Onerous contract
Contents |
[edit] Introduction
An onerous contract (sometimes referred to as a loss making contract) can occur when the cost of meeting the obligations agreed under the contract exceeds the anticipated economic benefit to be received.
[edit] IAS 37
The International Accounting Standard 37: Provisions, Contingent Liabilities and Contingent Assets, or IAS 37, is an international financial reporting standard that applies to practices associated with onerous contracts.
In May 2020, the IAS Board issued Onerous Contracts - Cost of Fulfilling a Contract as amendments to IAS 37. The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous.
[edit] Onerous contracts and the Sourcing playbook
An onerous contract may be apparent from the beginning of the project, or it can become apparent due to changes in availability, unpredictable costs or other unavoidable circumstances.
The Sourcing Playbook, Government Guidance on service delivery, including outsourcing, insourcing, mixed economy sourcing and contracting, explains that onerous (or loss making) contracts may be “a possible consequence of getting risk allocation and payment mechanisms wrong. When a contract is publicly designated by a supplier as onerous, this should prompt a root cause analysis and a conversation with the supplier about the options available to address this.”
The Sourcing playbook was produced by the Cabinet Office and published in May 2021. It emphasises that the delivery of public services is a collaborative endeavour involving colleagues from commercial, finance, project delivery, policy and other professions. It captures best practices from across the Government within 11 key policies that all central departments are expected to follow.
For more information see: The Sourcing Playbook.
[edit] Related articles on Designing Buildings Wiki
- CLC urges inclusion of fluctuations provisions in contracts.
- Construction contract.
- Collateral warranties for building design and construction.
- Practical considerations of collateral warranties.
- Recovery of third party losses.
- Sourcing playbook.
- Supply chains in construction.
[edit] External resources
Featured articles and news
A case study and a warning to would-be developers
Creating four dwellings for people to come home to... after half a century of doing this job, why, oh why, is it so difficult?
Reform of the fire engineering profession
Fire Engineers Advisory Panel: Authoritative Statement, reactions and next steps.
Restoration and renewal of the Palace of Westminster
A complex project of cultural significance from full decant to EMI, opportunities and a potential a way forward.
Apprenticeships and the responsibility we share
Perspectives from the CIOB President as National Apprentice Week comes to a close.
The first line of defence against rain, wind and snow.
Building Safety recap January, 2026
What we missed at the end of last year, and at the start of this...
National Apprenticeship Week 2026, 9-15 Feb
Shining a light on the positive impacts for businesses, their apprentices and the wider economy alike.
Applications and benefits of acoustic flooring
From commercial to retail.
From solid to sprung and ribbed to raised.
Strengthening industry collaboration in Hong Kong
Hong Kong Institute of Construction and The Chartered Institute of Building sign Memorandum of Understanding.
A detailed description from the experts at Cornish Lime.
IHBC planning for growth with corporate plan development
Grow with the Institute by volunteering and CP25 consultation.
Connecting ambition and action for designers and specifiers.
Electrical skills gap deepens as apprenticeship starts fall despite surging demand says ECA.
Built environment bodies deepen joint action on EDI
B.E.Inclusive initiative agree next phase of joint equity, diversity and inclusion (EDI) action plan.
Recognising culture as key to sustainable economic growth
Creative UK Provocation paper: Culture as Growth Infrastructure.
Futurebuild and UK Construction Week London Unite
Creating the UK’s Built Environment Super Event and over 25 other key partnerships.
Welsh and Scottish 2026 elections
Manifestos for the built environment for upcoming same May day elections.
Advancing BIM education with a competency framework
“We don’t need people who can just draw in 3D. We need people who can think in data.”