Back to Back contract dispute and what to consider

Back-to-back contracts are common in the construction industry and can be the source of tension on site and as a project progresses. A dispute between the main contractor and the employer will have a knock on impact on the relationship between the main contractor and the subcontractor.

Claims often relate to defects, performance failures and delays, as well as variations in scope, specification and value. The subcontract itself is important when reviewing these issues. The main contractor will (or should!) have sought to pass on liability in respect of matters it cannot control. Often the biggest concern for the main contractor is avoiding discrepancies between the main contract and the subcontract which exposes the main contractor to a different level of risk.

The following areas should be considered at the outset of any dispute to gauge the level of risk. Ideally this should be done prior to the subcontract being signed and care taken to manage the project variations so it doesn’t change the contract terms:

• If a dispute arose in the main contract and was determined either at adjudication or arbitration, would the findings be binding between the main contractor and the subcontractor? This often involves a careful analysis of the scope as well as liability clauses.
• In court proceedings, a subcontractor is brought into the action as a Part 20 Defendant. What about adjudication or arbitration? Has the contract included a clause that provides a contractual right for a party to be part of those main proceedings?
• Is the main contractor placed in the position of having to pursue the subcontractor’s claim against the employer and, if it doesn’t, are there any sanctions for failing to pursue such a claim? Realistically, no-one wants to pursue a claim unless they are forced to. A subcontractor could be faced with a position in which the main contractor is not willing to pursue a claim which has little benefit to it.

Keeping focused upon the risk as well as the opportunity is important when entering into any commercial arrangement – particularly when in construction those liabilities could be passed on.

For assistance on disputes regarding back-to-back contracts in the construction industry please contact our Dispute Resolution Team.