Subcontractors: ensure that flow-down contract provisions protect your rights.(Selected topic)

As a subcontractor, you regularly sign contract documents that contain "flow-down" provisions, i.e., terms in the subcontract agreement that promise the prime contractor that you will provide to it everything that it is obligated to provide to the owner for your work. For example, if the prime contractor has agreed to give the owner the right to audit records of time and materials, then the contractor must ensure that its subcontractors are contractually required to provide it with all the same records that it is required to produce for the owner. That sounds reasonable, but have you ever considered some of the detrimental obligations flow-down provisions might pass along to your company? Some could be catastrophic.

In a real-life example described in the American Subcontractors Association's (ASA) white paper, "What Is 'In' the Contract: Flow-Down Issues," a court determined that flow-down provisions passed a no-damage-for-delay clause from the owner's contract with the prime contractor to the prime contractor's agreement with the sub-contractor. The result was that the subcontractor could not recover against a general contractor that caused a two-year project delay. Now that's a potent flow-down provision.

The point is that while flow-down provisions are essential to the smooth running of projects, such clauses need to be limited. For example, the flow-down provision in the subcontract agreement needs to be limited in scope ...