In a consecutive system, a dispute between the prime contractor and the employer can have a significant impact on the relationship between the prime contractor and the subcontractor, and vice versa. In everyday language, “back to back” means that each document contains the same terms and characteristics as the next contract. You can open a consecutive letter of credit that contains the same items as the previous one. In residential development, the term could refer to houses built side by side. Stand-alone contracts contain all the terms of the original contract that are relevant to the subcontract. Such a contract can eliminate cumbersome cross-references, inaccuracies and inconsistencies. However, drafting a stand-alone contract can be even more time-consuming than drafting a consecutive contract, as each party must review the agreements and decide which terms to include in the subcontract and which terms to change. In a dispute relating to a construction project that was discussed in court at the end of June 2016, there was no agreement between the contractor and the subcontractor, but the court concluded that in practice, the parties had acted as if there was a consequential clause, and the original not only approved all payments, but acted directly against the subcontractor to approve the work. The Court held that payment to the subcontractor was subject to receipt of payment by the prime contractor. In this bulletin, we discuss the main reasons why consecutive contracts can be particularly controversial, as well as the main drafting issues that need to be considered and addressed to minimize the risk of litigation. Provisions relating to the duration and termination of a consecutive agreement may also reflect the main contract, so that when the main contract ends, the consecutive agreement also terminates.
The parties may wish to ensure that they can withdraw from a consecutive agreement in writing for the same reasons as the main agreement or for certain other reasons (for example.B. the subcontractor may attempt to negotiate a clause allowing it to terminate the subcontract if the contractor fails to fulfil a material obligation under the main contract). In general, there are important provisions of a master contract that a party may wish to include in a consequential agreement, including data and services (including reports), notice periods, and obligations with respect to the delivery of goods or services or with respect to time limits for making claims under the main contract. While consecutive contracts can prove to be viable, fast, and profitable, such contracts also create complex legal issues for the parties, few of which have been discussed in this article. In many cases, the assignment between contractors and subcontractors takes place without agreement or agreement without legal advice (including by the subcontractor). Given the complexity of the relationship, in which there is another factor (the client) in the image, it is even more important than usual to consult a lawyer specializing in this area already in the pre-contractual phase, but certainly since there is a delay in payment. The prime contractor concluded a subcontract (“subcontractor”) with a SUBCONTRACTOR MEP (“subcontractor”) for a total amount of AED 60 million. The subcontracting agreement included a consequential clause in which the prime contractor pays the subcontractor`s payments within (7) to (14) days of the date of receipt of the equivalent payment from the employer.
There is no one-size-fits-all solution to the various potential pitfalls associated with consecutive contracts. Regardless of the approach taken to the design of consecutive contracts, the decision should never be made with the intention of shortening a necessarily rigorous design process. Both prime contractors and subcontractors will have a personal interest in ensuring that the subcontract is properly drafted. In addition, for a number of subcontracts, the main contractor must ensure that its main contractual obligations are properly shared between the different subcontractors and are not unknowingly omitted. Consecutive agreements are commercial subcontracts that reflect all or part of the terms of a master contract further up the contract supply chain. The way consecutive agreements work is to pass on the same rights and obligations from one party to another, so that the people who perform the work or provide services are responsible for any breach of traditional obligations, rather than the “intermediate” level or the level (in complex agreements, there may be more than one subcontractor) of the supply chain. It effectively fills liability gaps in the contract chain. Prime Contractor`s Perspective: The PRIME Contractor may consider: (a) a PIP clause instead of a PWP clause; (b) the specific inclusion of the terms of the main contract in the subcontract, either by reference or by repetition; and (c) in the case of more than one subcontractor, a tailor-made stand-alone agreement with each subcontractor (instead of consecutive contracts) specifying the scope of work in each stand-alone agreement in accordance with the main contract. A consecutive contract closely reflects the rights and obligations of the subcontractor (or a Level 2 subcontractor) with those of the prime contractor vis-à-vis the employer under the main contract. Consecutive contracts are a common feature in construction, mining and even IT-ITES.
In the construction industry, it is common for the prime contractor to use the services of a subcontractor to carry out all or part of a particular project for a client. The client generally requires the prime contractor to be responsible for the entire scope of the project work. To protect its liability, the prime contractor will often try to hold the subcontractor legally responsible for as much of the project as possible. Essentially, this is a consecutive contract that is increasingly becoming the norm when a project requires several different companies to work together to complete the full scope of the work. When drafting or reviewing consecutive contracts, be sure to carefully review each contractual clause. Some elements that might be particularly important include: However, a prime contractor usually can`t do the work on their own – they can hire multiple subcontractors to provide support. In this case, they want to ensure that there are consecutive provisions so that they are not directly liable to the customer for the work performed by a subcontractor. As such, they ensure that their construction contract with the subcontractor reflects their contract with the customer.
The main terms involved are usually the obligations of the prime contractor, including: The prime contractor does not want to be solely responsible for all elements of the project. Therefore, they will try to pass on their obligations and responsibilities to the developer through their subcontractors. This allows the prime contractor to limit its exposure to potentially risky bonds. To do this, they use consecutive contracts with their subcontractors. The supervisor referred the dispute to the Court of Cassation and asked it not to deliver the judgment of the Court of Appeal because of (i) the existence of a consecutive clause in the subcontract with regard to the subcontractor`s payments and (ii) the employer`s failure to pay the main contractor the equivalent payment to which the subcontractor is entitled. Most prime contractors include a consecutive clause in their subcontracts with their subcontractors. These consecutive clauses ensure that the supervisor is not obliged to pay payments to the subcontractor unless the supervisor receives the corresponding payment from the employer. Consecutive provisions can be included in contracts in several ways: Contractually, a consecutive agreement consists of a flow of mutual promises through the chain of three or more parties working together and fulfilling their respective obligations in relation to the same /connected project (the same/connected projects) (or part of it). These contracts must be carefully drafted to ensure that the rights and obligations of each party are related to the other party. Some important clauses are listed below: in response to the industry`s request, FIDIC is currently preparing a subcontract for the construction of construction and engineering work to be used by the employer for subcontracting which will be accompanied by the FIDIC 1999 Red1 and Pink2 books. In November 2009, FIDIC published a test edition of the subcontract for comment.
The test edition is largely well formulated, but some of the transmission provisions could be revised in the final version, which is expected to be published for use this year. The dispute resolution clauses of the test edition attempt to resolve the three issues mentioned above, but unfortunately they are somewhat lacking and involve significant risks for both the prime contractor and the subcontractor. Again, it is to be hoped that these issues will be resolved in the final version. For a more detailed comment on the FIDIC test subcontract, please click here. Since consecutive contracts are widely used in contractual agreements, the application of the necessary prudence and careful consideration of agreements would go a long way towards protecting the interests of all parties involved. Prime contractors should seek the client`s consent to hire subcontractors before attempting to draft consecutive contracts. .
