What is a Flow-Down Clause in a Contract?
A flow-down clause (also referred to as a pass-through or conduit clause) is usually found in a construction contract and provides that subcontractors will be bound to the general contractor in the same fashion as the general contractor is bound under its contract with the property owner.
Flow-down provisions are important to protect parties to a construction contract by spelling out that a subcontractor’s obligations to the general contractor are identical to the ones a contractor has to the property owner. The specific obligations that “flow-down” generally involve the scope of work to be performed, and often also the timelines in which the work will be completed.
Flow-down clauses may also include terms about dispute resolution and payment. For example, a flow-down payment clause may state that a subcontractor will be paid by the general contractor when the general contractor is paid by the owner. Likewise, if an owner has agreed to resolve disputes with the general contractor through arbitration, a subcontractor may be required to resolve disputes through arbitration as well.
It is in an owner’s interest to have a subcontractor bound by the same obligations and requirements as the general contractor. Subcontractors, on the other hand, commonly dispute or try to limit the scope of responsibility attributed to them through a flow-down clause, particularly when the subcontractor has limited involvement in a project. It is therefore especially important for contractors and subcontractors to look for a flow-down clause, and understand the full scope of the agreement they are signing. If a flow-down clause is particularly broad and a subcontractor cannot determine which contractual obligations will actually flow down, the clause may be found unenforceable.
If you have any questions about contract terms, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your real estate, business, or contract law needs.