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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