Flow Down Agreement

It is in the interest of an owner to have a subcontractor bound to the same obligations and requirements as the general contractor. On the other hand, subcontractors often argue or try to limit the liability assigned to them by a top-down flow clause, particularly when the subcontractor only participates in a project in a limited way. It is therefore particularly important that contractors and subcontractors seek a top-down flow clause and understand the entire agreement they have signed. If a flow-down clause is particularly broad and a subcontractor is unable to determine which contractual obligations are actually removed, the clause may be deemed unenforceable. Nevertheless, it is also in the employer`s interest to ensure that its requirements are passed on to the subcontractor through the chain. Regardless of the risk of insolvency (main) of the employer, the employer`s right to sue the contractor for breach of the main contract is only a meagre comfort to poor results and/or delivery delays. Simply put, an employer would rather have a successful project than the right to complain about a failure. When subcontractors are required to deliver their works in accordance with the requirements of the main contract, the likelihood that the final product will be below the employer`s requirements decreases and all the guarantees granted to the employer by these subcontractors become more valuable. In Nelson, TxDOT entered into a premium contract with Hood for the construction of road and procurement infrastructure.

The Prime contract provided that in the event of a change in work in which the parties could not accept a price adjustment, Hood would be paid on a fuel account increase (“FAM”) to offset the actual costs of labour, materials and equipment, with an additional percentage for overhead and an increase in profits. Hood maintained Vernco for water suppliers as part of a subcontracting clause with a standard flow-down clause and an amendment clause requiring Vernco to seek in writing an appropriate price adjustment for changes to its work. The project required larger pipelines than those identified in the Prime Contract (which resulted in a change in the scope of Hood and Vernco`s work), so Hood requested a TxDOT modification. When Hood and TxDot could not agree on a price, the FAM was called. Vernco did not seek to adjust prices fairly in writing to Hood, but expected to gain the advantage of FAM, which was invoked between Hood and TxDOT. In reality, a subcontractor will rarely take over a sufficient portion of the construction volume of the main contractor (or, as a subcontractor might argue, the profits generated by the project) to justify a full integration of the main contractual conditions. Under these conditions, a flow-down clause would ideally be developed to deal with the specific terms of the main contract applicable to subcontracting. These specific provisions may include payments. B, litigation, waivers, cancellations, key data, insurance, intellectual property and liquidated damages.

Education: a subcontractor acquires the rights of a general contractor only under the main contract, if the subcontracting – in addition to the obligations of the general contractor – also gives the subcontractor all the rights and recourse against the general contractor that the general contractor has against the owner under the main contract. Achieving a true “back-down” or “back-to-back” would mean that all provisions that impose rights or commitments relevant to the subcontractor would be included in the subcontract.