What is Back-to-Back Contracting?

Back-to-back contracting is relevant whenever you hold a primary obligation towards a client and fulfil part of that obligation through a third party. If the subcontractor fails, you want to be able to pass the financial consequences on rather than absorbing them yourself.

Consider a facilities management company responsible for a hotel's cleaning services, which it outsources to a specialist contractor. The head contract includes penalties for quality failures. If the cleaning company underperforms, those quality failures trigger penalties in your head contract. Back-to-back contracting ensures you can pass the same penalties through to the cleaning company.

A back-to-back contract is not a carbon copy of the head contract. Terms are adapted to the specific delivery obligation of the subcontractor. The substance, however, is that liability caps, SLA standards, penalty clauses, and notice periods are aligned so that no uncovered gap exists between what the main contractor promises and what the subcontractor guarantees.

Common pitfalls include a liability cap in the subcontract set lower than in the head contract, the absence of a penalty clause towards the subcontractor when one exists in the head contract, and a shorter notice period in the subcontract that allows the subcontractor to exit earlier than the main contractor can.

If you outsource obligations but retain the liability risk, you are exposed. Failures by the subcontractor cost you money with no right of recovery.

For SMEs acting as main contractors or passing services through to third parties, back-to-back contracting is a fundamental protective mechanism. It ensures that the party causing the failure is also the party that pays the bill.