Commercial construction subcontracts frequently incorporate by reference provisions of the prime contract between the owner and the general contractor, often with language requiring the subcontractor to assume toward the general contractor all duties owed by the general contractor to the owner. (Article 2 of the popular AIA A401 (2017) is an example.) Exactly what duties these “flow down” clauses embrace can be less clear than a casual reading might suggest.
Flow down clauses can limit a subcontractor’s remedies for breach by incorporating the prime contract’s restrictions. In Costa v. Brait Builders Corp., 463 Mass. 65, 78, 972 N.E.2d 449 (2012), a subcontractor who agreed “to be bound to the Contractor by the terms of the [general contract] and to assume to the Contractor all the obligations and responsibilities that the Contractor by those documents assumes to the awarding authority” was stuck with a waiver of consequential damages clause found only in the prime contract. In L & B Construction Co, v. Ragan Enterprise, Inc., 482 S.E.2d 279 (Ga. 1997), a no-damages-for-delay clause in a prime contract was held binding on a subcontractor through a similar flow-down clause.
When the prime contract dictates a forum for resolving disputes, cases are split on the effect of flow down clauses. Weatherguard Roofing Co. v. D. R. Ward Construction Co., Inc., 152 P.3d 1227 (Ariz. App. 2007), saddled a subcontractor with the prime contract’s arbitration clause. Remedial Construction Services, LP v. AECOM, Inc., 65 Cal. App. 5th 658 (2021), went the other way. ESI Companies, Inc. v. Ray Bell Construction Co., 2008 WL 544563 (Tenn. App., Feb. 29, 2008), bound a subcontractor to the prime contract’s forum-selection clause. U.S. Steel Corp. v. Turner Construction Co., 560 F.Supp. 871 (S.D.N.Y.1983), went the other way.
The precise language of the flow down clause matters greatly, and any ambiguity in its scope as well as any conflict with express provisions in the subcontract will likely limit flow-down incorporation to those prime contract provisions directly addressing scope and quality of work. Such was the case in Flatiron-Lane v. Case Atlantic Co., 121 F.Supp.3d 315, 551 (M.D.N.C. 2015), refusing to flow down a prime contract’s notice-of-claim obligations onto a subcontractor because “the Subcontract has numerous procedural and notice provisions of its own that are dissimilar to those found in the [prime contract], make no reference to the [prime contract] at all, and are not entirely consistent with the [prime contract] procedures.”
Some courts go further, and restrict flow down clauses to items involving performance of work unless the clause explicitly states otherwise. In Amerisure Insurance Co. v. Selective Insurance Group, Inc., 2023 WL 3311879 (2d Cir., May 9, 2023), the subcontractor agreed to “assume toward the Contractor all the obligations and responsibilities that the Contractor assumes toward the Owner.” The court ruled that this clause “does not require the subcontractor to assume all obligations of the general contractor, but only those relating to the nature or scope of the work undertaken by the subcontractor.” Id. at *3.
Where does New Hampshire stand on all of this? We have but one Supreme Court case to go on, and it suggests a narrow interpretation of flow down clauses. Berke Moore Co. v. Phoenix Bridge Company, 98 N.H. 261 (1953), was a suit by a concrete subcontractor on a State bridge project who agreed to “be bound by and conform to the general specifications in all respects wherein they apply to the work embraced in this agreement” and agreed to accept payment “for the quantity of material approved by the State Highway Commission.” The State paid the general contractor per square yard of finished concrete surface excluding curbs, but the Supreme Court held that this wasn’t binding with respect to the subcontractor’s claim against the general contractor, id. at 271:
“The provisions of the ‘general specifications’ which relate to ‘the work embraced in’ the subcontract contain no reference to the provisions of the N. H. specifications defining the authority of the State Engineer and Commissioner. Accordingly these provisions upon which the defendant relies may not be considered incorporated by reference in the subcontract.”
Flow down clauses can limit a subcontractor’s remedies for breach by incorporating the prime contract’s restrictions. In Costa v. Brait Builders Corp., 463 Mass. 65, 78, 972 N.E.2d 449 (2012), a subcontractor who agreed “to be bound to the Contractor by the terms of the [general contract] and to assume to the Contractor all the obligations and responsibilities that the Contractor by those documents assumes to the awarding authority” was stuck with a waiver of consequential damages clause found only in the prime contract. In L & B Construction Co, v. Ragan Enterprise, Inc., 482 S.E.2d 279 (Ga. 1997), a no-damages-for-delay clause in a prime contract was held binding on a subcontractor through a similar flow-down clause.
When the prime contract dictates a forum for resolving disputes, cases are split on the effect of flow down clauses. Weatherguard Roofing Co. v. D. R. Ward Construction Co., Inc., 152 P.3d 1227 (Ariz. App. 2007), saddled a subcontractor with the prime contract’s arbitration clause. Remedial Construction Services, LP v. AECOM, Inc., 65 Cal. App. 5th 658 (2021), went the other way. ESI Companies, Inc. v. Ray Bell Construction Co., 2008 WL 544563 (Tenn. App., Feb. 29, 2008), bound a subcontractor to the prime contract’s forum-selection clause. U.S. Steel Corp. v. Turner Construction Co., 560 F.Supp. 871 (S.D.N.Y.1983), went the other way.
The precise language of the flow down clause matters greatly, and any ambiguity in its scope as well as any conflict with express provisions in the subcontract will likely limit flow-down incorporation to those prime contract provisions directly addressing scope and quality of work. Such was the case in Flatiron-Lane v. Case Atlantic Co., 121 F.Supp.3d 315, 551 (M.D.N.C. 2015), refusing to flow down a prime contract’s notice-of-claim obligations onto a subcontractor because “the Subcontract has numerous procedural and notice provisions of its own that are dissimilar to those found in the [prime contract], make no reference to the [prime contract] at all, and are not entirely consistent with the [prime contract] procedures.”
Some courts go further, and restrict flow down clauses to items involving performance of work unless the clause explicitly states otherwise. In Amerisure Insurance Co. v. Selective Insurance Group, Inc., 2023 WL 3311879 (2d Cir., May 9, 2023), the subcontractor agreed to “assume toward the Contractor all the obligations and responsibilities that the Contractor assumes toward the Owner.” The court ruled that this clause “does not require the subcontractor to assume all obligations of the general contractor, but only those relating to the nature or scope of the work undertaken by the subcontractor.” Id. at *3.
Where does New Hampshire stand on all of this? We have but one Supreme Court case to go on, and it suggests a narrow interpretation of flow down clauses. Berke Moore Co. v. Phoenix Bridge Company, 98 N.H. 261 (1953), was a suit by a concrete subcontractor on a State bridge project who agreed to “be bound by and conform to the general specifications in all respects wherein they apply to the work embraced in this agreement” and agreed to accept payment “for the quantity of material approved by the State Highway Commission.” The State paid the general contractor per square yard of finished concrete surface excluding curbs, but the Supreme Court held that this wasn’t binding with respect to the subcontractor’s claim against the general contractor, id. at 271:
“The provisions of the ‘general specifications’ which relate to ‘the work embraced in’ the subcontract contain no reference to the provisions of the N. H. specifications defining the authority of the State Engineer and Commissioner. Accordingly these provisions upon which the defendant relies may not be considered incorporated by reference in the subcontract.”
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