WHO SHOULD READ THIS

  • Industry participants (including government bodies) that contract with small businesses.

THINGS YOU NEED TO KNOW

  • The new regime takes effect on and from 12 November 2016. Industry participants (including government bodies) should be aware of the implications of the new regime. Government agencies will need to ensure compliance with the new regime to the extent the government body is carrying on a business (and otherwise contracts with small businesses).

WHAT YOU NEED TO DO

  • Government bodies will need to firm up whether the new regime applies to them. If so, government bodies will need to be in a position to comply with the new regime.

The new unfair contract terms regime will take effect on and from 12 November 2016. The new regime extends the current unfair contract terms provisions to small business contracts. For more information on the new regime please refer to our earlier publication available here.

Will the new regime apply to contracts with government bodies? In short, the answer is generally no (unless the government body is carrying on a business).

Background
The Australian Consumer Law (ACL) binds each government only in so far as it carries on a business. Generally, governments do not carry on a business in respect of almost all of their commercial activities (that is, principally procurement). There are several pointers as to whether government is carrying on a business:

  • acts which are purely governmental or mandated by statutory requirements will generally not be characterised as ‘carrying on a business’
  • solitary and irregular transactions carried out by government bodies will generally not be characterised as ‘carrying on a business’, and
  • it is unlikely that subcontracting to fulfil purely governmental purposes will be ‘carrying on a business’.

The Australian Competition and Consumer Commission (ACCC) has taken the view that the new unfair contract terms provisions will apply to contracts with a commonwealth, state or territory body to the extent that it is carrying on a business. The ACCC has further noted that a government body that engages in day to day procurement activities, but is not carrying on a business, will not be subject to the new regime.

Importantly, governments and statutory authorities need to be careful how they structure their operations and how they refer to their functions in their reports, public documents and even internal documents, as these documents can be used to demonstrate whether a government authority is ‘carrying on a business’.

Next steps for Government
If not already done, government agencies should firm up if and how the new unfair terms regime will apply to them. This is important from a risk governance perspective. Separately, suppliers and contractors to government may look to invoke the new regime when dealing with government. Accordingly, government bodies need to be in a position to respond to such issues.