It is well-settled that the Federal Prompt Pay Act does not create a private right of action by a subcontractor against a prime contractor. While a mandatory flow-down clause, flow-downs are not automatic and must be incorporated into the subcontract in full-text, by reference, or by operation of law, depending on the jurisdiction, to be enforceable between the parties. But there are some legal theories based on the FPPA that could take a potentially barred cause of action and recharacterize it into an actionable claim under common law. This article outlines these potential strategies.
No Private Cause of Action:
To start, a brief overview of the FPPA and the law around why courts have not recognized it as an avenue of redress in and of itself between private contracting parties provides context prior to delving into utilizing it in more novel ways.
The FPPA outlines the government’s invoice payment obligations and any remedies for non-conformance. It also requires prime contractors holding government construction contracts to include a provision in their subcontract agreements requiring remittance to their subs within seven days of receipt of payment from the government.
The only provisions in the FPPA attributing obligations to prime contractors relates exclusively to construction contracts. Federal Acquisition Regulation (FAR) 52.232-27 implements this component of the FPPA. And its prescription clause specifically states that it shall be inserted in all solicitations and contracts for construction, thereby, making it a mandatory flow-down.
Although subcontractors routinely attempt to claim a violation of the FPPA when payments are not made within the seven-day period or the payment provision in the agreement exceeds the mandated payment term, courts across jurisdictions have made it abundantly clear that they have no private right of action on this basis. In other words, the claim belongs to the government not the subcontractor. Or more simply, the prime violated a contractual provision in its government contract not its subcontract. And, even if the requirement appears in the subcontract, the correct cause of action would be for breach of contract, not an FPPA violation.
Common Law Theories:
But, all may not be lost for a subcontractor desiring to use the FPPA in commercial litigation. In fact, provided the circumstances align with the legal elements, a sub may be able to use it as a basis for common law claims for breach of contract, breach of a statutory duty, and negligence.
Breach of Contract -
As indicated above, if the FPPA conditions appear in the subcontract and the prime violates them, then that is a straightforward breach of contract claim. But could a failure to include the FPPA provisions and then follow them also be a breach of contract? In at least one instance, a court held that it can. In an unreported case out of the United States District Court for the District of Kansas, the court agreed that the FPPA does not create a private right of action and summarily dismissed that cause of action. However, it allowed the breach of contract claim to move forward, reasoning that the prime had a duty to include the mandatory provisions and abide by them and that the subcontract did not contain the legal waiver required by the FPPA to avoid that duty. The case is U.S. ex rel. Pro Controls Corp. v. Conectiv Services, Inc., 2003 WL 22025016.
Breach of Statutory Duty -
The court’s discussion in Connective of the prime’s statutory duty to include the FPPA requirements gives rise to a potential alternative theory. In most, if not all, jurisdictions plaintiffs have a separate cause of action at their disposal for such violations. Pleaded as breach/violation of a statutory duty or negligence per se, absent any defenses, a subcontractor has at least a viable cause of action sufficient for surviving a dismissal motion and likely ripe for prevailing on summary judgment. In effect, its burden of proof is to show the duty existed and that the defendant failed to honor it.
And if a statutory duty exists, then a possible classic negligence claim may also be available. With the initial requirement of the claim met, a legal duty owed, the plaintiff is left with proving breach of the duty and proximate damages. Given the fact-specific nature of these types of claims, a dispositive ruling may be less likely, but ultimate success is within reach.
The take-away here is that subcontractors seeking relief from a prime’s failure to pay are better off using the FPPA as a basis for eligible common law causes of action sounding in breach of contract or tort. While they may not be applicable in every situation, it is worth reviewing with counsel and focusing efforts and resources on those open avenues instead of the dead-end of the FPPA as a stand-alone claim.