GSA Teaming Partners Can Have Privity of Contract with a Procuring Agency

In a traditional prime-subcontractor relationship, only the prime contractor has a contractual relationship with the Government procuring agency. This “privity of contract” imposes significant contractual obligations on the prime contractor, but also important contractual rights, such as the right to bring a claim against the Government under the Contracts Disputes Act.

By contrast, a subcontractor in a traditional prime-sub teaming relationship is not a signatory to the prime contract, and therefore, lacks privity of contract with the procuring agency. The lack of privity can create hurdles for subcontractors. They are unable to file claims directly with the procuring agency, and in many cases, procurement officials will not even discuss contractual issues with them. Instead, the subcontractor is left to rely on the prime contractor to “pass through” its claims and/or contractual concerns to the Government. This indirect relationship can be frustrating, and depending on the language of the subcontract, legally challenging.

At least in GSA Federal Supply Schedule (“FSS”) teaming situations, a recent Board of Contract Appeals decision will help subcontractors overcome these difficulties. In Key Federal Finance v. General Services Administration, CBCA No. 411, April 19, 2007, the Civilian Agency Board of Contract Appeals held that a member of a teaming relationship formed by two GSA Schedule contractors had privity of contract with the procuring agency, and therefore, the right to file a claim directly with the agency.

In that case, the RFQ required that all bidders hold GSA Schedule contracts, and further, that if a teaming partner was needed to fulfill the agency’s requirement, the teaming partner must have a GSA Schedule contract as well. In such teaming arrangements, the RFQ required one of the teaming partners to be identified, for “order award purposes,” as prime contractor. The RFQ directed prospective bidders to the GSA website for further guidance. The website stated that GSA Schedule teaming arrangements, also known as Contractor Team Arrangements (“CTA”), differ from traditional prime-sub arrangements because the roles and responsibilities are defined by the team, rather than the prime contractor. The website added that “[e]ach team member has privity of contract with the government and can interact directly with the government.”

In response to the RFQ, Key’s teaming partner, JRTI, submitted the bid to the Government. In the bid, JRTI was designated the “Prime Contractor/Seller” and Key was designated the “Buyer.” Based on the submission, the Government issued an order to JRTI. During performance, however, the Government terminated the contract and Key filed a claim under the Contract Disputes Act (“CDA”) directly with the Government challenging the basis of the termination. In response, the agency argued for dismissal on the basis that Key was not a “contractor” authorized to file an appeal under the CDA. The agency claimed that the structure of the transaction made JRTI the contractor and the only company in privity of contract with the Government.

In its decision, the Board noted that, as a general rule, the contractor is the party named on the contract with the Government, and that, under the CDA, only that contractor can bring an action against the Government before the Board. The Board also noted that there have been exceptions to this rule. For example, in one case, the court found privity between the Government and a subcontractor where the prime contractor was determined to be a mere government agent, and contract made the Government directly liable to the subcontractor for the purchase price.

The Board also noted that the RFQ referred offerors to the GSA website, which stated that, under a CTA, each team member has privity and can interact with the Government. The Board found that, by reference to this website, the Government incorporated the representation into the RFQ. The Board also noted that the Government at one point stated that either company could have been identified as the “prime” and that it would have awarded the contract to whichever party had been designated as prime contractor in the teaming arrangement.

The Board concluded that the circumstances of the case indicated that a “special relationship” was created between the Government and Key that went “beyond the normal contract structure in which the Government only deals with the named contractor and that contractor deals with its subcontractor.” The Board added that “[b]oth the requirements of the solicitation and [the Government’s] actions before and after award created a contractual relationship between it and Key and permitted the two parties to deal directly with each other. By these actions, the parties indicated an intent to be in privity under this contract. Commerce may not now deny the relationship it created. Key is in privity with Commerce under this purchase order. Key is a contractor as that term is used in the CDA.”

Although the Board’s ruling was based to some extent on specific language in the RFQ and the particular facts of the case, it can be anticipated that this ruling will have broader, and favorable implications, for GSA Schedule holders who are not name as the “prime” in on the contract.