With the implementation of new regulations surrounding unfair contract terms, scheduled to take effect on November 10, 2023, it’s a crucial time for businesses to evaluate their standard form contracts. This review is essential to ensure that your contracts are free from unfair terms which are now prohibited, as breaches can result in substantial penalties.
Let’s begin by understanding the key changes:
- Introduction of Civil Penalties: In addition to identifying unfair contract terms, the new regulations also introduce civil penalties.
- Amended Definitions: The definitions of “standard form” and “small business” contracts will be revised.
- Inclusion of More Businesses: Companies employing fewer than 100 people or with an annual turnover of less than $10 million will now be affected, regardless of the contract’s value.
So, what qualifies as a standard form contract?
A standard form contract typically involves a pre-written agreement used for all customers, with limited or no room for customers to negotiate its terms. It’s often described as a ‘take it or leave it’ contract. The ACCC has provided guidelines to determine if a contract is a ‘standard form contract,’ which includes considering elements such as:
- Imbalance of Bargaining Power
- Party Responsible for Drafting the Contract
- Limited Scope for Negotiation
While we recommend regular contract reviews, the upcoming changes make it even more critical for businesses to reevaluate their contracts. Here are key areas in procurement contracts that require attention:
What is a procurement contract?
A procurement contract is a legally binding agreement between a buyer and a supplier that outlines the terms and conditions for purchasing and delivering goods or services. Such contracts ensure transparency, fairness, and efficiency in the procurement process. However, not all procurement contracts are created equal, and it’s essential for both parties to scrutinize the contract before signing.
Key Aspects to Examine in Procurements:
Goods and Services: Clearly define the goods or services to be procured, the delivery process, and quality criteria. Ensure the contract aligns with the original tender or quotation and specifies any exemptions from the scope.
Pricing and Payment: Define the price, payment terms, taxes, fees, and dispute resolution mechanisms. Address scenarios involving disputes about the payment amount.
Delivery and Acceptance: Outline when, where, how, and by whom the goods or services will be delivered and accepted. Specify delivery dates, locations, inspection procedures, and returns policies.
Risk and Liability: Identify and allocate responsibility for potential risks, such as delays, defects, damages, injuries, and other claims. Define insurance coverage and breach consequences.
Termination: Establish the circumstances under which either party can terminate the contract. Define grounds for termination, notice periods, and post-termination rights and obligations.
For a comprehensive contract review and advice tailored to your business, please contact us.