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A Nebraska case reinforces the lesson that incorporation-by-reference language must be clear:

  • A school district issued a request for proposal (RFP) for architectural services that would be rendered in connection with the construction and renovation of three schools. See Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., — N.W. —, 291 Neb. 642 (2015) (affirming partial summary judgment).
  • After an architecture firm submitted a response to the RFP, the school district followed up with additional written questions. One of those questions was whether the architectural firm guaranteed a maximum price — to which the architecture firm responded "yes." See id., 291 Neb. at 647.
  • The architecture firm was awarded the contract, which stated that "[t]he Architect’s Response to the District’s Request for Proposal is attached to this Agreement for general purposes including overviews of projects and services." Id. at 645-46 (emphasis added).
  • But the architect firm's response to the RFP wasn't attached to the contract; for that matter, it wasn't even titled as stated in the contract provision. See id. at 654.
  • After cost overruns, the school district stopped paying the architecture firm's invoices; the firm sued for the unpaid balance.
  • The school district defended in part on the ground that the contract was subject to the guaranteed maximum price stated in the architect firm's "yes" response to the school district's question.
  • The trial court granted partial summary judgment in favor of the architecture firm, holding that the firm's RFP response was not incorporated by reference into the contract.
  • Agreeing with the trial court, the state's supreme court held that "[t]he expression 'for general reference purposes,' interesting though it may be, contrasts with a provision, common in contract law, which incorporates another document by reference. … [The contract language] simply does not incorporate [the architect firm's] responses into the contract." Id. at 653-54.

(The supreme court reversed on another point, though, and remanded for a new trial.)

Caution: It's not hard to see how another court might have held that the contract did incorporate the architecture firm's guaranteed-maximum-price response.

Still, the contract's drafters, who presumably worked for the school district, might have been more clear about their client's intent.

Longtime Subway sandwich shop pitchman Jared Fogle agreed to plead guilty to child-pornography charges, among others. Subway had previously suspended its relationship with Fogle. The case, along with the attendant bad publicity for the already-troubled Subway, is a sad reminder of the value of including an appropriate "termination for business-reputation risk" clause in a contract of this nature, such as the Common Draft clause on that subject. I'll be updating the commentary to that clause accordingly.

Suppose that a contract gives one party the right to audit the records of another party. The audit provision, though, doesn't specify that the audit right will survive termination of the contract.

In that situation, if the contract were to be terminated, then the audit right might die with it. That's what happened in New England Carpenters Central Collection Agency v. Labonte Drywall Co., No. 14-1739 (1st Cir. July 31, 2015) (affirming district court's judgment). As summarized by the appeals court:

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A contract without a "sunset clause" might become a millstone for one of the parties. For example, the Dairy Queen restaurant chain is still having to deal with franchised restaurants under contracts signed in the 1940s that restrict the chain's ability to impose uniform standards far more than modern-day contracts do. See Martha Neil, Decades-old contract lets historic Dairy Queen apply 'rogue ice-cream rules' (ABAJournal.com 2015).

Of course, even a sunset clause might not help if the contract has an "evergreen" automatic-extension clause and the opt-out date rolls by unnoticed:

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The Department of Labor has released an Administrator's Interpretation asserting that, in determining whether someone is an independent contractor or an employee (for Fair Labor Standards Act purposes), what matters is the "economic reality"; the Interpretation de-emphasizes the traditional common-law test (used by the IRS), which focuses on who has the right to control the means and manner of the work.

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