Subcontractor “pass-through” claims, sponsored by a prime contractor against a public project owner, are both useful and controversial. A pass-through claim results from a claim liquidation agreement between the prime and the sub. The prime agrees to pursue the project owner, at the prime’s expense, for the subcontractor’s increased costs. The prime will pass through the recovery, if any, to the sub. In return, the sub agrees to accept only what the prime is able to recover from the owner and otherwise hold the owner harmless.
Pass-through claims have gained wide acceptance because they promote the settlement of claims and bring all the parties together in a single forum to resolve a dispute arising out of a single set of facts and contract documents. But pass-through claims are not viewed favorably in all circles. They expose public entities to liability to parties that never received a public contract. A recent Tennessee case held that pass-through claims are not allowed in that state.
Are pass-through claims an efficient claims administration tool consistent with sound policy on public projects? Or, is it inappropriate to expose public entities to contractual liability with regard to parties that don’t hold a public contract?
As always, I invite your comments below.
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Bruce Jervis, Editor
Construction Claims Advisor