## Facts

- The City of Richmond contracted with Halifax Corporation to supply and implement a police records-management system, structured in phases with a Phase One failure termination option limiting further payment obligations largely to specified expenses.
- The prime contract acknowledged Halifax’s use of BIS Computer Solutions, Inc. as a subcontractor and required the City’s approval before Halifax could replace BIS.
- After work began, the City became dissatisfied with performance and terminated the Halifax contract under the Phase One failure provision.
- The City paid all invoices Halifax submitted; Halifax did not contest the termination and did not sue the City.
- BIS claimed it performed substantial work and alleged it was an intended third-party beneficiary of the City–Halifax contract, allowing it to sue the City directly for breach.
- The district court held BIS was an intended third-party beneficiary as a matter of law, submitted the breach claim to a jury, and entered judgment for BIS after a verdict exceeding $2.2 million (later reduced to about $1.6 million).
- The City appealed.

## Issues

1. Whether, under Virginia law, BIS was a clearly and definitely intended third-party beneficiary of the City–Halifax contract with standing to sue the City for breach.
2. Whether contract terms referencing BIS and restricting its substitution manifested an intent to confer enforceable rights on BIS rather than merely protecting the City’s interests in performance.
3. If BIS had enforceable rights, whether the termination and payment provisions supported liability and damages against the City.

## Decision

- The Fourth Circuit reversed the district court’s judgment for BIS.
- The court held BIS was not an intended third-party beneficiary of the City–Halifax contract and therefore could not maintain a direct breach-of-contract claim against the City.
- Because BIS lacked enforceable third-party beneficiary status, the jury’s liability finding and damages award could not stand, and judgment was required for the City.

## Legal Principles

- Under Virginia law, a nonparty may enforce a contract only if the contract shows a clear and definite intent by the contracting parties to confer an enforceable benefit on that third party; incidental benefits are insufficient.
- A prime contract’s identification of a subcontractor, and provisions requiring owner approval to substitute that subcontractor, generally reflect control over performance and protection of the owner’s interests, not an intent to grant the subcontractor enforceable payment or performance rights against the owner.
- Absent clear contractual language creating direct rights, a subcontractor’s remedy for nonpayment or lost expectations typically lies against the prime contractor under the subcontract, not against the project owner under the prime contract.
- Where the owner satisfies its payment and termination obligations to the prime contractor under the contract’s express terms, losses claimed by a subcontractor do not establish a breach by the owner without third-party beneficiary status.

## Conclusion

The Fourth Circuit set aside the verdict for BIS because the City–Halifax contract did not clearly confer enforceable rights on BIS; the contract’s reference to BIS and restriction on substitution did not transform BIS from a subcontractor into an intended third-party beneficiary entitled to sue the City for breach.


BIS Comput. Sols., Inc. v. City of Richmond, 122 F. App’x 608 (4th Cir. 2005)