Subcontracts and Binding Contract Provisions

Under New York law, clauses in a construction subcontract that incorporate prime contract clauses by reference, 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.

In Bussanich v. 310 East 55th Street Tenants, 282 A.D.2d 243, 723 N.Y.S.2d 444 (1st Dept. 2001), the court found that the subcontractor had no contractual obligation to indemnify and procure insurance for a phone company, where that duty arose out of prime contract between the company and prime contractor.  The subcontractor was not a party to the prime contract, the subcontractor never undertook to satisfy indemnity and insurance procurement obligations set forth in the prime contract, the prime contract had no provisions expressly requiring subcontractors to purchase insurance or to indemnify, and the contract limited the duty of subcontractors to that agreed upon in individual subcontracts.  Further, there were no provisions in the prime contract expressly requiring subcontractors to purchase insurance or to indemnify the phone company, and the extent to which subcontractors were bound by the contract was expressly limited to “the work to be done under such subcontracts”. No reference was made in the contract pertinent to indemnification or insurance procurement for subcontractors.

In Navillus Tile, Inc. v. Bovis Lend Lease LMB, Inc.,74 A.D.3d 1299, 904 N.Y.S.2d 207 (2d Dept. 2010), the City of New York entered into a prime contract with defendant Bovis Lend Lease LMB, Inc. to construct a new city office.  In the event of a dispute, the city and Bovis agreed to the use of alternative dispute resolution methods.  The general contract also provided that nothing in any contract document shall be deemed to impair a subcontractor’s rights under Lien Law, and that all claims arising under the subcontract could be litigated in a state court. Bovis then hired subcontractor Navillus Tile, Inc. to be the general contractor on the job.

Navillus subsequently filed a mechanic’s lien seeking payment of moneys it claimed were due to it for its work on the project.  Navillus commenced the instant action alleging breach of contract against Bovis, seeking payments for work performed pursuant to approved change orders and pursuant to unapproved change orders, seeking payment from the city under a guaranty set forth in the prime contract, and seeking to foreclose on its mechanic’s lien against the project.

The court found that “an alternate dispute resolution agreement, like an arbitration agreement, must be clear, explicit and unequivocal … and must not depend upon implication or subtlety…. Parties consenting to arbitration surrender many of their normal rights under the procedural and substantive law of the State, and it would be unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent”.  Here, the general incorporation of the prime contract into the subcontract, without any explicit reference to their respective ADR provisions, was insufficient to incorporate those ADR provisions into the subcontract.

Therefore, while provisions may be incorporated from a prime contract into a subcontract, they cannot be arbitrarily applied to the subcontractor.  Any provisions not explicitly agreed to by the contractor and subcontractor in the subcontract or not relating to the work of the subcontractor may not be binding on the subcontractor.

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