## Facts

- The Army solicited bids to construct an aircraft hangar, including design, manufacture, and installation of hangar doors meeting specified requirements.
- The solicitation imposed a supplier qualification requirement: the door supplier must have designed, manufactured, and installed at least 10 substantially similar hangar doors in satisfactory operation for at least five years.
- W.G. Yates & Sons Construction Co., Inc. (Yates) won the prime contract and subcontracted the hangar-door work to Industrial Door Co. (IDC).
- The Army determined IDC did not satisfy the qualification requirement and refused to approve IDC as the supplier.
- Yates retained a replacement supplier that met the qualification criteria, allegedly increasing Yates’s costs by about $160,000.
- Yates and IDC entered a Liquidation and Consolidated Claim Agreement under which Yates would sponsor IDC’s claim against the government and Yates’s liability to IDC would be limited to the amount Yates recovered from the government for IDC’s damages.
- Yates submitted a pass-through claim seeking IDC’s damages, asserting the Army improperly rejected IDC.

## Issues

1. Whether a prime contractor has standing under the Contract Disputes Act to sponsor a subcontractor’s pass-through claim when the prime’s liability is limited by a liquidation agreement to amounts recovered from the government.
2. Whether the Army acted improperly in rejecting the proposed subcontractor for failing to meet the solicitation’s experience-based qualification requirement.

## Decision

- The Federal Circuit held Yates had standing to pursue the pass-through claim because the liquidation agreement created sufficient conditional liability from Yates to IDC.
- The court affirmed the administrative denial on the merits, concluding the Army reasonably determined IDC did not meet the stated qualification requirement.
- The Armed Services Board of Contract Appeals’ decision denying recovery was affirmed.

## Legal Principles

- A prime contractor may prosecute a subcontractor’s pass-through claim if the prime is liable to the subcontractor for the claimed damages, including liability that is contingent or limited by a liquidation agreement to the amount recovered from the government.
- A liquidation agreement that caps the prime’s liability to the subcontractor at the government recovery does not, by itself, eliminate the liability needed for pass-through standing.
- When a solicitation sets a clear, experience-based qualification requirement, an agency’s determination that an offeror or proposed subcontractor fails to meet that requirement is a technical, discretionary judgment that will be upheld if reasonable and consistent with the solicitation under the applicable deferential review standard.
- Increased costs incurred to substitute a compliant subcontractor are not recoverable absent wrongful government action, such as an unreasonable or improper rejection contrary to the solicitation or contract terms.

## Conclusion

The court recognized the enforceability of pass-through claims supported by a liquidation agreement creating conditional prime-to-subcontractor liability, but it denied recovery because the Army reasonably applied the solicitation’s explicit qualification requirement and properly rejected an unqualified hangar-door supplier.


W.G. Yates & Sons Construction Co. v. Caldera, 192 F.3d 987 (Fed. Cir. 1999)