Everyone on a construction site has heard the joke about there being only two answers on the Plumber’s Licensing Exam: Payday is Friday, and stink flows downhill. While not fair to plumbers, this does make a good point about the dangers of being downhill. Construction contracts are no different — when you sign a subcontract, flow down clauses mean provisions of the general contract that you might not even be aware of flow right down to you.
It can get a little messy if you don’t see it coming.
What is a flow down clause in a construction contract?
You can search the prime contract and your subcontract, but you won’t find the words “flow down” anywhere. So what is a flow-down clause? Sometimes called a “flow-through” clause, it’s a clause that states that provisions of the general contract “flow down” to the subcontract, making them part of both contracts. This means there are things in your contract that, unless you peep into the general contract, you can’t see.
In the AIA A401 Standard Form of Agreement Between Contractor and Subcontractor, Section 2 is called “Mutual Rights and Responsibilities.” It says that the general contractor has all the same rights and responsibilities regarding the subcontractor that the owner shares with the general contractor.
And, in Section 5 of AIA A201 — the prime contract between the owner and the GC — you’ll find similar language. The result is that the two contracts are tied together, so that provisions of the general contract also apply to the subcontractor. This effectively makes you a signatory on the general contract.
So, for instance, if the general contract has a liquidated damages clause, it applies to the sub, too. If the general contract binds the parties to arbitration, it binds the sub, too. And it applies even if these things aren’t spelled out in the subcontract.
A very similar clause binds the contracts together in ConsensusDocs 750 Standard Agreement Between Constructor and Subcontractor, in Section 3.1, Obligations.
This is a good example of a flow down clause. It states:
“The Contractor and Subcontractor are hereby mutually bound by the terms of this Agreement. To the extent the terms of the Owner-Contractor agreement apply to the Subcontract Work, then the Contractor hereby assumes toward the Subcontractor all the obligations, rights, duties, and redress that the Owner under the prime contract assumes toward the Contractor. In an identical way, the Subcontractor hereby assumes toward the Contractor all the same obligations, rights, duties, and redress that the Contractor assumes toward the Owner and Architect/Engineer under the prime contract. In the event of an inconsistency among the documents, the specific terms of this Agreement shall govern.”
If you’re not using a standardized contract, it’s even more important to understand flow down clauses so you can spot them and understand what they mean for you.
The dangers of flow down clauses to subcontractors
Industry-standard contracts, like those from the AIA and ConsensusDocs, essentially flow all of the provisions of the prime contract down to the subcontracts (and to the sub-subcontracts). So subs need to know what’s in that prime contract.
For instance, in AIA A201 (the general contract), the GC has 21 days to make a claim, including claims for additional costs, from the occurrence of the event that gave rise to the claim.
That’s not spelled out in AIA A401 (the subcontract) — but thanks to flow down provisions, it still applies.
So, if you’re excavating a footing and find a gas line or a pile of bones that requires you to spend more money and more time to complete your work, you only have 21 days to get that RFI or change order request submitted to start the claim.
If you get busy and don’t get the request sent in until day 22, the owner can refuse the change — and leave you on the hook for the extra costs.
Similarly, in ConsensusDoc 200, the parties have only five days to respond to dispute resolutions, which seems like something that would be similarly spelled out in their subcontractor form. But it isn’t always there. So how do subcontractors protect themselves?
Reduce risk with a precedence clause
Standard general contracts assume that coordinated standard subcontracts will be used, but that’s not always the case. And even when coordinated contracts are used, there can be conflicts between the general contract and the subcontract.
To solve these conflicts before they make trouble, subcontractors can insert a precedence clause into their subcontract.
This clause states that in case of a conflict between the prime contract and the subcontract, the subcontract takes precedence. This means the contract you agreed to won’t be overridden by the general contractor in some way you didn’t anticipate.
Note that this is also a good practice for sub-subcontractors and suppliers.
“The Contract documents consist of this Contract and its attachments and exhibits. In the event of a conflict between or among the Contract documents, the order of precedence shall be the provisions of the main body of this Contract, i.e., those provisions set forth in the recitals and articles of this Contract, and then the attachments and exhibits.”
Flow down clauses in government work
Federal contracts treat flow down clauses in a very different way, largely because they’re subject to an entirely unique system for dispute resolution.
In FAR (Federal Acquisition Regulations) contracts and DFARS (Defense Federal Acquisition Regulations Supplement) contracts, there is no general provision by which all requirements of the prime contract flow down.
In federal work, each provision that flows down to the sub is specifically called out and tailored to the situation. Consequently, you aren’t automatically held to the responsibilities of the general contract — but you also aren’t automatically protected by the remedies in it, either.
This means that all of the assumptions you may have formed based on previous commercial contracts go out the window with government work — and you need to look very carefully at the specifics of your subcontract.
Two types of flow down clauses in federal contracts
- Mandatory flow down: If the GC is required to include a specific flow down clause by the prime contract, this is a mandatory flow down clause. The GC is, as the name implies, mandated to include it in the subcontract.
- Discretionary flow down: If a flow-down clause isn’t required by the prime contract, but is included in the subcontract by the GC, that’s a discretionary flow down clause, as it’s included at the GC’s discretion.
Your GC has little control over the mandatory flow down clauses, but can use the discretionary flow down clauses to help make sure you are on the same page and are offered the same remedies and protections of the general contract.
The general contract is your contract, too
Yes, contracts can be tedious, complicated, and boring. But you still have to read them and understand them. And if you’re a subcontractor or a sub-subcontractor, you still need to read and understand the general contract.
All construction contracts should give subcontractors access to the full contract documents, which include the general contract, drawings, specifications, change orders, construction change directives, and the architect’s supplemental instructions, as well as any attachments.
Make sure you get your hands on it and understand it, because as soon as you sign your subcontract, you have essentially agreed to be bound by every page of the contract documents.
Spending a few hours sorting through it all can save you many more hours down the road and, by avoiding payment disputes, save you a whole lot of money, too.