Standard form contracts: what you need to know

This article first appeared in the June 2022 issue of ProPrint, authored by PVCA’s Charles Watson

Renowned business guru Warren Buffet wisely said, “It is impossible to unsign a contract, so do all your thinking before you sign”.

As a business owner, negotiating contracts is an essential part of your operations. However, how often are you placed in a situation with a supplier who hands you a standard form contract? Standard form contracts are pre-drafted agreements that are offered by one party to another party. These contracts are typically presented on a “take-it-or-leave-it” basis, meaning that the other party has little opportunity to negotiate the terms of the agreement.

As a business owner, negotiating contracts is an essential part of your operations

Standard form contracts are commonly used in a variety of settings. Some examples include terms and conditions agreements for the provision of online services or software, rental agreements for commercial property, equipment leasing, and related supplier agreements. Although standard form contracts are a cost-effective option when conducting business, as they avoid the transaction costs associated with negotiated contracts, consumers and small businesses often lack the resources and bargaining power to effectively review and negotiate the terms in standard form contracts.

To protect your business interests when dealing with suppliers offering up such contracts, there are several steps you can take.

  1. Understand the Terms
    It’s important to carefully review any contract before signing it. This means reading through the entire agreement, even the fine print. Look for any terms that may be unfavourable or that limit your legal rights, or that give the supplier unacceptable rights. If there are any provisions that you don’t understand, don’t hesitate to seek advice or guidance.
  2. Negotiate Where Possible
    Although standard form contracts are typically presented as a “take-it-or-leave-it” proposition, there may be some room for negotiation. If there are any terms that you find objectionable, consider negotiating with your supplier to see if they are willing to modify the agreement. For example, you may be able to negotiate the length of the contract or the termination provisions. If the terms are not agreeable, don’t sign it and find another supplier.
  3. Unequal Bargaining Power
    When reviewing a standard form contract, consider the bargaining power of both parties. If your supplier is a large corporation with significant market power, they may be more willing to negotiate. However, some large corporations have shown themselves to be less than accommodating with their clients. If you are a smaller business with limited market power, you may need to be more cautious about accepting the terms of the agreement and consider whether terms of the agreement are unfair.
  4. Watch for Hidden or Unfair Terms
    Standard form contracts may contain terms that are hidden or buried in the fine print and may be unfavourable to you if a dispute arises. Look for any provisions that limit your legal rights or restrict your ability to share information about the agreement. Examples include permitting one party to unilaterally vary the terms of a contract but not the other party, allowing one party to unilaterally vary the goods or the services supplied, and allowing one party to unilaterally determine whether the contract has been breached or to reinterpret terms of the contract. The expanding unfair contracts provisions within the Australian Consumer Law are now clearly being enforced by the ACCC, and in the appropriate cases the ACCC is commencing prosecutions.
  5. Seek Advice
    If you are unsure about the terms of a standard form contract or have concerns about signing it, consider seeking legal advice. An experienced lawyer can review the agreement and help you understand your legal rights and obligations. If a dispute arises, they can also help you negotiate with your supplier to ensure the agreement is fair and balanced. Here at the PVCA we have assisted members to overcome various commercial contract issues, advocated for members and shone a light on unscrupulous behaviours, and at times mediated beneficial outcomes.

While standard form contracts can be convenient and efficient, they often have shortcomings that can disadvantage the other party. The courts are full of disputes over the terms and operation of contractual terms. Getting things clear and correct from the outset will help avoid later disputes or provide clarity if a dispute arises. By keeping these considerations in mind, business owners can establish productive, effective, and mutually beneficial relationships with their suppliers.

Charles Watson
GM – IR, Policy and Governance, PVCA

This article is of a general nature and guidance only and does not constitute legal advice.

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