Answer:
A collateral contract is a contract which assigns the rights and/or obligations of an existing contract to a third party. Due to the doctrine of "privacy of contract" only those parties mentioned in a contract have rights and obligations and it is illegal to assign these rights and obligations to third parties without the consent of the other parties to the main contract. Collateral contracts overcome the privacy of contract doctrine.
Collateral contracts are used in the construction industry to make a direct contractual relationship between clients and sub-contractors. In the collateral contract the client will promise to pay the sub-contractor for the works that the main contractor promised the client to undertake. This collateral contract comes in handy when the main contractor goes insolvent or has late payments or, more importantly, when the subcontractor's performance is substandard.