Key Takeaways

  • An incorporation by reference contract makes outside documents part of an agreement without restating their terms, but enforceability depends on clarity and notice.
  • Courts often require specific identification of referenced terms; vague references or inaccessible documents may be deemed unenforceable.
  • In government contracts, FAR clauses incorporated by reference bind contractors even if not restated in the signed contract.
  • In wills, incorporation requires that the referenced document already exists, is clearly identified, and intent to include it is explicit.
  • Risks arise when onerous or unusual terms (like arbitration or indemnity clauses) are incorporated but not properly disclosed.
  • Choice-of-law and regulatory provisions may be incorporated by reference, but courts scrutinize whether the incorporation was intended and properly executed.
  • Subcontractors should carefully review incorporated provisions, as obligations can “flow down” from the prime contract.
  • To protect yourself, always obtain and review referenced documents, negotiate terms that are unfavorable, and ensure accessibility of all incorporated provisions.

Incorporation by reference clause is language found in agreements that takes an existing agreement and “incorporates” it into a new agreement, essentially making the prior agreement a part of the new one. For instance, it is a common feature in government contracts, so if you hope to conduct business with the government, you should become familiar with this clause and understand the ramifications of misuse.

Regardless of the type of contract they may be found in, incorporation by reference clauses are often applied to save space in new documents by avoiding unnecessary repetition of terms and provisions that have already been established and agreed to in the previous document.

Incorporation by Reference Clauses in Government Contracts

It is not uncommon to find incorporation by reference clauses in any government contract, especially those existing under the Federal Acquisition Regulation (FAR). In fact, most government contracts have dozens if not hundreds of incorporation by reference clauses.

Any vendor or contractor doing business with the government is responsible for complying with the referenced clauses, even though the clause itself is not in the contract being signed. That means you should make every effort to understand the referenced clause. The best reason to do so is because it is these very clauses that turn out to be the subject of show cause notices, default claims, or inspections. Ignorance of their existence is no justification for not adhering to them.

Challenges with Incorporating Standard Terms

While incorporation by reference is common in government contracts, disputes often arise when standard terms are included without clear disclosure. Courts have held that burdensome or unusual provisions—such as extensive indemnity or limitation-of-liability clauses—must be expressly brought to the other party’s attention, even if those terms are widely used in the industry. If the clause is buried in a lengthy set of standard terms, and the contract merely states they are “incorporated by reference,” a court may refuse to enforce them.

Incorporation by Reference Clauses in Wills

In addition to government contracts, incorporation by reference clauses are often contained in wills and last testaments. However, to be included, certain requirements must be met:

  • The incorporated document must exist at the time the new will is created.
  • The new will must attest to the fact that the testator wants the existing document incorporated into the new will.
  • The incorporated document must be clearly identified in the new will.

Requirements for Effective Incorporation

For incorporation by reference in wills to be effective, the law generally requires:

  • The referenced document must be in existence when the will is executed.
  • The will must show the testator’s intent to incorporate the document.
  • The document must be described with enough specificity so that it is clearly identifiable.

Courts are reluctant to honor vague or ambiguous references. For example, a general reference to “all letters I have written” would be insufficient, while a reference to “the memorandum dated March 1, 2020, kept in my desk” would likely be valid.

Incorporation by Reference Clause in Contract Law

Incorporation by reference clauses are often used in contract law when two parties agree to abide by the terms established in a previous contract in order to conduct new business. They are used in construction contracts when it is determined that it is more efficient to use the plans and specifications for a construction project in an existing contract rather than put the exact same information in a new one.

The language is every bit as binding in the new contract as it is in the existing one. These can include the agreement to follow manufacturer installation specifications. The clause is often common when contractors contract subcontractors and, through the incorporation by reference, pass the terms they agreed to with the building’s owner onto the subcontractor. In both cases, even though the new party may not have seen the existing contract, it does not remove their responsibility to abide by its terms.

Incorporation and Choice of Law

An incorporation by reference contract can also bring in provisions relating to choice of law and regulations. Courts sometimes face disputes over whether incorporation was intended to apply only to technical specifications or whether it also extends to governing law and statutory requirements. For example, in a recent case, a court had to determine whether a choice-of-law clause incorporated federal regulations by reference. The ruling emphasized that incorporation must be clear and explicit; otherwise, parties may be surprised by the scope of obligations they unknowingly accepted.

Protecting Yourself When Incorporation by Reference Clauses Exist

If you are presented with a contract that contains incorporation by reference clauses, there are steps you should take to protect your interests. Even if you were not a party to the initial agreement referenced though the incorporation language, you may still be liable for damages in the event you breach that contract.

  • Obtain a copy of all documents referenced through the clause.
  • Review them in detail, especially regarding your obligations to act according to the clause.
  • Negotiate to have any obligations in the existing contract that you do not want to comply with removed from your contract.

Practical Steps for Enforceability

When drafting or reviewing incorporation by reference clauses, consider the following safeguards:

  • Clarity of language: Use specific references (e.g., “Exhibit A dated June 15, 2023”) rather than broad phrases like “all applicable regulations.”
  • Accessibility: Ensure the referenced documents are readily available to the other party at the time of contracting. If they are behind a paywall or otherwise inaccessible, enforceability may be challenged.
  • Highlight key terms: Draw attention to unusual or onerous provisions so that the other party cannot later claim surprise.
  • Consistency: Verify that the incorporated terms do not conflict with the main contract’s provisions; if conflicts exist, specify which controls.

Incorporation by Reference and Subcontractors

If you are a subcontractor, then you should make every effort to review any incorporation by reference clauses that exist in your contract with the major contractor. They also deal with the scope of work you are being hired to perform, method of payment, or dispute settlement procedures.

Not all terms and provisions contained in the existing contract may apply to you. Therefore, study that contract to determine which provisions do or do not apply. The important point to keep in mind is that everything is negotiable, and you should try to limit your obligations to only performing according to the terms set forth in your contract with the major contractor.

The incorporation by reference clause is an efficient way to manage contracts. However, you should not let convenience outweigh your desire to establish your own terms.

Frequently Asked Questions

  1. What is an incorporation by reference contract?
    It is a contract that brings terms from another document into the agreement by reference, making those terms legally binding without restating them.
  2. Are all incorporated terms automatically enforceable?
    No. Courts may refuse to enforce terms that are vague, inaccessible, or unusually burdensome unless they were clearly disclosed.
  3. How does incorporation by reference apply in wills?
    A will can incorporate another document only if the document already exists, is specifically identified, and the testator shows intent to include it.
  4. Can a subcontractor be bound by terms they never saw?
    Yes. Through “flow-down” clauses, subcontractors may be bound by incorporated provisions from a prime contract, even if they were not party to the original.
  5. How can I protect myself from hidden obligations?
    Always request and review referenced documents, negotiate terms that are unfavorable, and ensure all incorporated materials are accessible and consistent.

To learn more about the incorporation by reference clause, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.