In construction contracts, proposals, drawings, studies, etc. are often incorporated by reference. A Nebraska federal court recently addressed what language is sufficient to accomplish such incorporation. In Cleaver Brooks Co. v. B&K Mechanical Contractors, LLC, No. 4:23-CV-3243, 2026 WL 2254434 (D. Neb. Aug. 5, 2026), the court rejected an argument that a subcontract’s reference to a supplier’s proposal pulled the proposal’s payment terms into the deal.
Link to Background Background
Cleaver Brooks, a boiler manufacturer, submitted a proposal to Grunwald, the mechanical subcontractor on a VA hospital project, for a custom boiler. The proposal included a milestone-based payment schedule. During negotiations over the resulting subcontract agreement, Cleaver Brooks asked Grunwald to reference the proposal in the subcontract and later asked Grunwald to add the phrase “including applicable commercial terms” to that reference. Grunwald agreed to the added language, and the parties executed the subcontract agreement.
The executed subcontract agreement required Cleaver Brooks “to perform certain labor and/or furnish certain material for the erection and completion of Department of Veteran Affairs 4101 Woolworth Ave, Omaha NE 68105; Correct Mechanical Deficiencies Project 636-19-301 Purchase of D-Style Boiler 07310929-Proposal -Rev-0 Dated October 4, 2021 including applicable commercial terms as per plans and specifications prepared by N.A., Architect.”
When Grunwald later refused to make the milestone payments Cleaver Brooks expected, Cleaver Brooks argued that the proposal, including its milestone payment schedule, had been incorporated into the subcontract wholesale, both because the proposal was referenced and because the reference specifically added “including applicable commercial terms.”
Link to The Court’s Analysis The Court’s Analysis
The court already had found, at the pleading stage, that the subcontract agreement wasn’t a fully integrated expression of the parties’ deal, since it left out material terms found elsewhere. That meant the subcontract necessarily pulled in some proposal terms. But which ones was a different question, and it was one the court answered narrowly.
The court held that merely citing the proposal in the subcontract wasn’t enough, standing alone, to incorporate the proposal in its entirety without more precise incorporating language. Cleaver Brooks tried to supply that precision with the phrase “including applicable commercial terms,” but the court found those words did the opposite of what Cleaver Brooks needed — they simply raised the question of which terms actually qualified as “applicable,” rather than answering it.
The court then turned to the parties’ own communications, which showed the milestone payment schedule was being negotiated separately and hadn’t been resolved when the “commercial terms” language was added. On the same day Grunwald agreed to that phrase, Cleaver Brooks’ own project manager asked whether Grunwald would accept the milestone payments, which only makes sense if he didn’t think the issue was already settled. The court treated that internal inconsistency as strong evidence that the reference to the proposal, even as modified, didn’t reach the milestone payment schedule.
Cleaver Brooks didn’t walk away empty handed. The parties later signed a memorandum of understanding that expressly committed Grunwald to a new payment schedule, and the court found that document created binding obligations Grunwald breached. A full copy of the court’s decision is available here.
Link to The Takeaway The Takeaway
The Nebraska court determined that referencing a separate document in a contract may not be enough to pull in that document’s terms. Contract drafting is not always perfect; if you want to avoid a court inferring the intent of the parties, best practice is to make incorporation of specific documents and terms clear by, for example, listing the document as a separate exhibit that is made part of the agreement or stating plainly that the document or specific terms are incorporated by reference and binding on the parties.
If you need assistance with drafting or litigating a construction contract, please feel free to reach out to Hunter Webb or John Mark Goodman. We would be happy to assist.