Claim sponsorship agreements enable a contractor to pursue a claim against a project owner in behalf of a subcontractor even though the sub has no contractual relationship with the owner. The agreements, frequently referred to as pass-through or liquidation agreements, call for the contractor to share a portion of any recovery with the sub, thereby resolving a dispute between the contractor and the sub. But, it is basic contract law that a party can only pursue a claim for costs it has paid or liability it has incurred. Must the contractor confess liability to the subcontractor for increased costs before sponsoring the sub's claim against the owner?

In a case reported this week, a subcontractor attempted to recover delay damages from a prime contractor for damages incurred by the sub's lower-tier subcontractor. There was no pass-through agreement, but the subcontractor certified that it paid in full all amounts owed to its subcontractors and suppliers. A federal appeals court ruled that in light of the certification, the sub could pursue the claim. A dissenting opinion argued that there was no evidence the subcontractor had assumed liability towards its lower-tier sub.

Other cases reported this week involve the arbitration of public contract claims in California and the impact of a subcontractor's proposal on the subcontract price. The California State Contract Act withstood the argument that arbitrators always favor the state against the contractors. And, the sub's proposal effectively altered the price the contractor entered on its standard contract form.