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The main purpose of back-to-back contracts is the alignment of the contractual terms of the main contract and the subcontract. Alignment of the main contract with the subcontract is achieved either by drafting the two contracts in similar clauses, or by incorporating parts of the main contract in the subcontract.

On the other hand, incorporation by reference requires clear and express language as to what are the specific rights and duties incorporated in the subcontract. Shephard Hill Civil Engineering , the subcontract made extensive references to the main contract, including an obligation of the subcontractor to read and note the provisions of the main contract. The question before the English court was whether such references might establish direct liability of the subcontractor with regard to the employer.

The court held that there was no privity between the employer and the subcontractor, and that while the provisions in the main contract may have had an important bearing on the contractual relationship between the contractor and the subcontractor, they did not establish a contractual relationship of any kind between the employer and the subcontractor.

While back-to-back contracts ensure that the rights and obligations of the parties under the main contract and the subcontract are aligned, the principle of chain liability will not typically be affected, so that no direct liability will arise between the employer and the subcontractor. Under FIDIC conditions, for example, Clause 4 of the contract for construction expressly provides that the contractor shall be responsible to the employer for the acts or defaults of any subcontractor, its agents or employees, as if they were the acts or defaults of the contractor.

For example, English law provides that a contractor is not necessarily responsible for any design carried out by a nominated subcontractor, or for whether the subcontractor has complied with the performance specifications of the goods and materials. Given such strict liability, any breach by the subcontractor of the contract may lead to breach of the contractor under the main contract. This is why the subcontract will invariably include a clause providing that the subcontractor in such circumstances will indemnify the contractor. Other clauses in the FIDIC subcontract for construction aim to align the rights and duties of the parties under the subcontract with those of the parties under the main contract.

Similarly, the FIDIC conditions of contract for construction include some provisions pertaining to the subcontract, notably clause 5 and Sub-Clause 5. If the contractor fails to submit such evidence, the employer is entitled under FIDIC to directly pay the nominated subcontractor and request the contractor to repay such amount.

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As previously mentioned, direct claims or remedies between the employer and the subcontractor may be possible where the applicable national law provides for direct remedies [39] or in factual circumstances that the subcontractor can be held liable against the employer on the basis of an implied warranty or a direct collateral agreement between the employer and the subcontractor. Detel Products, where the owners entered into a contract with the contractors to repair and repaint a pier that was demolished during the war. The subcontractor met with the employer for the purpose of obtaining the contract for the repainting of the pier.

During the meeting the subcontractor made certain warranties, including that it should have a life of at least seven to 10 years. The issue before the court was whether an enforceable warranty can arise between parties other than the parties to the main contract.

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The English court held that the employer was entitled to recover against the subcontractor for breach of an express warranty, notwithstanding that the contract was concluded between the contractors and the subcontractors. Finally, direct claims may be possible if a duty of care is established by representations as was evidenced in the English case of IBA v.

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Based on a statement in a letter sent by BICC to IBA whereby the latter made a representation, the court found that such communication between the employer and the subcontractor had established a duty of care to the employer and made the subcontractor liable with regard to the employer. As already mentioned, the completion of a construction project may involve several parties and interrelated agreements and any dispute between two parties may be based on the same facts and may raise similar legal issues in a dispute between two other parties in the same project.

While multiparty arbitration proceedings between the employer, contractor and subcontractor will not usually be possible because of the contractual and bilateral nature of arbitration, [43] a party may wish to involve a third party in a construction arbitration under certain circumstances. The contractor in particular, being the middle party in a construction dispute, may want to bring the subcontractor, who may be responsible for the delay in the completion of the works, in the arbitration against the employer.

Similarly, the employer may want to arbitrate with the subcontractor if the contractor has become insolvent, [44] or in case of nominated subcontractors, although otherwise the employer will have little interest in multi-party arbitration that involves subcontractors and will be able to hold the main contractor fully liable without concern of whether the main contractor will be able to pass on its claims to any other responsible party.

Finally, the subcontractor may have an interest in multiparty arbitrations if, for example, its right to receive a payment depends on the contractor's having been paid first, or in case the subcontractor has a direct claim against the employer. However, unless consent for multiparty arbitration can be safely ascertained, the arbitration clause in the main contract will not generally extend to include the subcontractor under the subcontract. And, similarly, the arbitration clause in the subcontract will not typically extend to include the employer under the main contract.

In non-construction arbitrations, tribunals often ascertain implied consent for multiparty arbitration on the basis of different legal theories for non-signatories such as agency, assignment, third-party beneficiary, incorporation by reference, alter ego or equitable or arbitral estoppel. Unless exceptional circumstances exist, arbitral tribunals will not usually find a subcontractor to be, for example, the principal of the main contractor, or the assignee unless the contractor expressly assigns the benefit of the subcontract to the subcontractor under FIDIC Red Book Clause 4.

Parties may draft arbitration agreements that include all the relevant parties either in the form of one umbrella arbitration agreement, or by drafting several identical arbitration clauses providing for multiparty proceedings under certain circumstances.

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While umbrella arbitration agreements will not typically be used in construction contracts, identical arbitration clauses providing for multiparty proceedings are not uncommon. However, unclear drafting may lead to confusion or disagreements. AYH , [50] the main contractor, Kier, agreed to carry out works of refurbishment and rebuilding. The contract between CG and AYH included an arbitration clause providing that any dispute would be referred to arbitration by a single arbitrator, and that if the dispute raised issues that are the same as, or connected with, issues raised in related disputes between either party and a third person, already referred to arbitration, the parties agreed that the dispute under the deed would be referred to the arbitrator appointed to determine the related dispute.

Railtrack , [51] Justice Jackson noted that the arbitration clause was unclear and that, accordingly, it was proper to have regard to the commercial purpose of the arbitration clause - namely, to avoid multiplicity of proceedings. Noting that if a material portion in both disputes is connected, it makes commercial sense for both disputes to be dealt with by the same tribunal, Justice Jackson found that a number of issues in the arbitration against AYH were substantially the same as, or connected with, issues arising in the arbitration with Kier.

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The FIDIC Conditions of Contract and Subcontract include compatible dispute resolution clauses to achieve coordination between disputes that may arise under the main contract and the subcontract. For example, Sub-Clause Similarly, Sub-Clause Such periods and the period for the subcontractor to substantiate its claim are deliberately shorter than the periods for the main contractor to give notice and substantiate its claim to the engineer under the main contract. However, while under Clause 20 of the FIDIC Conditions of Contract and Subcontract the dispute resolution processes under the two contracts are coordinated, they remain separate and distinct.

This is in accordance with the concept of contractual chain and separate liability under the two contracts. Thus, under Clause 20 of the FIDIC Conditions of Subcontract, if the subcontractor has a claim against the contractor, the contractor will make a fair determination of the claim. If, according to the main contractor, the dispute under the subcontract is unrelated to the main contract, either party i. If the contractor considers that the dispute under the subcontract involves an issue that is related to a dispute under the main contract, then in any notice of dispute given by the contractor or within 14 days of receiving a notice of dispute from the subcontractor, the contractor may notify the subcontractor, with reasons, that the dispute is related to a dispute under the main contract.

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Jonathan J. The Law and Management of Building Subcontracts. Standard Letters for Building Contractors. First Published Imprint Routledge. Pages pages. Subjects Built Environment, Law. Export Citation. Get Citation.