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Incorporation of the Prime Contract: A Hidden Benefit

April 14, 2008  |  from Bowie & Jensen, LLC Construction Law Forum

Virtually every subcontract agreement incorporates by reference the prime contract between the general contractor and the owner. Too often subcontractors do not obtain a copy of the prime contract and consequently become bound to terms and conditions they have not seen much less read. Moreover, the contractual provision incorporating the prime contract may state that if a conflict exists the contract language must be interpreted in a way that favors the general contractor. For example it may state:

"In the event of variations, conflicts, or inconsistencies between or among the terms, provisions or conditions of this Subcontract and any other Contract Documents, the terms, provisions and conditions which grant greater rights or remedies to Contractor or impose higher standards with regard to the obligations, responsibilities and scope of work of the Subcontractor shall control."

This provision, while seemingly favorable to the general contractor, does provide a benefit to a subcontractor because it fails to address the "rights" of a subcontractor. Consequently, if the subcontract allows for a larger overhead and profit markup than the prime contract, the allowable overhead and profit markup is a "right" of the subcontractor, not an obligation, responsibility or part of the scope of the work; nor is a right or remedy of the Contractor. Thus, the stated overhead and profit of the subcontract will control.

These "precedence clauses" as they are called must be carefully drafted and reviewed. Moreover, as always, a subcontractor should obtain copies of all contract documents incorporated into the subcontract.

Filed: Construction-Law