Should I Go With the Flow? Understanding Flow-Down Provisions in Construction Contracts

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["a",["href","#_ftn1","name","_ftnref1"]],["a",["href","https:\/\/www.aiacontracts.org\/contract-documents\/25131-general-conditions-of-the-contract-for-construction"]],["strong"],["em"],["u"],["i"],["a",["href","#_ftnref1","name","_ftn1"]]],"sections":[[1,"p",[[0,[],0,"September 28, 2022"]]],[1,"p",[[0,[],0,"The majority of prime construction contracts include\n\u201cflow-down\u201d provisions, and the AIA Contract Documents are no exception.\nFlow-down provisions, in essence, require the contractor \u201cto structure its\nsubcontracts in such a way that the contractor\u2019s obligations under the prime\nagreement are \u2018flowed down\u2019 to subcontractors.\u201d"],[0,[0],1,"[1]"],[0,[],0," This provision is\nimportant because all project participants \u2013 not just prime contractors \u2013 are obliged\nto adhere to the requirements in various documents provided by the owner, such\nas drawings and specifications, even though not all project participants have a\ncontract with the owner. It is through flow down provisions that these\nobligations bind all parties throughout the contractual chain."]]],[1,"p",[[0,[],0,"The "],[0,[1],1,"A201-\n2017 General Conditions of the Contract for Construction "],[0,[],0," contains the flow-down provision in\nSection 5.3:"]]],[1,"p",[[0,[2],1,"\u00a7 5.3 Subcontractual Relations "],[0,[3],1,"By\nappropriate written agreement, the Contractor shall require each Subcontractor,\nto the extent of the Work to be performed by the Subcontractor, to be bound to\nthe Contractor by terms of the Contract Documents, and to assume toward the\nContractor all the obligations and responsibilities, including the\nresponsibility for safety of the Subcontractor\u2019s Work that the Contractor, by\nthese Contract Documents, assumes toward the Owner and Architect. Each\nsubcontract agreement shall preserve and protect the rights of the Owner and\nArchitect under the Contract Documents with respect to the Work to be performed\nby the Subcontractor so that subcontracting thereof will not prejudice such\nrights, and shall allow to the Subcontractor, unless specifically provided\notherwise in the subcontract agreement, the benefit of all rights, remedies,\nand redress against the Contractor that the Contractor, by the Contract\nDocuments, has against the Owner. Where appropriate, the Contractor shall require\neach Subcontractor to enter into similar agreements with Sub-subcontractors.\nThe Contractor shall make available to each proposed Subcontractor, prior to\nthe execution of the subcontract agreement, copies of the Contract Documents to\nwhich the Subcontractor will be bound, and, upon written request of the\nSubcontractor, identify to the Subcontractor terms and conditions of the\nproposed subcontract agreement that may be at variance with the Contract\nDocuments. Subcontractors will similarly make copies of applicable portions of\nsuch documents available to their respective proposed Sub-subcontractors."]]],[1,"p",[[0,[],0,"Flow-down provisions don\u2019t stop at the subcontractor,\nthough. For example, the A401-2017 Standard Form of Agreement Between\nContractor and Subcontractor contains the following flow-down provision in\nArticle 2:"]]],[1,"p",[[0,[2],1,"Article 2 Mutual Rights and Responsibilities "],[0,[3],1,"The Contractor and\nSubcontractor shall be mutually bound by the terms of this Agreement and, to\nthe extent that the provisions of AIA Document A201\u20132017 apply to this\nAgreement pursuant to Section 1.3 and provisions of the Prime Contract apply to\nthe Work of the Subcontractor, the Contractor shall assume toward the\nSubcontractor all obligations and responsibilities that the Owner, under such\ndocuments, assumes toward the Contractor, and the Subcontractor shall assume\ntoward the Contractor all obligations and responsibilities that the Contractor,\nunder such documents, assumes toward the Owner and the Architect. The\nContractor shall have the benefit of all rights, remedies, and redress against\nthe Subcontractor that the Owner, under such documents, has against the\nContractor, and the Subcontractor shall have the benefit of all rights,\nremedies, and redress against the Contractor that the Contractor, under such\ndocuments, has against the Owner, insofar as applicable to this Subcontract.\nWhere a provision of such documents is inconsistent with a provision of this\nAgreement, this Agreement shall govern."]]],[1,"p",[[0,[],0,"When evaluating whether a flow-down provision is\nappropriate for your contract or subcontract, parties need to consider a\nmultitude of issues. Some of the more common considerations related to\nflow-down provisions include:"]]],[1,"p",[[0,[2],0,"1. "],[0,[4],1,"Dispute\nResolution"],[0,[],1,". "],[0,[],0,"Is it not uncommon for a prime contractor to agree\nto arbitration as its dispute resolution method. However, some jurisdictions require\nheightened standards for parties agreeing to arbitration, thereby waiving their\nlitigation rights. As a result, \u201cflowing-down\u201d the dispute resolution selection\nmay require careful consideration and potentially specific language or actions\nby the contractor and subcontractor to make it enforceable."]]],[1,"p",[[0,[2],0,"2. "],[0,[4],1,"Notice\nof Claims"],[0,[],1,". "],[0,[],0,"The AIA\u2019s A201 General Conditions require the\ncontractor to give notice of claims to the owner within 21 days. If a claim\noriginates from a subcontractor, a prime contractor may be obligated to \u201cpass\nthrough\u201d the subcontractor\u2019s claim to the owner. In this case, an identical\ntimeline of 21 days that has been \u201cflowed down\u201d may present an issue for the\nprime contractor if the subcontractor waits until the end of that timeframe to\nsubmit its claim; in this case, the contractor may be delayed until after the\n21-day window to pass through the subcontractor\u2019s claim to the owner. If\nparties anticipate pass through claims on their project, they may want to\nconsider how the flow down provision will affect such claims."]]],[1,"p",[[0,[2,5],2,"AIA Contract Documents has provided this\narticle for general informational purposes only. The information provided is\nnot legal opinion or legal advice and does not create an attorney-client\nrelationship of any kind. This article is also not intended to provide guidance\nas to how project parties should interpret their specific contracts or resolve\ncontract disputes, as those decisions will need to be made in consultation with\nlegal counsel, insurance counsel, and other professionals, and based upon a\nmultitude of factors. "]]],[1,"p",[[0,[],0,"\n\n\n\n\n\n\n\n"],[0,[6],1,"[1]"],[0,[],0," \u00a7 5:137.\n\u00a7 5.3\u2014Subcontractual relations\u2014Obligation to \u201cflow down\u201d responsibilities to\nsubcontractors (legal), 2 Bruner \u0026 O\u2019Connor Construction Law.\n\n\n\n"]]],[1,"p",[]]]}