High “Litigation Impact” Term Number 8 – Order of Precedence

Because subcontracts usually include flow-down clauses and/or an incorporation of the entire prime contract, the parties will want to include an order or precedence provision in their agreement.

Generally, courts will interpret a contract as written. In other words, if a contract term is not subject to reasonable differing interpretations, they will not read meaning into a term that is clear on its face. However, particularly in the case of subcontract agreements covering federal projects where flows-downs and prime contract terms are (typically) incorporate by reference, conflicts can arise within the contracts and parties are forced to rely on the courts to resolve the ambiguity.

Including an order of precedence clause in the subcontract can assist with mitigating having to litigation over what provision or what language is applicable, which is large determiner in resolution of the underlying dispute.

The Take-Away – Contracting parties should carefully review the prime contract terms and the flow-downs to ensure there is no conflict between the language of the subcontract agreement and make any necessary adjustments. Because it is difficult to foresee all disputes that may arise, consider adding an order of precedence clause that outlines the parties’ intent regarding contract construction which terms apply in the event of a conflict in language and identify any exceptions to such.

FAROur government contracts posts are published by Attorney Kristi Morgan Aronica. She serves as litigation counsel to prime contractors and subcontractors in the government contracts market throughout Texas and nationally.