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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 22 - 09/24/2009

SubContract "Flow-Down" Clauses Don't Mean What They Say

 Bruce Jervis, Esq., Senior Editor 

Construction Claims Advisor

Subcontracts usually include so-called “flow-down” clauses. These broadly worded provisions purport to take all the terms, conditions, requirements, etc. of the prime contract and incorporate them into the subcontract. If read literally, the prime contractor assigns total responsibility for project completion to the subcontractor. This, of course, is not how flow-down clauses are interpreted.

 

Subcontractors usually argue that the only provisions incorporated into the subcontract are the definitions and descriptions of the applicable portion of the work. Prime contractors tend to pick and choose the allegedly incorporated provisions which suit their purposes in the administration of the project or the resolution of claims.

 

In one recent case, a prime contractor contended that a broad flow-down clause imposed a prime contract claim limitation period on the subcontractor, thereby extinguishing the sub’s claim. The sub responded that if that was the case, why did the prime contractor include a separate claim resolution procedure in the subcontract, a procedure incompatible with the limitation period?

The recent discussion of incorporation of external documents into the contract prompted some interesting comments.

I’d like input from both the contractor and owner perspective regarding strategies and defenses when it comes to the pricing of estimated units of work.  Please feel free to comment below.

In next Monday's issue of Construction Claims Advisor:

  • Layout Schedule Established Subcontract Completion Deadline
  • Specification Prevailed Over Conflicting Drawing Note
  • Unlicensed Subcontractor Allowed to Recover From Unlicensed Prime

Comments

This is a very useful discussion. A major defense is to make sure that the Prime actually includes the Prime contract for review not just a sample.

Another option if you want to include another document is to be sure to establish a document order of presedence that you could always point to. For example the Prime contract would take presdence over other documents in the event of a conflict. Then it is generally settled when you have multiple documtns yet you are covered in the event there is a gap you are trying to cover with an attachment. Another option Owners love to include in their contract is in case of a conflict "The Most Stringent Applies"

Good discussion. Prime contractors are wise to include flowdown language with their subs in order to hold everyone accountable to the same standard. Problems between Prime and subs can arise when the flowdown language does not stipulate the particulars. As the author described, the sub will have a defensible argument if the Prime does not disclose the specific performance requirements (schedule, quality, price, safety, documentation, disclosure, etc.) to which the subs are held.

From an owner perspective, a contractor that seem to apportion full responsibility to a sub is a weak one, why he should be included. However, a clearly stated conditions to limit the apportionment would do the job.

My experience is that major GCs' have their own Subcontracts that are geared for how they do businees and that the "flow down" may not give them what they want in the subcontract. My experience is that trying to cut and paste sections out of the GC contract to put into the subcontract most times ends up causing more problems than it solves.

Responding to the comments above, I agree that while there are some terms and conditions a prime contractor may want to pass through to the sub, the subcontract should still be crafted to address the specific task at hand. A blanket flow-down clause will not accomplish this.
Also, I agree that best practice includes physical attachment of applicable provisions of the referenced prime contract (it may not be otherwise available to the subcontractor) and an order of precedence clause in the subcontract to address conflicts.

There are many circumstances which require the strict adherence to the "flow down" from prime contractor to the subcontractor. This is especially true for federal and state government contracts in which the Fair Acquistion Regulations (F.A.R.)and Defence Fair Acquisition Regulations (D.F.A.R.) are imposed.

As an electrical contractor who often comes across "flow down" wording in my subcontracts, I religiously request a copy of the GC's or CM's contract. I just completed a project where my contract documents, which included "flow down" statements, were about twelve pages long whereas the general contractor's contract was almost 30 pages. Subcontractors need to beware and perform due dilligance prior to signing contract agreements.

Mishaps are like knives that either serve us or cut us as we grasp them by the handle or blade. Do you understand?

 

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