In larger construction projects, there are often several contractual levels involved, from the client to the main contractor, then to the subcontractors, and sometimes sub-subcontractors. In such contract chains, it is common for the main contractor to include “back-to-back” clauses in contracts with the subcontractors. In this article, we explain what such clauses entail and how they may affect subcontractors.
What is a back-to-back clause?
The term “back-to-back” has no fixed legal definition in Norwegian law. The wording of the clauses may vary, and their exact scope must be determined based on interpretation of the agreement. The purpose of a back-to-back clause is to forward risk and responsibility down the contract chain, benefiting the main contractor.
Also read: Construction contracts - A framework for your project in Norway
Two levels of back-to-back clauses: Rule level vs. consequence level
To understand back-to-back clauses, it is important to distinguish between back-to-back at rule level and back-to-back at consequence level:
- Back-to-back at rule level means that provisions from the main contract are mirrored and made applicable in the subcontract.
- Back-to-back at the consequence level means that consequences, e.g. liability or entitlement to remuneration under the main contract shall apply in the subcontract.
A general reference to back-to-back in the subcontract is not sufficient for the back-to-back principle to apply at both rule level and consequence level. The content of such clauses must be specified and customized.
Why customizing back-to-back clauses is necessary
Sometimes we see that the subcontract contains provisions stating that the main contract shall apply back-to-back in the subcontract. Such general clause can be unfortunate as it creates confusion about which provisions are included.
Moreover, certain provisions should be adjusted. For example, deadlines in the main contract might not work if directly applied in the subcontract as these should be shorter in the subcontract to ensure that the main contractor can meet their obligations with the client.
Risk for subcontractors
Uncritical use of back-to-back clauses can pose a major risk to subcontractors. Subcontractors should not accept a back-to-back clause without reviewing the main contract and understanding how this may affect the subcontract.
For example, a back-to-back clause could imply that the subcontractor must pay any liquidated damages (due to a delay) calculated according to the main contract. As the main contract normally includes higher rates than the subcontract, the subcontractor may face a larger financial loss than expected.
Back-to-back in Norwegian Standard (NS) contracts
The Norwegian subcontract standards (NS 8415, 8416, 8417) are designed to align with the standard main contracts (NS 8405, 8506, 8407). This can be seen as a form of back-to-back at the rule level to ensure consistent terms across the contract chain.
However, NS contracts do not contain any specific back-to-back clauses or guidance about the back-to-back principle. Thus, back-to-back clauses are often added as extra provisions, and it is important the parties understand the scope and effects of these provisions on both rule level and consequence level.
Also read: Strict notification deadlines in NS 8405 and NS 8407
Key considerations for back-to-back clauses
Back-to-back clauses can be beneficial in large construction projects, if they have a clear content and scope. Back-to-back clauses may limit risk and liability for the main contractor and may give subcontractors certain benefits in terms of access to claims for adjustment of payment and deadline extensions.
To ensure that back-to-back clauses are implemented properly, keep these points in mind:
- Both parties must fully understand the implications of the back-to-back clause, both at rule level and consequence level.
- Subcontractors should not accept a back-to-back clause without reviewing the main contract.
- It should be regulated which provisions are mirrored and how they impact rights and obligations, such as notification rules and deadlines.
- Subcontractors should be cautious if the back-to-back clause forward risk / responsibility calculated after the main contract, e.g. related to rates for liquidated damages.