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Subcontracts in the construction industry commonly contain
a “flow down” provision. In a typical flow down provision,
the general contractor includes language that requires subcontractors
to assume the same obligations and requirements
toward the general contractor that the general contractor
assumes toward the owner. Additionally, subcontractors are
entitled to the prime contract’s dispute-resolution and redress
provisions in their disputes with the general contractor.
The most basic flow down provisions require that subcontracts
incorporate the terms of the prime contract, the
general conditions, and all other prime contract documents.
Of course, flow down provisions are nearly infinitely flexible,
and the owner may mandate that certain obligations in
the prime contract appear in subcontracts, while permitting
the general contractor to exclude other portions of the prime
contract in its subcontracts.
Virginia law recognizes the construction industry practice of
including “flow down” provisions in subcontracts, and permits
flow down provisions to include procedural requirements
governing litigation. In Steadfast Ins. Co. v. Brodie
Contractors, Inc., 2008 U.S. Dist. LEXIS 88448, Judge
Kiser of the U.S. District Court for the Western District of
Virginia granted summary judgment for the defendant masonry
subcontractor, who argued that the general contractor
failed to file suit within the requisite statute of limitations.
The contractor filed suit against the subcontractor a little
more than five years after the substantial completion date.
Accordingly, the dispositive issue was whether the substantial
completion date or some other date triggered the running
of Virginia’s five-year statute of limitations for breach of a
written contract.
The general contractor, Skanska USA Building, Inc.
(“Skanska”), entered into a prime contract with the Danville
Regional Medical Center (“DRMC”) for remodeling and
renovation work. The prime contract contained a provision
that stated that all subcontract agreements “shall allow to the
Subcontractor, unless specifically provided otherwise in the
subcontract agreement, the benefit of all rights… that the
Contractor, by the Contract documents, has against the
owner.” In forming a subcontract with Brodie Contractors,
Inc. for masonry work, Skanska implemented the prime
contract’s flow down provision by including language in the
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subcontract that stated that “[t]he Contract Documents consist
of this Agreement and… the Agreement between Owner
and Contractor for the… Project, all Conditions to the Agreement
between the Owner and Contractor (General, Supplementary
and any other Conditions)....” Although Skanska
could have modified Brodie’s rights with respect to Skanska,
it declined to, and instead included all of the provisions of the
prime contract in the subcontract.
One of the provisions of the prime contract addressed the
date on which the statute of limitations would begin to run
for any claims. In relevant part, the language of the prime
contract stated that, with respect “to acts or failures to act
occurring prior to the relevant date of substantial completion,
any applicable statute of limitations shall commence to run
any alleged cause of action shall be deemed to have accrued
in any and all events not later than such date of substantial
completion [sic].” Despite this inelegant language, it is apparent
that the statute of limitations began to run on any
claims by the owner against the general contractor for claims
arising from the general contractor’s pre-substantial completion
acts by no later than the substantial completion date.
continued on page 2
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