Most trade contracts incorporate "by reference" the
terms and conditions of the prime contract.
Are these clauses effective? Short answer: not really.
The general rule of interpretation is that a trade contractor is
only bound by the terms of the principal contract to the extent
that the term incorporating the prime contract is explicitly set
out in the trade contract. Where the term purporting to
incorporate the prime contract is ambiguous, the court will look at
the trade contract to determine "on its face" whether
incorporation by reference was intended. The court will also
consider the intentions of each party to be bound by the term as
demonstrated by their actions and correspondence.
What if the trade contractor never even sees the prime
The prime contract is rarely attached to bidding documents, and
the tight timelines involved in the bidding process do not always
allow trade contractors to investigate documents not related
specifically to their work. An extremely common resulting
situation is that despite incorporation by reference language in
the trade contract, the trade contractor has never been provided
with a copy of the prime contract nor reviewed any of its
If the trade contractor was not, at a minimum, given access to
the prime contract or at least the relevant sections of it, a court
may decide that it was not incorporated into the agreement at all.
Similarly, where the trade contractor is only given parts of the
prime contract, the trade contractor will likely succeed with an
argument that the incorporation by reference is restricted to only
those portions of the prime contract actually provided to it.
On the other hand, where the prime contract is available for
review, courts have held that a trade contractor is obligated to
make further inquiries into obtaining a copy of it for review. If
that is not done, the trade contractor may well be bound by the
prime contract including any applicable burdensome terms or
What is the best way to avoid problems with incorporation by
One would think that the most comprehensive incorporating
clause, for example one that holds the trade contractor to all of
the terms of the prime contract, would be the most binding on the
parties. In reality, these clauses actually leave the most room for
disagreement because the relationship between the owner and the
general contractor is quite a different one than the relationship
between the trade contractor and the general. Similarly, a clause
that just generally incorporates the prime contract by reference
have been interpreted to only incorporate the terms that
specifically apply to the trade contractor and not all of the
general conditions of the prime contract. This also leaves ample
opportunity for dispute.
Attaching the specific prime contract terms desired to be
incorporated into the trade contract is a better way of ensuring in
the event of a dispute that such terms are found to form part of
the trade contract.
Ultimately however, the best practice is to avoid incorporating
terms and conditions by reference altogether and including within
the body of the trade contract those terms of the prime contract
that are meant to be incorporated. By using a self-sufficient trade
contract that contains the relevant terms of the prime contract,
the parties will avoid all uncertainty as to what is meant to be
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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