Liquidated Damages Clause in Prime Contract is Incorporated in Subcontract when Subcontract Contains Conduit Clause

Indus. Indem. Co. v. Wick Constr. Co., 680 P.2d 1100 (Alaska 1984)

In this case, the Alaska State Housing Authority (ASHA) awarded a contract for the construction of a courthouse and office building to a general contractor.  The prime contract featured a liquidated damages clause limiting the contractor’s liability to $400 per day of delay.  The subcontract between the general contractor and subcontractor included a so-called “flow down” or “conduit clause” incorporating the liquidated damages clause from the prime contract.  When the general contractor sued the subcontractor for delays, the trial court awarded the general contractor $765,654.00 in total damages.  The subcontractor appealed, arguing that the liquidated damages clause applied.

The decision was reversed and remanded.  The Supreme Court of Alaska held that when a subcontract contains a conduit clause, the parties to a subcontract assume the correlative positions to the prime contract.   In other words, where a conduit clause is used, the same rights and duties will flow equally from the owner through the general contractor to the subcontractor.  The court remanded the case to trial for a new calculation of damages in accordance with its opinion.