Contracts & ExecutionQuestion 546 of 1632

A subcontract contains a 'flow-down' clause stating the sub assumes toward the prime all obligations the prime owes the owner under the prime contract. The effect of this clause is that the subcontractor:

a.Owes the prime the same scope, schedule and quality duties
b.Becomes a direct party to the prime contract with the owner
c.May sue the owner directly for non-payment of its invoices
d.Is freed from any term not repeated in the subcontract

Explanation

A flow-down clause incorporates the prime contract's obligations into the subcontract to the extent they reach the sub's scope, so the sub owes the general what the general owes the owner on that work - schedule, quality, indemnity, dispute resolution. It does not create privity, so the sub neither becomes a party to the prime contract nor gains a contract claim against the owner for non-payment; its remedies there are the lien and stop payment notice. And the clause works the opposite way from the last reading: terms not restated still bind.

Law Reference: Flow-down/pass-through clause; privity (industry practice); Civil Code §8400 et seq. (lien remedies)

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