Back-to-back agreements ensure that your obligations to a client are mirrored by your subcontractors, protecting your business from exposure when projects involve multiple parties. Without precise alignment, you risk gaps in liability or inconsistent obligations.
Our commercial law solicitors can help you draft back-to-back agreements that tightly integrate with your primary contracts, clarify the chain of responsibility, and give you the legal framework to manage delivery and risk effectively across your commercial relationships.
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What are back-to-back agreements?
Back-to-back agreements are commercial sub-contracts that mirror all or part of the terms of a main contract further up the contractual supply chain. The way that back to back agreements work is to pass down the same rights and obligations from one party to another so that the people carrying out the work or providing services carry the responsibility and are liable for any breach of the duties that are passed down, rather than the ‘middle’ tier or tiers (in complex arrangements there may be more than one subcontractor) of the supply chain. It effectively plugs any liability gaps in the contractual chain.
It also means that if the rights of Party A are passed down and included in the contract of Party B, Party B can enforce those rights directly. This can be important as it gives Party B more control and, in theory, should facilitate a quicker process to implement the rights. The timing of the rights enforcement could make a difference to the costs and programme of any project a subcontractor is working on.
In general, key provisions from a main contract that a party might want to include in a back-to-back agreement include dates and deliverables (including reporting), notice periods, and obligations relating to the delivery of goods or services or timings for making claims under the main contract.
Other provisions might include entitlement to be part of any dispute resolution process or court action set out in the main contract; to have the benefit of any claims that the main contractor is entitled to, including any rights to extensions of time or compensation for any loss or expenses arising out of the project; or entitlement to the same rights to suspend the contract or have the benefit of any collateral warranties, warranties or indemnities as are set out in the main contract. Whether liquidated damages are also reflected in a sub-contract will be a matter for negotiation between the parties to the sub-contract.
A back-to-back agreement's term and termination provisions can also mirror the main contract, so if the main contract ends, the back-to-back deal will also end. Parties might want to make sure that they can exit a back to back agreement for the same reasons as the main agreement or for specific other reasons on written notice (for example the subcontractor may try to negotiate a term that allows it to terminate the sub-contract if the contractor breaches a material obligation under the main contract).
Depending on the industry, there may be legislation that applies that sets out what can and cannot be included in connection with a back to back contract, for example in the construction industry, the Housing Grants, Construction and Regeneration Act 1996 states that a provision making payment under a construction contract conditional on the payer receiving payment from a third person is ineffective (unless that third person, or any other person whose payment (directly or indirectly) is a condition of payment by that third person, is insolvent).
Are there other types of sub-contracts?
There are other ways to contract along a supply chain, including stand-alone sub-contracts. Stand-alone sub-contracts are commercial agreements that do not incorporate terms from the main contract and may be used where Party A wants to include additional rights or obligations in Party B’s sub-contract, or to vary provisions from those set out in the main contract. For example, a leading contractor might want to set deadlines for the subcontractor earlier than those set by the employer so that the main contractor has some space if the subcontractor is delayed or the subcontractor’s work needs rectification.
When are they used?
A back-to-back agreement is usually a contract between other members of the same supply chain. It is commonly used in the construction industry by contractors and their subcontractors or by global supply chains that work on a cross-border basis.
What are the common issues and risks?
The everyday issues and risks of a back-to-back agreement will depend on whether you are the main contractor or a subcontractor.
| Main Contractor | Subcontractor |
| Poorly drafted back-to-back agreements can be challenging to interpret and might lead to disputes and project delays. | Poorly drafted back-to-back agreements can be challenging to interpret and might lead to disputes or the subcontractor's inability to enforce the rights that it wants under the main contract. |
| Provisions in the main contract are missed in the subcontract. In particular, the subcontractor should ensure that it is a party to the dispute provisions set out in the main contract. | |
| Provisions in the main contract are incorporated into the subcontract. Still, the subcontract does not accurately reflect the obligations the contractor wants the subcontractor to have (particularly timing and deliverables, for example). | Provisions in the main contract are incorporated into the subcontract but are irrelevant to the subcontractor. |
| The subcontractor should be careful that the obligations under the contract are not passed on wholesale without thought – some of the provisions may not be relevant or appropriate for the subcontractor to bear the risk. | |
| The contractor should be mindful of payment terms – should the date that the subcontractor is to be paid align with a milestone or when the contractor is to be paid? | |
| The contractor may want to ensure that any deadlines in the main contract are shortened in the subcontract so that the contractor has some time in case the subcontractor delays or needs to correct their work. | |
| If the subcontractor's provision of services involves the transfer of personal data, it is important to ensure that the subcontract contains adequate data protection provisions. | |
| If the contractor is not doing any work, it may ask the subcontractor to provide an indemnity. This would cover any loss the contractor suffers from entering into the sub-agreement and the main contract, or from issues arising from the subcontracted works. An indemnity is a contractual obligation where one party agrees to compensate another for losses that have been or may be incurred. The indemnified party can recover those losses as a debt. | |
| The subcontractor might want to ensure its liability is limited to the same amount as the contractor’s under the main contract. |
How are back-to-back provisions created?
Back-to-back provisions can be incorporated into contracts in a variety of ways:
- By reference: in some cases, sub-contracts may contain a general statement referring to the main contractor’s terms or include a link to the terms or a copy of the terms within the sub-contract. This has disadvantages as it is likely that not all of the main contractor’s contract provisions will be appropriate or relevant to the subcontractor. These provisions should be reviewed carefully to ensure the subcontractor is bound by the rights and obligations set out in the main contract. Usually, if a sub-contract incorporates terms in this way, the parties should specify which main contract terms apply, which are excluded, and which are varied in the sub-contract. This can be a quick and cheap way of incorporating the terms of the main contract; however, the process can be complicated, and mistakes can easily be made or provisions not cross-referenced correctly.
- By drafting a stand-alone contract: another option is to draft a bespoke contract to make sure that the provisions of the main contract have been correctly incorporated into a sub-contract and are appropriate for the relationship and work that is going to be carried out by that particular subcontractor. This type of agreement can be easier to interpret, but the drafting of the individual contract may be more time-consuming or costly; or
- By using standard forms: sometimes in the supply chain, there will be precedent, or industry-accepted standard form agreements that include back-to-back provisions from a main contract to a sub-contract. These agreements will depend on the industry where the contracts are being used and are rarely accepted ‘as is’. On the face of it, this approach may be the most cost-effective and quick way to pass down rights and obligations to a subcontractor, but amending standard terms can take time, and there is usually some element of negotiation around which party is to bear the risks in the project.
The main point to note is that care should be taken when mirroring the terms of one contract into another, and the context and relationship between the parties should also be taken into account so that the contract makes practical sense. Even though it is more time-consuming and potentially more expensive, taking time to draft a comprehensive sub-contract that addresses the individual provisions of the main contract that are to be incorporated into the subcontract is essential to make sure that the contract is easy to interpret. The risk allocation between the parties to the agreement is transparent.
Using back-to-back agreements to protect your position
When appropriately managed, back-to-back agreements reduce risk, increase consistency and protect your commercial interests across layered contracts. Our commercial law solicitors can assess your main contracts, identify clauses that need to flow through to your subcontractors, and help you implement agreement structures that reflect your commercial reality, giving you greater control, less exposure, and a clearer path to enforcement if things go wrong.
