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
Boiler Upgrade Scheme and certifications consultation
Summary of government consultation which closes 11 June 2025.
Deputy editor of AT, Tim Fraser, discusses the newly formed society with its current chair, Chris Halligan MCIAT.
Barratt Lo-E passivhaus standard homes planned enmasse
With an initial 728 Lo-E homes across two sites and many more planned for the future.
Government urged to uphold Warm Homes commitment
ECA and industry bodies write to Government concerning its 13.2 billion Warm Homes manifesto commitment.
Places of Worship in Britain and Ireland, 1929-1990. Book review.
The emancipation of women in art.
CIOB Construction Manager of the Year 2025
Just one of the winners at the CIOB Awards 2025.
Call for independent National Grenfell oversight mechanism
MHCLG share findings of Building Safety Inquiry in letter to Secretary of State and Minister for Building Safety.
The Architectural Technology Awards
AT Awards now open for this the sixth decade of CIAT.
50th Golden anniversary ECA Edmundson awards
Deadline for submissions Friday 30 May 2025.
The benefits of precast, off-site foundation systems
Top ten benefits of this notable innovation.
Encouraging individuals to take action saving water at home, work, and in their communities.
Takes a community to support mental health and wellbeing
The why of becoming a Mental Health Instructor explained.
Mental health awareness week 13-18 May
The theme is communities, they can provide a sense of belonging, safety, support in hard times, and a sense purpose.
Mental health support on the rise but workers still struggling
CIOB Understanding Mental Health in the Built Environment 2025 shows.
Design and construction material libraries
Material, sample, product or detail libraries a key component of any architectural design practice.
Construction Products Reform Green Paper and Consultation
Still time to respond as consultation closes on 21 May 2025.
Resilient façade systems for smog reduction in Shanghai
A technical approach using computer simulation and analysis of solar radiation, wind patterns, and ventilation.