Flow-Down or pass-through clauses obligate downstream contractors to certain provisions contained in the up up-stream contractor contracts, such as the contract between the general contractor and the owner. These clauses are contained in every major form subcontract and they can expand the scope of your potential liability. This blog will look at typical language of a flow-down clause, what it means and how you can deal with them.
Typical Flow-Down Clause
A simple flow down clause might provide:
The Subcontractor agrees to be bound to the Contractor by the terms of the prime contract and to assume to the Contractor all the obligations and responsibilities that the Contractor by those documents assumes to the Owner, except to the extent that the provisions contained therein are by the terms or by law applicable only to the Contractor.
What Do Flow-Down Clauses Mean?
Flow-down clauses bind a down-stream contractor to the owner or up upstream contractor. More importantly, to the extent you may have negotiated around landmines in the upstream contractor’s contract, you may have agreed to the same or even worse provisions in the up upstream contract.
For example, if you negotiated extended notice requirements with your upstream contractor, but the prime contract, which was incorporated into your contract through a flow-down clause, contained a shorter time frame, you may be obligated to comply with a the shorter time frame.
Dealing with Flow-Down Clauses
The best way to deal with a flow-down clause is to be aware of the up upstream obligations. If your contract contains a flow down-clause, ask for a copy of the contract to which you are obligated. Red flags should rise pretty quickly if your upstream contractor doesn’t have or can’t get a copy.
You should also negotiate the scope of the flow-down. Ask what the upstream contractor needs with the flow-down. Are they seeking indemnity? How about dispute resolution or notice provisions? Try to limit the extent of the flow-down.
Take Away: A flow-down provision can drown your project. If you are being asked to sign a contract with a flow-down clause, make sure you review the up upstream contract so that you know the extent of your obligations to the up upstream contractor or owner.