By Bruce Jervis
A prime contractor’s sponsorship of a subcontractor’s claim is an expeditious way to resolve disputes involving significant subcontractor costs. Under these arrangements, frequently referred to as pass-through agreements, the prime asserts a claim against the project owner which includes the costs incurred by the sub. The prime passes through to the sub the money recovered from the owner, if any, attributable to the sub’s work. The subcontractor in turn waives any other claim against the prime contractor.
The sponsorship of subcontractor claims has been controversial among public project owners. Owners argue that they have no contractual relationship with a subcontractor and are not subject to claims by the sub, even indirect claims asserted by the prime contractor. Many public works dispute resolution mechanisms are expressly limited to parties in contract with the project owner.
Claim sponsorship agreements have gained acceptance in the public sector, however, primarily because they are an efficient way to resolve disputes involving multiple parties. The federal government has long allowed pass-through claims. And the states are following suit. A Texas court recently ruled, for the first time, that a prime contractor could sponsor a pass-through claim against a municipal project owner.
I’m interested in feedback from prime contractors, subcontractors and public project owners. What has your experience been with sponsored pass-through claims? Are they the expeditious claim resolution device endorsed by many? Or are there pitfalls and inequities inherent in these claims? I welcome your comments.