First we shall address what is actually meant by the term ‘incorporation by reference’
It is a means by which the parties to a contract make reference to a document or publication be it a standard form of contract, technical specifications or similar publication without the need of having to retype the whole of that document in order for it to form part of the documentation which together form the contract between the parties. Incorporation by reference is not to be confused with an implied term because reference is made to a specific document or publication whereas implied terms are those which the courts introduce under common law or by reference to a statute where express terms are not so included within a contract but are required to give effect to the obvious intentions of the parties to the contract.
Many of the standard forms of building or civil engineering contracts published by the various professional bodies and organisations which are used in Malaysia include a form of agreement together with a set of general conditions and an Appendix. The Appendix will generally contain the project specific information which has been inserted by the parties for example contract period, levels of LAD, advance payment amounts, retention levels and periods, insurance details, bonding requirements and the like. Where there are changes to be made to the general conditions these are often done in the form of special conditions or conditions of particular application which will omit, amend or revise the standard terms and conditions and will generally take precedence over them.
The main interest of the parties, when looking at the Agreement, scope and specification aside, will be the general conditions, special or particular conditions and the appendix; little attention is paid to the form of agreement, although that is the document which makes the liabilities and obligations of the parties as contained in the other documents legally binding being the document executed by the parties.
The Form of Agreement is a basic contractual document. It is often quite short, sometimes little more than one or two. They provide generally no information concerning the obligations of the parties apart from a statement from each party confirming the intention to form a legally binding agreement with the other and the names, addresses and descriptions of the parties, what is intended concerning the work or services required and to be provided, a list of the documents which 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 and, finally, the provision for signature by the authorised representatives of the parties. Where the Form of Agreement lists the documents which together form the Contract, the list is often preceded by words similar to: “The following documents shall be deemed to form and be read and construed as part of this Agreement.” Sometimes that wording is expanded to confirm the order of priority, e.g. “The following documents shall be deemed to form and be read and construed as part of this Agreement and in the order of precedence in which they appear hereunder.”
One of the most important elements of the Form of Agreement relates to the documents which are listed as forming part of the Agreement, and where it is intended that the general conditions of a particular body or organisation, often in a printed form, has been incorporated in into a contract – e.g. FIDIC, PAM or IEM, etc. These general conditions are what we term as incorporated by reference.
When it is intended to incorporate by reference, then the wording to be used must be absolutely clear that the parties intend to incorporate the specific document (e.g. form of conditions of contract or technical specifications) using such wording as: “The following documents shall be deemed to form and be read and construed as part of the contract …”. For the purposes of avoiding any misunderstanding, it is important that the specific document that the parties wish to be incorporated is described accurately, as well as stating the correct version – e.g. “IEM Conditions of Contract for Works Mainly of Civil Engineering Construction First Edition May 1989 (Second Re-print Sept 1994)”.
When incorporating a specific document by reference, it is important to determine, with the other documents which form the Agreement, the order of precedence. For example, where the parties are intending to incorporate by reference a form of general conditions of contract, then in terms of priority they would be high on the list, probably just below the Form of Agreement. A particular technical specification, however, although important, would be included further down the list at the upper end of the list of technical documents.
In addition to the Form of Agreement listing documents which are to be deemed incorporated into the Agreement the technical specification will generally attempt to incorporate documents by reference such as building standards, testing standards, material and product standards be they published by professional bodies or be they product data sheets or catalogues of product manufacturing or supply companies. Again these documents need to be identified accurately as mentioned above. Many who draft specifications attempt to overcome shortcomings in technical specifications by including such clause as ‘where the specification refers to a Malaysian Standard, British Standard or American Standard or there is reference to more than one standard, the reference to the standard shall mean the latest standard published and in the event of two standards being referred the standard placing the highest quality criteria shall prevail and be followed’. Now this may seem a cover all type clause, however, firstly contracts are normally very specific about the base date in respect of the basis of the Contractors pricing and the effect of revisions to requirements after the base date. Secondly the standard judged to be higher is not always the most suitable or indeed expensive. Thus it should be good practice for technical specifications to be updated and reviewed for each project and it is best practice to avoid the use of generic documentation that will increase the risk of errors.