PDCA CONTRACTS & RISK COMMITTEE
253 DRUM POINT RD. • BRICK, NJ 08723
For non-federal government work, the general contractor’s
right to bring a pass-through claim against the government
varies from state to state. Therefore, it is the duty of the piledriving
subcontractor to reserve all present and future claims in
the progress payment application process.
Flow down provisions represent yet another threat to
a subcontractor’s pass-through claim. Flow down provisions
represent the prime contractor’s effort to ensure consistency
of obligations throughout the various tiers of the contracting
process. These flow down provisions invariably allow the prime
contractor reserves all rights against the subcontractor that the
owner possesses against the subcontractor. However, the mere
existence of a flow down clause does not necessarily mean that
the subcontractor is always entitled to enforce rights against the
prime contractor in the same way that the prime contractor may
enforce its contractual rights against the owner. Instead, the
scope of what rights and responsibilities flow down or flow up
through the various contractor tiers is determined by the language
of the flow down provision itself.
For example, a Texas Court of Appeals held this summer
that despite the presence of a flow down clause in a subcontract,
the subcontractor was not entitled to a force account markup on
its extra work even though the prime contractor could recover
the force account markup from the owner. (Nelson v. Vernco,
2018 Tex. App. LEXIS 3938.) In the Nelson case, even though
the Court found the governing subcontract’s flow down provisions
existed to ensure that the subcontractor would meet all
Texas Department of Transportation specifications that were
required to be met by the prime contractor, none of the flow
down provisions entitled the subcontractor with the direct right
to recover payment of force account markups from the owner. In
order to gain such a right the subcontractor should insist that its
subcontract clearly state that, “the subcontractor is entitled to
the benefit of all rights, remedies and redress against the prime
contractor, that the prime contractor has against the owner.”
It is also critical that a subcontractor that accepts a flow
down provision carefully review the incorporated prime contract
and carves out any unacceptable terms related to critical
issues such as indemnity and payment for unforeseen conditions
from the subcontract. It is also imperative that the subcontractor
insist that the subcontract specifically provide that,
“the terms and the conditions of the subcontract shall govern
over any inconsistent terms and conditions of the prime contract.”
Without this clause, the flow down provision may effectively
nullify the subcontract. (Peach State Roofing, Inc. v. Kirlin
Builders, LLC, 2018 U.S. Dist. LEXIS 104662 (M.D. Al.))
It is key that a subcontractor maintain the right to control
its own destiny on a project to the fullest extent possible by
carefully negotiating its subcontract and reviewing the prime
contract in such a way to protect its rights during the performance
of its subcontract work and the pursuit of claims after the
conclusion of the project when necessary. t
Alex Filotti, P.E. of Underpinning Foundation Skanska can be
reached at (718) 340-1021 or alex.filotti@skanska.com. Rick
Kalson, Esq. is a partner at Benesch Law. He can be reached at
rkalson@beneschlaw.com or at (614) 223-9380.
Phone: 985-643-0690
Specialty Piling Systems
on September 1, 2018
will become a division of
Mason Forest Products
Continuing a tradition as the premier supplier
of plywood cushions for all shapes and sizes of
concrete piles – square, octagonal, round and
especially cylinder piles – solid or hollow.
www.PileDrivingCushions.com Info@SpecialtyPiling.com
Phone: 985-643-0690
PILEDRIVER | 107
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