involving owners, prime contractors, and subcontractors that must be resolved across multiple "tiers," federal government construction contracts also generate multitier disputes Subcontractors working under federal prime contractors can face circumstances giving rise to claims against the government just the same as prime contractors But basic tenets of contract law, as well as the federal government contracting system, create unique challenges in pursuing subcontractor "pass-through" claims against the government, including lack of privity between subcontractors and the government, and unresolved legal questions regarding potential liability for submission of fraudulent pass-through claims Federal government contractors, and their lawyers, rely on generally accepted legal constructs governing contract disputes and claims against the government when navigating these pass-through claim challenges However, the landscape is complex, and the law is not static. Vigilant contractors and construction lawyers recognize that the government may exploit gray areas in the law relating to liability for fraudulent pass-through claims, and are therefore extremely cautious in certifying and pursuing pass-through claims
Below, this article: (I) provides a brief legal and conceptual summary of pass-through claims and liquidating agreements; (II) examines the need for careful analysis of pass-through circumstances and detailed liquidating agreements, with specific attention to several important agreement clauses; and (III) discusses potential liability for fraudulent pass-through claims, including a recent example of the government's aggressive prosecution of a prime contractor for passing through allegedly fraudulent claims notwithstanding applicable protections seemingly available under current law.
I. What Are Pass-Through Claims and Why Are Liquidating Agreements Important?
Contractor Claims Against the Government
The Contract Disputes Act of 1978 (CDA),1 as implemented by the Federal Acquisition Regulations (FAR),2 governs disputes arising under or relating to federal government contracts. Together, the CDA and the FAR set forth a comprehensive process for resolution of contractor claims against the government. In order to pursue and obtain any recovery from the government, the contractor must follow the CDA and FAR's specific dispute resolution requirements and procedures.
To initiate the CDA's dispute resolution process, the contractor must first submit a written "claim" to the contracting officer.3 While the CDA does not define the term "claim," the FAR requires that a "claim" be a "written demand or written assertion...