While there are ways in which subcontractors may achieve privity of contract, they may not generally bring direct claims against the Government due to a lack of privity. Therefore, subcontractor claims against the Government are typically asserted by prime contractors as pass-through claims. However, prime contractors may only bring such pass-through claims if they meet the requirements of the Severin Doctrine. First articulated by the Court of Claims in 1943, the Severin Doctrine bars pass-through subcontractor claims unless the prime contractor itself remains liable to claims by the subcontractor. While the Severin Doctrine has evolved through its application to various pass-through claims scenarios, at its outset, it barred the assertion of pass-through claims unless the prime contractor either reimbursed the subcontractor due to the Government’s fault or was at least liable to make such a reimbursement in the future.
Based on the principles of sovereign acts immunity and privity of contract as applied to government contracts, the Severin Doctrine requires the prime contractor to have at least some demonstrable exposure to subcontractor liability. To prevent pass-through claims through this affirmative defense, the Government typically points to any provisions in the subcontract that tend to exculpate the prime contractor from liability to the subcontractor. When entering teaming arrangements, contractors should be aware that if the subcontract agreement contains a clause completely or specifically exonerating a prime contractor from liability to the subcontractor for pertinent damages, then the prime contractor may not assert a related pass-through claim against the Government. Prime contractors are similarly barred from asserting pass-through claims if the subcontract specifically extinguishes prime contractor liability upon the meeting of certain requirements, such as the subcontractor being granted additional time or the acceptance of final payment.
Notably, the Severin Doctrine does not bar pass-through claims if the subcontract is silent about the prime contractor’s liability to the subcontractor regarding the asserted damages. Similarly, the Severin Doctrine does not generally bar pass-through claims for equitable adjustment under the changes or differing site conditions clauses. Still, pass-through claims for equitable adjustment may be barred in situations where the prime and subcontractor have agreed to an iron-bound or full release of prime contractor liability under the subcontract. In situations where the subcontract releases the prime contractor of only certain types of liability, the adjudicative forum will determine the scope of the residual prime contractor liability based on the language of the release, the conduct of the parties, and if applicable, relevant extrinsic evidence.
In pass-through software manufacturer claims asserted by the software reseller as the prime contractor, the terms of the agreement between the reseller and the software manufacturer are reviewed for any specific or general release of liability language to determine the applicability of the Severin Doctrine. In such cases, the standard release of liability clauses for consequential damages incidental to the underlying reseller agreement, without more, will generally not be sufficient for the Government to meet its burden to invoke the Severin Doctrine to bar pass-through claims. This was demonstrated in a 2020 claim before the Civilian Board of Contract Appeals (CBCA), where a software reseller, as the prime contractor, brought a pass-through claim for a software manufacturer against the Department of Interior (DOI).
The pass-through claim alleged that the Government breached various commercial software licensing terms under a General Services Administration (GSA) Federal Supply Schedule (FSS) contract by over-deploying the commercial software in excess of the agreed-upon quantity of licenses. As a preliminary issue, the Government argued that the CBCA should dismiss the claim because it was barred through the application of the Severin Doctrine. As evidence of the applicability of the doctrine, the Government pointed to a release of consequential liability clause in the reseller agreement. The relevant clause stated that “neither party shall be liable to the other party for consequential, punitive, incidental or special damages, including but not limited to lost profits, even if such party has been apprised of the likelihood of such damages coming.” Besides pointing to this clause, the Government failed to present any other significant evidence to support its position on the applicability of the Severin Doctrine.
The CBCA was not swayed by the Government’s argument, ruling that the Severin Doctrine was not applicable in this instance. The CBCA reasoned that the clause at issue contemplated the release of the parties’ collateral liabilities incidental to the reseller agreement between them. It did not discharge the prime contractor’s liability to the software manufacturer relating to contractual disputes such as the breach of contract action forming the basis for the pass-through claim. Since the Government failed to prove that the software reseller prime contractor would not be independently liable to the software manufacturer for damages due to alleged Government actions in the pass-through claim, the Severin Doctrine was deemed inapplicable.
To bar a prime contractor’s pass-through software manufacturer or subcontractor suit against the Government pursuant to the Severin Doctrine, the Government must prove that the prime contractor is not liable to the software manufacturer or subcontractor for the costs alleged in the suit. Unless the terms of the subcontractor agreement expressly release the prime contractor from liability for the types of damages arising out of Government breach as alleged in the pass-through claim, the claim should not be barred by the Severin Doctrine. When establishing the terms of a software reseller agreement, the Government reseller prime contractor and the software manufacturer should be cognizant of the impact any general or specific release of liability clauses may have on the applicability of the Severin Doctrine. Any iron-clad or full release of liability clauses should be carefully reviewed as part of due diligence enquiries in entering teaming arrangements. When appropriate, contractors should include language that carves out an exception for liability due to Government breaches to preserve the software manufacturer or subcontractor's rights to assert pass-through claims against the Government.
This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.
