A contract draft usually arrives in one of two ways. A client or supplier sends you their agreement and asks you to sign, or you are building your own template and want to get it right before it goes out. Either way, the document in front of you is the record of the deal: who does what, for how much, by when, and what happens if something goes wrong. The terms inside it decide your rights, your cash flow and your exposure long before a dispute starts.
A commercial agreement between businesses operates alongside the general law of contract and, where consumers are involved, the Australian Consumer Law (ACL) in Schedule 2 of the Competition and Consumer Act 2010 (Cth). A well-drafted contract also displaces the earlier quotes, emails and handshake promises that might otherwise be argued about later. This guide walks through the clauses that matter most in a typical service or supply agreement, what each one does, and the traps that cause downstream problems.
The commercial terms: what the deal actually is
Who the contract is between
Start with the parties. It sounds obvious, but the wrong legal entity on the front page is one of the most common and most expensive mistakes in small business contracting. The common situations to check:
- Company: use the full registered name and ACN, not a trading name.
- Sole trader: use your individual name and ABN.
- Corporate group: confirm which entity supplies the work and which one is responsible for payment.
If a founder signs in a personal name when the work is for the company, they can end up personally liable for the whole contract. If the counterparty is a company with no assets, your ability to enforce payment is limited to what that entity owns. Check who is actually signing and who is actually paying before you look at anything else.
What work is in scope
The scope clause is where most disputes begin. "Marketing services" or "build a website" is not a scope. A usable scope sets out:
- the deliverables (what will be produced)
- the assumptions (what the client must provide)
- the exclusions (what is not included)
- the acceptance criteria (how work is approved)
For product businesses, scope ties into specifications, quality standards, packaging and logistics. The drafting choice that matters most is precision. A scope that is too vague invites arguments about whether extra work is in scope or a variation, and a scope that is too detailed without a variations clause locks you into work you cannot change.
How much is paid, and when
Payment terms are about cash flow as much as legal rights. Cover the pricing model (fixed fee, hourly, milestone or subscription), when invoices are issued, the due date (for example 7, 14 or 30 days), any deposits, and what happens on late payment.
One trap worth knowing: a late-payment fee or default interest rate must be a genuine pre-estimate of your loss, or protect a legitimate interest, or it risks being unenforceable as a penalty. In Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28, the High Court upheld the bank's late-payment fees because they were not out of all proportion to the bank's legitimate interest in recovering its costs. A modest interest rate on overdue invoices is usually safe; a flat fee that wildly exceeds your actual cost is not.
If you quote before you contract, state whether the quote is binding and how long it stays valid. A quote that is accepted, or acted on, can become part of the contract and bind you to pricing that no longer works.
When things need to happen
Timing terms should match how projects actually run. If clients routinely deliver late feedback or slow approvals, build the review periods and extensions into the contract rather than hoping for the best. Common timing terms include:
- commencement date
- milestones and delivery dates
- client review and approval periods
- automatic extensions for delays outside your control
For fast-moving businesses, agreeing to deadlines you cannot meet turns a performance issue into a breach, and gives the other side a termination right they would not otherwise have.
The risk terms: what happens when things go wrong
The promises each side makes (warranties)
Warranties are promises about facts or standards: that goods meet a specification, that services will be provided with due care and skill, that a supplier owns what it is selling. Be careful about warranting outcomes you cannot control. It is usually safer to warrant the standard of performance (how the work will be done) than to guarantee a commercial result such as sales or rankings.
There is one set of warranties you cannot contract out of. When you supply goods or services to a consumer, the ACL implies guarantees including that services are rendered with due care and skill, are reasonably fit for any disclosed purpose, and are supplied within a reasonable time (ss 60-62 of the ACL). By s 64 of the ACL, any term that purports to exclude, restrict or modify those guarantees is void. A limitation of liability clause that tries to exclude the consumer guarantees is not just commercially aggressive, it is legally ineffective.
How far liability goes
The limitation of liability clause sets the ceiling on what each party can be held responsible for. A well-drafted clause usually has three parts:
- a cap on total liability (for example, limited to the fees paid)
- an exclusion of indirect and consequential loss
- carve-outs that preserve liability for fraud, wilful misconduct, breach of confidentiality and the indemnities
This clause needs to match the risk profile of the deal. And if you use a standard form contract with consumers or small businesses, the unfair contract terms regime in the ACL applies. A term is unfair, and void, if it causes a significant imbalance in the parties' rights, is not reasonably necessary to protect the legitimate interests of the party relying on it, and would cause detriment (s 24 of the ACL). The regime covers contracts with businesses that employ fewer than 100 people or have annual turnover under $10 million (s 23(4) of the ACL). Since the 2022 reforms, proposing an unfair term, or relying on one, is a contravention that can attract penalties of up to $100 million for a company, or 3 times the benefit gained or 30% of turnover, and up to $2.5 million for an individual (s 224 of the ACL). A one-sided liability clause in your own template is now a compliance issue, not just a negotiation issue.
Indemnities: promises to cover the other side's losses
An indemnity is a promise by one party to cover specific losses of the other, regardless of the ordinary rules of breach and causation. Indemnities can be fair, but they are also where overreach lives. Watch for:
- indemnities that apply even when the other party contributed to the loss
- indemnities covering "all loss" with no cap and no exclusions
- IP infringement indemnities that leave you liable for content or tools you did not create
If you are asked to give a broad indemnity, negotiate the scope, add exclusions for the other party's own conduct, cap it, and check your insurance actually covers it. An indemnity you cannot insure is a liability you are carrying yourself.
The operational terms: keeping the deal workable day to day
Variations: how changes are agreed
Projects change, and a variations clause decides who pays for the change. The clause should require variations to be in writing, approved by a nominated representative, and priced before work begins. Without it, small tweaks accumulate into unpaid work and scope creep becomes a relationship issue.
The ACL's examples of potentially unfair terms include clauses that let one party unilaterally vary the terms of the contract, or vary the upfront price without giving the other party a right to terminate (s 25 of the ACL). If your template lets you change scope or price at will, give the other side notice and a way out.
Who owns the intellectual property
For businesses paying a contractor to build software, a website, branding or content, this clause matters more than almost any other. Under the Copyright Act 1968 (Cth), the author of a work owns the copyright in it (s 35). An employee who creates work under a contract of service creates it for the employer, but an independent contractor does not: absent an assignment, the contractor you paid owns what they built for you.
Two drafting points follow:
- Assignment: an assignment of copyright has no effect unless it is in writing signed by or on behalf of the assignor (s 196(3) of the Copyright Act 1968 (Cth)). A handshake deal, an email exchange or a statement in a proposal is not enough.
- Licences: separate the ownership of new IP from the licence to use background IP, so each party can keep using what they brought to the project.
Check that the contract also deals with IP that is not copyright, such as business names and trade marks, which are separate registrable rights.
Confidentiality and data
Confidentiality clauses protect pricing, customer lists, source code, product roadmaps and internal processes. Make sure the obligation covers both parties, survives termination, and has sensible exceptions such as information already public or required to be disclosed by law.
If the contract involves personal information, the Privacy Act 1988 (Cth) regulates how that information is collected, used and disclosed. Cross-border disclosure and data security should be addressed in the contract rather than assumed.
How long the contract lasts, and how it ends
The term clause decides how long your obligations, and your revenue, continue. Contracts are either fixed term (ending on a date unless renewed) or ongoing (continuing until terminated). For a growing business, long fixed terms can lock you into arrangements you outgrow.
On renewal, automatic rollover can be convenient, but a clause that renews the contract without the other party's consent, or with a notice period designed to be missed, is on the ACL's list of potentially unfair terms (s 25 of the ACL). If the contract auto-renews, make the notice period realistic and the renewal pricing clear.
Termination rights usually cover three situations:
- termination for convenience (ending without fault, on notice)
- termination for breach (often after a cure period)
- immediate termination for serious problems (non-payment, insolvency, breach of confidentiality)
Check what survives termination. Confidentiality, warranties, indemnities and dispute clauses often need to continue after the relationship ends.
How disputes are resolved
A dispute resolution clause sets the steps before court: usually a written notice, then negotiation between nominated people, then mediation, and only then litigation or arbitration. Keep the steps concrete. The NSW Court of Appeal has held that an obligation to negotiate in good faith can be enforceable where the clause is sufficiently certain (United Group Rail Services Ltd v Rail Corporation NSW [2009] NSWCA 177), so a bare "the parties will try to resolve disputes" is weaker than a clause with named people, timeframes and a mediation provider.
The clause should also name the governing law and jurisdiction. Without it, a dispute can open with an argument about which state's courts hear the matter, before anyone reaches the merits.
Clauses worth adding when the situation calls for them
Not every contract needs every clause, but these earn their place in specific situations:
- Entire agreement: worth including when there have been quotes, emails and pre-contract discussions, so only the signed document counts.
- Force majeure: worth including when supply chains, natural events or third-party failures could stop performance through no fault of either side.
- Director's guarantee: worth requesting when the counterparty is a newly formed company with little capital, so the owners stand behind the entity's obligations.
- Non-solicitation: worth including when the real value of the deal is key staff or client relationships that could walk away.
- Assignment and subcontracting: worth clarifying when you plan to scale using subcontractors, while noting that a term allowing one party to assign the contract to the other's detriment without consent is on the ACL's list of potentially unfair terms.
How an Artificer Legal lawyer would review your contract
An Artificer Legal practitioner would read the contract in a particular order. First the commercial terms: are the parties right, is the scope precise, does the payment and timing structure work for how you actually operate? Then the risk terms: we would push back on uncapped indemnities, on liability clauses that operate only in one direction, and on caps that try to exclude the consumer guarantees, which are void regardless of what the contract says. We would insist on carve-outs for fraud, wilful misconduct and breach of confidence, and on an IP clause that assigns new IP in writing under s 196(3) of the Copyright Act 1968 (Cth).
Then we would check the template against the unfair contract terms regime. If you send the same form to every client, it is likely a standard form contract, and the ACL presumes it is unless the other party proves otherwise (s 27 of the ACL). That means plain language, transparency, balanced termination and variation rights, and no surprise auto-renewals. Finally, we would verify the counterparty: who signs, who pays, and what assets stand behind the promises.
The clause that decides what a dispute is worth
The limitation of liability clause is where contract disputes are most often won and lost. Drafted too aggressively, it is void: against consumers it collides with the consumer guarantees, and in standard form contracts with consumers or small businesses it risks being an unfair term with penalties attached. Drafted too loosely, or omitted, it leaves your business exposed to claims for the full value of everything that goes wrong, including losses far beyond the contract price. The cap and the carve-outs are, in practical terms, what a dispute is worth.
The rest of the contract supports that clause. A precise scope and a variations process stop disputes from starting, a written IP assignment stops you paying for work you do not own, and clean payment, renewal and dispute terms keep the relationship predictable. If you are about to sign a contract, or about to send your own template out, these are the clauses to check first.