By Bruce Jervis
“Flow-down” clauses in subcontracts are interesting creatures. These broadly written provisions purport to pass through to the subcontractor every obligation the contractor has assumed toward the project owner. If interpreted literally, the subcontractor would be responsible for constructing the entire project from the ground up.
Contractors resort to flow-down clauses when all else fails or nothing else applies. It is frequently a desperate reach and courts recognize it as such. One contractor recently tried to use flow-down clauses to extend claim limitation periods against subcontractors to make the periods consistent with the duration of the contractor’s obligation to a public project owner. The Virginia Supreme Court ruled that the clauses did not express the intent of the subcontractors to waive the protection of the statutory limitation period.
Where specific, defined obligations in a prime contract are expressly passed through to a subcontractor under the terms of the subcontract agreement, these provisions are generally enforceable. Contractors should think about which obligations might be important and craft their subcontract forms accordingly. But broadside, catch-all flow-down clauses are usually found to be inapplicable or unenforceable. Why do contractors continue to use them? Your comments are welcomed.