What does the new 'Unfair Terms Act' mean for subbies?
16 November 2016

With the commencement of the Unfair Terms Act on 12 November 2016, construction contracts enter a new phase of negotiation. Touted for its ability to protect the Aussie Battler, will the Act live up to the Government’s hype?

To what does the new legislation apply?

‘standard form’ contracts

‘small businesses’, i.e. businesses employing fewer than 20 people, not including casuals unless they are employed on a regular basis

contracts worth no more than $300,000; or contracts longer than 12 months, worth no more than $1,000,000.

What are potentially Unfair Terms?

A contract term is deemed unfair if it:

causes a significant imbalance in parties’ rights and obligations

is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and

would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

Will the Act actually help small businesses?

Total Construction spoke to solicitor, Glenn Crisp, from Crafers Law, about the impact of the new legislation on small business. We were convinced it would help subbies gain more negotiating power. Glenn’s answers surprised us, to say the least.

“Even though the Act is supposed to give the little guy a fair go,” said Glenn, “I believe it is actually going to create difficulties. For instance, if a subcontractor believes a term is ‘unfair’, they have to go to court to have it declared void. That will cost $50,000 to $80,000 at least. Many trades won’t have the money to spend on expensive court processes.”

And what if the issue is about the fairness of a standard-form term allowing the contractor to terminate the relationship with a subcontractor, providing the subbie is paid for materials, work to date and a percentage of profit they would otherwise have earned? “If the financier cans the job, the contractor is terminated anyway. How can the courts deem it unfair for the contractor to terminate the relationship with the subcontractor?” If the contractor fails to meet its payment obligations, Glenn points specifically to the Security of Payment legislation which – leaving aside WA where it’s a more time-consuming process – already provides a cheap and quick process to ensure payment.

Under the new Act, contractors can no longer take advantage of the take-it-or-leave-it tender process by selecting those subcontractors most amiable towards their terms. At first glance, this seems like a good thing, right? “It will actually require the contractor to spend much more time reviewing the list of terms prior to, or at engagement of, the subcontractor,” said Glenn. “Additionally, each time a subcontractor attends a pre-engagement interview, it could take a number of hours rather than, say, 20 minutes. These obligations will increase both the contractor’s and subcontractor’s administrative burden, and may lead contractors to only deal with small businesses on minor works or purchase orders. Unfortunately, when there’s more involved work, contractors will probably use bigger businesses to cut down on cost and admin. And how does that help the subbie?”

So what is Glenn’s advice to subbies wanting to navigate a way forward and avoid losing business? “The best approach is for them to become more educated about standard-form contracts, so they can work with their contractors to make the process as easy as possible for both parties.”

Protecting our subbies from unfair practises is important. What’s your opinion of the new legislation? Let us know in the Comments, below.