Terms of contract

When can a contract condition be incorporated by reference? Dennis Brand outlines the use and meaning of the facility.

COMMENT, Business

The subject of implied terms may be a matter for consideration in contract interpretation, but there is no room for them when seeking to incorporate terms by reference.

What is 'incorporation by reference'? Put simply, it is a means by which the parties to a contract can make reference to a standard form of conditions, technical specifications or similar publications in order for it to become part of the documentation that forms the contract between them, without having to retype the whole contractual document.

Contract conditions

Many of the standard forms of contract published by the various construction and engineering industry bodies and organisations often include a Form of Agreement, a set of general conditions and an appendix. These include project specific data such as start and finish dates; limits of liability; levels of liquidated damages; required insurance values; bonding requirements and other similar information. Changes to the general conditions are often made in the form of ‘special conditions' or ‘conditions of particular application'.

Once signed, the main interest of the parties when looking at the contract (scope and specifications aside) will be the general conditions, special or particular conditions and the appendix. Little attention is paid to the Form of Agreement, although it is this document that makes the liabilities and obligations of the parties contained in the other documents legally binding ie the contract.

Form of agreement

The Form of Agreement is a basic contractual document; it is often quite short and sometimes little more than a page. In the USA this is often referred to as a ‘signature agreement' because it provides no information concerning the obligations of the parties, apart from a statement confirming their intention to form a legally binding agreement with each other.

The Form of Agreement will generally contain:

• the names, addresses and descriptions of the parties that are involved with the contract;

• what is intended concerning the work or services required and to be provided;

• a list of the documents that together form the contract;

• a confirmation of the effective date of the contract for commencement of the work as well as the date for completion;

• the provision for signature by the authorised representatives of the contracted parties.

Where the Form of Agreement lists the documents that form the contract, this is often preceded by words similar to: "The following documents shall be deemed to form and be read and construed as part of the contract:...". Sometimes the wording is expanded to confirm the order of priority, for example by adding "in the order of precedence in which they appear hereunder" to the aforementioned statement.

By far the most important element of the Form of Agreement relates to the documents that are listed as being part of the contract. Where it is intended that the general conditions of a particular body or organisation such as FIDIC, IChemE or NEC have been incorporated into a contract these are termed ‘incorporated by reference'. When it is intended to incorporate by reference, the wording used must make it absolutely clear that the parties intend to incorporate the specific document eg form of conditions of contract or technical specifications.

To avoid any misunderstandings, it is important that the specific document to be incorporated be accurately described and the correct version stated, for example FIDIC Conditions of contract for construction for building and engineering works designed by the employer (ISBN2-88432-022-9), First Edition, 1999.

Making priorities

Finally, when incorporating a specific document by reference, it is important to determine the order of precedence of all the documents that form the contract. For example, where the parties are intending to incorporate by reference a form of general conditions of contract, in terms of priority they would be high on the list and probably just below the form of agreement. A technical specification however, although important, would be included further down the priorities at the upper end of the list of technical documents.

It is quite unusual to find a printed contract in which the provisions of one standard form is incorporated by reference into another. A rare example of this is the FIDIC Subcontract 1994. Clause 12.1 states: "The provisions of Clause 54 of the conditions of main contract in relation to contractor's equipment, temporary works or materials brought onto the site by the subcontractor are hereby incorporated by reference into the subcontract as completely as if they were set out in full therein."

The reference to the Conditions of Main Contract in Clause 12.1 as a FIDIC publication refers to FIDIC 4th Edition - Conditions of contract for works of civil engineering construction. Unfortunately, the series of conditions of contract published by FIDIC in 1999, which is often referred to as the Rainbow Suite, did not include an updated form of its Subcontract 1994.

In the UAE, where The Civil Code provides (Article 259): "There shall be no scope for implication in the face of clear words", it is essential that a clear statement of the parties' intention to incorporate by reference a document is given with an accurate description.

Dennis Brand is senior legal advisor with Berrymans Lace Mawer. Email: dennisbrand@blm-uae.com Tel: +971 4 359 9939

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