In 2004, the Texas Supreme Court authorized pass-through claims by contractors on behalf of their subcontractors for an owner's breach of contract.Interstate Contracting v. City of Dallas. A "pass-through claim" is a breach of contract claim brought by a contractor against an owner to recover damages suffered by one or more of the contractor's subcontractors. It is a procedure that eliminates the need for the subcontractor to sue the contractor. Instead, the contractor is allowed to make a direct claim against the owner for damages suffered by the subcontractor. In this context, the procedure avoids unjust enrichment to the owner that would result if the subcontractor was not paid for work that benefited the owner.
The logic of Interstate could allow a pass-through claim on the design side. The architect could sue the owner for breach of contract to recover damages suffered by a consultant. We have not seen any pass-through claims attempted on the design side, and for a variety of reasons, making a pass through claim on the design side would rarely serve any purpose.
Despite the Supreme Court expressly limiting pass-through claims to the owner - contractor - subcontractor context, we have seen attempts by owners to assert "pass-through claims" against design professionals for the benefit of contractors. While contractors may be able to sue architects directly on a negligent misrepresentation theory (an issue currently before the Supreme Court), a pass-through claim by an owner presents a different set of complex issues that do not exist in the owner - contractor - subcontractor context.
The problem is that this procedure can be used to convert a dispute between the owner and contractor into a claim against the design professional for construction charges that were not owed by the owner to the contractor. Rather than defend against the contractor's claim, the owner agrees to contingent liability for the charges in dispute. The owner pays the contractor only if it collects the amount in dispute from the design professional. It is not clear that the design professional would be able to assert the defenses that the owner chose not to raise against the contractor, no matter how valid. Whether the Supreme Court will allow such claims remains to be seen, but pending resolution of that legal question, there may be a way to limit the assertion of such claims through contract provisions.
A contract provision where both parties agree not to make pass-through claims should be effective and similar to a mutual waiver of subrogation. In the B102-2007, Sec. 7.5 is a logical place to put additional language for architects. Language similar to the following may help defend against pass-through claims:
The Parties agree that neither shall be responsible or liable to the other for any damages claimed by or through a "pass-through claim" as that term is understood under Texas law. Neither Party shall be liable to the other under any legal theory for: i) damages suffered by third-parties who are not a party to this Agreement, or ii) damages or liability of the other Party that is contingent upon the recovery of a third-party's damages against a Party to this Agreement.
