In its “Contract Claims 101” series, PilieroMazza has discussed issues and considerations that may be familiar to most federal contractors, including requests for equitable adjustment (REAs), Contract Disputes Act (CDA) claims, contracting officer final decisions, and appeals to the Boards of Contract Appeals or the U.S. Court of Federal Claims. However,a dispute between a prime contractor and its subcontractor, or between a subcontractor and a lower-tier subcontractor, follows a completely different path. Typically, a dispute between the parties requires them to enforce or defend a private subcontract, not invoking the CDA. That distinction matters. Contractors that treat a subcontract dispute like a CDA claim—or wait for the government’s process to resolve a private payment or performance issue—can lose leverage and, in some cases, rights. This blog introduces federal contractors to common disputes between prime contractors and subcontractors, or between subcontractors and lower-tier subcontractors, how to avoid common pitfalls that arise in disputes when negotiating subcontracts, and when a call to legal counsel is in order.
Start with the Subcontract—Not the FAR
The CDA governs claims by a “contractor” against the Federal Government under a covered federal contract. Unlike a prime contractor, a subcontractor ordinarily lacks privity with the government and therefore cannot bring its own CDA claim directly against the agency. By contrast, a claim by one private contracting party against another typically arises from the terms of the subcontract itself. The questions that guide the dispute are therefore contractual: What did each party promise? What notice was required? What events excuse performance? What remedies were reserved or waived? And where and how must the dispute be decided?
This does not mean the prime contract is irrelevant. A subcontract may incorporate selected Federal Acquisition Regulation (FAR) clauses, specifications, schedules, or other prime-contract requirements. Flow-down language can shape the parties’ duties, and the government’s conduct may be central to the facts of the dispute. But incorporation alone does not automatically convert a private dispute into a CDA proceeding. The content of the subcontract remains critical.
Drafting the Teaming Agreement and Subcontract
A well-drafted teaming agreement should pave the way for the subcontract, but contractors must be mindful that, in most cases, the subcontract overrides the teaming agreement and becomes the controlling contract between the parties. Teaming agreements are generally considered an “agreement to agree,” and might not be enforceable, so contractors must be mindful of the crucial terms of the teaming agreement are included in the language of the subcontract.
The subcontract is more than an administrative step following award—it is the principal source of the parties’ enforceable rights, obligations, and remedies. Its terms allocate work and risk, establish payment and performance requirements, incorporate applicable prime-contract obligations, and prescribe how the parties must address changes, delays, defaults, and disputes. Careful drafting is therefore essential. Unclear, inconsistent, or one-sided provisions can create uncertainty during performance and materially affect a party’s leverage and available remedies when a dispute arises.
Because contract disputes between private parties rely on the express terms of the contract(s), the best time to address contract disputes is during the drafting process. Push back on any significant one-sided provisions and flag ambiguous or vague terms. Understand what the parties agree to before signing the subcontract and contact counsel if there are unclear or vague provisions. Clear terms can reduce uncertainty and costs down the road.
Review The Dispute Provisions Before Positions Harden
The most common legal claim between contracting parties is breach of contract. Therefore, at the first sign of a material disagreement, pull the complete, signed subcontract including amendments, exhibits, purchase orders, and incorporated documents, to assess whether a breach has occurred. Pay particular attention to the following sections:
- Notice and claim deadlines. Some clauses require written notice within days of a change, delay, differing condition, nonpayment, or other event. Failure to comply with this requirement may be asserted as a waiver.
- Dispute escalation. The contract may require specific negotiation steps or some other pre-suit process such as written notice to certain project personnel, escalation to executives, mediation, etc. Failure to exhaust this process may weaken available remedies.
- Forum and governing law. A subcontract may select a particular state’s law, a court, or arbitration to handle a dispute. It may also contain a jury-trial waiver.
- Payment provisions. Pay-if-paid, pay-when-paid, retainage, setoff, withholding, and prompt-payment language can materially affect strategy and available claims.
- Changes and direction. Determine who could authorize extra work, what documentation or notification was required, and whether the contract permits recovery for constructive changes or oral direction.
- Termination and cure rights. Default, termination for convenience, suspension, and cure provisions often impose specific prerequisites and calculation rules.
- Pass-through and stay provisions. As explained earlier in our Claims 101 series, the government action caused the loss, the subcontract may require sponsorship of a CDA claim, cooperation, certification support, or a stay of the private dispute while the government-facing claim proceeds.
When to Engage Counsel
The answer to this is earlier than many contractors think. Counsel can provide the most value before signing the subcontract, a notice deadline passes, a damaging admission is made, records are lost, or a termination letter is sent. Common issues that cause disputes between parties include disagreements over workshare allocation, term and termination issues, the non-existence or one-sidedness of non-competition and non-solicitation provisions, or missing terms surrounding confidential or proprietary information.
Consider involving counsel promptly when:
- Any language in the teaming agreement or the subcontract is unclear,
- The amount in disputes is significant or continuing to grow,
- A cure notice, stop-work direction, termination, suspension, or material withholding is threatened or issued,
- The opposing party alleges fraud, defective work, safety violations, or other serious misconduct,
- Government action contributed to the loss and a sponsored CDA claim may be necessary,
- The parties are considering a standstill, tolling agreement, mediation, or settlement; or
- Informal resolution is failing and litigation is reasonably foreseeable.
Early engagement does not necessarily mean filing a lawsuit. Counsel can help interpret or evaluate the contract, identify possible business solutions, and determine whether negotiations should proceed on a parallel track with lawsuit preparation.
Conclusion
Once a dispute arises, act quickly: read the contract, give required notices, quantify the claim, and evaluate both business and legal paths to resolution. Contractors that act diligently during the contracting process to ensure key terms are clear and included can save time and expense fighting about those terms later.
If you have any questions regarding REAs, claims, appeals, or any other government contract dispute, please contact Lauren Brier, Shelleah Cannon, or another member of PilieroMazza’s REAs, Claims, and Appeals, Government Contracts, or Litigation & Disputes Resolution practice groups.
Visit Parts 1, 2, 3, 4, 5, 6, and 7, in our Contract Claims 101 series.
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