Head Contractors take note:

From 12 November 2016 “unfair terms” in small business subcontracts will be void! 

Recent changes to the Australian Consumer Law mean that as from 12 November 2016,  subcontracts let by head contractors to small subcontractor businesses may be considered void on the basis that certain terms are considered to “unfair”.

Small businesses under the proposed changes to the Australian Consumer Law are businesses that employ less than 20 people and the protections under the legislative changes are limited to subcontracts that are to the value of:

  • $300,000 or less if the term of the contract is 12 months or less; or
  • $1,000,000 or less if the term of the contract is more than 12 months.

Whilst the construction industry is not directly referred to in the proposed legislative changes, let alone any other industry, there should be little doubt that it has broad application and that the protections will apply to all small subcontractors.

The Australian Consumer Law provides some guidance as to what ‘unfair’ means. A term is ‘unfair’ if:

  • it causes significant imbalance in the parties’ rights and obligations;
  • it is not reasonably necessary in order to protect the advantaged party; and
  • it causes detriment (whether financial or otherwise) to a party.

While ‘unfair’ terms will become void other terms of the subcontract that are ‘fair’ will continue to apply. 

It is not uncommon for head contractors to let standard form subcontracts or bespoke subcontracts with the expectation that the subcontractor must execute the subcontract in order to ‘win’ the job (without the opportunity to negotiate or amend the subcontract terms).

This pattern of behaviour will soon carry a real risk that ‘unfair’ terms in the subcontract will become void and will not bind the parties. 

While the amendments to the Australian Consumer Law are yet to be tested, head contractors should seek legal advice as to any revisions that may need to be made to their standard form subcontracts to address these amendments.

Building and construction law can be complex.