MSBCA Issues Two New Opinions in May – Part 1

The Maryland State Board of Contract Appeals issued two new opinions in May. The first addressed the standing of a subcontractor to assert a claim against the Maryland State Highway Administration.

In that case, the SHA asserted that concrete wall panels supplied by the subcontractor were deficient, and directed the subcontractor to suspend production of the panels pending corrective action.

The subcontractor subsequently sent the SHA a letter “supplementing” the purported claim filed with the SHA by the contractor. By a separate letter, the subcontractor also directed the contractor to provide it with a copy of the initial claim and to also furnish a copy of its letter to the SHA as a supplemental notice of claim. The subcontractor’s attorney also sent the SHA’s attorneys (from the Maryland Attorney General’s Office) a third letter purportedly advising the SHA of its notice of claim.

Approximately a year later, the subcontractor filed a federal lawsuit against the contractor for, among other things, breach of contract for failing to pass through its claim to the SHA. The contractor subsequently forwarded the federal lawsuit to the SHA procurement officer, along with its notice of claim.

Having not received any response to the claims, the subcontractor and contractor filed a notice of appeal to the MSBCA. The MSBCA denied both claims:

• Regarding the subcontractor’s claim, the MSBCA ruled that pursuant to the Maryland State Finance and Procurement Article, COMAR regulations, and the State Government Article, only a person or entity that has a written procurement contract with the State may file an appeal to the MSBCA. The subcontractor did not and, therefore, did not have standing to file an appeal. The MSBCA also ruled that merely being on the State’s qualified list of producers and manufacturers does not constitute a procurement contract sufficient to confer standing.

• Regarding the contractor’s notice of claim (sent with the federal lawsuit), the MSBCA ruled that it was not timely filed within thirty days per COMAR regulations (COMAR 21.10.04.02A). Moreover, the earlier letter from the contractor reserved its rights to request a contract extension and monetary compensation but, importantly, stated that it was not doing so at that time.

While it would seem that the subcontractor would have a strong claim against the contractor for failing to pass-through its claim to the State, problems could arise if the contractor did not have the ability to pay any such claim. In such a case, immediate injunctive relief mandating the passing through of the claim may have been warranted.