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Actually, the concept of due diligence doesn't apply in this situation. That is associated with business deals and other investigations prior to coming up with a decision.
In your case, however, you would have a valid cause of action for negligence and/or breach of contract
against the prime contractor for failing to send your bill to the state and failing to inform you about the status of your claim.
Since your prime was obligated by the state and your contract to pay you the additional amount of overheard, you would have a cause of action for breach of contract for them to failure to honor their contractual obligation to you.
Furthermore, since you had a business relationship with you, they were obligated to exercise a reasonable duty of care toward you in their business dealings. They failed to do so by negligently not submitting your claim to the state and failing to inform you about the status, possibly allowing you the potential to submit the claim yourself.
So, you would be able to maintain a cause of action for negligence and breach of contract against the prime contractor.
I hope the above information is helpful.
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