Testimony from the Connecticut Subcontractors Association
In Support of
Raised Bill No. 5769 – An Act Concerning Pass-Through Claims
General Law Committee
March 6, 2008
Senator Colapietro, Representative Stone, members of the General Law Committee, due
to schedule conflicts we are not able to attend this hearing and personally testify in
support of Raised Bill No. 5769 – An Act Concerning Pass Through Claims.
The Connecticut Subcontractors Association is a construction trade association
representing all segments of the construction industry from general contractor to
subcontractor to sub-subcontractor. Our members perform work on a great many
municipal and state construction contracts and the issue of pass through claims is a major
concern. As one of the only states in the nation that do not allow Pass Through Claims,
we feel that bidding state work puts our members at a distinct disadvantage when
performing state construction work. The State Department of Public works complains
that they do not receive enough bids from financially responsible bidders on major
construction projects, and we believe that the failure of the State to recognize pass
through claims is one of the major reasons for this lack of financially stable
subcontractors bidding state work.
Both the CBA Construction Law Section and the Connecticut Subcontractors
Association support Raised Bill No. 5769, An Act Concerning Pass Through Claims,
and respectfully requests that the committee approve the bill. On behalf of our
association we wish to thank the committee for raising the concept in the bill. I would
also like to thank Sen. Tom Colapietro and Rep. Christopher Stone, the co-chairmen of
the committee, for their support of the bill.
Raised Bill No. 5769 would allow general contractors to include subcontractor
pass-through claims in a claim against the State arising out of a highway or public works
contract without requiring the contractor to first admit liability for the subcontractor’s
Raised Committee Bill No 5769 should be approved because:
current law leads to inconsistent and unfair results. A claim may arise
from a disputed change order involving work performed by a
subcontractor. The State often takes the position that the work in question
is part of the contract and insists that the work be performed. When the
contractor later submits the claim to the State, the State may deny the
claim, or drastically reduce the amount it recognizes as due and owing the
subcontractor for the work performed. The State has virtually absolute
discretion to do whatever it likes because ultimately, sovereign immunity
will bar the claim. The only recourse left is for the subcontractor to sue
the general contractor or construction manager with whom he has a
contract. Oftentimes, this creates a "Catch-22" where the State, as the
party liable for paying for disputed change orders, delays or entirely
avoids liability for same. And when there is a “pay when paid” clause in
the subcontract, the general contractor will avoid liability because he
hasn’t been paid by the State. Thus, the subcontractor doing the work is
likely to never get paid.
the State of Connecticut is unique in forbidding pass-through claims.
Courts in nineteen states have addressed pass-through claims and only
Connecticut explicitly rejects them. See Interstate Contracting
Corporation v. City of Dallas, 135 S.W.3d 605 (Tex. 2004) and Federal
Deposit Insurance Corp. v. Peabody, N.E., Inc., 239 Conn. 93 (1996).
Pass-through clams have been routinely permitted in federal government
contracting for nearly fifty years.
subcontractors have no outlet for redress. The Department of
Transportation “estimates” (without any sound basis) a huge cost
associated with the legislation if it is approved. The vast majority of the
cost--whatever it truly might be- would be to fairly compensate
subcontractors for work they performed per legitimate pass-through claims
once they were allowed. In reality, however, the bill would reduce the
cost of construction to the State by making the settlement process more
efficient and by eliminating unnecessary litigation. Once subcontractors
knew they would be paid fairly for all of the work they performed, they
would lower their prices and eliminate unnecessary "contingency" money
in their bid prices. Most important-- by eliminating a huge disincentive to
both contractors and subcontractors in working for the State-- this would
greatly increase competition and lower construction costs by bringing
back many qualified contractors and subcontractors to State construction
it is supported by the industry. The Connecticut Construction Industries
Association, Inc. (CCIA), with its member trade groups, and the
Connecticut Subcontractors Association support the bill.
Specifically, Raised Committee Bill 5769 would eliminate the defense of sovereign
immunity in claims arising out of state highway and public works contracts where the
claim includes the work of subcontractors that have provided materials, labor or services
relating to the contract. Such claims would not include personal injury claims. It would
require mandatory mediation for such claims. The bill also establishes a bifurcated
hearing process, where, at the end of the project, the claims are evaluated in a hearing in
liability and, if the claims are found valid, a hearing in damages would determine how
much the state is required to pay a contractor.
Thank you again for the opportunity to present this testimony for consideration by
the members of the General Law Committee.
FOR ADDITIONAL INFORMATION PLEASE CONTACT
C. MITCHELL SORENSEN, CAE, EXECUTIVE DIRECTOR
CONNECTICUT SUBCONTRACTORS ASSOCIATION