Read the fine print, sure. But don’t forget to review the pass-through or conduit clauses, referred to as “flow-down” provisions, that typically appear in construction subcontracts.
Flow-down provisions create additional contractual obligations for subcontractors, even if such provisions are not actually stated in the subcontract. Instead, they are just generally referred to as a list of documents that are “incorporated by reference,” as if fully stated within the subcontract.
For example, a subcontract agreement between an electrical subcontractor and the general contractor may state in a mere sentence that the prime contract is incorporated by reference. As a result, the electrical subcontractor would not only be bound by the terms and conditions contained within the subcontract but by the prime contract as well. General contractors use these provisions to ensure that the subcontractor’s obligations to the general contractor match the general contractor’s obligations to the owner.
As a more specific, and classic, example, the flow-down clause in Article 2 of the AIA Form 401-2007 (Standard Form of Agreement between Contractor and Subcontractor) binds the sub to the prime contract, requires the sub to assume toward the general contractor all obligations the general contractor has toward the owner, and grants the general contractor all rights and remedies against the sub that the owner has against the general contractor.
Failing to review the documents incorporated by a flow-down provision may result in a subcontractor agreeing to terms the subcontractor is unaware of and that may not relate to the scope of work.
Before entering into any construction contract in Maryland, here are some pointers for addressing flow-down provisions:
- Identify all clauses that incorporate by reference any additional contractual documents or statutory provisions.
- If a flow-down provision exists, request and obtain the documents from the general contractor, who is obligated to provide them.
- Review the additional documents and statutory provisions that flow down. In the event such additional provisions contradict the existing contract, determine which contract provision controls. In many situations, the original contract will state which provision controls if there is a conflict. In the absence of such language, the original contract should be modified to state which provisions control in the event of contradictory language.
The caution about reading and understanding a contract before signing it must extend to the flow-down provisions, which may not be immediately apparent until they are enforced later on.
For more information please contact Michael Siri at 410-583-2400 or firstname.lastname@example.org.