Construction Risk

Contract Drafting Tip: The Flow–Down Incorporation by Reference Clause

This article is written from the subcontractor’s perspective.  When negotiating its subcontract, the subcontractor may be successful in obtaining reasonable clauses concerning standard of care, time for performance, indemnification, limited warranties and other significant risk allocation matters.  But then, by agreeing to an incorporation by reference clause, the subcontractor agrees that the terms and conditions contained in the prime contract will control over any conflicting or different clauses it worked so hard to get into its subcontract.  Thus, higher standards of care, warranties, and uninsurable indemnification obligations contained in the prime contract will be enforced if a matter ends up in litigation.  This article explains what ConstructionRisk, LLC does when reviewing a subcontract to assist the subcontractor to avoid some of these uninsurable flow down provisions.

At the conclusion of whatever flow down clause the subcontract has (particularly if there is a long prime contract that might contain uninsurable warranties or indemnity obligations), add the following in order to do a disclaimer of warranties and Indemnitees:

Option (1)  “provided however, that notwithstanding any clause in the Prime Contract or this Agreement to the contrary, Subconsultant expressly disclaims all express or implied warranties and guarantees with respect to the performance of professional services, and it is agreed that the quality of such services shall be judged solely as to whether Subconsultant performed its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (“Standard of Care”), and provided further that Subconsultant shall not provide indemnification of any indemnitee other than to the extent damages arise out of third party claims against the indemnitee and to the extent caused by Subconsultant’s willful misconduct or negligence, and provided further that Subconsultant shall not defend any indemnitee against professional liability claims, and provided further that Subcontractor shall not be obligated to indemnify the Owner or any other Indemnitees other than the Prime under any indemnity provision unless the Prime Contract expressly requires the Subcontractor to do so.” 

Option (2):  Eliminate flowing down uninsurable warranties and indemnity obligations by adding this shorter version of the clause suggested above.  Add the following clause to the end of the incorporation by reference clause:

“… provided however that the Standard of Care and the Indemnification provisions set forth in this subcontract take precedence over the Contract between Prime and its Client.”

Option (3) Make the subcontract terms prevail over the prime agreement terms

Consider this from the AIA A C401 – § 1.3:

“To the extent that the provisions of the Prime Agreement apply to This Portion of the Project, the Architect shall assume toward the Consultant all obligations and responsibilities that the Owner assumes toward the Architect, and the Consultant shall assume toward the Architect all obligations and responsibilities that the Architect assumes toward the Owner. Insofar as applicable to this Agreement, the Architect shall have the benefit of all rights, remedies and redress against the Consultant that the Owner, under the Prime Agreement, has against the Architect, and the Consultant shall have the benefit of all rights, remedies and redress against the Architect that the Architect, under the Prime Agreement, has against the Owner. Where a provision of the Prime Agreement is inconsistent with a provision of this Agreement, this Agreement shall govern.”

Option (4).  If you are the Prime, consider using this flow down clause.  This makes the strictest terms apply instead of stating that either the Prime Contract or Subcontract apply.

“Subcontractor is bound to Prime for the performance of the Work in the same manner as Prime is bound to Owner under Prime’s contract with Owner. The pertinent parts of such contract will be made available upon Subcontractor’s request. In event of any conflict between these Terms and conditions and a contract between Prime and Owner, the more strict provision in favor of Prime shall govern.”


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 23, No. 8 (December 2021).

Copyright 2021, ConstructionRisk, LLC

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