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Amy Garber focuses her practice on construction and government contracts, and has significant experience in commercial litigation. She handles construction, arbitration, and litigation matters in the District of Columbia, Virginia, and the Fourth Circuit. In her construction practice, Amy has represented and counseled contractors in cases involving federal and state Miller Act and complex payment disputes, and effected removal, settlement, and/or dismissal of various claims. View articles by Amy

Two recent decisions – one from the U.S. Civilian Board of Contract Appeals and the other from the U.S. Court of Federal Claims – provide opposing holdings on whether the government can raise a “Severin doctrine” defense to subcontractor “pass-through” claims based on broad language in subcontractor progress payment releases. In light of these different perspectives, contractors should take steps to ensure that such releases do not doom legitimate subcontractor pass-through claims.

Pass-Through Claims and the Severin Doctrine

Subcontractors cannot directly sue the government because they do not contract with the government, i.e., they are not in “privity” of contract. A pass-through claim is a subcontractor claim against the government that a prime contractor (who is in privity of contract with the government) brings on behalf of a subcontractor.  The Severin doctrine holds generally that a prime contractor presenting a pass-through claim can recover damages only if the prime contractor remains liable to the subcontractor for those damages.

The Board (Turner Construction Co. v. Smithsonian Institution)

Turner, the prime contractor, passed through approximately $7 million in subcontractor delay and disruption claims in a dispute involving the renovation of the National Museum of American History. Each progress payment release stated, in relevant part, that the subcontractor: “represents and warrants that there are no outstanding claims by the [subcontractor]… through the date of Application for Payment No. __ except for any retention, pending modifications and changes, or disputed claims for extra work as stated herein[;]” and “does hereby forever release, waive, and discharge … any and all … claims and demands … by reason of delivery or material and/or performance of work relating to the project through Application for Payment No. __, except for those items listed under No. 1 above.” The relevant progress payment releases did not list the pass-through delay and disruption claims under No. 1. The board held that even though the progress payment releases did not carve out the pass-through claims, the Severin doctrine did not bar them mainly because the releases were “clearly tied” to each progress payment. Their main purpose was to ensure that subcontractors had paid lower tiers and that the project site remained unencumbered, not to relieve Smithsonian, vis-à-vis releasing Turner, from any liability for overall project delay.

The Court (MW Builders, Inc. v. United States)

The court in MW Builders, on the other hand, broadly applied subcontractor progress payment releases to bar pass-through claims. MW Builders, the prime contractor, passed through approximately $1 million in subcontractor delay claims in a dispute involving the construction of an Army Reserve Center in Sloan, Nevada. The progress payment releases in question were from one subcontractor, Bergelectric, which stated in relevant part: “[Bergelectric] irrevocably and unconditionally releases and waives … any other claims whatsoever in connection with this Contract … through the end of the period covered by this Application ….” These releases covered the entire period of Bergelectric’s delay claim.

In contrast with the Smithsonian disposition, the court held that the Severin doctrine barred the Bergelectric pass-through claim. Unlike the board’s narrow interpretation of the progress payment releases in Smithsonian, the court declined to consider evidence of the limited intent of the releases. Instead, based on the broad language in the releases and the fact that the releases did not expressly reserve Bergelectric’s delay claim, the court determined that the releases barred all claims by the subcontractor.

Takeaway Points

These two recent decisions involved similar language in progress payment releases but had opposite results. In the board case, the subcontractor claims survived under a narrow interpretation of the progress payment releases, while in the court case, the subcontractor claims fell victim to the government’s Severin doctrine defense based upon a broad interpretation of the release language. Together these cases demonstrate the unpredictability of whether a judge will construe broad language in progress payment releases as a bar to subcontractor pass-through claims; and they serve as a reminder that contractors must be wary of the Severin doctrine. In anticipation of the government’s defense, contractors should carve out subcontractor pass-through claims from progress payment releases. It is also prudent for prime contractors and subcontractors to enter into “liquidation agreements” to define and preserve subcontractor pass-through claims. Without such vigilance, otherwise meritorious claims could be vulnerable to the government’s Severin doctrine defense.

OSHA and Workplace Violence: What Contractors Need to KnowAlthough most contractors go to great lengths to promote jobsite safety, the fatal injury rate in the construction industry – which employs almost 6.5 million people – still exceeds that of any other U.S. industry. The Occupational Safety and Health Act (OSHA) has an entire section of regulations just for contractors. The OSHA regulations help contractors mitigate jobsite hazards such as falling, electrocution, and chemical exposure.  Outside of these known jobsite risks looms the less familiar, but possibly just as dangerous, threat of workplace violence. Workplace violence may include any act of violence, by any individual, against an employee. Employers in all industries may face OSHA citations for failing adequately to prevent it. Yet OSHA does not have a single standard that specifically addresses workplace violence. So what is a contractor to do?

Although OSHA does not regulate workplace violence per se, its “General Duty Clause” requires employers to take “feasible means” to prevent against known threats of violence. The General Duty Clause requires employers to provide “employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm.” The elements of a General Duty Clause violation are: (1) a hazard in the workplace; (2) the employer or the employer’s industry recognizes the hazard; (3) the hazard is likely to cause death or serious physical harm; and (4) there is a feasible means of eliminating or materially reducing the hazard.

In the context of workplace violence which might give rise to an OSHA citation, a key element is that the hazard must be known to the employer or the employer’s industry. Thus, OSHA citations for breaches of the General Duty Clause typically arise in healthcare — for example, in a psychiatric hospital where employees regularly face violent patients. In the construction realm, these citations are much less common. Nonetheless, a contractor could violate the General Duty Clause by ignoring or failing to recognize obvious threats or signs that an individual was going to commit an act of violence against other employees.

While the foregoing focuses on OSHA citations, a contractor could also face civil liability in a lawsuit by an injured employee against an employer. Furthermore, while the availability of workers’ compensation may bar many such lawsuits, contractors should not blindly rely on workers’ compensation insurance as a shield.  If the contractor knew about an obvious threat and ignored it, an employee may be able to circumvent the usual bar and recover directly against the contractor.

Despite the lack of specific regulation beyond the General Duty Clause, OSHA has voluntary guidelines to prevent and mitigate workplace violence. The guidelines provide a helpful outline of a preventative program:

  • Identify and authorize individuals within the company to implement anti-violence programs.
  • Assess what positions or tasks are most likely to lead to violent incidents.
  • Create measures to control the risk.
  • Train employees to identify potential violence and handle violent incidents.
  • Evaluate the effectiveness of the company’s program.
  • Make sure that the hiring process thoroughly vets potential employee backgrounds.

Contractors should endeavor to prevent violence by employees and third parties just as any other employer.  Most contractors have numerous projects occurring at the same time, and workers may face different threat levels based on the location of those projects. Thus, contractors should tailor preventive measures to reflect the location and nature of the projects. For example, if a project is in a neighborhood with a high crime rate, a contractor should devote more resources to safety training and dedicate on-site management to preventing and mitigating harm.

A critical element, and good starting point, is general awareness of potential harm in the first place. This starts with the hiring process and carries through to evaluating the general safety of workers on particular projects and raising awareness of threats on a daily basis.

Contractors Beware: Subcontractor Exception to “Your Work” Exclusion May Not Save the Day

Commercial general liability (CGL) coverage for a general contractor is not guaranteed, even if property damage is all a subcontractor’s fault. Consider the following example: A general contractor builds a stadium for which a subcontractor builds the frame. After the project is complete, a wall collapses. An independent investigation reveals the subcontractor’s defective framing work caused the collapse. The owner sues the general contractor, and the general contractor tenders the claim to its CGL insurer. The insurer denies coverage. Is there coverage?

The typical CGL policy contains a “Your Work” exclusion. This exclusion precludes coverage for “property damage to Your Work arising out of it or any part of it and included in the Products-completed Operations Hazard.” In general, the Products-Completed Operations Hazard extends the CGL policy to property damage that occurs after the project is complete, such as, for example, building settlement. This exclusion then may be read to say that the policy will NOT respond if there is property damage to the Contractor’s work that arises out of that work or some part of it. On its face, the Your Work exclusion may bar coverage even if a subcontractor’s faulty work caused the property damage. A leaking drain on the 23d floor of a condominium tower that damages sheet rock for the 22 floors below is arguably NOT covered. Accordingly, many policies include a “subcontractor exception” which states that the Your Work exclusion “does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”

Although the subcontractor exception has rescued some faultless contractors by providing coverage, in a few cases, lower state courts have sometimes negated the exception by holding that a CGL policy does not cover faulty work in the first place because faulty workmanship cannot be an “accident” or “occurrence” under a CGL policy or because the faulty workmanship did not damage other property. At least one of these courts declined to reach the question of whether the subcontractor exception applied, because there had not been an “occurrence” (other than the alleged faulty workmanship which was not an “occurrence” in that court’s view). Without an “occurrence,” the “your work” exclusion never applied, and the subcontractor exception was essentially irrelevant to the analysis.

So what can a contractor do?

  • Read your CGL policy, including endorsements and determine if your policy has the “your work” exclusion and the subcontractor exception to that exclusion.
  • Recognize risks, and understand potential exposure arising from the “your work” exclusion.
  • When tendering a claim to your insurer, evaluate the “occurrence” which caused the damages, the underlying cause of the “occurrence,” and the damages that the “occurrence” caused.

For more on the subcontractor exception, please view the “Filling the Gap: The Subcontractor Exception” presentation slides.

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