Is your "incorporation by reference" clause enforceable?

By:  Christopher Solop

As a general contractor, your subcontracts probably have a provision that provides that the terms and conditions of the prime contract are incorporated by reference into the obligations of the subcontractor. If so, you should know how the courts look at the language of an “incorporation by reference” clause and whether it is enforceable. In Woodruff v. Thames, [click on link below for decision] the Mississippi Supreme Court outlined the requirements for an incorporation by reference clause:

For an incorporation by reference to be effective, it must be clear that the parties to the agreement had knowledge of and assented to the incorporated terms. A reference to another document must be clear and unequivocal, and the terms of the incorporated document must be known or easily available to the parties. A document is considered incorporated by reference where the incorporating document specifically provides that it is subject to the incorporated one. However, a mere reference to another document is not sufficient to incorporate that other document into a contract; the writing to which reference is made must be described in such terms that its identity may be ascertained beyond reasonable doubt.

Id. at 555.

The use of the incorporation by reference clause is not without risk if the contract clause does not meet the essential requirements set forth by the Court. It is therefore necessary for the incorporation by reference clause first, to be unambiguous regarding the specific document(s) incorporated, and second, the document(s) should be readily available to the party that the contractor seeks to have bound by its applicable terms and conditions. What “readily available” means may be subject to debate, but in this age of technology, you should be able to make the document available through the company’s website or provide a link to the document in the subcontract or transmittal sheet. This should dispense of any argument that the applicable document was not “readily available”.

Take the time to review your incorporation by reference clause and make sure it meets the requirements outlined by the Court. Also, check that you have the means to provide what is to be incorporated by reference and document that it has been provided.