💡 Plain English Explanation

Flow-down clauses require prime contractors to include specific confidentiality and security provisions in their subcontracts. In government contracting, the prime contractor is responsible for ensuring that the entire supply chain complies with the same confidentiality obligations that bind the prime contractor.

This is critical because sensitive government information often needs to be shared with subcontractors, suppliers, and vendors who contribute to contract performance. Without proper flow-down, a subcontractor could become a weak link that exposes confidential information or creates compliance failures that affect the entire contract.

Key flow-down considerations include:

⚠ Why This Clause Matters

For Prime Contractors: You remain responsible to the government for your subcontractors' compliance. A breach by a subcontractor can result in contract termination, liability, and damage to your relationship with the government customer. Proper flow-down protects you by ensuring subcontractors are bound by appropriate obligations.

For Subcontractors: Understanding flow-down requirements helps you anticipate compliance obligations before bidding on work. Receiving extensive flow-down provisions may require additional security infrastructure, training, and procedures that affect your cost structure.

Regulatory Requirements: Many FAR and DFARS clauses mandate flow-down to subcontractors, including DFARS 252.204-7012 (CUI/CDI protection), DFARS 252.204-7009 (cloud computing), and various security-related provisions. Failure to flow down required clauses can result in government audit findings and contract issues.

📄 Clause Versions

Balanced Version: Standard flow-down requirements with reasonable approval procedures and shared responsibility. Appropriate for most government subcontracting relationships. 
SUBCONTRACTOR FLOW-DOWN REQUIREMENTS

1. Flow-Down Obligation. The Receiving Party shall include confidentiality provisions substantially similar to this Agreement in all subcontracts, purchase orders, and other agreements with third parties (collectively, "Subcontractors") who will receive, access, or process Confidential Information in connection with the Purpose.

2. Minimum Subcontractor Requirements. Each Subcontractor agreement shall, at minimum, require the Subcontractor to:
   (a) Protect Confidential Information using safeguards at least as protective as those required by this Agreement;
   (b) Limit access to Confidential Information to personnel with a need-to-know;
   (c) Use Confidential Information solely for the authorized purpose;
   (d) Return or destroy Confidential Information upon completion of the subcontract;
   (e) Comply with all applicable laws and regulations regarding information protection; and
   (f) Flow down equivalent requirements to any lower-tier subcontractors.

3. Subcontractor Notification. Prior to disclosing Confidential Information to any Subcontractor, the Receiving Party shall:
   (a) Provide the Disclosing Party with written notice identifying the proposed Subcontractor;
   (b) Describe the Confidential Information to be disclosed and the purpose;
   (c) Confirm that appropriate confidentiality agreements are in place; and
   (d) Await acknowledgment from the Disclosing Party (which shall not be unreasonably withheld or delayed beyond ten (10) business days).

4. Continuing Responsibility. The Receiving Party shall remain fully responsible for:
   (a) Ensuring Subcontractor compliance with flow-down requirements;
   (b) Any breach or unauthorized disclosure by a Subcontractor; and
   (c) Monitoring Subcontractor handling of Confidential Information.

5. Government-Required Flow-Downs. To the extent the Confidential Information includes Controlled Unclassified Information, classified information, or other regulated information, the Receiving Party shall flow down all applicable regulatory requirements, including but not limited to DFARS 252.204-7012, NIST SP 800-171 requirements, and security classification requirements.

6. Subcontractor Records. The Receiving Party shall maintain records of all Subcontractors who have received Confidential Information, including the date of disclosure, scope of information disclosed, and applicable confidentiality agreements. Such records shall be available for review by the Disclosing Party upon reasonable request.

7. Subcontractor Termination. Upon termination or expiration of any subcontract involving Confidential Information, the Receiving Party shall ensure the Subcontractor returns or destroys all Confidential Information and provides certification of compliance.
Disclosing Party Favor: Strict controls with approval rights, direct enforcement, audit access, and comprehensive liability. Use when sharing highly sensitive information through the supply chain. 
SUBCONTRACTOR FLOW-DOWN REQUIREMENTS

1. Mandatory Flow-Down. The Receiving Party shall include confidentiality provisions identical to or more protective than this Agreement in ALL subcontracts, purchase orders, consulting agreements, and other arrangements (collectively, "Subcontracts") at all tiers where the Subcontractor may access, receive, process, store, or transmit any Confidential Information.

2. Subcontractor Approval. The Receiving Party shall not disclose any Confidential Information to any Subcontractor without the prior written approval of the Disclosing Party. Requests for approval shall include:
   (a) Complete identification of the proposed Subcontractor (name, address, CAGE code, DUNS);
   (b) Description of the Subcontractor's role and need for Confidential Information;
   (c) Categories and volume of Confidential Information to be disclosed;
   (d) The Subcontractor's security qualifications and compliance certifications;
   (e) Copy of the proposed subcontract confidentiality provisions; and
   (f) Evidence of the Subcontractor's insurance coverage.
The Disclosing Party may approve, deny, or require modifications in its sole discretion.

3. Enhanced Subcontractor Obligations. Each approved Subcontract shall require the Subcontractor to:
   (a) Implement all security requirements applicable to the Receiving Party;
   (b) Allow the Disclosing Party direct audit access to the Subcontractor's facilities and records;
   (c) Report security incidents directly to both the Receiving Party and the Disclosing Party;
   (d) Indemnify the Disclosing Party for breaches attributable to the Subcontractor;
   (e) Consent to injunctive relief sought by the Disclosing Party;
   (f) Maintain compliance certifications current throughout the engagement; and
   (g) Flow down all requirements to any lower-tier Subcontractors with prior approval.

4. Third-Party Beneficiary Rights. Each Subcontract shall expressly designate the Disclosing Party as a third-party beneficiary with the right to directly enforce confidentiality provisions against the Subcontractor.

5. Joint and Several Liability. The Receiving Party shall be jointly and severally liable with any Subcontractor for any breach, unauthorized disclosure, or non-compliance by such Subcontractor. The Disclosing Party may pursue remedies against either or both parties.

6. Subcontractor Monitoring. The Receiving Party shall:
   (a) Conduct annual security assessments of Subcontractors handling Confidential Information;
   (b) Require immediate notification of any changes in Subcontractor security posture;
   (c) Terminate Subcontractor access upon any indication of non-compliance; and
   (d) Report monitoring results to the Disclosing Party upon request.

7. Audit Rights. The Disclosing Party and its representatives shall have the right to audit:
   (a) The Receiving Party's Subcontractor management program;
   (b) Any Subcontractor's handling of Confidential Information; and
   (c) All flow-down documentation and compliance records.
Such audits may be conducted without prior notice when the Disclosing Party has reasonable security concerns.

8. No Delegation of Responsibility. Subcontracting shall not relieve the Receiving Party of any obligation under this Agreement. The Receiving Party shall remain the single point of contact and accountability for all Confidential Information protection.

9. Subcontractor Insurance. The Receiving Party shall ensure each Subcontractor maintains cyber liability insurance with coverage limits of at least $5,000,000 per occurrence, naming the Disclosing Party as an additional insured.
Receiving Party Favor: Reasonable flow-down requirements with standard notification (not approval), shared liability, and flexibility for established supply chains. 
SUBCONTRACTOR FLOW-DOWN REQUIREMENTS

1. Flow-Down Scope. The Receiving Party shall include appropriate confidentiality provisions in subcontracts where Subcontractors will receive material amounts of Confidential Information necessary for contract performance. Flow-down is not required for:
   (a) Incidental or de minimis disclosures;
   (b) Subcontractors who only receive publicly available information;
   (c) Professional service providers (attorneys, accountants) already bound by professional confidentiality obligations; or
   (d) Established suppliers under existing confidentiality agreements that meet industry standards.

2. Reasonable Subcontractor Provisions. Subcontractor confidentiality provisions shall be commercially reasonable and substantially similar to this Agreement, taking into account:
   (a) The nature and sensitivity of the Confidential Information;
   (b) The Subcontractor's role and duration of access;
   (c) Industry standards for the applicable sector; and
   (d) The Subcontractor's existing security infrastructure.

3. Notice (Not Approval). The Receiving Party shall provide the Disclosing Party with periodic notice of Subcontractors who have received Confidential Information. Such notice may be provided:
   (a) Quarterly, in summary form listing Subcontractor names and general scope of access;
   (b) Upon request from the Disclosing Party; or
   (c) At the conclusion of the project.
Prior approval is not required unless the Confidential Information includes classified information or specially designated CUI categories.

4. Subcontractor Responsibility. The Receiving Party shall be responsible for its Subcontractors' compliance with confidentiality obligations. However:
   (a) The Receiving Party shall not be liable for Subcontractor breaches if it exercised reasonable care in Subcontractor selection and oversight;
   (b) Liability for any Subcontractor breach shall be limited to direct damages; and
   (c) The Receiving Party shall cooperate with the Disclosing Party in pursuing remedies against a breaching Subcontractor.

5. Standard Government Flow-Downs. The Receiving Party shall flow down FAR/DFARS clauses that are required by regulation to be included in subcontracts. The Disclosing Party shall identify any non-standard or contract-specific flow-downs at the time of initial disclosure.

6. Existing Supply Chain. The Receiving Party may use its existing subcontractor network without modification of existing agreements, provided such agreements include confidentiality provisions that are at least as protective as standard commercial NDA terms.

7. Lower-Tier Flow-Down. Flow-down to lower-tier Subcontractors (below first tier) is required only to the extent Confidential Information is actually shared with such lower-tier entities.

8. Mutual Flow-Down Template. Upon request, the parties shall cooperate in developing a mutually acceptable flow-down template that can be incorporated into future subcontracts.

9. No Interference with Supply Chain. The Disclosing Party shall not unreasonably interfere with the Receiving Party's established supply chain relationships or impose requirements that would make performance commercially impracticable.

💬 Key Considerations