A back-to-back contract refers to contracts in which the client uses a chain of sub-suppliers or subcontractor(s) who adhere to the original contract terms. The main purpose of these contracts seems to be to insulate the client and also to pass on the risk to their subcontracts (like liabilities and other obligations). The general way seems to be, to have a company with limited liability obligation directly under the client, who then becomes sub-client to the other main contractors. In this way, if some issue arises the main client it is not responsible or liable. Hence when you are signing these contracts you have to be very careful in examining critical terms like liability, payments, termination, rights etc.
Key issues arise when in the following areas:
- Sub-clients obligation to pay the subcontractor even if the client has not paid them
- Subcontractor’s liability to the clients for their work