Back-to-back contract arrangements are increasingly popular as principals require head contractors to assume the majority of the liability in delivering a project and, in turn, head contractors try to push down as much of that liability onto their subcontractors.
In such cases care should be taken so that risk is properly allocated and assumed. The head contractor may bear all risk if contracts are not back-to-backed appropriately. Similarly, the subcontractor may end up bearing risk that it is not able to manage.
Tips if you are the head contractor
- Don’t do the dodgy: Confirm the principal’s consent to your engagement of the subcontractor.
- Pass on the risk: Pass on liabilities and indemnities to the subcontractor where possible.
- Check your rights: Ensure you can sublicense any licences from the subcontractor to the principal.
- Sharing is caring: Should the subcontractor be joined to disputes between you and the principal?
- Don’t get caught: At the very least, have an agreement in principle with the subcontractor before finalising the head contract.
Tips if you are the sub contractor
- Make sure you know what you’re in for: Know what obligations are being passed down to you under the head contract.
- Limit your liability: Ensure you are liable for your contribution only.
- Get your money: Avoid ‘pay-when-paid’ clauses where possible.
- Don’t be shy: Ask for any payments you require during any suspension or force majeure.
- Don’t be fooled: Ensure you have the right to all compensation, including upon termination.