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22 April 2015

Back to the (same) drawing board

A “back-to-back” agreement is a contract where two parties enter into an agreement, and then one of those two parties subcontracts some or all of its obligations to a third party (who may, for example, be in a different country or provide specialist services).  In a “back-to-back” agreement scenario that initial contracting party (P) and a third party will enter into a subcontract which will refer to the terms of the principal contract, but some of the terms will be varied to reflect what it is that the third party is agreeing to do.

In the context of increasingly large and complex international projects, the pitfalls of such agreements are become more apparent. Where P subcontracts to numerous different parties, the importance of careful deliberation over how the subcontracts relate to the principal contract becomes ever more apparent. Some key themes to bear in mind when these subcontracts are entered into are:

  • Is it the correct contract and version of that contract that the subcontract refers back to? Simple checks and updates could avoid contracts that do not marry up.
  • Similarly, consistency throughout all of the contractual terms is crucial to ensure certainty if a project encounters difficulties.  For example, how are the contracts terminated?
  • P, who subcontracts its obligations, will usually still remain responsible for delivery of the principal contract. P should therefore ensure that in the scenario of one of the subcontractors not delivering, P will be capable under the subcontract of either delivering the project or will be sufficiently compensated.
  • The subcontracting parties will not wish to acquire responsibilities in relation to matters detailed in the principal contract over which they have no control and the subcontract should be drafted accordingly.