In latest edition of The Wright Toolbox:
- When Flow-Down Provisions Flow: A Recent Decision Involving AIA Contract Forms– read now
When Flow-Down Provisions Flow: A Recent Decision Involving AIA Contract Forms
In an unreported decision by the Maryland Court of Special Appeals issued in October 2021, the intermediate appellant court reviewed the interplay of varying dispute resolution procedures in AIA construction documents. John R. Crocker Company (“Subcontractor”), had entered into a subcontract with Willow Construction, LLC (“General Contractor”) to perform construction work for the YMCA of the Chesapeake, Inc. (“Owner”). After disputes arose over payment, Subcontractor sought mediation and subsequently arbitration with General Contractor.
The Owner and General Contractor used an AIA A133-2009 for their contract (the “Prime Contract”), which incorporated the AIA A201-2007 General Conditions of the Contract for Construction (“General Conditions”). Article 5.3 of the General Conditions contained a flow-down clause, whereby each of the General Contractor’s subcontractors on the project was bound by the terms of the contract documents, and assumed toward the General Contractor all of the obligations and responsibilities that the General Contractor assumed toward the Owner. With regard to dispute resolution, Article 15 of the General Conditions required that all claims be initiated by a written notice to the Owner, with a copy sent to the Initial Decision Maker, which in this case was identified as the project architect. Under the A133-2009, a decision by the Initial Decision Maker was a condition precedent to pursuit of mediation of any claim and mediation was a condition precedent to initiating any arbitration proceeding.
The General Contractor and Subcontractor also utilized an AIA contract form, the A401-2007 (the “Subcontract), which also incorporates the General Conditions, with the important caveat that the Subcontract stated that if there was a conflict between a specific term in the Subcontract and the General Conditions, the terms of the Subcontract prevailed. The dispute resolution provisions in the Subcontract did not describe any role for the architect.
After the Subcontractor requested mediation and later filed for arbitration, the General Contractor sought relief in the circuit court to terminate the arbitration on the grounds that the Subcontractor’s request for mediation was premature and improper because the Subcontractor had not submitted its claim to the Initial Decision Maker. Upon review, the circuit court found a valid agreement to arbitrate, granted the Subcontractor’s summary judgment motion, and returned the case to the arbitrator. On appeal, the Court of Special Appeals affirmed, finding that the Subcontract contained a two-step dispute resolution process, while the Prime Contract required a three-step resolution process that included review by an initial decision maker. Because these two processes were inconsistent, the appellate court found that the order of precedence clause was triggered and the terms of the Subcontract controlled over the terms of the General Conditions.
This decision makes clear that a general contractor cannot simply rely on the existence of so-called flow down provisions in the prime contract. Even when using various AIA contract forms, which are generally complementary and intended to be used together, there must be careful attention and drafting to ensure that the dispute resolution procedures (and potentially other obligations) do not conflict, absent a deliberate intention to do so.
If you have questions about the AIA Contract Forms, email myself at email@example.com.