HIDDEN RISKS IN FLOW DOWN PROVISIONS
Many construction contracts, including standard industry forms prepared by organizations such as
The American Institute of Architects (AIA), include language that incorporates provisions from the
prime contract into the subcontract. Subcontract clauses that incorporate duties, rights or remedies
from the prime contract commonly are known as “flow down” provisions. For example, a flow
down provision in AIA Document A201-2007 appears in Article 2:
“The Contractor and Subcontractor shall be mutually bound by the terms of this
Agreement and, to the extent that the provisions of AIA Document A201–2007 apply
to this Agreement pursuant to Section 1.2 and provisions of the Prime Contract apply
to the Work of the Subcontractor, the Contractor shall assume toward the
Subcontractor all obligations and responsibilities that the Owner, under such
documents, assumes toward the Contractor, and the Subcontractor shall assume
toward the Contractor all obligations and responsibilities which the Contractor, under
such documents, assumes toward the Owner and the Architect. The Contractor shall
have the benefit of all rights, remedies and redress against the Subcontractor that the
Owner, under such documents, has against the Contractor, and the Subcontractor
shall have the benefit of all rights, remedies and redress against the Contractor that
the Contractor, under such documents, has against the Owner, insofar as applicable
to this Subcontract. Where a provision of such documents is inconsistent with a
provision of this Agreement, this Agreement shall govern.”
The primary purpose of these provisions is to bind a subcontractor to a contractor in the same
manner, and to the same extent, a contractor is bound to the owner, excluding only those matters
beyond a subcontractor’s scope of work. When you encounter such a provision, be aware of the
hidden risks.
HOW FLOW DOWN PROVISIONS CAN LEAD TO DISPUTES
As it pertains to a roofing contractor’s scope of work, flow down provisions seldom create
problems. If a general contractor is required by the agreement to install a roof system that meets or
exceeds FM Global Class 1-90, a roofing contractor will, in turn, be required to perform to those
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specifications. Where problems typically arise are in broader flow down provisions that incorporate
not only the scope of work, but also the terms and conditions governing the parties’ relationship.
For example, if a prime contractor is required to indemnify an owner against the owner’s
partial negligence, are you, the roofing contractor, similarly bound to indemnify others against their
partial negligence? It’s possible. If the subcontract does not contain an indemnity provision, you
nonetheless may be obligated to indemnify the owner to the same extent the general contractor must
indemnify under the terms of the prime contract because of a flow down provision. A general
contractor would argue the indemnity clause is not inconsistent with a provision of the subcontract
because the subcontract does not address indemnity at all, and some courts (but not all) have
adopted this view.
If the prime contract and the subcontract contain differing indemnity provisions, the court
would be left to determine how to interpret the contract. If an AIA contract was being used, the AIA
flow down provision language specifying the subcontract controls in the event of any inconsistency
becomes of paramount importance and resolves the question. On the other hand, some subcontracts
specify that in the event of a conflict among contract documents, including the prime contract, the
provision is more burdensome upon a roofing contractor’s controls. A court might find this
provision determinative when deciding how to resolve the conflict.
In addition to indemnity, disputes relating to flow down provisions may arise in other areas
such as insurance (what types and limits of insurance must be maintained) and dispute resolution
(the locale and whether disputes will be heard in arbitration or litigation). Of particular concern for
subcontractors are provisions pertaining to notice requirements. If the prime contract identifies
specific time frames regarding which notice must be given to preserve entitlement to change orders,
and those notice provisions flow down into the subcontract but are not specifically set forth in the
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subcontract, you may inadvertently waive entitlement to valid claims by failing to give timely
notice.
PROTECT YOURSELF
Fortunately, you have the opportunity to protect yourself against surprise provisions from the prime
contract, but it requires early action. If the subcontract provides—as the vast majority of
subcontracts do—the prime contract is a contract document and the prime contractor is entitled to
the same rights and remedies against the subcontractor as the owner has against the prime
contractor, you should request a copy of the prime contract before signing the subcontract. Review
the most important terms, including those addressing indemnity, insurance, design responsibility,
change orders, payment, liens and dispute resolution, and note any areas of concern. Consult with
your attorney for assistance if you are unsure about anything in the prime contract. And, if the
subcontract does include a flow down provision, ensure it also includes language similar to the AIA
provision quoted above providing the subcontract governs in the event of any inconsistency with the
prime contract.
Finally, flow down provisions should be made reciprocal, providing you similarly have the
benefit of all rights and remedies against the prime contractor as the prime contractor has against
the owner.
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