Subcontractor Claims v US Part I

A subcontractor must be especially wary of performing services on a government project where payment is delayed, where it appears that the prime contractor may not be financially stable, or where payments from the government to the prime contractor cease or are in dispute. A subcontractor cannot count on being able to resort to filing a lien or direct claim against the government.

When a subcontractor would like to file suit against the U.S. government, what procedures must the subcontractor follow, and what obstacles will it face?

What follows is Part I of a two part discussion of both the procedural requirements and obstacles a subcontractor must consider when it evaluates a potential suit against the federal government.

Imagine that you entered into a contract with Contractor X under which you agreed to provide navigation systems for a large fleet of ships Contractor X is building. Contractor X contracted with the U.S. Navy to build the ships. You will be paid out of the funds the government provides to Contractor X in compensation for the project. After you have worked for three months obtaining and installing the navigation systems, Contractor X starts to get behind on its payments to you, and, eventually, its payments stop altogether. You have now installed six navigation systems without being paid. Contractor X has filed for bankruptcy, and you believe that in order to receive payment, you must file suit against the U.S. Navy.

First, pursuant to the Contracting Disputes Act, 41 U.S.C. §§ 7101-7109, § 7103 (2016), you must submit your claim, in writing, to the Navy’s contracting officer for a decision. If your claim is denied, you may appeal to the appropriate agency board of contract appeals or the Court of Federal Claims. (Note: If your claim is for more than $100,000.00 your claim may need to be certified, which creates additional issues).

In either forum, however, you face a significant jurisdictional problem. The Tucker Act waives the government’s sovereign immunity and grants the Court of Federal Claims jurisdiction over claims by contractors against the government. See 28 U.S.C. §1491 (a) (2012).

As a general rule, the Act does not provide the Court of Federal Claims with jurisdiction to hear claims brought by subcontractors directly against the federal government. G4S Technology LLC v. United States, 779 F.3d 1337 (Fed. Cir. 2015). You face the same problem if you attempt to bring your appeal to the agency board. See, Johnson Controls, Inc., 713 F.2d 1541. In other words, because you likely do not have privity of contract with the federal government, there may be no forum that will hear your case.

There are a few ways in which you may be able to avoid the jurisdictional problems altogether. A subcontractor’s claims can be sponsored or certified by the prime contractor and brought in the prime contractor’s name. Or, a prime contractor can include its liability to a subcontractor in its own claim for damages against the government.

Additionally, a prime contractor is required to obtain a Miller Act payment bond on construction contracts for public buildings. Pursuant to the Miller Act, a subcontractor can bring an action in district court against the prime contractor. The Miller Act thus affords a subcontractor recourse other than by direct action against the government in some cases.