Third Party Beneficiary Cannot Appeal Under the Contract Disputes Act

(Editor’s Note. In the following case, the commentaries were more interesting than the case in as much as it clarifies entities who can go after funds who are not contractors.)

In anticipation of the possibility of GM&W not being able to pay its subcontractor, FloorPro, amounts due because of other claims against it, the Navy and GM&W agreed to modify the contract to specify the Navy would issue a check payable to FloorPro and GM&W. Despite the mod, the Navy paid GM&W without naming FloorPro as payee after which FloorPro sent a claim to the CO for payment who refused, saying FloorPro did not have a contract with it. Though FloorPro could bring action against the government in the prime contractor’s name GM&W did not sponsor the claim so FloorPro brought an action in its own name to the appeal board alleging the contract mod made FloorPro an intended third-party beneficiary. The Appeal Board agreed with FloorPro but the Federal Court overruled emphasizing that a CDA appeal only authorizes a “contractor” to bring action, disagreeing with the appeals conclusion that a third-party beneficiary is an exception. Since FloorPro was not a “contractor” the appeals board had no jurisdiction over the issue (Winter v. FloorPro, Inc, 2009 WL 1812782)..

In commentary concerning the case, there are circumstances when a party other than the contractor can seek recovery:

   1. Subcontractors can bring “pass-through claims” which are sponsored by the prime contractor and brought in the prime contractor’s name.

   2. A subcontractor may have privity of contract with the government if the prime contract acts as the government’s agent when the prime enters into a subcontract.

   3. Sometimes both participants in a teaming arrangement may have privity with the government if one of the teaming partners is not designated as a prime contractor.

   4. Under the Tucker Act, third party beneficiaries are entitled to recovery.

   5. In some circumstances, a surety can proceed against the government under the doctrine of equitable subrogation.

{TAG_FORM_TITLE}