Motion to dismiss claim for subcontractor’s unpaid balances and legal fees is denied, where the transfer of interest from one prime contractor to another included a limited interest in a property and certain contracts, but did not include the subcontract at issue or previous claims under the contract.
BRC Lease Company L.L.C. and Smith Management Construction Inc. appealed NIH’s denial of a claim submitted by one of its subcontractors seeking payment of unpaid balances and legal bills.
The prime contract at issue was held by multiple parties. NIH originally entered into a lease with FSK Land Corporation to construct a research facility at the John Hopkins Bayview Medical Campus. FSK entered into a development management services agreement with Smith Management Construction Inc., as required by the lease and supplemental lease agreement. The terms of the agreement stated that the DMSA was a subcontract under the lease but that NIH was not a party to the agreement. Eventually, BRC Lease Company became the successor-in-interest to FSK pursuant to an assignment and novation agreement. During performance of the contract, SMCI submitted a certified claim to NIH for unpaid balances and legal fees, the denial of which resulted in this appeal.
Later, BRC assigned its leasehold interest to NIH Bayview Acquisition LLC as the result of a court-ordered foreclosure sale. The construction project was completed before NIH Bayview acquired the leasehold interest. Subsequently, NIH Bayview refused to sponsor SMCI’s claim since it had only acquired BRC’s leasehold interest in the property as a result of the foreclosure sale, and NIH Bayview did not become a party to or assume obligations or liabilities under the DMSA. Accordingly, BRC sponsored SMCI’s claim.
NIH sought to have the appeal dismissed, arguing that the certification and sponsorship by BRC of SMCI’s claim and the appeal were ineffective, because BRC had been previously by NIH Bayview as the prime contractor.
The Civilian Board of Contract Appeals disagreed, holding that BRC remained in privity of contract with the agency for any claims arising out of the development management services agreement. The board explained that an assignor cannot be held to have transferred claims unless expressly stated, and that it was necessary for the claims be validly assigned to NIH Bayview. The boar found there was no assignment of the DMSA or the claims. Rather, the deed of assignment was limited in transferring only limited interest in the property as a result of the foreclosure sale.
NIH also argued the novation agreement supported its position that the DMSA and accrued claims were assigned to NIH Bayview. However, the board found that this agreement only confirmed transfer of certain contracts, but not the DMSA or the DMSA claims. The DMSA was a separate subcontract that had to be expressly mentioned to be assigned. Therefore, BRC remained in privity of contract with the agency and SMCI for the purpose of certifying and sponsoring claims arising out of the DMSA.
BRC Lease Company L.L.C. and Smith Management Construction Inc. are represented by Richard A. DeTar of McAllister, DeTar, Showalter & Walker. The government is represented by Brian C. Caney, Office of the General Counsel, Department of Health and Human Services.
