Commercial Contracts in Australia | Guide to Business Contracts

This guide explains how Commercial Contracts work in Australian businesses, the main types of Commercial Contracts, the clauses that can affect your legal and financial position, the best way to manage risk under a Contract and when a contract should be drafted or reviewed by a Commercial Contract Lawyer like Rachelle Hare.

Commercial Contracts in Australia

Commercial Contracts govern the relationships businesses rely on every day. They cover what is being bought, sold or provided, how much will be paid, when each party must perform its obligations and what happens if the arrangement does not go to plan.

The contract may be a 50-page negotiated agreement or a set of Terms and Conditions attached to a quote. It might be a set of Business Legals on your website or govern a one-off transaction or a business relationship that continues for years. Either way, the wording is important to get right, because the contract determines the legal rights and obligations of the parties and is enforceable by the other party in court. Even if the contract is not in writing.

Unfortunately, some Commercial Contracts are badly drafted and can cause a lot of difficulty for the parties. Conversely, a Commercial Contract can be legally sophisticated and well-drafted but still be difficult for the business to use.

The scope may not match the price mechanisms. A payment clause may affect cash flow and send a business insolvent. Staff may not know about notice requirements and may not have training on how to properly administer the contract. A liability provision may expose the business to losses far beyond the value of the contract, and there may be no limitation of liability clause and no provision for the type of insurance that may have protected the business.

There are a number of clauses and indicators that you should look for before entering a Commercial Contract, and it’s essential that you know how the agreement will work once it is signed. If you need training, a refreshing or upskilling, Rachelle Hare would be happy to help, simply get in touch on (07) 3063 3373.

And if you need a business contract or commercial agreement drafted, reviewed or negotiated, or advice or administration help for the contract, our Commercial Contract Lawyer services provide fixed-fee legal assistance that you can use whether you are in Brisbane, Qld, NSW, VIC and across Australia.

What Is a Commercial Contract?

A Commercial Contract is a legally binding agreement governing a commercial relationship or transaction. Commercial Contracts can be made between companies, partnerships, sole traders, customers, suppliers, consultants, contractors, distributors and other parties. They can deal with the sale of goods, provision of services, licensing of Intellectual Property, business ownership, confidentiality, distribution arrangements and a wide range of other commercial relationships.

Each contract records what the parties have agreed. More importantly, it determines what each party is legally required to do and what rights may arise when something changes or goes wrong.

That makes the contract part of the commercial deal, not just paperwork to be dealt with after the deal has been negotiated. It’s for this reason that we consider contracts such an important part of your business operations overall.

What Are the Main Types of Commercial Contracts?

There is no single form of Commercial Contract. The appropriate agreement depends on the transaction and the relationship between the parties.

Common Commercial Contracts include:

• Service Agreements
• Supply Agreements
• Consultancy Agreements
• Contractor Agreements
• Terms and Conditions of Trade
• Distribution Agreements
• Agency Agreements
• Confidentiality Agreements and NDAs
• Intellectual Property Licences
• Software and technology agreements
• Procurement agreements
• Joint Venture Agreements
• Shareholders Agreements
• Partnership Agreements
• Loan Agreements
• Plant and equipment agreements
• Commercial Leases
• Business sale agreements.

A business can have one, several or dozens of commercial agreements operating at the same time. A construction company, for example, might be performing work under a Construction Contract while also operating under Supply Agreements, Plant Hire Agreements, Consultancy Agreements, multiple Software Contracts and Licences and a Commercial Lease.

The correct contract depends on what the parties are actually doing. Changing the heading on an old precedent does not necessarily turn it into the right agreement for a different transaction, and this is important to keep in mind if you draft your own contracts within your business.

What terms Should a Commercial Contract Include?

The terms required in a Commercial Contract depend on the transaction, but several issues arise regularly.

The contract should clearly identify the parties and describe what each party is required to provide. Pricing, payment and the scope of goods or services need to work together so there is no unexplained gap between what one party expects and what the other has priced.

Depending on the arrangement, the contract may also need to address:

• scope and deliverables
• pricing and payment
• GST
• contract term
• renewal
• performance standards
• changes to the scope
• warranties
• indemnities
• exclusions and limits of liability
• insurance
• Intellectual Property
• confidentiality
• privacy and data
• subcontracting
• assignment
• restraints
• suspension
• termination
• consequences of termination
• dispute resolution
• governing law.

Adding more clauses does not necessarily make the contract stronger, it all depends on how those clauses are drafted and the purpose for which the clauses are inserted. Each agreement needs only the provisions that are necessary for that particular deal or transaction, drafted so they work together as a whole.

The Contract Needs to Match the Commercial Deal

One of the first things to check is whether the final contract actually records the deal the parties think they have made.

This risk often develops during negotiations. A proposal contains one scope. Pricing is prepared using particular assumptions. Discussions with the customer change parts of the arrangement. A formal contract then arrives containing its own scope, schedules and standard terms.

By signing the contract, the business can end up accepting obligations that were never included in its original price.

The review therefore should not always start and finish with the legal clauses. Where relevant, the contract needs to be checked against the proposal, scope, pricing assumptions and other documents that form part of the transaction.

Scope Problems Can Become Pricing Problems

Scope clauses deserve particular attention because they determine what the agreed price buys.

A fixed price means very little unless the parties can identify what is included in that price. Broad descriptions such as everything “necessary” or “incidental” to the services can expand the work the supplier is expected to perform without increasing what it can charge.

There can also be inconsistencies between the main agreement, schedules, specifications, proposals and other incorporated documents. The contract should establish how those documents interact and what happens if they conflict.

A scope issue that looks minor during negotiation can become expensive once additional work is required and the parties disagree about whether it is already included.

Payment Terms Affect More Than When an Invoice Is Due

Commercial Contract payment clauses can determine when an invoice can be issued, what information must accompany it, how long the customer has to pay and whether amounts can be withheld or set off.

These provisions need to be read together.

A headline term of “30 days” may not mean payment occurs 30 days after the work is performed. The contract may first require completion of a milestone, acceptance of a deliverable or submission of particular supporting documents before the payment period even starts.

That can have a direct effect on cash flow, particularly where the business incurs labour, supplier or other costs well before it receives payment.

Indemnities and Liability Clauses Need to Be Read Together

Indemnities receive a lot of attention in Contract Reviews, but an indemnity should not be considered by itself.

The contract may also contain warranties, exclusions of liability, liability caps, insurance requirements and provisions dealing with consequential or indirect loss. Those clauses can interact.

A liability cap is particularly important. Businesses sometimes assume that because a contract contains a cap, every liability under the agreement is limited to that amount. The contract may exclude particular liabilities from the cap or apply different limits to different types of loss.

The practical question is not simply whether the agreement contains an indemnity or liability cap. It is, what could the business be liable for under the contract, and how much of that exposure is genuinely limited?

Insurance Does Not Automatically Match Contractual Liability

A business should not assume that every liability it accepts under a Commercial Contract will be covered by insurance. The contract and insurance policy are separate documents. A business can agree to an indemnity, warranty or other contractual obligation that goes beyond the cover available under its insurance policies.

This is particularly relevant where the contract requires unusual indemnities, assumes liability that may not otherwise exist or requires specific insurance arrangements.

Contractual liability and insurance therefore need to be considered separately. Signing a contract does not change the terms of the insurance policy.

Intellectual Property Ownership Should Be Deliberate

Commercial Contracts frequently deal with Intellectual Property created or used during the relationship. The contract should distinguish between Intellectual Property that existed before the agreement and Intellectual Property created while performing it. It should also establish whether ownership transfers or whether one party simply receives a licence to use it.

This can become commercially significant where a consultant, technology provider or service business uses its existing systems, methodologies, templates or other materials to perform work for customers.

A broadly drafted Intellectual Property clause can transfer more than the parties intended if these distinctions are not made clearly.

Termination Rights Can Change the Value of the Contract

Termination provisions tend to receive less attention when everybody expects the relationship to succeed. They become considerably more important when cracks appear between the parties to the contract.

The agreement should address when each party can terminate, whether a breach must first be remedied, how much notice is required and whether either party has a right to terminate without default. The consequences also matter. The contract may determine what happens to outstanding payments, work in progress, confidential information, Intellectual Property, customer data and other obligations after termination.

For long-term agreements, termination rights can materially affect the commercial value of the deal.

Automatic Renewals Need to Be Managed

Some Commercial Contracts renew automatically unless a party gives notice within a particular period. That can be convenient where both parties want the arrangement to continue. It can also result in another contractual term commencing because nobody recorded the notice date.

Businesses using contracts with automatic renewals need a system for identifying those dates well before the notice period expires. The renewal provisions should also be checked for changes to price, minimum commitments and other obligations that apply during the new term.

A renewal clause is therefore both a drafting issue and a Contract Management issue.

What Is Commercial Contract Law in Australia?

Commercial Contract Law governs how business agreements are formed, interpreted, performed, varied, terminated and enforced. Australian Commercial Contracts can be affected by the common law as well as legislation. The applicable law depends on the contract, the parties and the transaction.

Issues can include whether a binding contract was formed, what terms form part of the agreement, how those terms should be interpreted, whether a party has breached the agreement and what rights or remedies arise as a result. Consumer protection legislation can also apply to business transactions in circumstances covered by the Australian Consumer Law. 

For a more detailed explanation of the legal principles, see our Commercial Contract Law guide.

Unfair Contract Terms Can Apply to Business Contracts

Businesses using or signing standard form contracts also need to consider Australia’s Unfair Contract Terms regime. The protections are not limited to individual consumers. They can apply to qualifying standard form small business contracts.

Since 9 November 2023, the Australian Consumer Law regime has applied to a broader range of small business contracts and introduced penalties for proposing, using or relying on prohibited Unfair Contract Terms. The current small-business threshold includes businesses employing fewer than 100 people or having annual turnover below $10 million.

That makes Unfair Contract Terms particularly relevant when businesses prepare or regularly use standard Terms and Conditions, Service Agreements, Supply Agreements and other repeated contract forms.

Template contracts in your business should not be used automatically

It’s a big risk to keep a template contract for use in your business without updating it at least every 12 months. Rachelle can help you with this if needed.

Often, the use of template contracts changes operationally between different transactions. One staff member may change a clause for a particular customer. Another person may copy that version for the next transaction. A negotiated amendment finds its way into the supposedly standard template. Several years later, different staff are using different versions saved on their hard drives and nobody is quite sure which is current. Legislation and the business itself can also change while the original template contract remains untouched.

Businesses that rely heavily on standard agreements should periodically check not only the legal terms but also which templates are actually being used across the business.

A Good Contract Can Still Be Poorly Administered

Signing is only the start of the contract. The agreement might require written approval before additional work begins, but the operational team accepts verbal instructions. It may require invoices to include particular information that Accounts Receivable does not know about. Notices may need to go to a nominated address while employees communicate exclusively with their normal business contact.

These are often gaps between the written contract and the way the business operates rather than drafting defects.

Where a contractual right depends on following a process, the people responsible for the contract need to know that process exists. This is an area where Rachelle Hare’s experience as both a Commercial Lawyer and Commercial Manager affects how Blaze Business & Legal approaches contracts. Rachelle can provide training to your staff to help them administer their contracts more robustly.

Should You Use a Commercial Contract Template?

A Commercial Contract template can be useful where a business repeatedly enters substantially similar transactions. But a problem arises if the business uses a template for a transaction it wasn’t designed to cover. Often, the staff don’t realise that this template will not work for the planned transaction.

A Service Agreement drafted for one business may contain the wrong payment structure, Intellectual Property provisions, insurance requirements or liability allocation for another. Downloaded contracts can also contain terminology, legislation and legal concepts from another jurisdiction.

If a business enters similar agreements regularly, having an appropriate standard contract or suite of templates can be more efficient than starting from scratch each time. The template should still identify which terms need to be changed for each transaction and which provisions should not be altered without review.

When Should a Commercial Contract Be Reviewed?

A Commercial Contract should generally be reviewed before signing where the value, duration, obligations or potential liability justify legal review. Review can be particularly useful where:

• the other party drafted the agreement
• the contract value is significant
• the relationship will continue for a substantial period
• the business accepts material liability
• the agreement contains broad indemnities
• liability is unlimited or exclusions from a cap are significant
• valuable Intellectual Property is involved
• the pricing or scope is complex
• the agreement contains minimum commitments
• termination rights are restricted
• the business has not used that form of agreement before.

The appropriate level of review should reflect the contract. A routine low-value agreement does not necessarily justify the same work as a long-term agreement capable of materially affecting the business.

What Does a Commercial Contract Lawyer Review?

A Commercial Contract Lawyer can review the agreement to identify the obligations being accepted, legal risks and provisions that should be negotiated before signing. Depending on the agreement, that may include scope, payment, liability, indemnities, insurance, Intellectual Property, confidentiality, privacy, performance requirements, warranties, renewal, termination and dispute provisions.

The review should also consider how the clauses interact. A payment provision cannot properly be assessed without understanding the scope and performance requirements. A liability cap needs to be checked against indemnities and exclusions. A termination clause needs to be considered against the contract term and financial commitments.

Blaze Business & Legal provides Commercial Contract Lawyer services for businesses requiring contract drafting, review, amendments, negotiation or advice.

Legal Contract Review and Commercial Review Are Not the Same Service

A Legal Contract Review examines the agreement and the legal rights, obligations and risks it creates. A Commercial Review goes further into the commercial operation of the deal. Depending on its scope, that may include pricing assumptions, margin, cash flow, scope alignment and whether the business has properly allowed for the obligations it proposes to accept.

Blaze Business & Legal offers Commercial Review as a separate additional service where a client wants that deeper analysis. It is not automatically included as part of a Legal Contract Review.

This distinction is particularly relevant to larger or more complex agreements where a clause can be legally acceptable but still produce a poor financial or operational result.

Commercial Contracts for Construction Businesses

Construction businesses operate under far more than Construction Contracts. A Contractor may perform a project under an AS 4000-1997, AS 2124-1992, Subcontract or bespoke project agreement while also operating under Supply Agreements, Plant Hire Agreements, Consultancy Agreements, software contracts, Commercial Leases and other Commercial Contracts.

Those agreements can affect the construction operation directly. Supplier payment terms affect project cash flow. Plant arrangements affect delivery. Consultancy Agreements can affect responsibility for design. Software and licensing contracts can affect the systems used to manage projects.

Blaze Business & Legal advises Contractors, Subcontractors, Suppliers and Consultants on both Construction Contracts and the broader Commercial Contracts required to run their businesses.

Commercial Contract Drafting, Review and Negotiation

Businesses generally seek legal assistance with Commercial Contracts at one of three stages.

1. Contract Drafting is required where the business needs a new agreement or a suitable standard contract for repeated transactions.

2. Contract Review is required by an experienced Contract Review Lawyer where an agreement has already been prepared, commonly by the other party, and the business needs to understand what it is being asked to sign.

3. Contract Negotiation is needed to change terms of the contract before the parties can agree to execute.

Blaze Business & Legal provides each of these services separately or together depending on what our client requires.

Commercial Contract Lawyer for Brisbane and Australian Businesses

Rachelle Hare is a Commercial Lawyer, Construction Lawyer and Commercial Manager with more than 25 years’ experience in legal and commercial roles. Her background includes private legal practice, General Counsel, Contracts Management and Commercial Management. That combination is particularly relevant to Commercial Contracts. As well as understanding what a draft contract says, or drafting or negotiating Commercial Contracts, businesses also need to understand what the agreement requires operationally and what the commercial risk and consequences may be.

Blaze Business & Legal provides Commercial Contract drafting, review, negotiation and advice to businesses in Brisbane, Queensland and across Australia.

If you need advice on a particular agreement, visit our Commercial Contract Lawyer service page or contact Rachelle Hare for a fixed-fee quote.

FAQs about Commercial Contracts

1. What is a Commercial Contract?

A Commercial Contract is a legally binding agreement governing a business transaction or commercial relationship. A Commercial Contract commonly sets out what each party must provide, the price and payment arrangements, responsibilities, liability, Intellectual Property rights, confidentiality, termination rights and what happens if obligations are not performed.

2. What are examples of Commercial Contracts?

Examples of Commercial Contracts include Service Agreements, Supply Agreements, Consultancy Agreements, Contractor Agreements, Terms and Conditions, Distribution Agreements, Confidentiality Agreements, Intellectual Property Licences, Joint Venture Agreements, Shareholders Agreements and Partnership Agreements. The appropriate agreement depends on the transaction and the relationship between the parties.

3. What should be included in a Commercial Contract?

What should be included in a Commercial Contract depends on the transaction, but common provisions deal with scope, price, payment, performance, warranties, liability, indemnities, insurance, Intellectual Property, confidentiality, changes, termination and disputes. The provisions also need to work together rather than being considered as isolated clauses.

4. Does Australian Consumer Law apply to Commercial Contracts?

Australian Consumer Law can apply to Commercial Contracts where the statutory requirements are satisfied. This includes provisions concerning misleading or deceptive conduct, consumer guarantees and the Unfair Contract Terms regime, although whether particular protections apply depends on the transaction and parties involved.

5. Can Unfair Contract Terms laws apply between two businesses?

Unfair Contract Terms laws can apply between businesses where an agreement falls within the standard form small business contract regime. Businesses using standard contracts should therefore consider whether their terms fall within the Australian Consumer Law provisions rather than assuming the regime only protects individual consumers.

6. Should a Commercial Contract be reviewed before signing?

A Commercial Contract should generally be reviewed before signing where its value, duration, obligations or potential exposure justify legal review. Reviewing the agreement before execution gives the business an opportunity to understand the obligations it will accept and negotiate unacceptable provisions while changes can still be agreed.

7. What is the difference between a Commercial Contract and a Construction Contract?

A Commercial Contract is the broader category of agreement used in business transactions, while a Construction Contract specifically governs construction work or related services. Construction businesses commonly use both, with project work governed by Construction Contracts and other business relationships governed by Supply Agreements, Consultancy Agreements, leases and other Commercial Contracts.

8. Can a Commercial Contract Lawyer draft standard contracts for repeated use?

A Commercial Contract Lawyer can draft standard agreements for businesses that regularly enter similar transactions. The contract should reflect the way the business actually operates and clearly identify the transaction-specific information that needs to change each time it is used.

9. What is the difference between a Legal Contract Review and Commercial Review?

A Legal Contract Review examines the legal terms, rights, obligations and risks created by the agreement, while a Commercial Review can separately examine issues such as pricing, margin, cash flow, scope and operational exposure. At Blaze Business & Legal, Commercial Review is a separate additional service and is not automatically included with a Legal Contract Review.

10. When should standard Commercial Contracts be updated?

Standard Commercial Contracts should be reviewed when the business, its services, pricing model, contractual risks or relevant law changes, and periodically where the same templates have been used for a long time. A review can also identify version drift where employees have been using different or individually amended copies of what was intended to be one standard agreement.

Need Help With a Commercial Contract?

Blaze Business & Legal provides Commercial Contract drafting, review, negotiation and legal advice for businesses in Brisbane and across Australia.

If you have received a contract you need reviewed, need a new agreement drafted or want advice about an existing Commercial Contract, contact Rachelle Hare for a fixed-fee quote or call her direct on (07) 3063 3373.