{"id":897659,"date":"2020-07-02T14:17:49","date_gmt":"2020-07-02T20:17:49","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=897659"},"modified":"2020-07-02T14:19:19","modified_gmt":"2020-07-02T20:19:19","slug":"liquidation-agreement-traps-unwary","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/liquidation-agreement-traps-unwary\/","title":{"rendered":"Walking the Tightrope: Liquidation Agreement \u201cTraps for the Unwary\u201d"},"content":{"rendered":"\n<p>Amy Elizabeth Garber and Robert J. Symon | <a rel=\"noreferrer noopener\" href=\"https:\/\/www.buildsmartbradley.com\/2020\/06\/walking-the-tightrope-liquidation-agreement-traps-for-the-unwary\/?utm_source=Bradley+Arant+Boult+Cummings+LLP+-+BuildSmart&amp;utm_campaign=0784441632-RSS_EMAIL_CAMPAIGN&amp;utm_medium=email&amp;utm_term=0_b504caf31b-0784441632-78863422\" target=\"_blank\">Buildsmart<\/a><\/p>\n\n\n\n<p>When crafting a <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/construction-contracts-go-sideways-bankruptcy\/\" target=\"_blank\" rel=\"noreferrer noopener\">liquidation or \u201cpass-through\u201d agreement<\/a> for a subcontractor claim against the government, the key provision from the prime contractor\u2019s perspective is a release from any liability for the subcontractor\u2019s claim with the exception of amounts recovered from the government related to that claim.\u00a0If the release language is too broad, however, the agreement may provide the government a legal defense to the pass-through claim known as the\u00a0<a href=\"https:\/\/www.myconstructionexpert.com\/blog\/subcontractor-pass-claims-vulnerable-severin-doctrine\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em>Severin<\/em>\u00a0doctrine<\/a>. The\u00a0<em>Severin<\/em>\u00a0doctrine prohibits a prime contractor from passing through a subcontractor claim to the government if the prime contractor is not liable for the subcontractor\u2019s claimed costs.\u00a0Simply put, to pass through a subcontractor claim, the prime contractor must maintain some form of liability for the subcontractor claim or risk rejection of the claim.\u00a0Indeed, if the prime contractor expressly disclaims liability for the subcontractor\u2019s claim or the subcontractor\u2019s release of the prime contractor is too broad, the\u00a0<em>Severin<\/em>\u00a0doctrine may bar the claim and the government will rely on this defense before ever looking at the merit of the claim.<\/p>\n\n\n\n<p>A recent decision issued by the Armed Services Board of Contract Appeals demonstrates how far the government has tried to stretch the\u00a0<em>Severin<\/em>\u00a0doctrine defense.\u00a0<em>See\u00a0<\/em>Alderman Building Company, Inc., ASBCA No. 58082 (May 21, 2020). Alderman Building Company was the general contractor, pursuant to a contract with the Navy, on a renovation project at a Marine Corps base.\u00a0The project suffered from significant government-caused delays. Alderman sponsored a pass-through claim on behalf of its subcontractor, Big John\u2019s Electric Co., Inc. seeking compensation for the delays.\u00a0One of the recitals in the pass-through agreement between Alderman and Big John\u2019s stated that \u201cthe Owner is the ultimate responsible party to pay for the Subcontractor\u2019s and Contractor\u2019s claims.\u201d\u00a0In this appeal, the Navy argued that the\u00a0<em>Severin<\/em>\u00a0doctrine mandated dismissal of the claim because,\u00a0<em>vis-a-vis<\/em>\u00a0the recital language, Alderman had asserted it was not responsible for the costs Big John\u2019s incurred.<\/p>\n\n\n\n<p>Fortunately, the board rejected the Navy\u2019s argument holding that the Navy failed to demonstrate that Alderman was&nbsp;<em>not<\/em>&nbsp;responsible for Big John\u2019s costs.&nbsp;First, the board noted that the pass-through agreement did not contain an \u201ciron-bound release\u201d and it did not contain an \u201cexpress undertaking\u201d to release Alderman from any obligation to Big John\u2019s.&nbsp;Second, the board found \u201cAlderman\u2019s unqualified undertaking\u201d in the pass-through agreement to promptly pay any amounts owed to Big John\u2019s.&nbsp;The board stated this fact to be the \u201cantithesis\u201d of any release of Alderman\u2019s liability.<\/p>\n\n\n\n<p>Although&nbsp;<em>Alderman<\/em>&nbsp;is a victory for the contractor, it is also a cautionary tale.&nbsp;In terms of a \u201cvictory,\u201d the board imposed a strict burden on the government to demonstrate that the prime contractor has no liability for a subcontractor\u2019s claim pursuant to the&nbsp;<em>Severin<\/em>&nbsp;doctrine.&nbsp;Nevertheless, this case serves as a warning to carefully avoid language in a pass-through agreement that would suggest in any way, shape or form that the prime contractor has no liability for the subcontractor\u2019s claim by factoring in the likelihood that the government will look to a&nbsp;<em>Severin<\/em>&nbsp;doctrine defense to avoid liability for an otherwise meritorious claim.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Amy Elizabeth Garber and Robert J. Symon | Buildsmart When crafting a liquidation or \u201cpass-through\u201d agreement for a subcontractor claim against the government, the key provision from the prime contractor\u2019s perspective is a release from any liability for the subcontractor\u2019s claim with the exception of amounts recovered from the government related to that claim.\u00a0If the&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/liquidation-agreement-traps-unwary\/\">Continue reading <span class=\"screen-reader-text\">Walking the Tightrope: Liquidation Agreement \u201cTraps for the Unwary\u201d<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[10885],"tags":[9895,11209,11210,10701,10344],"class_list":["post-897659","post","type-post","status-publish","format-standard","hentry","category-property-insurance-claims","tag-advise-consult","tag-liquidation-agreement","tag-pass-through-agreement","tag-property-insurance-claims","tag-severin-doctrine","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Walking the Tightrope: Liquidation Agreement \u201cTraps for the Unwary\u201d - Advise &amp; 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