Life as a Department of Defense prime contractor is difficult, even on a good day. For DOD subcontractors it is often worse, but at least subs do not have to deal with a prime's headstrong contracting officer. Or so they think, until there is a data rights challenge. Then, to all subcontractors' dismay, they, not the primes, get the challenge directly from the CO. They, not the primes, have to slog through the iterative challenge process. They, not the primes, have to submit a certified claim, disguised as a sub's final response to the CO's challenge. And they, not the primes, get the adverse final decision directly from the CO, all as described in Defense Federal Acquisition Regulation Supplement 252.227-7037 "Validation of Restrictive Markings on Technical Data" and the similar validation provision for computer software, 252.227-7019.
Wait, what happened to privity of contract, which we learned from day one does not exist between the Government and a subcontractor?
A good question, as privity seems to have been dispensed with. Everything in -7037 is directed separately to the subcontractor as well as the prime, e.g., the CO "may request the Contractor or subcontractor to furnish a written explanation for any restriction asserted ...." (7037(d)(1)); "The Contractor or subcontractor shall submit such written data as requested ...." (id.); "the Contracting Officer shall send a written challenge notice to the Contractor or subcontractor ...." (7037(e)(1); "the Contracting Officer will issue a final decision to the Contractor or subcontractor ...." (7037(f)). (emphasis added).
In turn, this suggests that a subcontractor, not a prime, could appeal the CO's adverse final decision directly to a Board or to the Court of Federal Claims. This makes a great deal of sense, given all the other arduous direct dealings between the sub and the CO. More persuasively, the technical data validation clause indicates that if the subcontractor does not appeal, it is out of luck:
If the Contractor or subcontractor fails to appeal, file suit, or provide a notice of intent to file suit to the Contracting Officer within the ninety (90)-day period, the Government may cancel or ignore the restrictive markings, and the failure of the Contractor or subcontractor to take the required action constitutes agreement with such Government action.
252.227-7037(g)(2)(ii). (emphasis added).
Yet, common sense and these words notwithstanding, the most prudent course is for the subcontractor not to appeal directly, but instead to pursue the typical "indirect appeal" in the prime's name (with the prime's permission) unless there is no alternative. This is because of one peculiar sentence in each validation clause that makes little sense, confuses contractors and the Government alike, and begs for revision and clarity. Here is DFARS 252.227-7037(k):
Privity of contract. The Contractor or subcontractor agrees that the Contracting Officer may transact matters under this clause directly with subcontractors at any tier that assert restrictive markings. However, this clause neither creates nor implies privity of contract between the Government and subcontractors.
(emphasis added).
DFARS 252.227-7019(c) is comparable: The Contractor agrees that the Contracting Officer may transact matters under this clause directly with subcontractors or suppliers at any tier .... Neither this clause, nor any action taken by the Government under this clause, creates or implies privity of contract between the Government and the Contractor's subcontractors or suppliers.
(emphasis added).
Although starkly inconsistent with the body of the technical data validation clause, this caveat is consistent with a multitude of decisions holding that, absent privity, a subcontractor cannot pursue litigation at a Board or the COFC under the Contract Disputes Act.
The most pertinent of these cases for data rights purposes is the 2014 Armed Services Board of Contract Appeals decision in Binghamton Simulator Co., ASBCA 59117, 14-1 BCA ¶ 35,715; 56 GC ¶ 317, in which the Board considered the privity question in the context of the validation provisions for computer software in DFARS 252.227-7019, which are similar, though crucially not identical, to the validation provisions for technical data in -7037. The Board found there was no privity to support a direct appeal under that clause:
"[R]are, exceptional" circumstances must exist to either create privity of contract between the subcontractor and the government or to establish some other-than-privity basis allowing the subcontractor to appeal directly to the Board. [U.S. v. Johnson Controls, Inc., 713 F.2d 1541, 1556 (Fed. Cir. 1983)]; see, e.g., Johnson Controls, 713 F.2d at 1551-52 (privity where prime contractor acts as mere government agent), at 1552-56 (direct subcontractor appeals pursuant to terms of prime contract); Rahil Exports, [ASBCA 56832,] 10-1 BCA ¶ 34,355 at 169,647 (implied-in-fact contracts). However, no such "rare, exceptional" circumstances are presented here. BSC does not allege, and nothing in the record indicates to us, that BSC was in privity with the government or that the terms of the contract somehow provided for BSC to be able to appeal directly to the Board.
Id. at 174,870-71 (emphasis added).
The Board's decision arguably is defensible-and that is a stretch-but only as applied to the -7019 software validation clause, because that provision is different in wording, though certainly not intent, from the -7037 technical data validation clause. First, the software clause articulates all affirmative actions and obligations only in terms of "the Contractor," without the consistent and repetitive references to "the Contractor or Subcontractor" of -7037. This almost certainly is a consequence of the software clause's definition of "Contractor," which muddies things by encompassing subcontractors: "As used in this clause, unless otherwise specifically indicated, the term Contractor means the Contractor and its subcontractors or suppliers." 252.227-7019(a) (1). This could have led the Board to conclude that only the prime contractor, acting on behalf of "the Contractor and its subcontractors," can pursue an appeal. There is, however, no such homogenizing definition in -7037, which clearly separates primes and subs. Thus, had the Board compared the two clauses, Binghamton may have been decided differently, as there is no reason to credit this definitional variation with any substantive consequence.
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Originally published by The Government Contractor
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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