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In entering STIPL into such subcontracts, the contractor will typically seek to pass its contractual obligations and liabilities towards the owner down to its subcontractor(s) through what is called a “back-to-back” or “flow down” contracting arrangement, thereby leaving the contractor with as few obligations or responsibilities relating to the project as possible. In a nutshell, the back-to-back principle is a method where the terms of the prime contract become a part of the agreement with another party down the subcontract chain.
Areas To Be Aware Of When Drafting Back-To-Back
The approach to these issues may vary depending on a number of considerations, including whether the party in question is the prime contractor or subcontractor.
Although such back-to-back agreements appear simple and straightforward conceptually, they require comprehensive knowledge of the terms and conditions of all of the referenced or mirrored agreements and highly rigorous drafting. As poorly drafted back-to-back agreements or flow-down clauses can lead to complex and time consuming disputes, it is imperative when drafting or reviewing such agreements to meticulously consider all provisions contained in the relevant contracts and also to remain cognizant of external factors that may affect the validity or enforceability of back-to-back agreements. This article briefly addresses certain key areas that parties may wish to consider in drafting back-to-back agreements, and also discusses particular concerns that may arise on international construction projects..
With regard to international construction projects, parties should exercise particular caution to ensure that back-to-back agreements are enforceable and consistent with the requirements of applicable law. For instance, the laws of certain countries may limit the extent that certain obligations or liabilities can be passed down to subcontractors.
