Back-to-Back Agreement

Back-to-Back Agreement: bringing in a subcontractor without inheriting their risk

You have already won the work. Now you need a subcontractor to help deliver it, and you need their obligations to line up with the promises you have already made to your client.

That is what a Back-to-Back Agreement does. It transfers some or all of your obligations under the main contract down to a subcontractor, while keeping your liabilities limited. As the contractual chain grows, that alignment is what stops a gap from opening between what you owe your client and what your subcontractor owes you.

The agreement works alongside your main contract; it does not replace it.

Who needs one

MSPs and IT suppliers subcontracting specialist delivery
Prime contractors on a programme too large to deliver alone
Partners who won a joint bid and are bringing the losing party in behind them
Anyone whose client has no idea a subcontractor is involved

The clauses that matter most

1. How far the flow-down goes

Two options.

Full back-to-back: all of the obligations under the main agreement pass to the subcontractor.
Partial: tasks are defined and split between you and the subcontractor, set out in the scope of work at Schedule 2.

Choose deliberately. Partial flow-down means you keep the tasks you did not pass on, and the liability that comes with them.

2. Indemnity

You do not want to pick up the bill for your subcontractor's mistakes, and you do not want to have to terminate over a missed deadline to get redress.

An indemnity is a promise to pay when an agreed event happens. Here, the subcontractor indemnifies you for losses, claims, demands, costs and expenses arising against you out of the subcontracted scope of work.

In practice:

The subcontractor misses a deadline, causing the client a loss.
The client claims against you.
Under the Back-to-Back Agreement, the subcontractor pays you back for that claim.

The indemnity is uncapped, giving you as much financial protection as is reasonable, and it is one-way: you give no indemnity in return. Where an indemnity is triggered, you invoice the subcontractor, and they must pay within 30 days of the invoice date.

Jurisdiction note: how far an indemnity can reach

US: Broad indemnities are standard in commercial contracts, but several states have anti-indemnity statutes (mostly aimed at construction and oil and gas work) that void or limit indemnities covering the indemnified party's own negligence. Even outside those sectors, an indemnity covering your own negligence generally needs clear and conspicuous language to be enforced.

UK: Indemnities are enforceable between businesses, but an indemnity covering your own negligence must be drafted unambiguously, and the Unfair Contract Terms Act 1977 reasonableness test can apply where standard terms are used.

Canada: Enforceable, with clear language required to cover the indemnified party's own negligence, and the Tercon (2010 SCC 4) framework available to challenge the clause.

In all three, expect a well-advised subcontractor to push back hard on an uncapped one-way indemnity. A common landing point is uncapped for third-party claims and IP infringement, capped for everything else.

3. Payment terms

Schedule 3 holds the fees for the subcontractor's services, including payment dates, milestones and expenses.

You should also have the right to offset the subcontractor's liabilities at your discretion. If an indemnity is owed to you, you deduct it from their invoice, without notice.

Jurisdiction note: payment, offset and prompt payment rules

UK: 30 days matches the Prompt Payment Code; the statutory fallback for interest is 8% above the Bank of England base rate. Contractual set-off is enforceable between businesses, though a clause allowing deduction without any notice at all is worth reviewing for reasonableness.

US: No general federal prompt payment rule applies to private contracts. But note that many states have prompt payment statutes for construction and public works that restrict how long a prime contractor can hold payment and may override a contractual offset right. Interest is subject to state usury caps.

Canada: Under s.4 of the Interest Act, express your rate annually or it is capped at 5% per annum. Several provinces, including Ontario, have introduced prompt payment and adjudication regimes for construction work with mandatory payment timelines and a notice requirement before setting off. If your subcontract touches construction, the contractual offset right will not be the last word.

4. Laws and policies

Both parties should be obliged to comply with relevant laws and policies at their own expense. That obligation earns its place twice: it protects you where new legislation causes delay and the subcontractor complains, and it puts the cost of any licences or permits the subcontractor needs on them, not you.

5. Liability

Under the main agreement, you are liable for your subcontractors. Any breach they commit lands on you first, which is exactly why the one-way indemnity matters.

All limits of liability set out in the main agreement should apply to the Back-to-Back Agreement too, so the two documents cap at the same point rather than leaving you exposed in the gap.

6. Term and termination

The agreement begins on the effective date and continues until both parties have performed their obligations, so it lasts as long as the subcontracted services do.

If the main agreement terminates for any reason, the Back-to-Back Agreement automatically ends: you are never left paying a subcontractor for work you can no longer sell on.

Either party can terminate for material breach, payment breach, or the other ceasing a substantial part of its business. Neither can terminate for convenience, which protects you from the subcontractor walking away mid-delivery and leaving you holding a client commitment.

7. Scope of work: the commercial heart

Commercially, Schedules 2 and 3 are the most important pages in the document. Schedule 3 holds the fees; Schedule 2 holds the scope of work.

In the scope of work, delegate your duties precisely, leaving no room for interpretation. This is where partial flow-downs succeed or fail. If you are subcontracting all of your duties under the main agreement, this section becomes irrelevant: everything simply passes down.

8. Governing law

Jurisdiction note

UK: English law and exclusive jurisdiction of the English courts where the services are provided in England.

US: Name a state's law and venue.

Canada: Name the province.

One point that matters more here than elsewhere: match the governing law and dispute mechanism to the main contract. A back-to-back agreement under a different law, or with arbitration where the main contract has litigation, can leave you fighting the same dispute twice in two forums with inconsistent outcomes.

Frequently asked questions

Why not just use a standard subcontract? A generic subcontract may not mirror the obligations you have already accepted upstream. Back-to-back drafting is specifically about closing the gap between the two contracts.

Should the indemnity really be uncapped? From the main contractor's side, yes: you are carrying uncapped exposure to your client for the subcontractor's performance. Expect a well-advised subcontractor to push back, and expect to land on uncapped for third-party and IP claims, with a cap on everything else. Note that some US states restrict indemnities covering your own negligence, particularly in construction.

What happens if my client terminates the main contract? The Back-to-Back Agreement ends automatically with it.

Can I deduct what the subcontractor owes me from their invoice? Yes, if the agreement gives you an offset right, and the standard position is that no notice is required.

How Cloud Contracts 365 helps

Cloud Contracts 365 builds a Back-to-Back Agreement from a guided questionnaire, prompting you through the scope of work split that decides where your risk sits. Because your main contract lives in the same place, you can see both documents side by side and check that the liability caps and obligations actually line up.