Subcontractor and Supplier Agreements

What is a flow-down clause, and why does it matter?

A flow-down clause incorporates the relevant terms of the prime contract into the subcontract, binding the subcontractor to the same obligations, schedule, and standards the general contractor owes the owner.

Without a flow-down clause, a subcontractor's obligations exist in a vacuum, disconnected from what the general contractor actually promised the owner. That gap becomes a problem the moment the owner enforces a term against the general contractor that was never passed down to the sub responsible for that work.

A well-drafted flow-down clause is specific about which prime contract terms apply, rather than a blanket incorporation that buries a subcontractor in obligations it never had a chance to review.

How should subcontractor payment terms be structured?

Subcontractor payment terms should state the payment schedule, the documentation required to request payment, and exactly how payment timing relates to the general contractor's own payment from the owner.

Payment timing is where subcontractor agreements most often create friction, because the subcontractor is rarely paid the moment work is complete. The contract should be explicit about the mechanism, and that mechanism should be clear enough that a subcontractor knows what to expect before signing, not after the first invoice goes unpaid.

What is the difference between pay-if-paid and pay-when-paid clauses?

A pay-when-paid clause sets timing, meaning the subcontractor gets paid within a reasonable time regardless of whether the owner pays the general contractor. A pay-if-paid clause makes the owner's payment a condition of the subcontractor being paid at all.

The difference is significant. Under a pay-if-paid clause, if the owner never pays, the subcontractor may have no payment claim against the general contractor for that work, depending on how clearly the clause is written. Subcontractors should read this clause closely and understand exactly which version they are signing, because the two are often worded similarly but allocate risk very differently.

What should a supplier agreement cover?

A supplier agreement should specify the exact materials, quantities, delivery schedule, price protection terms, and what happens if delivery is late or materials do not meet specification.

Material price volatility and lead times make supplier agreements more consequential than they used to be. A contract silent on price escalation or delivery delay leaves both sides exposed to market conditions neither one controls, at exactly the moment a project's schedule and budget can least absorb it.

What insurance should subcontractors carry?

Subcontractor agreements should require coverage types and limits appropriate to the trade being performed, name the general contractor and owner as additional insureds, and require proof of coverage before work begins on site.

Insurance requirements should be checked against the indemnification language in the same agreement, not read in isolation, because the two provisions together determine whether the risk being assigned to a subcontractor is actually insurable at a reasonable cost.