A recent Washington court case indicates that contractors should take additional proactive steps to ensure that subcontracts are bound to the terms of prime contracts incorporated by reference in a subcontract.  Earlier this year, the Washington Court of Appeals for Division 1 issued an unpublished opinion in Edifice Construction Company, Inc. v. Arrow Insulation, Inc., et. al., 12 Wash.App.2d 1019 (2020).

Edifice Construction, the prime contractor, sought to compel arbitration with a number of its subcontractors after the project owner initiated an arbitration against Edifice Construction under the AIA standard form Prime Contract.  Edifice Construction’s subcontracts contained traditional language incorporating the Prime Contract by reference, such as the following:

[The subcontractor agrees] to be bound by…all provisions of the [Prime] Contract…The parties further agree that the above mentioned…main contract documents are incorporated herein by this reference and expressly made a part of this Subcontract…  Subcontractor agrees to be bound to Contractor to the same extent the Contractor is bound to Owner by the terms of the [Prime] Contract and by any and all procedures and resulting decisions, findings, determinations, or awards made thereunder by the person so authorized in the [Prime] Contract…

The Court held that simply incorporating the terms of the Prime Contract by reference was not sufficient to bind the subcontractors to the Prime Contract.  Instead, the Court held that Edifice Construction had to prove that the subcontractors “had knowledge of and assented to the incorporated terms.”  Edifice Construction could have proven this in a number of ways, such as introducing evidence that: (i) the subcontractors received a copy of the Prime Contract, or (ii) that the Prime Contract was a standard form that the subcontractors were familiar with.  Because Edifice Construction did not provide evidence of either of those facts, the subcontractors were not bound by the AIA Prime Contract’s arbitration provisions.

While Edifice Construction is an unpublished case, and therefore not strictly binding on any future lawsuit, it is persuasive authority that could influence future court decisions.  As such, we recommend that contractors take the following actions to ensure a Prime Contract becomes binding on a subcontractor:

  1. Provide a copy of the Prime Contract to all subcontractors and suppliers along with your subcontract or purchase order package. It is appropriate to redact out any financial information (contract price, unit prices, etc.) from the Prime Contract before distribution; or
  2. If the Prime Contract is too large to easily send a hard or email copy, upload it to an FTP or similar site and provide a downloadable link to the subcontractor along with your subcontract or purchase order package.

A subcontractor that receives a physical copy or link to a Prime Contract should be bound to the terms of that Prime Contract.  If you have any questions, please contact Seth A. Woolson or Richard A. Davis III in our Construction Practice Group.