Wednesday, December 7, 2011
Prime contractors often negotiate claims, including subcontractor pass-through claims, with owners. This can put the prime contractor at odds with its subcontractors, depending upon what the owner is willing to negotiate, for how much, for what, etc. A recent Fourth Circuit decision involving the negotiation of Kellogg Brown & Root with one of its subcontractors resulted in a multi-million dollar verdict in favor of the subcontractor against KBR for $12.5m, plus $2.5m in interest and another $4m in punitive damages as the Fourth Circuit upheld the lower court's decision that KBR misled the subcontractor into taking less for its pass-through claim, including by telling the subcontractor that KBR did not have any discretion to raise or lower the amount offered to the subcontractor when in fact it did. Prime contractors are often forced to take lesser amounts from owners and then "negotiate" similar reductions from various subcontractors, and almost always have discretion regarding what they negotiate, with whom, for what amount, etc. This case is an eye opening lesson in the need to be clear and forthright in doing so.