September 1, 2004 |
2004-R-0704 | |
CLAIMS BY SUBCONTRACTORS IN STATE PUBLIC WORKS CONTRACTS | ||
| ||
By: Kevin E. McCarthy, Principal Analyst | ||
You asked whether other states allow a contractor on a state public works or transportation contract to file a claim against the state on behalf of one its subcontractors (a “pass-through claim”). You were also interested in whether any states have barred the use of sovereign immunity defense against such claims.
SUMMARY
Connecticut has waived sovereign immunity with regard to claims by contractors on public works and highway construction projects. But, the state Supreme Court has held that a contractor may not bring an action against the state on behalf of its subcontractor unless the contractor admits liability and impleads the state on a claim filed by a subcontractor against the contractor. In contrast, courts in 18 other states have taken a more favorable view of pass-through claims.
Most states have restricted or waived sovereign immunity for at least some tort actions against the state. In addition several states have waived sovereign immunity in contract actions against the state, either by legislation or judicial interpretation. Depending on the facts of the case, pass-through claims might be allowed in the other states.
PASS THROUGH CLAIMS
Connecticut
CGS § 4-61 allows a person or firm that has a disputed claim under a state public works or highway construction contract to bring an action against the state to have the claim determined. The state can raise all legal defenses, other than governmental immunity.
The state Supreme Court held that this provision does not permit a contractor to bring an action on behalf of its subcontractor unless the contractor admits liability and impleads the state on a claim filed by a subcontractor against the contractor. (FDIC v. Peabody N.E. Inc., 239 Conn. 93, 680 A. 2d 1321 (Conn. 1996)). In this case a subcontractor on a highway construction project alleged that it incurred extra costs due to delays and in the project and errors and revisions in the project's plans. The subcontractor's successor sued the contractor, who responded that the state caused the additional costs. The contractor then moved to implead the state and served its third party complaint against the state.
The state moved to dismiss the complaint because of lack of subject matter jurisdiction, arguing that the waiver of sovereign immunity did not apply in this case. It argued that in the absence of an admission of liability of the contractor, the contractor did not have a disputed claim under its contract with the state.
The court agreed with the state. It held that the immunity waiver must be strictly construed, following Stuckman v. Burns, (205 Conn. 542,58, 534 A.2d 888 (1987)). It concluded that a contractor who has entered into a contract with the state cannot bring a third party action against the state based on “the mere prospect that the contractor may be liable to a subcontractor at some point in the future.” (FDIC v. Peabody N.E. Inc., 239 Conn. 93 at 103).
In an earlier decision, the Appellate Court ruled that subcontractors are statutorily barred from bringing suit against the state on their disputed claim under a contract for construction of a state facility, whether such suits are brought by them directly or through the contractor. It based this decision on the fact that the subcontractor had not entered into a contract with the state. On the other hand, a contractor could bring a breach of contract action against the state on its own behalf and on behalf of its subcontractors with regard to disputed claims for which the contractor would be liable. Walter Kidde Constructors, Inc. v. State, 37 Conn. Supp. 50, 454 A 2d 962 (1981).
Other States
Courts in 18 other states have taken a more favorable view of pass through claims against public sector project owners. Table 1 describes these cases. In the Florida case, the court permitted a pass-through claim, notwithstanding the defendant's argument that it was barred by sovereign immunity.
In addition, while the court in Gilbert Pac. Corp. v. State, (822 P.2d 729, 731 (Or. Ct. App. 1991)) declined to decide whether to recognize pass-through claims, it held that a general contractor can raise its non-liability for a claim as an affirmative defense and does not have to plead or prove its liability to its subcontractors.
Table 1: Decisions in Other States Regarding Pass Through Claims
Case |
Decision |
Univ. of Alaska v. Modern Constr. Inc., 522 P2d 1132, 1139, n 27 (Alaska 1974) |
A prime contractor may, on behalf of a subcontractor, maintain a claim based a government-caused delay. |
Howard Contracting, Inc. v. G.A. Mac Donald Constr. Co., 83 Cal. Rptr 2d 590, 602 (Cal. Ct. App. 1998) |
A contractor can present a subcontractor's claim on a pass-through basis even though the contractor's liability was limited to any recovery from the owner. |
Public Health Trust of Dade County v. M.R. Harrison Constr. Corp., 454 So. 2d 659 (Fla. Dist. Ct. App. 1984) |
Allows pass through claims. |
Raymer v. Foster & Cooper, Inc., 393 S.E.2d 49, 51 (Ga. Ct. App. 1990) |
A pass-through claim was proper if the contractor agreed to pass on any recovery to the subcontractor. |
Roof-Techs Int'l, Inc. v. Kansas, 57 P.3d 538, (Kan. Ct. App. 2002) |
A subcontractor may pursue pass-through claims via a liquidation agreement, applying the federal doctrine regarding such claims. |
Farrell Constr. Co. v. Jefferson Parish, 896 F.2d 136, 141 (5th Cir. 1990) (applying Louisiana law) |
Although a subcontractor may not sue an owner with whom it is not in privity, the prime contractor may assert against the owner as an element of its own damages the damages of the subcontractor attributable to the owner's defective plans and specifications. |
Board of County Comm'rs v. Cam Constr. Co., 480 A.2d 795, 797-98 (Md. 1984) |
The concept of privity is not an absolute bar to a suit brought by a prime contractor against the owner for damages in which a subcontractor is the real party in interest. |
Old Colony Reg'l Vocational Tech. High School Dist. v. New England Constr., Inc., 363 N.E.2d 260, 261 (Mass. App. Ct. 1977) |
A contractor may assert claims for work performed by subcontractors. |
Kensington Corp. v. Dept. of State Highways, 253 N.W.2d 781, 783-84 (Mich. Ct. App. 1977) |
Follows federal practice in permitting recovery by the contractor for subcontracted amounts where the state's soil specifications proved inadequate and the subcontractor incurred increased costs, when the subcontract did not absolve the contractor from liability to the subcontractor. |
St. Paul Dredging Co. v. State, 107 N.W.2d 717, 724-25 (Minn. 1961) |
Absent an exculpatory clause in the subcontract, a contractor can recover for losses sustained by its subcontractor. |
Frank Coluccio Constr. Co. v. City of Springfield, 779 S.W.2d 550, 551-53 (Mo. 1989) (en banc) |
A general contractor may maintain a suit on behalf of its subcontractor even though the contractor has not confessed liability to the subcontractor. |
Frank Briscoe Co. v. County of Clark, 772 F. Supp. 513, 516-17 (D. Nev. 1991) (applying Nevada law) |
Recognizes that in the United States, subcontractors' claims have long been recoverable by general contractors through representative suits. |
Buckley & Co. v. State, 356 A.2d 56, 73-4 (N.J. Super. Ct., Law Div. 1975) |
Rejects claims that contractors did not have standing to assert claims for subcontracted work and approves the use of liquidating agreements that made the subcontractor's recovery contingent on recovery by the contractor from the owner. |
Barry, Bette & Led Duke, Inc. v. State, 669 N.Y.S.2d 741, 743 (N.Y. App. Div. 1998) Shiavone Constr. Co. v. Triborough Bridge & Tunnel Auth., 619 N.Y.S.2d 117, 118 (N.Y. App. Div. 1994) |
Recognizes pass-through claims based on liquidation agreements but rejects the federal practice of allowing claims in the absence of actual contractual commitment. A contractor may assert a claim for subcontracted work pursuant to a liquidating agreement and the assertion of a claim by the subcontractor against the contractor is not a condition precedent to the pass-through claim. |
Metric Constructors, Inc. v. Hawker Siddeley Power Eng'g, Inc., 468 S.E.2d 435, 438-39 (N.C. Ct. App. 1996) |
A subcontractor may pass through claims by a lower tier subcontractor. |
Board of Governors for Higher Educ. v. Infinity Constr. Serv., Inc., 795 A.2d 1127 (R.I. 2002) |
Allows pass-through claims, although only in cases where the contractor can prove its liability to the subcontractor. |
Interstate Contracting Co. v. Dallas, _ Tex. _ (2004) |
If the contractor is liable to the subcontractor for damages sustained by the subcontractor, the contractor can bring an action against the owner for the subcontractor's damages pursuant to a pass-through agreement. If the owner contests the contractor's suit on grounds that the contractor is not liable to the subcontractor for the claimed damages, the owner bears the burden of proof. |
Tyger Constr. Co. v. Commonwealth, 435 S.E.2d 659, 662 (Va. Ct. App. 1993) |
Allows pass-through claims when brought in the contractor's, rather than subcontractor's, name. |
Source: Interstate Contracting Co. v. Dallas, fn. 5., available online at http://caselaw.lp.findlaw.com/data2/texasstatecases/sc/030152.pdf
SOVEREIGN IMMUNITY
Statutes
The concept of sovereign immunity is based on the common law theory that "the king can do no wrong" and can only be found liable in "his own courts" to the extent he voluntarily consents to be liable. Some states, such as Indiana and Louisiana, sovereign immunity is granted to the state in its constitution.
Most states have statutorily waived sovereign immunity in tort actions, although usually with restrictions and with limits on damages. For example, Florida has waived state sovereign immunity in tort for personal injury, wrongful death, and loss or injury of property. Damages are normally limited to $100,000 per claimant and $200,000 per incident, although these limits may be exceeded in egregious cases or when economic damages far exceed these figures. (Fla. Stat. § 768.28). In many states, the waiver does not to discretionary functions. In Vermont, the waiver does not apply to actions based on interference with contractual rights. (Vt. Stat. § 5601).
Several states in addition to Connecticut have waived immunity in certain contract actions. For example, Georgia's constitution waives immunity for breach of any written contract that the state or its agencies enter into. (Ga. Const. art. I, § 2, ¶ 9). Maryland has generally waived immunity with regard to contracts that are written and executed by an official acting within his scope of authority. (Md. State. Gov't Code § 12-201). Minnesota has waived immunity for contracts, other than certain highway repair contracts. (Minn. Stat. Ann. § 3.75). New Jersey has waived immunity in contract, for both express and implied contracts. (N.J. Rev. Stat. § 59.13-1). Oregon has waived immunity for state agency contracts, other than those relating to care and maintenance of inmates or patients of any county or state institution. (Or. Rev. Stat. § 30.320). Wyoming has waived liability, with limited exceptions, in contract. (Wyo. Stat. § 1-39-104).
Court Decisions
Florida. Although no express legislative waiver has been granted in Florida for contract claims, the state Supreme Court in Pan-Am Tobacco Corp. v. Department of Corrections, (471 So. 2d 4 (Fla. 1984)), found an implied waiver of sovereign immunity in contract on the premise that because the legislature authorized state entities to enter into contracts, it must have intended such contracts to be valid and binding on both parties. On the other hand, the court has held that without a written change order, the doctrine of sovereign immunity precludes recovery for the cost of extra work that is outside the express terms of a written contract and not an implied part of the written contract (County of Brevard v. Miorelli Engineering, Inc., 703 So. 2d 1049 (Fla. 1997)).
Massachusetts. In J.A. Sullivan Corp. v. Commonwealth (397 Mass. 789 (1986)), the Massachusetts Supreme Court held that a contractor's claim against the state was not barred by sovereign immunity, even if the contractor could not establish a direct contractual relationship, so long as the "claim ar[ose] in a contractual setting." (Id. at 794, quoting First Nat'l Ins. Co. v. Commonwealth, 376 Mass. 248, 251 (1978)). The court permitted recovery where the contractor had performed substantially, but not completely, under a contract with the Commonwealth. (J.A. Sullivan Corp. v. Commonwealth, supra at 793- 794). The court distinguished the contractor's claim for services performed pursuant to the terms of a contract from an unenforceable claim for payment of extra services, which although beneficial to the recipient, was rendered outside a contract. (Id. at 793, citing Lewis v. Commonwealth, 332 Mass. 4, 6 (1954)).
North Carolina. The state Supreme Court held that the state “implicitly consents to be sued for damages on the contract in the event it breaches the contract.” (Smith v. State, 222 S.E.2d 412, 423-424 (N.C. 1976)). But the waiver of immunity only applies to express contracts that are authorized by law. (Whitfield v. Gilchrist, 348 N.C. 39, 42, 497 S.E.2d 412,414 (N.C. 1998)).
Texas. The Texas Supreme Court has held that the state, by entering into a contract, waives immunity from liability, but not immunity from suit. (Federal Sign v. Texas Southern University, 951 S.W.2d 401 (Tex. 1997)). In this case the university contracted with the company to construct a basketball scoreboard. The company later sued the university for breach of contract. The trial court rejected the university's claim of sovereign immunity and ruled in the company's favor. The university appealed. In Texas, the state and all of its agencies and officials are immune from suit and immune from liability. Waiver of one does not constitute a waiver of the other. So without a waiver of immunity from suit, there is no remedy to enforce the liability. The Supreme Court of Texas held that a contractor has no recourse to enforce its contract with the state, unless the legislature independently gives it permission to sue.
After the decision, the legislature established an administrative procedure for certain breach-of-contract claims against the state. Texas Gov't Code chapter 2260 provides that a contracting party may request a hearing before the state Office of Administrative Hearings. If the administrative judge determines that the party has a valid claim for less than $250,000, the state must pay the claim, if possible, with money previously appropriated for breach of contract claims. If the administrative judge determines that the party has a valid claim for more than $250,000, he must issue a report recommending that the legislature appropriate funds, which it may accept or reject.
KM:ro