Most projects in construction require a variety of skills and trades to see them through to completion, so it’s common practice in the industry for a main contractor to engage the services of one or more subcontractors to complete all or part of a particular project for a client.
In most instances, when it comes to contracting with these other parties, the main contractor will seek to set up subcontracts in such a way that they collectively support the main contractor in the delivery of its contractual obligations, hence the use of what are termed back-to-back contracts.
As happens with many terms in construction, back-to-back contracting doesn’t have a single accepted definition. In its strictest form, the term encompasses not just the mirroring of contractual rights and obligations in different levels of contract, but also to the practice of making sure that the agreement terms used at one level are also included in agreements at lower levels.
Creating back-to-back provisions
To make back-to-back contracts work effectively, both the main contractor and the subcontractors need to be aware of their obligations and the extent of their liability.
Ensuring that the correct terms are passed on and are phrased correctly, and that requirements such as key timings are properly coordinated, are vital steps in making sure contracts deliver the required outcomes.
There are several ways in which these contracts can be created:
- Copying over the applicable primary contract terms into the new contract. It’s important to exclude any terms that don’t apply, or clauses that are only relevant to the main contractor.
- Creating a standalone contract. Here, all the terms of the original contract that are relevant are included. Whilst this may eliminate time-consuming cross-references and inconsistencies, it means that each party will need to examine the agreements and decide which terms to include in the subcontract and which to modify.
- Use a standard form. Parties often edit standard form contracts to meet their own needs, which can lead to inconsistencies creeping in, so these need to be used carefully.
Adopting the most appropriate approach
In practice, there’s no clear winner when it comes to the best way of drafting back-to-back subcontracts. Whichever approach is adopted, it’s important to be thorough and systematic in drafting to ensure that the resulting contract is fit for purpose. All parties will need to consider how risk is fairly and appropriately apportioned between them, and ensure that this is reflected in clear and unambiguous well-drafted contract terms. There will need to be agreement as to which obligations and liabilities should remain with main contractor, and which are to be passed to the subcontractor.
Contractual elements that need to be scrutinised carefully
Areas that might require specific back-to-back provisions include:
- Payment terms
- Term extensions and additional payments
- Changes in procedure
- Completion requirements and deadlines
- Limits to liability
- Damages, expenses and indemnification
- Suspension and termination
- Dispute resolution
- Notice and reporting requirements
- Coordination and cooperation of each party.
A careful and thorough review
As with any contract, each party will need to carry out a though review of the proposed terms to ensure it is as clear, unambiguous and as all-encompassing as possible, and that the terms are effective and consistent and will deliver the intended outcomes.