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PCCA Journal|1

st

Quarter 2010

24

subcontractors to the terms of the

general contract. A typical provision,

found in many industry standard

forms, will read something like this:

The contractor shall require each

subcontractor, to the extent of

the work to be performed by the

subcontractor, to be bound to the

contractor by the terms of the con-

tract documents, and to assume

toward the contractor all the obli-

gations and responsibilities which

the contractor, by these docu-

ments, assumes toward the owner

and the architect. All subcontracts

shall preserve and protect the

rights of the owner with respect to

the work to be performed by the

subcontractor so that the subcon-

tracting thereof will not prejudice

such rights. All subcontracts shall

allow to the subcontractor, unless

specifically provided otherwise in

the contractor-subcontractor agree-

ment, the benefit of all rights, rem-

edies and redress against the con-

tractor that the contractor by these

documents, has against the owner.

Where appropriate, the contractor

shall require each subcontractor to

enter into similar agreements with

his sub-subcontractor.

The effect of this clause, when

combined with the subcontract pro-

visions discussed below, is to bind

the subcontractors to the terms of

the general contract. These clauses

are important for two reasons. First,

contractors must obtain agreements

with their subcontractors that actu-

ally incorporate the terms of the gen-

eral contract into the subcontract.

Otherwise, the general contractor

will find itself bound to the owner

for the failure of its subcontractor to

perform, but without a correspond-

ing remedy against the subcontrac-

tor. Second, the subcontractor must

be aware of such a provision and

ascertain that the terms of the gen-

eral contract are acceptable.

Differing Site Conditions

and Site Investigation Clauses

Most contracts attempt to allocate

the responsibility for extra costs

resulting from unexpected site condi-

tions to the contractor, the owner, or

both. A typical differing or changed

condition clause would read some-

thing like this:

Should concealed conditions

encountered in the performance

of the work below the surface of

the ground or should concealed or

unknown conditions in an exist-

ing structure be at variance with

the conditions indicated by the

contract documents, or should

unknown physical conditions

below the surface of the ground

or should concealed or unknown

conditions in an existing structure

of an unusual nature, differing

materially from those ordinarily

encountered and generally recog-

nized as inherent in work of the

character provided for in this con-

tract, be encountered, the contract

sum shall be equitably adjusted by

change order upon claim by either

party made within 20 days after

the first observance of the condi-

tions.

Differing or changed conditions

clauses were developed by the fed-

eral government so that its contrac-

tors did not have to bid “worse-case

scenario” for risks that might lurk

underground. The theory is that if

there is a mechanism for allowing a

price adjustment if conditions differ

from what should have been antici-

pated, then the contractor can bid a

lower price as it has less risk of the

unexpected.

However, these clauses are usu-

ally coupled with a site investigation

clause requiring the contractor to

do its homework and preventing a

contractor from recovering any com-

pensation for differing or changed

conditions that would have been dis-

closed had the contractor performed

an investigation beforehand:

By executing the contract, the

contractor represents that he

has visited the site, familiarized

himself with the local conditions

under which the work is to be per-

formed, and correlated his obser-

vations with the requirements of

the contract documents.

Incorporation by

Reference Provisions

Your initial task is to determine

exactly what documents and clauses

are included in your contract.

Exactly what is incorporated into a

particular contract varies between

the different standard form contracts

and may be modified or altered in

any given situation. For example:

The Instructions to Bidders, the

Proposed Description of Assembly

Units, Material and Construc-

tion Specifications, Construction

Sheets, Special Drawings, and

Plans are hereby by reference

incorporated herein and together

with the Construction Agreement

constitute the Contract.

A document incorporated by refer-

ence into a contract is just as much

a part of the contract as any of the

language in the contract itself. Such

documents are equally binding and

should be reviewed by the contractor

prior to bidding.

This is especially significant in

federal government and federally

funded construction contracts. These

agreements often incorporate by ref-

erence specific regulations, statutes,

and contract clauses that are pub-

lished in the

Federal Register

. The

text of these clauses is frequently

omitted from the bid documents or

contract documents, but because of

the “Incorporation by Reference”

clause in the contract, the contractor

will be bound in accordance with

their terms.

Subcontractors should be particu-

larly careful of the incorporation

by reference clause. Many standard

subcontract forms say that the

subcontractor acknowledges receipt

of the general contract, the General

Conditions, plans, and specifications

and that the terms of those docu-

ments are to be incorporated into

the subcontract to the extent they

apply to the subcontractor’s work.

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Continued from page 23