Volume 7 - Number 39 | October 5, 2009 - Construction Claims Advisor

Recent Issues

EDITOR'S NOTES | Issue 7-39: Subcontracts frequently contain so-called "flow-down" clauses. These provisions state that all the terms, conditions, requirements, etc., of the prime contract are hereby incorporated into the subcontract and made a part thereof. If interpreted literally, the prime contractor assigns responsibility for the entire project to the subcontractor. This, of course, is not the case. It therefore becomes necessary to determine the intended scope of these broadly worded provisions.

In a case reported this week, a prime contractor argued that a broad flow-down clause imposed a claim limitation period from the prime contract on the subcontractor. The sub replied that the clause did not pass through the procedural requirements of the prime contract. The subcontractor prevailed, primarily because the subcontract contained its own claim resolution provisions, which were incompatible with the limitation period in the prime contract.

Other cases reported this week involve correction of a mistaken bid and performance bond coverage for a post-completion warranty. A clerical error in a unit price could be corrected because the intended price was apparent from the overall bid schedule. And, the performance bond guaranteed all contractual obligations, including an express warranty of workmanship.

SUBCONTRACT “FLOW-DOWN” CLAUSE DID NOT INCORPORATE CLAIM LIMITATION PERIOD: A broad “flow-down” clause in a subcontract did not incorporate a claim limitation period from the prime contract. The subcontract included its own claim resolution procedure, which was incompatible with the limitation period.

UNIT PRICE IN BID PROPERLY CORRECTED TO REFLECT INTENDED AMOUNT: A unit price in a bid reflected an obvious clerical error that could be corrected in reliance on the total bid price and a handwritten copy of the bid, which was submitted contemporaneously with the mistaken bid.

PERFORMANCE BOND COVERED POST-COMPLETION WARRANTY: A performance bond covered post-completion latent defects in the work because the construction contract, guaranteed by the bond, included an express warranty covering those defects.