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
In major support package for small businesses.
Conservation and transformation
Reading Ruskin’s cultural heritage. Book review.
Renovating Union Chain Bridge.
AI tools for planning, design, construction and management
A long, continually expanding list, any more to add?
Robots in the construction industry
From cultural characterisations to construction sites.
Empowering construction with AI integration
New horizons with a human touch.
Key AI related terms to be aware of
With explanations from the UK government.
A Better Hiring Toolkit for construction
Tooling up to hire under best practice standards in the sector.
Recharging Electrical Skills in Wales
Step by step collaborative solutions.
Ireland budget announcement 2025
CIOB responds with positivity, criticism and clarity.
The continued ISG fall out, where to go?
Support for ISG contractors, companies and employees.
New HES national centre for traditional building retrofit
Announced as HES publishes survey results which reveal strong support for retrofit.
Retrofit of Buildings, a CIOB Technical Publication
Expected to become one of the largest activities in the global construction industry.
Scope determination appeals and the Building Safety Act
Process explained following release of appeals guidance.
The ECA industry focus video channel
Keeping update with the industry session by session.
Over 25 recorded informations sessions freely available..