Thank goodness for my pal and fellow blogger, Craig Martin (@craigmartin_jd). Whenever I hit a bout of writer’s block, he comes through with a great idea for a post that I am more than ready to play off of here at Construction Law Musings. This time his post is on that bug bear for many a construction subcontractor: the so called “flow down” clause. In his great post from last Wednesday, Craig discusses how even lower tier subcontractors can be hurt by a “flow down” clause in a Prime Contract.
Craig’s post makes a wonderful point, particularly in my home state of Virginia where contracts are strictly enforced. Just about every construction subcontract that I review for those clients that take my advice to talk to me early in the process contains a clause that essentially states some version of the following:
The subcontractor shall assume toward the Contractor all obligations toward the Contractor which the Contractor assumes toward the Owner.
What does this mean? It means that as a subcontractor you need to review the prime contract if you are to know your obligations on the project. The one simple clause above incorporates everything (except those things that conflict with the prime contract) from the prime contract (the contract between owner and general contractor) into your subcontract. As pointed out in the post at Craig’s blog, this can include liquidated damages provisions among other items.
Even as a supplier, be sure to read the prime contract preferably with the advice of an experienced construction attorney on your side. Indemnification provisions in the supply contract or purchase order may not specifically state that the provisions of the prime contract apply, but if you are indemnifying the other party for damages you may be on the hook for damages that flow down from the prime contract to your subcontractor client.
In short, if you aren’t looking at all of the documents relating to your project, especially the prime contract, you should be. If you don’t you could end up blind sided by the flow down.
If you find this Musing to be interesting and have a comment, please join the conversation below and subscribe to keep up with the latest construction related information.