Most players in the engineering space are familiar with standard form contracts (SFC), whether they are the local Australian Standard versions or the international FIDIC suite of contracts.
Most players also know that these contracts are skewed in favour of the upstream entity, often to the detriment of the downstream contractor/subcontractor.
However, notwithstanding that life itself is neither balanced nor fair, the parties to a standard form contract always have the choice of not accepting the terms and conditions, and walking away from the contract if the other entity refuses to budge. This is basically the position adopted by our Superior Courts, so no change there.
This means that if you’re currently in one of those skewed standard form contracts, you’ve basically accepted the risks attached to the terms and conditions, most of which have the potential to bankrupt you, and some of which might actually succeed.
Relevant to the current time period of 2015, here in the engineering space in Australia, the Federal government is seeking to amend the Australia Securities and Investment Commission Act 2001 (ASIC Act) and the Competition and Consumer Act 2010 (CCA) to include small businesses in protecting them from unfair contract terms, along the existing lines of protection available to consumers. Not unexpectedly, big business is fighting back against these changes.
A term will be considered unfair if it:
- Causes significant imbalance in the rights and obligations of the parties
- Would cause detriment, either financially or otherwise, to a party if enforced
- Isn’t reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term
I suggest that there could be no argument that all three of these points apply to a standard form contract.
As the changes are an extension of the current consumer protection, the examples currently provided in the existing provisions provide some guidance on what may be found to be unfair. These examples include terms that:
- Permit one party, but not another, to terminate, vary or renew the contract unilaterally
- Permit the price payable to be varied by one party without the need for agreement or right to terminate by the other
- Levy excessive fees or penalties for termination or impose excessive penalties on outstanding payments
- Create an automatic rollover of the contract
- Affect or limit a party’s ability to recover for a breach by the other party.
Referencing the existing terms within the CCA, again each of these individual points is applicable to a standard form contract.
So one could be excused from thinking that finally, 800 years after the original Magna Carta was signed to bring fairness in all contracts to the land from the evil monarchy and despotism that prevailed, our Federal government has woken up to the reality that the industries affected by standard form contracts need to be protected. The reality, unfortunately, is somewhat different.
Firstly, should these changes become enshrined in law, they will only capture small businesses of fewer than 20 employees and for contracts that are less than $250,000 over a 12-month period. Whilst we should be extremely happy for these small businesses, what about the rest of the industry?
Furthermore, for any party to protect their rights and interests under law, even under the proposed new laws, they have to engage in litigation through the Courts. This is a very costly and time consuming exercise, and itself skewed very unfavourably toward the upstream entity, who most of the time is financially more robust than the contractor/subcontractor.
Would the industry not benefit more if the following were proposed?
- That the ACCC be appointed as the Arbiter of Contracts, much the same as the Fair Work Commission vets and approves EBAs
- That each and every construction contract, excluding maintenance and renovations below a specified amount, must be submitted to the ACCC for approval
- That each contract have a non-restrictive dispute resolution clause allowing for immediate access to alternative dispute resolution facilities, as well as the automatic right of any party to enforce their rights under the contract through the Courts.
Why should the government seek to protect one sector of the industry – the small business doing small projects – when the same risks and unconscionable terms and conditions are being imposed across the industries on all the players?
I respectfully submit that our industry has sufficient laws at the moment to bring reasonable fairness to all contracts for the time being. Amendments and fine tuning of existing law is already ongoing. What is sorely lacking is an independent regulator that in the first instance balances the playing field by approving or rejecting standard and other form contracts, and then enforcing the rights of the parties without the need to resort to litigation.
As always, risk safely!