Opinion ID: 894515
Heading Depth: 2
Heading Rank: 1

Heading: The Basic Pass-Through Arrangement

Text: A pass-through claim is a claim (1) by a party who has suffered damages (in this case, a subcontractor); (2) against a responsible party with whom it has no contract (here, the City); and (3) presented through an intervening party (the contractor) who has a contractual relationship with both. Carl A. Calvert, Pass Through Claims and Liquidation Agreements, CONSTRUCTION LAWYER, Oct. 18, 1998, at 29; 3 BRUNER AND O'CONOR ON CONSTRUCTION LAW § 8:51 (2003). Instead of one lawsuit between a subcontractor and general contractor and another between the general contractor and the owner, pass-through claims permit a contractor to pursue its subcontractor's claims directly against the owner. 3 BRUNER AND O'CONNOR ON COSTRUCTION LAW § 8:51. Under the typical pass-through arrangement, the contractor remains liable to the subcontractor, but only to the extent the contractor receives payment from the owner. Id. A liquidation or consolidationof-claims agreement determines the manner and procedure by which the contractor presents the subcontractor's claim to an owner. Calvert, supra, at 29. A liquidation agreement may be included in the subcontract or may take the form of a separate agreement, much like the agreement ICC and MSI executed in this case. See id. at 31-32; see also Bovis Lend Lease LMB, Inc. v. GCT Venture, Inc., 285 A.D.2d 68, 728 N.Y.S.2d 25, 27 (N.Y.App. Div.2001). In a liquidation agreement: (1) the contractor acknowledges its liability to the subcontractor, thereby providing the general contractor with a basis for legal action against the owner; (2) the general contractor's liability is liquidated to the extent of its recovery against the owner; and (3) the general contractor agrees to pass its recovery to the subcontractor. Bovis Lend Lease LMB, 728 N.Y.S.2d at 27. Thus, under a liquidation agreement, the subcontractor releases all claims it may have against the contractor in exchange for the contractor's promise to pursue those claims against the owner and remit any recovery to the subcontractor. See Henry R. Kates, Note: Facilitating Subcontractors' Claims Against the Government Through the Prime Contractor as the Real Party In Interest, 52 GEO. WASH. L. REV. 146, 154 (1983).