On Federal government projects, when a dispute arises between a contractor and the agency on payment, the contractor typically submits a request for equitable adjustment to the contract price. If the agency disagrees, the contractor may then move forward with a formal claim under the Contract Disputes Act (“CDA”). The CDA requires that a contractor certify all claims submitted to the contracting officer in excess of $100,000. The certification must provide that the claim is (1) made in good faith, (2) the supporting data is accurate and complete to the best of the contractor’s knowledge and belief, and (3) the amount requested accurately reflects the contract adjustment for which the contractor believes the Federal government is liable. 41 U.S.C. 7103(b); Transamerica Ins. Corp. v. United States, 973 F.2d 1572, 1579 (Fed. Cir. 1992).
This process can be complicated if the claim is on behalf of a subcontractor when the subcontractor is not willing to certify its own claim, especially when the prime contractor questions the merits of the claim. The subcontractor is not in privity of contract with the agency, so if the subcontractor commences litigation or arbitration against the contractor, the agency will not be present in that action. This creates a risk that the contractor could be found liable to the subcontractor without the ability to pass through the claim to the agency in the appropriate CDA forum. So how does a prime contractor move forward against the agency under the CDA and certify a questionable subcontractor’s claim as “accurate and complete” in an amount for “which the contractor believes the Government is liable”?
Where certification of a claim by a contractor is made on behalf of one of its subcontractors, the certification is invalid unless the contractor believes it is based on good grounds. Transamerica, 973 F.2d at 1580 (Fed. Cir. 1992); United States v. Turner Constr. Co., 827 F.2d 1554, 1561 (Fed. Cir. 1987). However, the prime contractor’s certification need not be premised on how it evaluates the strength of the subcontractor’s claim. Turner, 827 F.2d at 1561. Turner Construction Co. explains:
“[H]ow the prime contractor itself would resolve the dispute should not be relevant to the certification issue; the prime contractor should not, through the requirement that it certify subcontractor claims, be used as a substitute for the contracting officer or the board in the determination of the merits of the submitted claims under the CDA.”
Id. The Federal Circuit has a liberal standard for what constitutes good grounds, and it recognizes that a contractor may not necessarily agree with its subcontractor’s claims. While care should be taken to avoid certifying a claim that the prime contractor knows has zero merit, a certification by the prime contractor for its subcontractor is allowed where reasonable minds may disagree on the strength of the claim. Again, how a contractor would decide a claim is not relevant to whether a claim filed on behalf of its subcontractor was properly certified. All that is required is that the contractor make an unqualified certification that complies with the CDA.Id.
Originally published as “OP-ED: Certifying subcontractor claims under the Contract Disputes Act” by the Daily Journal of Commerce, July 18, 2019.