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Know What You Are Signing – Incorporation of Missing Documents

Timothy R. Hughes, Esq.
Hughes & Associates, P.L.L.C.

Subcontractors often do not have the complete documentation of their own contracts. Similarly, subcontractors often do not know exactly what they have agreed to. It is absolutely critical that you obtain all the documents that comprise your subcontract and that you understand your rights, duties, and liabilities.

The Incorporated General Contract

Subcontracts generally have a term incorporating various materials by reference. Such terms often incorporate the prime contract by reference and establish that one document controls. In my experience, very few subcontractors ever bother to even request the prime contract let alone read it. This means that subcontractors are agreeing to contract terms they have never seen.

This can naturally create problems. For example, the subcontractor may have agreed to a term that it can only recover on a claim if the contractor recovers on a claim from the owner. Further, the general contract may have explicitly stated that the only remedy for a delay is a time extension and that there will be no financial recovery for delays on the project. A similar result can occur with what circumstances can give rise to a delay claim. It is critical to know these matters in advance or a subcontractor may be taking on risks that can easily swamp a business.

Scope of Work – Incorporation of Missing Specifications

Many subcontracts provide for a specific scope of the subcontractor’s work on the job. The same subcontract generally lists the “contract documents” which apply to the work in question. That list often includes a kitchen sink of each drawing and the entirety of the specifications.

In my experience, subcontractors tend to obtain the absolute minimum possible portion of the contract documents that apply to their specific work. While the subcontract may incorporate each of the drawings, it is a rare electrical subcontractor that obtains the architectural drawings. Some even skip the mechanical and electrical drawings, although to do so represents an extreme risk given the competition amongst the MEP trades for above ceiling space.

Even more often, the subcontractor only obtains a truncated set of the specifications. This set of the specifications often only includes the section addressing their specific scope of work. Failing to obtain the specifications of other trades can lead to coordination problems. Sometimes, requirements of one trade’s work are blended into another trade’s specifications and without the specifications the subcontractor has no idea.

Often, the truncated set does not even include the general conditions. Failing to obtain the general conditions can lead a subcontractor to fly blind during the project about critical contractual process and procedure. Timing and requirements for submission of shop drawings may be missing. Specific terms for substitutions of materials may be missing. Missing even a single element of the contract can turn a project into a liability minefield.

The Incorporated Standards

At the risk of repeating prior articles, subcontractors should be very wary of incorporated standards for performance. This is particularly true of specifications which incorporate compliance with an applicable building code as a requirement of performance.

The Example

I represented a general contractor on a very messy project. They had hired various subcontractors. The subcontracts incorporated the prime contract by reference. The specifications incorporated compliance with the NEC by reference in addition to laying specific elements of construction.

During construction, local code officials insisted on additional items of electrical work to comply with the NEC. The electrical subcontractor performed the work and requested additional money. Unfortunately, they were not familiar with the provisions of the owner/general contractor agreement which required written submission and approval by the owner before additional work. In addition, the subcontractor was arguably required to perform all the additional work as part of the base contract’s requirement to comply with the code.

Conclusion

The end of the story is quite unhappy. The project ground to a halt. The electrical subcontractor ended in bankruptcy and shut down its operations. While reading all the documents is no guarantee, it certainly is a start to avoiding this fate.