Incorporation by Reference Clause
Incorporation by reference clause is language found in agreements that takes an existing agreement and “incorporates” it into a new agreement.3 min read
Incorporation by reference clause is language found in agreements that takes an existing agreement and “incorporates” it into a new agreement, essentially making the prior agreement a part of the new one. For instance, it is a common feature in government contracts, so if you hope to conduct business with the government, you should become familiar with this clause and understand the ramifications of misuse.
Regardless of the type of contract they may be found in, incorporation by reference clauses are often applied to save space in new documents by avoiding unnecessary repetition of terms and provisions that have already been established and agreed to in the previous document.
Incorporation by Reference Clauses in Government Contracts
It is not uncommon to find incorporation by reference clauses in any government contract, especially those existing under the Federal Acquisition Regulation (FAR). In fact, most government contracts have dozens if not hundreds of incorporation by reference clauses.
Any vendor or contractor doing business with the government is responsible for complying with the referenced clauses, even though the clause itself is not in the contract being signed. That means you should make every effort to understand the referenced clause. The best reason to do so is because it is these very clauses that turn out to be the subject of show cause notices, default claims, or inspections. Ignorance of their existence is no justification for not adhering to them.
Incorporation by Reference Clauses in Wills
In addition to government contracts, incorporation by reference clauses are often contained in wills and last testaments. However, to be included, certain requirements must be met:
- The incorporated document must exist at the time the new will is created.
- The new will must attest to the fact that the testator wants the existing document incorporated into the new will.
- The incorporated document must be clearly identified in the new will.
Incorporation by Reference Clause in Contract Law
Incorporation by reference clauses are often used in contract law when two parties agree to abide by the terms established in a previous contract in order to conduct new business. They are used in construction contracts when it is determined that it is more efficient to use the plans and specifications for a construction project in an existing contract rather than put the exact same information in a new one.
The language is every bit as binding in the new contract as it is in the existing one. These can include the agreement to follow manufacturer installation specifications. The clause is often common when contractors contract subcontractors and, through the incorporation by reference, pass the terms they agreed to with the building’s owner onto the subcontractor. In both cases, even though the new party may not have seen the existing contract, it does not remove their responsibility to abide by its terms.
Protecting Yourself When Incorporation by Reference Clauses Exist
If you are presented with a contract that contains incorporation by reference clauses, there are steps you should take to protect your interests. Even if you were not a party to the initial agreement referenced though the incorporation language, you may still be liable for damages in the event you breach that contract.
- Obtain a copy of all documents referenced through the clause.
- Review them in detail, especially regarding your obligations to act according to the clause.
- Negotiate to have any obligations in the existing contract that you do not want to comply with removed from your contract.
Incorporation by Reference and Subcontractors
If you are a subcontractor, then you should make every effort to review any incorporation by reference clauses that exist in your contract with the major contractor. They also deal with the scope of work you are being hired to perform, method of payment, or dispute settlement procedures.
Not all terms and provisions contained in the existing contract may apply to you. Therefore, study that contract to determine which provisions do or do not apply. The important point to keep in mind is that everything is negotiable, and you should try to limit your obligations to only performing according to the terms set forth in your contract with the major contractor.
The incorporation by reference clause is an efficient way to manage contracts. However, you should not let convenience outweigh your desire to establish your own terms.
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