What is a back-to-back contract or back-to-back agreement?
A back-to-back agreement is an easy to conclude form of partnership, mostly used if you work together on one specific project. The parties remain independent, no new legal entity is created.
The client has an agreement or project contract with the main contractor, who purchases part of the activities from the subcontractor. Specific for a back-to-back agreement is that the subcontractor complies to the scope, planning and other conditions in the project contract between the client and the main contractor.
Option in the contract
You will have to describe what is the responsibility of each party alone, and which responsibilities are shared. Shared responsibilities could be in overall project planning, interfaces, finetuning etc. For those tasks you can even share bonuses or penalties that the client wants to put into the project contract. Also you have to see whether you use back-to-back terms and conditions, which is mostly preferred.
Back-to-back payment
Back-to-back payments are used to arrange that the subcontractor is only paid directly after the client has paid the main contractor. With these back-to-back payments the subcontractor does not only feel responsible for his task, but also for the project as a whole.
This structure requires however a clear description of each others tasks, and also a procedure how the subcontractor can enforce payment if the reason that the client does not pay lies with the main contractor.
When to use this type of contract?
A back-to-back contract works best if there is one main contractor and only one or two subcontractors and responsibilities can not (all) be separated clearly. With too many parties the structure may become too complex. With responsibilities that can all be clearly defined and that are not interdependent you can stick to normal agreements.
Back-to-back agreement in an international setting
First of all you will have to look at where the client, main contractor and subcontractor are based. What law does apply and how easy it is to enforce payments or lay claims? This may require some market research. When working for clients abroad, depending on your export strategy, you may want to look for either a local partner or distributor, or a trusted party from your home country. Then decide who will be the main contractor. This party will do the formal representation towards the client, although it is advised to have project meetings with all partners involved.
