Flow Down Clauses – Their Purpose and Effect
Clauses in a subcontract which incorporate the general contract by reference, and which bind the subcontractor to the general contractor to the same extent the general contractor is bound to the owner, are referred to as “flow down” clauses. Their use is widespread, and they are found in most subcontract forms. Despite harmless sounding language, flow down clauses constitute one of the most powerful provisions in a subcontract.
The principal purpose of these flow down provisions is to maintain consistency between the obligations the general contractor owes to the owner, and the obligations the subcontractor owes to the general contractor for sub-trade work. This purpose is a practical one because no general contractor wants to risk liability to the owner on account of non-conforming sub-trade work without having the right to pass that liability on to the subcontractor responsible. But the legal effect of flow down clauses can be greater than that.
Incorporating the general contract into the subcontract by a flow down clause binds the subcontractor to the arrangement between the general contractor and owner, sometimes with surprising or uncomfortable results. For example, the subcontract may not provide for arbitration of disputes. But if the general contract requires arbitration, the subcontractor could be bound to arbitrate its claims and disputes with the general contractor.
Another example is project delay. The subcontract may be silent with respect to recovering claims for delay, which implicitly permits such recovery. But if the general contract includes a no damage for delay provision barring general contractor claims against the owner, the subcontractor could likewise be barred against the general contractor.
In short, a flow down clause in a subcontract imposes multiple obligations on a subcontractor beyond those enumerated in the subcontract form he signs. A subcontractor who accepts a flow down provision without insisting upon obtaining a complete copy of the general contract, including general and supplemental conditions, is assuming obligations and potential liability blindly, which is an extreme risk.
Many flow down clauses are one way streets benefiting the general contractor only. That is, they require the subcontractor to assume the general contractor’s obligation to the owner under the contract documents, but do not require the general contractor to assume to the subcontractor the obligations which the owner owes to the general contractor. Unless these one way flow down provisions are amended by requiring the general contractor to assume a similar and reciprocal obligation to its subcontractor, the subcontractor will be denied the benefit of general conditions on which it may have bid.
The AIA subcontract form recognizes the importance of a reciprocal flow down provision benefiting subcontractors by explicitly including it. The statutory form of subcontract in Massachusetts required for filed sub-bidders also contains a reciprocal flow down provision. Every subcontract form which aspires to fairness should do the same.