About Contract Mirroring or Back – To – Back Contracts in The Construction Industry
Arianna Carlotti, Goodfellow & Schuettlaw
Call it contract mirroring or back – to – back contracts, at the end of the day the essence is the same: it finds its origin in the subcontracting chain and it boils it down to cascading liability for the work executed or subcontracted.
Depending on the kind of project, general contractors hire one or more subcontractors, who, in turn, hire sub-subcontractors to complete parts of the project. The general contractor stays liable to the owner of the project for the full extent of the project, even for the portion of the work subcontracted to one or more subcontractors. This is one of the main reasons why a savvy general contractor stipulates written contracts with its subcontractors, basically to hold them legally responsible for as much of the project as possible. The same for the subcontractors and their sub-subcontractors. This is the essence of the back-to-back contract.
The main back-to-back provisions used to cascade the liability down the subcontracting chain include scope of work, terms of payment, liability and indemnification, warranties, scheduling, dispute resolutions, and insurance.
Contract mirroring used to create back-to-back contracts is theoretically simple but is practically far from straightforward. It involves a certain grade of familiarity with relevant legal issues, operating challenges, and industry standards, as well as inclination to negotiate terms with other contractors. Although, sometimes sub-subcontractors are ultimately much bigger in size than the subcontractors themselves.
Simply repeating in the sub-subcontract agreement the same contractual terms of the subcontract/prime contract may make sense for some provisions but not for others. It may cause the parties to leave on the table some other important issues that apply solely to the relationship between the general and subcontractor and subcontractor and the sub- subcontractor. This may generate dangerous loopholes and potential grey areas in