Q: What is a tripartite agreement, how do you assert defaulting contractors claims under it, and why are they not used as often as they should?

A: A tripartite agreement is an agreement among the Government, the Surety and the Defaulting Contractor. It is primarily used to resolve the defaulting contractor’s residual rights, including assertions to unpaid prior earnings of a contract. The FAR’s describes it briefly under 49.404 (d) & (e) Surety-takeover agreements.

A surety normally does not condone this type of agreement, and will typically allow themselves to sign on behalf of the defaulting contractor asserting there are no unpaid earnings due to the defaulting contractor. It is VERY RARE, that a Defaulting Contractor demands and asserts its rights under a Tripartite Agreement. If a contractor is going to assert its rights to unpaid earrings under the tripartite agreement, the demand for unpaid earrings/claims should be addressed prior to the Contracting Officer and the Surety enter into a Surety Takeover. Remember a Surety DOES NOT see a benefit with Tripartite Agreements.

Most inexperienced Contracting Officer’s will take the Surety’s representations & understanding that a Tripartite is not required because they have contractual right to the unpaid earrings. What happens is, an uneducated Contracting Officer will allow a Surety to write the Government’s “Surety-Takeover” (FAR 49.404), only because it is easy and as one would know government employees would typically seek to facilitate the easiest remedy of a potential conflict. Allowing a Surety to create a Surety-Takeover, DOES NOT PROTECT THE GOVERNMENT, a Tripartite Agreement does!

A Takeover Agreement is written for the protection of the Surety, and not the government, which is why Government Regulations allows for a Tripartite Agreement. If a dispute arises from the Surety and the Defaulting Contractor, under a tripartite agreement, it usually takes place without involving liability to the Government.

The Government does stand a chance for recovery of unpaid earnings, by the Surety, if the Surety misrepresented its intentions with the written Surety Takeover Agreement and only if, the Takeover Agreement was in fact conceived by the Surety.

Think About This!

Allowing a Surety to write a Surety Takeover between the US Government and itself, is very much like allowing a Subcontractor to write a subcontract agreement between a Prime Contractor and its Subcontractor.

Food for thought..the largest employer of lawyers in the US is the Government itself.