Opinion ID: 2976166
Heading Depth: 2
Heading Rank: 4

Heading: “Pass-through” subcontractor claims

Text: The district court also accepted the County’s characterization of Steel Service’s claim for subcontractor costs as a “pass-through” or “sponsored” claim (which the parties agree is not presently recognized under Ohio law) and held that Steel Service could not recover the subcontractor costs it seeks. The district court should not have reached this issue, however, because it concluded that the County was entitled to summary judgment on the ground that CO #9 fully settled Steel Service’s Claim. Although we do not decide this issue here, we believe that the County’s passthrough-claim argument requires further clarification because it will be properly before the district court on remand. As discussed in Part I above, the Contract mandates the traditional general contractorsubcontractor arrangement that is utilized throughout the American construction industry. --19-- No. 07-3251 Steel Service Corp. v. Board of County Commissioners See 1-3 Construction Law P. 3.01(1)(d) (Bender 2006). Under that arrangement, the subcontractors billed Steel Service for their costs, which Steel Service in turn passed along to the County together with Steel Service’s own costs. Steel Service, in return, is entitled to compensation from the County for the reasonable costs of its subcontractors, including, in certain circumstances, the subcontractors’ overhead and profit. (Paragraphs 7.3.6.2, 7.3.10) The County is then expressly obligated to pay for costs incurred by Steel Service’s subcontractors by remitting payment to them via Steel Service. (Paragraph 9.3.6) This arrangement, although governed by the terms of the Contract between the County and Steel Service (in addition to the terms of the subcontract agreements), creates no contractual relationship between any of the subcontractors and the County. (Paragraph 1.1.2) Nevertheless, the County is contractually obligated to pay for certain subcontractor costs, and the Contract provides a mechanism for such payment. In this case, Hunt directed Steel Service to take Extraordinary Measures in completing its work under the Contract, Steel Service’s subcontractors were in turn required to do the same, and both Steel Service and its subcontractors incurred extra costs in undertaking such measures. The Contract appears to contemplate such a scenario and to permit—even require—Steel Service to present its costs, including those incurred by its subcontractors, to the County for compensation. To be sure, a portion of Steel Service’s claimed costs are attributable to subcontractor costs, and Steel Service is “passing them along” to the County. But passing along such costs appears to be expressly permitted by the Contract. Indeed, the County’s overbroad argument would seem to preclude Steel Service from ever submitting a claim for reimbursement of subcontractor costs. We therefore suggest that the district court ask the County to clarify the reasons why it believes that Steel --20-- No. 07-3251 Steel Service Corp. v. Board of County Commissioners Service’s claim for subcontractor costs is not permitted by the terms of the Contract that govern the subcontracting arrangement. Furthermore, Steel Service’s complaint asserts claims against the County in Steel Service’s own right for breach of contract, and not on behalf of a subcontractor. We therefore also suggest that the district court ask the County to explain the basis on which it argues that Steel Service is asserting “pass-through” claims rather than seeking to reimburse itself for subcontractor costs incurred under the Contract. Finally, we find puzzling the County’s reliance on the fact that Steel Service may have settled all claims with its subcontractors, and the related argument that, because Steel Service has no outstanding liabilities to them, Steel Service may not recover subcontractor costs from the County. That fact, if anything, would seem to lend support to the conclusion that Steel Service is not asserting a cause of action on behalf of its subcontractors, but rather on its own behalf. That is, having been paid for their costs, the subcontractors would have no basis for claiming damages due to the County’s alleged breach of contract. On remand, the issue of what costs Steel Service may recover under the Contract will be properly before the district court. And whether Steel Service may recover subcontractor costs will require an inquiry into whether it is, in fact, asserting a pass-through claim on behalf of its subcontractors or simply seeking compensation in its own right as general contractor under the terms of the Contract.