The “flow down” provision is common tool used by a prime contractor to simplify its preparation of a subcontract agreement. Rather than repeat and revise the provisions of its prime contract in the actual subcontract document, the prime uses a flow down clause to do protect itself from a drafting gap between the two documents. A simple flow down provision in a subcontract agreement may read as follows:
“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.”
While generally protective of the prime contractor this provision is often viewed by subcontractors as “standard” language. By creating an out of sight out of mind dynamic the flow down is susceptible of being discounted by subcontractors as they review proposed subcontract documents. Asking for a copy of the prime contract (even with key commercial terms redacted) only creates more review work for contracts administrators and lawyers. Once in hand the prime contract must be reviewed in detail with an eye to substituting the subcontractor for the prime contractor (and the prime contractor for the owner) as those terms appear in the document. The proposed flow down terms must be read in concert with the proposed subcontract so that areas of inconsistency, redundancy and ambiguity can be resolved in the final subcontract agreement.
Needless to say this can be a complicated process. It requires an attention to detail and patience that many subcontractors do not feel they have the negotiating strength to employ. The flow down dynamic by its nature creates an environment for disagreement regarding the interpretation and application of not just one set of terms but two – the prime contract terms and the subcontract terms. If not handled with care resolving flow down issues can derail the focus on other important commercial terms. Likewise ignoring the presence of the flow down as a means to avoid complications can have a significant downside for the subcontractor if issues or disputes arise down the road.
Flow Down Do’s and Don’ts:
Do request a copy of the prime contract (OK if key commercial terms are redacted).
Do assess whether the flow down applies only to the scope of work (or particular specifications) or is more general in nature.
Do consider limiting the application of the flow down to a specific list of provisions to suit your needs.
Do consider drafting the flow down so that it applies in a reciprocal manner.
Don’t agree to a flow down provision before the prime contract is finalized and available for review.
Don’t convince yourself that the protections the prime has negotiated for itself in the prime contract will necessarily be of benefit to you as a subcontractor.
Note: The sample provision above is for illustration purposes only and is not intended for use without appropriate review in your jurisdiction.