Australia: Extending consumer protections for unfair contracts - what does this mean for the construction industry?

In brief - New legislation will provide protection for certain subcontractors

On 12 November 2016, the Treasury Legislative Amendment (Small Business and Unfair Contract Terms) Act 2015 came into effect. This Act extends the current Australian Consumer Law (ACL) consumer protections against unfair contract terms in standard contracts to small businesses. As this extension will impact almost all construction industry participants, we take a look at key terms which may be deemed to be unfair under the new legislation.

Unfair contracts protection regime to include small businesses

In the September edition of CBP Focus, Faith Laube and Andrew Murray explored how the then proposed changes to the ACL contract protection regime would affect contractors and the construction industry generally in their article Unfair contract terms targeted by new legislation.

By way of recap, the changes, which came into effect on 12 November 2016, aim to protect small businesses (being businesses with less than 20 employees) from unfair terms in standard form contracts. The legislation applies to contracts with small businesses with either:

  • an unadjusted price that does not exceed $300,000, or
  • a duration exceeding 12 months and an unadjusted price that does not exceed $1,000,000

Briefly, under the ACL a provision included within a standard form construction contract will be considered "unfair" if:

  • it causes a significant imbalance in parties' rights and obligations under the contract
  • it is not reasonably necessary to protect the legitimate interests of the advantaged party
  • it would cause detriment to the small business if relied upon

To assist in the identification of "unfair" contract terms, section 25 of the ACL provides a non-exhaustive list of 13 criteria that may be (but are not necessarily) unfair contract terms. This "grey list" includes provisions that permit one party to unilaterally avoid, terminate, renew or vary the contract, provisions that limit one party's vicarious liability or right to sue, and provisions that penalise one party but not the other for breach or termination of the contract.

Typical key terms found in standard form construction contracts which may be considered unfair

This article briefly examines some key terms typically found in "standard form" construction contracts that may potentially engage the unfair contract provisions of the ACL.

Time bars

Time bars in construction contracts usually stipulate that a contractor is only entitled to make a claim (for example, in relation to an extension of time, variation etc) if the contractor provides notice of the claim within a specified time period. Time bar provisions arguably fall under the ACL's grey list as "a term that limits, or has the effect of limiting, one party's right to sue another party".

In applying the three-step test as provided by the ACL, it is clear that time bar provisions would cause detriment to the contractor if relied upon. However, both contractor and principal have a "legitimate interest" in having claims swiftly considered, as delays in this context may impact the principal's ability to effectively determine the claim, as well as limiting the contractor's cash flow while waiting for the outcome of their claim. Much will depend on the reasonableness of the time allowed and the content of the notice to be given.

Arguably time bar provisions are reasonably necessary to protect the legitimate interests of both principal and contractor. However, this argument may be difficult to sustain if, as is usually the case, the time bar provisions burden the contractor and not the principal. In light of this, time bar provisions may be considered unfair under the extended ACL regime if the provision imposes a shorter time period than what is "reasonably necessary". Other relevant considerations in determining unfairness may also include the nature and extent of notification requirements and the purpose of the time bar.

Superintendent/Principal's discretion

The complex nature of the modern construction industry relies upon an administrative process that empowers the principal or superintendent, with unilateral discretion, to determine key issues on site, such as determining whether contractor work is defective or complete. However, despite this commercial reality, any term prescribing such powers likely falls under the grey list because it "is a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning".

Nonetheless, a principal has a legitimate interest in having decisions promptly executed (without contention) to ensure that the works can progress. However, given the significant imbalance that unilateral principal/superintendent terms can engender, it may be necessary to impose certain restrictions on this term (e.g. the superintendent must act honestly, fairly and reasonably) to ensure that this term isn't voided under the extended unfair contract regime. In essence, any term empowering superintendents/principals under the new unfair contract regime should not extend beyond what is reasonably necessary to protect the principal's legitimate interest.

Variation clauses

Any standard form construction contract that contains a unilateral variation clause will fall under the grey list as this provision is a "term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract". Despite this, the commercial reality of construction projects dictates the necessity for unilateral variation clauses in order to reasonably protect the principal's legitimate interest to complete the works in a manner that is appropriate for the principal.

Clearly unilateral variation clauses reflect the legitimate interests of the principal. However (perhaps because of this), there is a significant risk that such provisions may be considered as unfair, especially where the contractor is required to comply with a variation before a consensus as to the direction's consequences (including as to price and time) has been agreed to. Generally, contracts will provide for progress payments as the works proceed. However, many standard variation provisions effectively require the contractor to undertake potentially significant variation work with resolution of legitimate time and money entitlements left to final "wrap-up" or dispute resolution process. Such clauses effectively circumvent the concept of "progress" payment.

Where the inclusion of a variation direction provision is being considered in a standard form construction contract, the term's discretionary breadth should be considered, i.e. whether the term is restricted to the original scope of goods or services under the contract or is extended to entirely different goods or services. Further, to mediate against potential issues of significant imbalance between parties, mechanisms within the variation power to provide opportunities for the parties to negotiate or an independent third party to determine (even on an interim basis), potential variations and the relevant time and cost consequences should be considered.

Liquidated damages and extension of time provisions

Any liquidated damages provision that constitutes an overestimate of the principal's likely losses due to delay falls under the grey list as "a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract". In light of this, such terms may be considered unfair to the contractor. However, the extension of the unfair contracts regime is hardly of great utility to contractors in this context as disproportionate liquidated damages rates were already voidable at common law by virtue of their nature as a penalty.

In light of this, if the rate of damages is a genuine pre-estimate of the loss, one would be hard pressed to argue that such a clause is unfair as it would be reasonably necessary to protect the principal's legitimate interests from the costs associated with the contractor's breach of contract.

Extension of time (EOT) provisions generally provide that if works are delayed by the principal and/or the contractor, the contractor may be granted an additional equivalent period of time to complete the works. EOT provisions therefore effectively sidestep the effect of any delay caused by a party trying to recover the liquidated damages for failing to complete the works by the Date for Completion. However, it is likely that any attempt to restrict the operation of EOTs in favour of the principal may be considered to go beyond what is necessary to protect the principal's legitimate interest. For example, not allowing an EOT for separate contractor (who is under the control of the principal and not the contractor) causal delay, may be in that category.

Standard form construction contracts to small businesses should undergo risk assessment

The extension of the unfair contract protections to small businesses is bound to create a number of uncertainties. Therefore, it would be prudent to carry out a risk assessment on any standard form construction contract (indeed any construction contract) that may be used with a small business which either comes into effect, or will be renewed or varied on or after 12 November 2016.

Antony Riordan
Construction and engineering
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Colin Biggers & Paisley
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Colin Biggers & Paisley
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions