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New penalties for unfair contract terms in standard form contracts

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There are important changes to laws about unfair contract terms in standard form contracts.

These are important to know if you are a subcontractor who enters into standard form contracts with builders.

Key points:

  • The new laws will apply to standard form contracts from 10 November 2023.
  • The news laws will stop a party from using or enforcing an unfair term.
  • There are large fines if a party uses an unfair contract term. 

What is an unfair contract term?

An unfair contract term:

  1. Creates a “significant imbalance” of power between the parties. 
  2. Is not “reasonably necessary” to protect the interests of the party. 
  3. Would “cause detriment” (either financially or by creating extra work) to a party.

In other words, if a term in the contract gives one party more power and advantage for no good reason, it is likely unfair.

Who does it apply to?

One or both of the following apply to one of the parties:

  • Business with fewer than 100 employees and/or
  • turnover for the last income year at or before the time of contract is less than AUD $10 million.

Example

Many construction contracts give the head contractor or principal a very broad right to vary the scope of works. It does not allow the other party to reject or negotiate the variation without penalty. The right only goes one way. This type of wording may be deemed unfair.
Group of construction workers standing on concrete formwork wearing yellow safety jackets. The sun is casting a long shadow behind them.

What does this mean for subcontractors?

If you are entering into standard form contracts with builders, it is important to read the contract carefully in case there is a term that you think might be unfair.  It is also important to review any of your company’s contracts that might be standard form contracts (e.g. supply contracts, downstream subcontracts and consultancy contracts).  If you find any terms that might be “unfair” because they create a power imbalance and are not reasonably necessary, amend them or take them out to ensure you comply with the new laws.

Level Playing Field Lawyers is here to help with any contract reviews. Call or email us at (03) 9041 4674 or [email protected]

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