Government Contracts Monitor

If a Prime Contractually Agrees to Sponsor a Sub’s Claims or Protests – Does it End There?

September 23, 2014

The recent decision of the Armed Services Board of Contract Appeals (ASBCA) in Binghamton Simulator Co., ASBCA No. 59117, provides an interesting twist on a frequent issue in drafting subcontracts and teaming agreements – namely, how to enable the subcontractor to pursue an appeal of an adverse contracting officer final decision, or file a bid protest, and particularly in the event that the prime does not want to appeal or protest. Usually, this issue is addressed by incorporating a provision in the subcontract or teaming agreement giving the subcontractor the right to prosecute the appeal or protest in the prime’s name, and committing the prime to cooperate and assist the subcontractor in prosecuting such appeal or protest. However, the twist in Binghamton was that the prime disavowed and, when directly asked by the Board, expressly stated that the prime was not sponsoring the subcontractor’s appeal. In the face of this explicit disavowal, the Board dismissed the appeal for lack of jurisdiction, stating that subcontract language authorizing an appeal in the prime’s name, and any dispute between the prime and subcontractor as to the prime’s obligations thereunder, were issues between the prime and subcontractor and were outside the Board’s jurisdiction.

Binghamton arose out of a dispute over data rights to certain software programs. Leidos, Inc. was the prime, while Binghamton Simulator Co. (BSC) was the subcontractor responsible for the software. When the Government asserted government purpose rights to the software programs, BSC challenged the assertion. The Government responded, in a letter addressed to the prime, not BSC, (1) asserting that the Government “had no privity of contract with BSC,” and (2) challenging BSC’s position and demanding additional information. The Contracting Officer subsequently issued a final denying the validity of BSC’s asserted rights and BSC appealed this decision to the ASBCA, which initially docketed the appeal in the prime’s name.

The Board’s docketing notice specifically directed the prime to provide proof that it sponsored BSC’s appeal. The prime responded that it had not been “requested to sponsor the [appeal]” and had “not sponsored the [appeal].” BSC argued that the language in its subcontract authorizing BSC to appeal in the prime’s name where the prime elected not to appeal constituted and amounted to the necessary sponsorship. In the face of prime’s express disavowal, the Board, not surprisingly, disagreed and dismissed.

However, the case is unusual in that, in most situations, the prime accepts and wants sponsorship in order to bind the subcontractor to a final resolution of the appeal, and avoid the risk of an inconsistent or adverse decision in a separate proceeding by the subcontractor against the prime. Moreover, where the prime confirms sponsorship, even after-the-fact, the Board has been liberal in sustaining sponsorship and permitting the appeal to go forward, even in the face of Government objections. Indeed, in some instances the Board has itself looked to the subcontract terms to support sponsorship. Here, however, the prime, Leidos, expressly refused to sponsor the appeal, putting the Board in an unusual situation.

It is not clear that differently drafted subcontract language would have avoided the problem here. However, stronger language, and particularly the inclusion of language obligating the prime to cooperate and sponsor the appeal, certainly might have helped. In addition, BSC at least should have asked Leidos to sponsor the appeal before filing. Leidos appeared to get some mileage out of its assertion that BSC had never even asked Leidos to sponsor the appeal.

The bottom line is that both primes and subcontractors need to think carefully about, and responsibly address, the wording of disputes provisions in subcontracts and teaming agreements to cover such circumstances. At a minimum, such provisions should explicitly detail the prime or principal teaming member’s obligation to sponsor and support an appeal or protest by a subcontractor or junior teaming member, even where the prime or principal may not want to pursue the appeal or protest for whatever reason. Moreover, the subcontractor needs to pursue promptly and immediately initiate discussions with the prime as to any possible appeal or protest, so as to minimize timeliness pressures and enable the parties to move forward, hopefully in concert, or take such other steps as may be necessary to preserve the subcontractor’s rights.