With sequestration and the fiscal cliff looming, we predict that prime contractor and subcontractor Contracts Disputes Act (“CDA”) claims will be on the rise. As most government contractors know, a subcontractor cannot submit a CDA claim directly against the government. Instead, the prime contractor must submit the claim to the Contracting Officer, thereby sponsoring the subcontractor’s claim. As the ASBCA’s decision in Appeal of AM General, LLC, ASBCA No. 57662 (Sept. 17, 2012) demonstrates, the sponsorship process should not be taken lightly.
In Appeal of AM General, LLC, AM General (the prime contractor) sponsored BAE’s (the subcontractor) claim, and submitted it to the Contracting Officer. After timely appealing the claim to the ASBCA, AM General and BAE worked together to prosecute the claim. However, a month after the appeal was docketed, AM General and the government decided to settle BAE’s sponsored claim, along with AM General’s other claims. AM General and the government moved for a voluntary dismissal. This may not seem out of the ordinary, but for the fact that AM General settled BAE’s sponsored claim without informing BAE. BAE immediately filed a motion opposing the voluntary dismissal.
Although BAE had a common interest agreement with AM General, and asserted a variety of arguments (ranging from estoppel to an assertion that BAE was a real party in interest) that the sponsored portion of the appeal should not be dismissed, the ASBCA determined that it had no basis to grant BAE’s motion. Relying upon established Federal Circuit precedent, the ASCBA determined that BAE could not prosecute a CDA claim directly against the Government because BAE was essentially an “ordinary subcontractor.”
The lesson learned: a subcontractor must recognize the nuances of CDA sponsored claims, and should strive to enter into an agreement with the prime contractor to avoid running into the situation faced by BAE in Appeal of AM General, LLC.