Pass Through/Incorporation Clauses
Perhaps one of the most confounding provisions in a construction contract is the pass through clause. A general contractor and subcontractor might spend several hours negotiating a subcontract only to have that work completely nullified by a subtle but enormously important pass through provision. All parties on the project must be aware of the impact of these provisions both during the negotiation phase and performance on the project.
Pass Through Provisions.
Pass through provisions are not usually buried in the text. They hide in plain sight. A typical provision states: "The Prime Contract [the contract between the owner and general contractor] is incorporated herein by reference and made an integral part of this Subcontract." In fact, in the contract from which this example is drawn, it is the second sentence of a very long contract with a lot of very small text. But it is amazing how quickly this language is dismissed. In fact, a lot of subcontractors negotiate and execute lengthy subcontracts without even reviewing the prime contract.
This can be problematic, as this sentence is often included: "Subcontractor hereby represents and acknowledges that it has carefully reviewed and examined the Subcontract documents and that any and all ambiguities and discrepancies have previously been clarified and/or corrected." This is a ridiculous imposition. Again, this causal sentence purportedly requires a subcontractor to read, interpret, and reconcile all the contract documents that are often not apparent until the project is underway.
And where there is a conflict, usually it is not resolved in the subcontractor's favor. Typically the contract will provide that the most stringent requirement will control.
The Enormous Risk.
Pass through provisions can alter fundamental requirements. The greatest exposure to a subcontractor is the scope of work. For example, if the owner and general contractor have agreed that the work will be completed regardless of the quantity required while the subcontractor negotiated a specific quantity and expected a change order for any additional quantities, we have a problem. When the subcontractor submits the change order and the general contractor passes it through to the owner, it will be denied.
Schedules can also be problematic. Though the subcontractor specifically negotiated a date of commencement and time or completion, the master schedule might call for a different timeline. Additionally, the prime contract might permit the owner to change the schedule at will while the subcontract would permit a change order. Acceleration and delay claims could be extinguished.
Notice provisions change. If the subcontract gives the subcontractor seven days to submit a change order while the prime contract only permits the general contractor forty eight hours to provide that same notice, a critical deadline could be missed. The deadlines to provide notice of the observation of a change in condition, defect in work of another trade, and cost increases could truncate. Cure periods could tighten. Everything could change.
How to Address.
Try to strike the provision. Argue that this is a contract between the general contractor and subcontract and you are not comfortable being bound by a contract you had no ability to negotiate. Sometimes it is that simple.
But not often. Typically the prime contract requires the general contractor to specifically incorporate the terms of the prime contract into all subcontracts. Similarly, upper-tier subcontracts usually require similar pass through provision in lower-tier subcontracts.
In that event, the subcontractor should include specific language elevating the subcontract, something like: "Where there is an inconsistency amongst the contract documents, the terms and conditions of this Subcontract shall supersede all other contract documents." This accomplishes the goal of passing through terms and conditions of the prime contract where the subcontract is silent without completely gutting the contract the parties negotiated.