In a case that was debated in court in early 2016, an engineering firm acted as a contractor in a project and charged a subcontractor with a „back to back“ clause for certain works. The court held that the purpose of a „back-to-back“ clause was normally to avoid a situation in which the subcontractor had to pay the subcontractor for work that was not approved or paid for by the customer for reasons related to the subcontractor, such as.B partial or inappropriate work. Despite the existence of a back-to-back clause in the agreement between the parties and even if the contractor has not received payment from the procuring entity, it does not remove the contractor`s obligation to pay the subcontractor if it is established that the subcontractor performed the work correctly. In another case, which was discussed at the end of April 2016, the client did not pay due to defects in the work. The court decided that, despite the „back-to-back“ clause, the main contractor was required to pay the subcontractor because the default came from the main contractor. In this article, we will discuss the feasibility of back-to-back clauses under UAE law by referring to recent rulings by Abu Dhabi courts. Under English law, a back-to-back contract containing clauses by reference must not contain certain types of clauses, from the main contract to the subcontract. For these clauses, you may need to include in the subcontract a language that expresses the desired terms of the main contract, instead of relying on a default flat-rate inclusion by the reference clause. Other local and international laws may also prohibit the inclusion of certain provisions. In its strictest form, back-to-back refers not only to the replication of contractual rights and obligations at different levels of the contract, but to the requirement that the terms of the contract be included at one level in agreements at lower levels. With regard to the subcontractor`s right to unpaid payment, it is important to take into account the precedent of the Court of Cassation. The Court of Cassation had previously held that if a main contractor had agreed that it would settle the payments due by the subcontractor after receipt of the corresponding payment by the employer, the receipt of that equivalent payment by the main contractor was a prerequisite for the subcontractor to be able to claim its payment. However, the subcontractor`s claim regarding its arrears of payment was due due to (i) the existence of the back-to-back clause in the subcontract agreement and (ii) the main contractor who did not receive the corresponding payment from the employer.
The main contractor does not wish to be solely responsible for all elements of the project. Therefore, they will endeavor to transfer their commitments and liabilities to the project owner through their subcontractors. In this way, the main contractor can limit its exposure to potentially risky bonds. They do this by using back-to-back contracts with their subcontractors. This article usually lays out what back-to-back agreements are, and there is discussion about when you want to make a back-to-back agreement and what are the advantages and disadvantages that this has. .