Back to Back Contract: Everything You Need to Know

A back to back contract can refer to many different things, but it's most commonly used in construction.3 min read

A back to back contract can refer to many different things, but it's most commonly used in construction, in which case it means the main project contractor requires their subcontractors to adhere to the original contract terms. In this usage, the terms of a back-to-back contract may also be known as terms which are “incorporated by reference” (as opposed to newly drafted terms).

In general usage, “back-to-back” means that any document contains all the same terms and characteristics as the following contract. You might open a back-to-back letter of credit, which contains all the same elements as the previous one. In housing development, the term might refer to houses built adjacent to one another.

Why Use a Back-to-Back Contract?

Back-to-back construction contracts are quite common, especially in large projects. Substantial international projects typically require many participants' collaboration. Each of these participants has a different capability when it comes to contributing to different aspects of the project.

The principal contractor does not want to be solely responsible for all elements of the project. Thus, they will attempt to pass their obligations and liabilities to the project owner through their subcontractors. In doing so, the main contractor can limit their exposure to potentially risky obligations. They do this by using back-to-back contracts with their subcontractors.

Drafting and Reviewing Back-to-Back Contracts

To incorporate the primary contract terms into back-to-back (subcontractor) contracts, copy the applicable terms into the new contracts. Be sure to exclude any terms that do not apply, such as the total contract cost or other clauses only relevant to the principal contractor. This method of drafting back-to-back contracts may seem simple and efficient, but it can sometimes be more difficult than writing a stand-alone contract.

Stand-alone contracts include all the terms of the original contract which are relevant to the subcontract. Such a contract may eliminate time-consuming cross-references, inaccuracies, and inconsistencies. However, drafting a stand-alone contract may actually prove to be even more time-consuming than drafting a back-to-back contract, as each party must examine the agreements and decide which terms will be included in the subcontract, and which terms will need to be modified.