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IACCM Contract Management Forum

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CH2M Hill
2016-06-01 14:55:31

Flowdowns from Prime Contracts

Does anyone have a "best practice" for including Prime Contract flowdowns to subconsultants? Some companies affix the entire agreement; some extract relevant provisions. When extracting relevant provisions, there can be conflicting terminology between the terms of the Subconsultant Agreement and the terms of the Prime Agreement; however, unless the Subconsultant Agreement is high dollar value/very critical, the investment of time to identify/rectify each anomaly may be prohibitive (except, of course, for the significant ones).
 
 •  IACCM  •   2016-06-01 19:58:11
Carolyn, while we wait for someone else from our community to share with us their "best practices" identified in regards to this point, I wanted to provide this link www.iaccm.com/resources/; where, as you will se, it is covered the matter related to the drafting of enforceable teaming agreements.
Regards
Pablo Cilotta
 
 
 •  Ministry of Justice  •   2016-06-02 05:17:50
I have gone through the process of ensuring flow down of terms from prime contracts to subcontracts and understand your feelings. It is laborious. The contracts that I managed had 'mandatory' clauses to be included in the sub-contracts; hence it was somewhat easy to navigate through. We also put in place a simple tracker listing all the clauses and if the sub-contract had complied with the mandatory term flow-down. We referred the matter to the legal team if there was any discrepancy. What I found was that once I completed verification of a sub-contract, other sub-contracts for the same prime contractor was easier to go through.
You could categorise your sub-contract into high (significant),medium and low groups and could vary the mandatory clauses for flow-down as appropriate.
 
 
 •  New Zealand Defence Force (NZDF)  •   2016-06-02 06:20:13
Interesting situation, I may be misunderstanding things here...and correct me if I'm wrong, but typically the point of having a Prime is to "manage" subcontractors and they should negotiate back to back agreements that adequately ensure that as a Prime they can fulfill their obligations...it should also reflect the spirit and intent of the agreement...happy to explore this further.
 
 
 •  Ministry of Justice  •   2016-06-02 07:12:40
Hi MC - Agree with you that purpose of the Prime is to "manage" subcontractors... In central Government (not sure if this is required in private sector) sector contracts, it is necessary to ensure that there is a flow-down of the terms to sub-contracts. For example the 'Data Protection' Clause. My response was in this context. The IACCM link given above is a good reference.
 
 
 •  Longsword Solutions Limited  •   2016-06-02 07:59:20
My current approach is to have the subcontractor "aware of" the whole contract (coupled to an indemnity if they cause us to be in breach - if I can get it!)

I then add a detailed flow-down of (i) the mandated flowdowns from client - usually things like anti-corruption and audit and (ii) the terms which are essential for us to ensure that the commercial risks are back-to-back - eg. the specific standard of workmanship that the subcontractor must exercise in their design.

Generally speaking this means 5-6 flowdown clauses, for which I either amend terminology by hand or rely on "mutatis mutandis" if I'm short of time.

For 'awareness of the whole' I think the donor clause was from the CECA Blue Book.
 
 
 •  Accenture  •   2016-06-07 15:38:27
Hi Carolyn,

I have also drafted some subcontracts in which I had to ensure that the subcontractor had the same commitment that the prime; as Girija stands, it is very laborious since you need to understand which of the obligations within the prime contract are transferable to the corresponding subco and also you have to modify the wording. I would never attached the entire agreement because of confidentiality concerns and also because usually prime contractors do not wish to share financial details with subcos in order to seek a more profitable negotiation with them.

Bon courage!

Elena
 
 
 •  Confidential  •   2016-06-09 09:24:57
Elena,

You bring up an interesting point. You as the contractor and the owner do not want to share the details of the contract, but want to subs to agree to them. Doesn't that seem unreasonable? I will never agree to something I have not seen. I do get copies where some details are redacted and that is fine, but the text has to be reviewed in order to be agreed to. I would be interested to hear your rebuttal as the contractor in this case when I say I have to see the prime to agree to it.

Kent
 
 
 •  New Zealand Defence Force (NZDF)  •   2016-06-09 17:10:55
Some great discussion point coming through - A recent experience - last month our prime contractor needed to conduct a MRO work package at a location controlled by another party (Subcontractor). As the Prime, they commenced negotiation; however this subcontractor only provided 3 months warranty on their work while our agreement with the prime had a twelve month warranty. The prime formally requested dispensation from the twelve warranty and was rejected due to the following reasons:
1) It is the primes obligation to ensure the test and acceptance of standards and quality of the work
2) The prime included in their financial model, an element of risk which they would absorb based on their contractual obligation.

Part the above negotiation included some issues around IP ownership during the work package being conducted. In this instance we accepted the deviation from the standard IP clauses as we deemed the subcontractor clauses to be reasonable as it didn't affect the operation and future requirements to maintain the vessel.

So while the prime is ultimately responsible for the deliverables, we needed to assess on a case by case situation if any deviations were acceptable...and also had to be careful that we don't set a precedence.
 
 
 •  CB&I  •   2016-06-19 17:24:04
In my experience the Prime Contract is the negotiated version which your company's legal eagles would have negotiated with your client so it would certainly contain more stringent clauses than your company's boiler plates. Usually once the prime contact is negotiated the necessary amendments are made to the the boiler plates to align them with the prime contract. The flow downs are usually attached as "Special conditions" of contract and they take precedence over the 'General Conditions' of contract due to the fact that the GCC are usually amended under SCC and the more stringent approach is adopted. this eliminates any misalignment between the two forms. e.g. 'Limits of Liabilities', 'Indemnification' and 'Insurances' are mostly dictated by Client and the risk must be transferred down to the lower level to protect your company's interest.

Cheers

Asif
 
 
 •  New Zealand Defence Industry Association (NZDIA)  •   2016-06-19 18:20:34
Hi
Australia is about to introduce new legislation about unfair contract terms with SMEs. This is going to make it harder for Primes to push terms down for fear of being void. Hopefully this will start new discussions about getting rid of clauses which are unfair!
 
 
 •  APL Norway AS  •   2016-06-20 01:39:53
1. Always remember that if you miss a Clause, it's not the end of the
world, because, as Contractor, you will always be responsible for the
delivery of your contract, regardless of who you choose as your
subcontractor.
2. Check your subcontract template. If your subcontract template and your
Contract and Procurement Principles match, then the Prime Contract
negotiated between you and the Client is much easier to flow down.
3. Semantics. Don't get caught up in the details of the Clause having to be
an exact copy of what you have in your Prime Contract. If it says the
same thing, then it doesn't matter if you use different words or the
words are in a different order.
4. Remember that you are a buffer between you and your subcontractor. As a
company, you do not want the Client getting into your business.
5. The top 8 flow downs (no particular order):
a. Warranty duration
b. Exclusion Clauses
c. Indemnities including pollution
d. Confidentiality
e. Insurance
f. Intellectual Property
g. Benefit Clauses such as paid suspension
h. Days, remember to allow for internal processing as well as Client
processing

There will always be exceptions but number 3 is where most people fail, including the Client.

Don't use the back to back Method unless there are high risks, high value and/or Client appointed Subcontractors and if you plan on using this Method, take that subcontractor's qualifications with you from day one. In addition you need to develop a standard template for Form of Agreement and Exhibits because it isn't possible to just blindly throw your contract at a subcontractor, they are a Third party, and it just doesn't work without some modifications to the Prime Contract.
 
 
 •  Meralco Industrial Engineering Services Corporation  •   2016-09-02 20:27:36
Hi Carolyn. Depending on cooperation levels of your prospective subcontractor / subconsultant, you can 'seal the deal' with an RFP document and a Letter of Acceptance. If you give me your email address, I can send you a template document I created for implementing back-to-back subcontracts to a prime FIDIC contract.
 
 
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