By: Gregory J. Spaun Published: January 2010

Incorporation of a Prime Contract Into a Subcontract by Reference: What Comes Over?

Alternative Dispute Resolution (“ADR”), including mediation and arbitration, is an 
efficient way of resolving disputes at an early stage, without the need for an expensive and costly 
litigation. This is particularly true in the construction industry, where the disputes are often 
technical and require the involvement of persons with specialized knowledge or training. Aside 
from its cost and time benefits, ADR offers the participants the opportunity to place their dispute 
before a neutral who has experience in the construction industry, rather than 6 random people 
from the community whose excuses for getting out of jury duty weren’t acceptable to the judge 
that day. 
 
 In electing to go the ADR route, it must be noted that parties are giving up their 
Constitutional rights to bring their dispute to the Courts, and to have the substantive and 
procedural laws of the state (or nation) applied. Accordingly, it has long been settled that any 
agreement to arbitrate must be clear, explicit and unequivocal. This is normally not an issue 
where parties to an existing dispute agree to go to arbitration. However, many cases which are 
ultimately resolved by ADR were designated to be sent to that forum long before any dispute 
arose; they were sent to ADR pursuant to agreements which were made months, or perhaps years 
ago. 
 
 In the subcontracting context, many contractors see the expediency in signing a short 
agreement between the subcontractor and the general contractor (which contains specific clauses 
relevant only to those parties, such as the value of the subcontract), and incorporating the general 
contractor’s prime contract for the remaining provisions. Well, what happens when that prime 
contract contains an ADR provision? The Appellate Division, Second Department, in Navillus 
Tile, Inc. v Bovis Lend Lease LMB, Inc. (74 AD3d 1299, 1302, 904 NYS2d 207, 211 [2010]), 
reminds us that: 
 
“Under New York law, incorporation clauses in a construction subcontract, 
incorporating prime contract clauses by reference into a subcontract, bind a 
subcontractor only as to prime contract provisions relating to the scope, quality, 
character and manner of the work to be performed by the subcontractor.” 
 
 Because an ADR provision in a contract does not relate to the “the scope, quality, 
character and manner of the work to be performed by the subcontractor”, and, more importantly, 
because an ADR provision involves the waiver of significant, Constitutional rights (to proceed 
before a Court of Law), a subcontract incorporating a prime contract with an ADR provision 
must be clear that the parties are specifically intending to incorporate that ADR provision, and 
that they specifically intend to arbitrate or mediate their disputes. 
 
 Examples of other clauses of prime contracts which do not relate to the “the scope, 
quality, character and manner of the work to be performed by the subcontractor”, and, 
accordingly, are not incorporated by reference absent a specific indication of the intent to be 
bound by such provisions are: specific record keeping requirements (see Navillus Tile, supra); 
indemnification requirements (see Waitkus v Metro. Housing Partners, 50 AD3d 260 [1st Dept 2008]); obligations to procure insurance (see Bussanich v 310 East 55th Street Tenants, 282 
AD2d 243 [1st Dept 2001]); clauses setting forth a specific forum in which to bring a lawsuit (see 
George Hyman Construction Co. v Precision Walls, Inc. of Raleigh, 132 AD2d 523 [2d Dept 
1987]); and provisions relating to the termination of the contract (see Gulf Ins. Co. v Fidelity & 
Deposit Co. of Maryland, 16 Misc3d 1116[A][Sup Ct, NY Co. 2007]). 
 
 In closing, contractors and subcontractors should be reminded that not every provision of 
a prime contract will make the jump over to the subcontract, despite a clause in the subcontract 
purporting to do exactly that. 

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