Flow-down, Prime Contract, Subcontractor

Subcontractor Negotiating Tips for AIA Documents: Part 1

What should a Subcontractor do when a General Contractor presents, to the Subcontractor, the 401A-2017 Standard Form of Agreement Between Contractor and Subcontractor (“A401”)?  While some provisions in the A401 are favorable to the Subcontractor, others are not.  This multi-part series explores some of the ways a Subcontractor can better: (i) understand its rights and obligations; and (ii) allocate contract risks without appearing commercially unreasonable.

This first entry addresses Article 1 and Article 2 of the A401, which cover The Subcontract Documents and the parties’ Mutual Rights and Responsibilities, respectively.

Article 1:  The Subcontract Documents

Article 1 of A401 contains six sections.  §1.1 lists the documents comprising the Subcontract.  §1.2 sets forth the Subcontract integration/merger clause, providing that the Subcontract supersedes prior negotiations and agreements.  §1.3 generally states that AIA Document A201-2017 (“A201 General Conditions”) constitutes the General Conditions governing the Subcontract.  §1.4 requires that Subcontract amendments be made in writing.  §1.5 disclaims any contractual relationship between any entities other than the General Contractor and the Subcontractor.  §1.6 obligates the General Contractor to make the Subcontract documents available to the Subcontractor before executing the agreement.

Most of the foregoing sections are fairly typical and should not require extensive editing.  Of the six sections, §1.6 is the one the Subcontractor should primarily focus on.

As context, under A401 Article 2 (more on that Article below), the Subcontractor will: (i) be bound by the A201 General Conditions; and (ii) assume towards the General Contractor all obligations that the Contractor assumes towards the Owner.  Accordingly, the Subcontractor should remain mindful of its obligations under the A201 General Conditions to review contract documents and site conditions, to take field measurements, and to report any errors, inconsistencies, or omissions discovered to the Architect (or in the Subcontractor’s case, to the General Contractor).  See A201, §3.2.2.

It is therefore in the Subcontractor’s interest to study and understand the full extent of its exposure under any restrictive provisions flowing-down from the Prime Contract.  The Subcontractor can protect this interest with a few simple edits to §1.6, none of which should be controversial:

§1.6: Upon request, the Contractor shall provide the Subcontractor with a complete set of the Subcontract Documents make Subcontract documents available for subcontractor before executing the Subcontract…

Article 2:  Mutual Rights and Responsibilities

A401 Article 2 makes the Prime Contract and A201 General Conditions terms flow-down to the Subcontract.  As discussed above with respect to reviewing site conditions under §3.2.2 of the A201 General Conditions, the Subcontractor must review the A201 General Conditions carefully to understand what terms are flowing-down (and thus what its rights and obligations are).  Two examples help illustrate this:

First, under A201 §2.1.2, the Owner must, within 15 days of receiving a written request, give the General Contractor information necessary to evaluate any mechanic’s lien rights.  But under A401 §3.3.6, the Contractor has 30 days to provide this same information to the Subcontractor.

Second, under A201 §2.2.1, the General Contractor is entitled to receive information about the Owner’s ability to fulfill its financial obligations under the Prime Contract.  Because this provision flows-down for the Subcontractor’s benefit (pursuant to A401 Article 2), the Subcontractor is entitled to receive information about the General Contractor’s ability to fulfill its obligations under the Subcontract.

The upshot is that the Subcontractor should submit its written requests for A401 §3.3.6 lien information and A201 §2.2.1 financial information before signing the Subcontract—or at the latest, no later than once the Subcontractor begins its work.

As one final practical tip, the Subcontractor may negotiate a change to the beginning of A401 Article 2, making Article 2 applicable only to the extent Contractor has furnished Subcontractor a copy of the Prime Contract and other Contract Documents requested by Subcontractor.  This edit gives the Subcontractor some level of protection against voluminous Prime Contract documents, thereby providing the Subcontractor some basis to argue (if it has to) that the Subcontractor did not intend to assume obligations it did not know about but which otherwise impacted the Subcontractor’s work.

 

 

 

 

 

 

 

 

David Salton is a partner in the litigation practice group, international arbitration, and construction sections of Porter Hedges. His practice focuses on representation of owners, general contractors, subcontractors, suppliers, and other commercial entities in construction, government contracts, oil and gas, trademark infringement, and other commercial disputes. To read David’s full bio, click here.