Back to Back Contract: Everything You Need to Know
A back to back contract can refer to many different things, but it's most commonly used in construction.3 min read
A back to back contract can refer to many different things, but it's most commonly used in construction, in which case it means the main project contractor requires their subcontractors to adhere to the original contract terms. In this usage, the terms of a back-to-back contract may also be known as terms which are “incorporated by reference” (as opposed to newly drafted terms).
In general usage, “back-to-back” means that any document contains all the same terms and characteristics as the following contract. You might open a back-to-back letter of credit, which contains all the same elements as the previous one. In housing development, the term might refer to houses built adjacent to one another.
Why Use a Back-to-Back Contract?
Back-to-back construction contracts are quite common, especially in large projects. Substantial international projects typically require many participants' collaboration. Each of these participants has a different capability when it comes to contributing to different aspects of the project.
The principal contractor does not want to be solely responsible for all elements of the project. Thus, they will attempt to pass their obligations and liabilities to the project owner through their subcontractors. In doing so, the main contractor can limit their exposure to potentially risky obligations. They do this by using back-to-back contracts with their subcontractors.
Drafting and Reviewing Back-to-Back Contracts
To incorporate the primary contract terms into back-to-back (subcontractor) contracts, copy the applicable terms into the new contracts. Be sure to exclude any terms that do not apply, such as the total contract cost or other clauses only relevant to the principal contractor. This method of drafting back-to-back contracts may seem simple and efficient, but it can sometimes be more difficult than writing a stand-alone contract.
Stand-alone contracts include all the terms of the original contract which are relevant to the subcontract. Such a contract may eliminate time-consuming cross-references, inaccuracies, and inconsistencies. However, drafting a stand-alone contract may actually prove to be even more time-consuming than drafting a back-to-back contract, as each party must examine the agreements and decide which terms will be included in the subcontract, and which terms will need to be modified.
You may also use a standard form subcontract, a contract form that contains relevant clauses from the original contract. For example, you may wish to use the FIDIC Subcontract for Construction for Building and Engineering Works Designed by the Employer, which is an internationally used standard form subcontract meant to be used with the FIDIC Pink Book and the FIDIC Red Book, 1999 edition. However, the usefulness of this type of contract varies, since parties usually edit standard form contracts to meet their own preferences, which may generate inconsistencies among the original contract and the subcontract.
As you draft or review back-to-back contracts, make sure to thoroughly examine each contract clause. Elements that might be particularly important include:
- Term extensions and additional payments
- Changes in procedure
- Completion deadlines and requirements
- Liability limitations
- Suspension and termination
- Coordination and cooperation of each party
- Dispute resolution
- Notice requirements
- Important deadlines
- Mutual assent
Depending on whether the party is the principal contractor or the subcontractor, the manner of handling these concerns may vary.
It is absolutely imperative that each party carefully and thoroughly reviews the principal contract's terms to ensure that every desired clause is included within the subcontract and that terms are consistent throughout all. Although the process may be tedious and very time-consuming, it is recommended that each party takes a sequential approach to examining the contractual terms and determining whether incorporating the term into the new contract will be effective and consistent (in a legal and commercial manner) and will certainly have the intended effect. This comprehensive walkthrough approach is best, regardless of whether the subcontract incorporated the principal contract by reference or written as a stand-alone contract.
Back-to-Back Contracts Under English Law
Under English law, a back-to-back contract that incorporates terms by references may not incorporate particular kinds of clauses from the principal contract to the subcontract. For these clauses, you might need to draft language into the subcontract that expresses the desired terms from the principal contract, as opposed to relying on a default blanket incorporation by reference clause. Other local and international laws may also prohibit the incorporation of particular provisions.
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