What is a back-charge in contracting?

A back-charge in contracting refers to a cost that one party, typically a contractor or general contractor, withholds from a subcontractor due to reasons such as poor work quality, delays, or failure to meet the agreed-upon specifications. This allows the contractor to recover costs that may arise from correcting issues or completing unfinished work that the subcontractor did not fulfill adequately.

When a general contractor encounters circumstances where tasks are not completed as per the contract, they might choose to back-charge the subcontractor for the additional expenses involved in hiring another party to complete the work or for any additional resources utilized. This process ensures that the contractor can maintain project timelines and budgets while enforcing accountability among subcontractors.

The other options do not accurately describe a back-charge. A penalty fee is generally imposed as a consequence for breach of contract rather than a cost recovery measure. An upfront payment is an agreement to pay for services before they are rendered, and a bonus for timely completion serves as an incentive rather than a deduction or recovery of funds.