Subcontractor and Prime/Subcontractor Disputes: A Northern Virginia Attorney’s Guide for Federal Contractors

By Anthony I. Shin, Esq., Shin Law Office

1. The Prime/Subcontractor Relationship Picture

The federal contracting framework rests on a privity structure that determines who can sue whom and on what theory. The federal government contracts with a prime. The prime contracts with one or more subcontractors. The sub may contract with second-tier subs (and below). Each contracting relationship creates privity between the two contracting parties. Across that privity line, the parties have direct contractual rights against one another. Outside it, they generally do not.

For the prime, this structure means contractual responsibility to the government for the work of every tier of subcontractor. The prime owes performance to the government regardless of whether the prime self-performed the work or had a sub do it. The prime can recover from a sub through the subcontract for sub-side failures, but the prime cannot push the consequences of sub failures back onto the government without separate grounds.

For the sub, the privity structure means contractual rights only against the prime. The sub generally cannot sue the government directly for non-payment, contract changes, or government-caused performance impacts because there is no privity. When the underlying problem is government conduct, the sub’s recourse runs through the prime via pass-through and sponsorship claims (Severin doctrine and its progeny).

For both primes and subs, the practical consequence is that subcontract drafting is unusually consequential in federal contracting. The subcontract has to allocate risk, define flow-downs, address pass-through claim mechanics, set payment terms that work within the prime/government payment relationship, and handle dispute resolution in a way that fits the federal contracting framework. Off-the-shelf commercial subcontract templates often miss critical pieces. Federal contracting overlay on subcontracts is one of the most common practice areas for federal contracting counsel.

This guide walks through the federal subcontracting framework starting from FAR Part 44 administrative requirements, then turning to the consent-to-subcontract regime, flow-down clauses and the Christian Doctrine, the Severin pass-through framework, teaming and joint venture structures, payment disputes, terminations, and dispute resolution mechanisms. The goal is to map the framework so the first consultation can focus on a specific situation.

2. FAR Part 44 Subcontract Administration

FAR Part 44 (Subcontracting Policies and Procedures) governs how federal prime contractors purchase from and manage subcontractors. The framework applies to most federal procurement contracts above the simplified acquisition threshold and provides the rules for consent, contractor purchasing system review, advance notification, and related subcontract administration.

Contractor Purchasing System Review

FAR 44.301 et seq. provides for Contractor Purchasing System Review (CPSR), in which the government evaluates the prime’s purchasing system on a periodic basis. A contractor whose purchasing system is approved gets a more streamlined consent regime; a contractor whose system is not approved faces more pervasive consent requirements. CPSR-approved primes can typically rely on internal approval procedures for many subcontract awards.

Subcontracting plan requirements

FAR Part 19 requires subcontracting plans for many federal contracts over the small business subcontracting plan threshold. The plan specifies goals for subcontracting to small businesses, small disadvantaged businesses, women-owned small businesses, HUBZone small businesses, and service-disabled veteran-owned small businesses. Failure to make good faith effort to meet the plan can produce liquidated damages and contract administration consequences.

Limitation on subcontracting

FAR 52.219-14 (Limitations on Subcontracting) restricts how much work a small business prime can subcontract to non-similarly-situated entities on small business set-aside contracts. The general rules are: services contracts, prime must perform at least 50 percent of cost incurred for personnel; supply contracts, 50 percent of cost of manufacturing the supplies; construction (general), prime must perform 15 percent of cost; construction (specialty trade), 25 percent. The 2020 amendments revised the framework to focus on “similarly situated” subcontractors (those in the same small business category as the prime), with similarly situated subcontracting counted toward the prime’s self-performance percentage.

3. Consent to Subcontract Under FAR 52.244-2

FAR 52.244-2 (Subcontracts) requires prime contractors to obtain advance government consent for certain subcontracts. The clause is included in most cost-reimbursement, letter, time-and-materials, and labor-hour contracts, and in fixed-price contracts above specified thresholds when there is no approved purchasing system.

When consent is required

Consent is required for: cost-reimbursement, time-and-materials, and labor-hour subcontracts of any dollar value; fixed-price subcontracts that exceed the simplified acquisition threshold (or 5 percent of the total contract amount, whichever is greater); and subcontracts identified in the contract for advance notification. Consent is not required where the prime has an approved purchasing system unless the contract specifies a different threshold.

Information required

The prime requesting consent provides: a description of the supplies or services; identification of the type of subcontract; identification of the proposed subcontractor; the proposed subcontract amount; type of subcontract; competition for the subcontract; and the basis for the subcontractor selection. The contracting officer reviews the request and grants or withholds consent.

Consequences of proceeding without consent

A prime that subcontracts without required consent can face disallowance of the subcontract costs under FAR 44.202-2(a)(1). The risk is significant when consent is required and skipped: the prime can incur costs that the government will not pay. Practical compliance with the consent framework is a basic part of subcontract administration.

4. Flow-Down Clauses and the Christian Doctrine

Federal contract clauses do not stop at the prime/government boundary. Many flow down to subcontractors by contract requirement, and some flow down by operation of law even when the subcontract does not include them. Understanding which flow-downs are mandatory and which are discretionary is fundamental to subcontract drafting.

Mandatory flow-downs

Many FAR clauses require the prime to include the clause without alteration in all subcontracts at every tier that touch covered work. Examples include DFARS 252.204-7012 (cybersecurity safeguarding and incident reporting), FAR 52.222-26 (Equal Opportunity Executive Order 11246), FAR 52.222-50 (Combating Trafficking in Persons), and many others. The flow-down language inside each clause governs which subcontracts require inclusion. Failure to flow down a mandatory clause can be a contract breach and can expose the prime to liability for subcontractor non-compliance.

The Christian Doctrine

The Christian Doctrine, established in G.L. Christian and Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963), holds that mandatory FAR clauses can be incorporated into a federal contract (and by extension into a covered subcontract) by operation of law even when the contract does not expressly include them. The doctrine applies to clauses that express a significant public policy. The practical effect is that primes and subs can face obligations that do not appear on the face of their agreements but apply because the FAR requires them.

Discretionary flow-downs

Some clauses are discretionary: the prime can choose whether to flow them down. The contract administration framework gives the prime flexibility on these clauses but also responsibility for the resulting subcontract terms. Discretionary flow-downs are typically negotiated as part of the subcontract drafting process.

Subcontractor compliance verification

The prime is responsible for verifying subcontractor compliance with flowed-down clauses. This obligation has become more demanding with the cybersecurity flow-down requirements under DFARS 252.204-7012 and the upcoming CMMC certification requirements. Primes that certify their own compliance without verifying that subs are also compliant create FCA exposure of the type described in our companion cybersecurity compliance guide.

5. The Severin Doctrine and Pass-Through Claims

The Severin doctrine, named after Severin v. United States, 99 Ct. Cl. 435 (1943), is the rule that prevents a subcontractor from recovering directly from the government in many situations because of lack of privity. The doctrine and its progeny shape how sub claims based on government conduct reach the government.

The basic Severin rule

The original Severin holding was that a prime cannot recover from the government on behalf of a sub when the prime has been released from liability to the sub. The reasoning was that the government’s liability to the prime is limited to the prime’s actual loss, and a prime with no liability to the sub has no actual loss attributable to the sub’s situation. The rule has been narrowed and refined considerably since 1943, but the basic principle remains: the prime must have actual or potential liability to the sub for the prime to pass the sub’s claim through to the government.

Pass-through claim mechanics

A pass-through claim works like this: the sub has a claim against the government based on government conduct (a change order, a constructive change, a delay, defective specifications, or some other compensable event). The sub cannot sue the government directly. The prime, in privity with the government, sponsors the sub’s claim by presenting it to the contracting officer and pursuing it through the CDA process on the sub’s behalf. The recovery from the government, if any, flows back to the sub through the prime. The prime’s role is essentially that of a conduit, but the prime remains the formal claimant with all the CDA procedural responsibilities.

Sponsorship agreements

A sponsorship agreement memorializes the relationship between prime and sub for the pass-through claim. The agreement typically addresses the prime’s certification obligations, the allocation of recovery, the allocation of litigation costs, the prime’s authority over settlement decisions, and the prime’s continuing potential liability to the sub. Sponsorship agreements are critical infrastructure for pass-through claims because they manage the interlocking interests of prime and sub during a process where the prime is the formal party but the sub has the real economic stake.

Limited direct claims by subs

A few narrow exceptions allow sub direct claims against the government. Equitable subrogation can apply where the sub has performed obligations the government should have funded. Implied-in-fact contracts can sometimes form between subs and the government in unusual fact patterns. The Miller Act payment bond framework gives construction subs direct rights against the prime’s payment bond (40 U.S.C. §3131 et seq.). These exceptions are narrow, and the standard route for sub claims based on government conduct remains the pass-through through the prime.

6. Teaming Agreements, Joint Ventures, and Mentor-Protege Arrangements

Federal contracting frequently runs on team structures more sophisticated than a simple prime/sub relationship. Three structures appear most commonly: contractor teaming agreements, joint ventures, and mentor-protege arrangements. Each has its own framework and its own dispute patterns.

Contractor Teaming Agreements

FAR 9.601 defines a contractor teaming arrangement as an arrangement in which two or more companies form a partnership or joint venture to act as a potential prime contractor, or a potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified government contract or acquisition program. Teaming agreements are typically pre-award documents that anticipate the team’s structure if the prime wins the award. Disputes often arise over whether a winning prime is obligated to use a teaming subcontractor that the prime no longer wants. Virginia, Maryland, and DC courts have generally treated teaming agreements as enforceable contracts when their terms are sufficiently definite, but ambiguity in the obligations can leave teaming partners without enforceable rights.

Joint Ventures

A joint venture is a separate legal entity (typically an LLC or limited partnership) formed by two or more companies to bid and perform on a specific federal contract. JVs are commonly used in small business set-aside contracting to allow a small business to team with a larger partner while still qualifying as a small business under SBA rules. The SBA’s joint venture regulations at 13 C.F.R. §125.8 govern when a small business JV qualifies for set-aside contracts. The JV’s operating agreement allocates work, management, and profit between the JV members. JV disputes typically run as standard partnership or LLC disputes between members.

Mentor-Protege Programs

The SBA All Small Mentor-Protege Program (13 C.F.R. §125.9) and the DOD Mentor-Protege Program allow a larger company (mentor) to enter into a developmental relationship with a small business (protege). The mentor provides business development assistance, technical assistance, and other support. The mentor-protege pair can form a JV to bid as a small business on set-aside contracts. The mentor-protege framework has its own compliance and reporting obligations, and disputes can arise over performance of mentor obligations, JV profit allocation, and post-relationship transitions.

7. Payment Disputes (Prompt Payment Act, Pay-When-Paid, Pay-If-Paid)

Payment disputes are the most common kind of subcontract dispute. The prime pays the sub for work performed. When payment slows, stops, or comes with offsets and disputes, the sub’s leverage is often limited. Three frameworks govern: the Prompt Payment Act, the pay-when-paid versus pay-if-paid distinction, and the underlying subcontract terms.

The Prompt Payment Act

The Prompt Payment Act (31 U.S.C. §3901 et seq.) sets payment timing rules for the federal government. Government invoices are typically due 30 days after invoice receipt (or 14 days for some categories). Late payment triggers automatic interest at the Treasury rate. The Construction Subcontract Prompt Payment provisions (31 U.S.C. §3905) require the prime on a construction contract to pay subs within 7 days of receiving payment from the government, with interest accruing for late payment. The construction subcontract prompt payment rule is one of the most powerful sub-side payment protections in federal contracting.

Pay-when-paid versus pay-if-paid

Many subcontracts include payment timing provisions that condition the sub’s payment on the prime’s receipt of payment from the government. These come in two flavors. A “pay-when-paid” provision treats the prime’s receipt of payment as a timing mechanism: the sub gets paid within X days of when the prime gets paid, but if the prime never gets paid for some reason, the prime still owes the sub. A “pay-if-paid” provision treats the prime’s receipt of payment as a condition precedent: the sub does not get paid unless and until the prime does. The two clause types look similar in casual reading but produce very different outcomes when the government does not pay.

State law on pay-if-paid

Pay-if-paid enforceability varies by state. Virginia enacted a strong sub-protective statute effective January 1, 2023, prohibiting pay-if-paid clauses in construction contracts (Va. Code §11-4.6). Maryland generally enforces pay-if-paid clauses if the clause clearly expresses the parties’ intent to make payment from the owner a condition precedent. DC also generally enforces clearly drafted pay-if-paid clauses. For non-construction subcontracts, both pay-when-paid and pay-if-paid clauses are generally enforceable in all three jurisdictions, though courts construe ambiguous language as pay-when-paid rather than pay-if-paid.

Miller Act payment bonds

The Miller Act (40 U.S.C. §3131 et seq.) requires federal construction primes on contracts over $150,000 to furnish a payment bond protecting subs and material suppliers. Subs not paid by the prime can sue on the bond directly to recover. The Miller Act creates a critical payment protection layer for construction subs and second-tier subs.

8. Termination of Subcontracts

Subcontract terminations follow the subcontract’s terms and the underlying commercial law of the jurisdiction. The federal contracting framework imposes some additional considerations when the subcontract is on a federal prime contract.

Termination for convenience

Many federal subcontracts include termination-for-convenience clauses that mirror the prime’s T4C exposure. The prime can terminate the sub for convenience if the prime’s contract is terminated for convenience, or in some cases regardless of the prime contract status. The sub’s recovery under a T4C is typically structured similarly to the prime’s recovery from the government: actual costs incurred, settlement expenses, reasonable profit on work performed (in fixed-price contracts), no anticipated profits on unperformed work.

Termination for default

Subcontract default terminations operate under the subcontract’s terms and the commercial law of the jurisdiction. Common grounds include failure to perform, failure to make progress, financial instability, or material breach. The procedural requirements (cure notice, opportunity to cure, written notice of default) vary by subcontract. Subs facing default termination should evaluate whether the default is procedurally proper and substantively justified, and whether conversion to T4C is achievable.

Suspension of work

Suspension of work clauses give the prime authority to suspend sub performance temporarily without terminating the subcontract. The sub is typically entitled to compensation for the additional costs caused by the suspension, but recovery is procedurally constrained.

9. Dispute Resolution (Arbitration, Litigation, ADR)

Subcontract disputes resolve through whatever mechanism the subcontract specifies. Federal contracting subcontracts commonly include one of three dispute resolution structures: court litigation, arbitration, or step-up mediation followed by litigation or arbitration.

Court litigation

Subcontract disputes that reach court typically land in EDVA, MDD, or DC federal courts (where diversity jurisdiction or federal question jurisdiction supports federal court venue) or in Virginia state courts, Maryland state courts, or DC Superior Court (where state-court jurisdiction is appropriate). The choice of forum often turns on the parties’ citizenship and the size of the dispute. The ASBCA and CBCA do not have jurisdiction over disputes purely between primes and subs (the boards’ jurisdiction runs through the prime/government privity line).

Mandatory arbitration

Many federal subcontracts include mandatory arbitration provisions. AAA Commercial Arbitration Rules or JAMS Comprehensive Arbitration Rules are most common. The Federal Arbitration Act (9 U.S.C. §1 et seq.) governs enforcement. Arbitration is typically faster and more confidential than court litigation but produces awards with limited appellate review (the Hall Street limited review framework). For federal subcontract disputes, arbitration can be attractive when speed and confidentiality matter; court litigation is often preferable when significant legal issues warrant appellate review.

Step-up ADR clauses

Many federal subcontracts include step-up ADR clauses requiring negotiation, then mediation, before arbitration or litigation can proceed. Step-up clauses can be useful for managing disputes that have a reasonable chance of negotiated resolution. The procedural mechanics need to be drafted carefully because non-compliance with the step-up sequence can affect the ability to bring claims.

10. How Shin Law Office Approaches Prime/Sub Disputes

My practice on prime/sub disputes covers drafting (subcontracts, teaming agreements, JV operating agreements, sponsorship agreements, mentor-protege agreements), administration counseling (consent compliance, flow-down management, compliance verification), and litigation (payment disputes, performance disputes, termination challenges, pass-through claim sponsorship). I represent primes and subs in separate matters as conflicts rules require.

When a federal contractor calls me about a sub dispute, the first conversation typically covers: what role the caller plays (prime or sub); the subcontract or teaming agreement text; the specific events at issue; the financial stakes; the procedural posture; and the relationship dynamics with the federal customer. Pass-through claim posture, payment dispute frameworks, termination conversion, and dispute resolution forum selection are the most common engagement points.

The first consultation is offered without obligation, usually takes one to two hours, and is protected by attorney-client privilege.

Summary

Federal prime/sub disputes are shaped by the privity structure: prime in privity with the government, sub in privity with the prime. The Severin doctrine bars most direct sub claims against the government, and pass-through and sponsorship claims through the prime are the standard workaround. Mandatory flow-down clauses incorporate into subcontracts by operation of law under the Christian Doctrine. FAR Part 44 governs subcontract administration; FAR 52.244-2 governs consent to subcontract. Payment disputes turn on the Prompt Payment Act, the pay-when-paid versus pay-if-paid distinction, and (for construction) the Miller Act payment bond. Teaming agreements, joint ventures, and mentor-protege arrangements add structural complexity. Subcontract terminations, suspension of work, and dispute resolution mechanisms (court, arbitration, step-up ADR) round out the framework.

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Anthony I. Shin, Esq.

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