Incorporation by Reference

By Dick Lieberman, Consultant and Retired Attorney

Black’s Law Dictionary (5th Ed. 1979) defines “incorporation by reference” as the “method of making one document ...become a part of another separate document by referring to the former in the latter, and declaring that the former shall be taken and considered as a part of the latter the same as if it were fully set out therein.” Agencies, which are the writers of government contracts, would be hard pressed to draft contracts without this artifice of language, and government contractors must be careful to understand its implications. A misuse of incorporation by reference was explained in a recent bid protest, IBM Corp. v. United States, No. 14-864C (Fed. Cl. Nov. 7, 2014).

The Federal Acquisition Regulation (“FAR”) and Incorporation by Reference

Almost every government contract incorporates contract clauses by reference. Indeed, a typical government contract may incorporate 10 to more than 200 clauses by reference. FAR 52.107 directs contracting officers to insert the provision at 52.252–1, Solicitation Provisions Incorporated by Reference, and the clause at 52.252–2, Clauses Incorporated by Reference, in solicitations and contracts in order to incorporate those provisions by reference. These two clauses are set forth below.

FAR 52.252–1 Solicitation Provisions Incorporated by Reference

This solicitation incorporates one or more solicitation provisions by reference, with the

same force and effect as if they were given in full text. Upon request, the Contracting

Officer will make their full text available. The offeror is cautioned that the listed

provisions may include blocks that must be completed by the offeror and submitted with

its quotation or offer. In lieu of submitting the full text of those provisions, the offeror

may identify the provision by paragraph identifier and provide the appropriate

information with its quotation or offer.

FAR 52.252–2 Clauses Incorporated by Reference

This contract incorporates one or more clauses by reference, with the same force and

effect as if they were given in full text. Upon request, the Contracting Officer will make

their full text available.

If either of these clauses appears in a contract, the agency must merely list by title the clauses incorporated by reference, and presto, the full text of those clauses are thereby included in the solicitation or contract. Most importantly, the contractor is fully responsible for compliance with all clauses incorporated by reference, just as if they were typed in full in the contract.

So when you read a solicitation or a contract, it is imperative that you either read or fully

understand the duties imposed by all clauses incorporated by reference. And understand that those duties are frequently the subject of cure notices, show cause notices, default notices, routine inspections or contractor claims and appeals.

IBM v. U.S. So who went afoul of this very easy method of writing solicitations and contracts? None other than the IBM Corporation, which bid on a General Services Administration schedule contract to assist the Army in auditing its financial statements – a challenging task indeed. The solicitation was for a time and materials contract, and Section 2.14 stated maximum number of hours (level of effort) for each of six labor categories ( Director, Senior Manager, Managers, etc.). A question and answer attached to a solicitation amendment stated as follows:

Question: Will the successful offeror have flexibility to reallocate the hours among labor

categories during project execution, as long as we do not exceed the ceiling?

Answer: As approved by the COR [Contracting Officer’s Representative], the

successful offeror will have the flexibility to reallocate hours as long as the ceiling is not

exceeded.

IBM’s proposal was for $86 million, while the proposal of Ernst and Young (“EY”) was for $56

million--a significant difference. IBM’s proposal acknowledged flexibility to reallocate hours

by labor category, with COR approval. However, EY’s proposal said that it “reserve[d] the

right to reallocate hours between labor categories...provided [this] does not result in exceeding the ceiling price of the contract.” (EY made no mention of “COR approval” of such reallocation.)

Copyright 2015 Dick Lieberman, Permission Granted to the Maryland PTAC. This article does not provide legal advice as to any particular transaction.