Having reviewed various contracts for the NYACP Promotion Fund, we wanted to highlight a contracting practice that has become somewhat commonplace. Prime Contractors (GC/CM) are using language in their subcontracts that “incorporate by reference” the terms they have agreed to with the Owner in their contract (the “Prime” contract). The problem is that, in most cases, these Prime contracts are not available for review and the subcontractor overlooks implications that may arise from this reference and just blindly signs off on the contract. The following is language from a specific clause that we reviewed and commented on:
“The Subcontractor has read and is familiar with the Prime Contract and the Contract Documents which are expressly incorporated by reference herein. The Subcontractor is bound by the terms of said Contract Documents and will confirm to and comply with it and assumes toward the Contractor all the obligations and responsibilities that the Contractor assumes in and by the Contract Documents”
While the ability to enforce these clauses in a court of law is questionable and will highly depend on the circumstances, the attempt to enforce these clauses is something the subcontractor should be wary of. Often there are mediation and arbitration provisions in the Prime contract that the Prime will want to flow down – beware! Contractors cannot resist inserting overly broad clauses in their subcontracts and then use their leverage to enforce those clauses to the detriment of the contractor.
In NY, incorporation by reference clauses in a construction subcontract bind a subcontractor on as to the Prime contract provisions relating to the “scope, quality, character and manner of the work” to be performed by the subcontractor (Bussanich v. 310 E55th St. Tenants, 282AD2d 243). Any further reaching than that is outside the scope of the ruling noted and should be challenged by the subcontractor.
Of course, the best risk mitigation is not signing off on the onerous clauses in the first place. Contractual risk management is an important part of any company’s risk and insurance program. We strongly encourage all contractors to read their contracts thoroughly and use the Promotion Fund review service for insurance, indemnity and waiver provisions in any agreement you have to sign.
