In general, there are important provisions of a principal contract that a party wishes to include in a return agreement, including data and delivery items (including reports), termination times and obligations related to the provision of goods or services or the dates of application of claims arising from the main contract. As contractors increasingly outsource much of their work to others, the supply chain has become longer and more complex. It is important that all parties ensure that certain rights and obligations exist not only in their own agreements, but also in agreements reached by the parties with other parties. This ensures that the principal contractor is not responsible for all obligations to the employer, that subcontractors have enforceable rights, and that dates are coordinated throughout the supply chain. There are two ways to structure back-to-back sub-contracts in particular: a back-to-back agreement is an easy-to-conclude form of partnership, most of the time used when working on a particular project. The parties remain independent, no new legal entities are created. To avoid such a situation, the principal contractors must ensure that the subcontracting has shorter notification times than those provided in the main contract, in order to ensure that the principal contractor has sufficient time to forward a subcontractor`s application to the employer. In addition, the subcontractor should require the subcontractor to provide exactly the same information about the right that the principal contractor must provide under the main contract. One of the common features of back-to-back contracts is that payment to the subcontractor is conditional on the principal contractor`s acquisition of the payment under the main contract.
However, these “pay when paid” clauses do not apply in construction contracts under the laws of certain legal orders, including England and Wales and Singapore. Sometimes a “pay when certified” clause is considered an appropriate compromise if it is not also prohibited in the corresponding legal systems, as will soon be the case in England and Wales. Although these clauses are not prohibited by current legislation, they are often rejected by subcontractors who expect to be paid once they have fulfilled their obligations under contracting out, regardless of the position at the top of the chain. In general, “back-to-back” means that each document contains all the conditions and features like the next contract. You can open a back-to-back letter of credit containing all the same items as the previous one. In residential construction, the term could refer to houses built side by side. The principal contractor does not want to be solely responsible for all elements of the project. This will ensure that they pass on their commitments and commitments to the promoter through their subcontractors. This allows the prime contractor to limit its exposure to potentially risky bonds. To do this, they use back-to-back contracts with their subcontractors. Back-back agreements, where a principal contractor attempts to entrust obligations and commitments to the employer to his subcontractors, are becoming more common in construction projects.
While they may be a convenient way to transfer risks and commitments down the chain of responsibility, inadequate wording can lead to particularly complex and difficult-to-resolve disputes. A back-to-back contract works best when there is a prime contractor and only one or two subcontractors and responsibilities (all) cannot be clearly separated. For too many parties, the structure can become too complex. With responsibilities that can all be clearly defined and are not interdependent, you can respect normal agreements. Autonomous contracts contain all the terms of the original contract that are relevant to subcontracting.