Draft legislation to strengthen unfair contract terms for small business

01 October 2021 | National

AMCA has provided a submission to the federal government regarding a draft Bill to strengthen unfair contract term (UCT) protections for consumers and small businesses.

The Bill would amend both the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 to improve consumer and small business confidence when entering into standard form contracts by reducing the prevalence of unfair terms.

In the submission, AMCA noted that the legislative intent of the unfair contract term protections is arguably more crucial for subcontractors operating in the building and construction industry than perhaps any other sector. 

As a result, we welcomed many of the amendments in the exposure draft legislation, which we believe will provide vastly improved protections for eligible businesses captured under the legislation. 

In particular, we strongly support the following changes:

  • Increasing the headcount threshold for small business definition
  • Removing the contract value threshold for the definition of a small business contract 
  • Ensuring that repeat usage of a contract must be taken into account by a court when determining whether a contract is a standard form contract. 
  • Setting out matters that the court must not consider when determining whether a party was given an effective opportunity to negotiate the contract. 
  • Providing clarity for determining whether a contract is a standard form contract.

However, despite the above improvements, the proposed $10 million turnover threshold will continue to prevent many specialist subcontractors from accessing protections under the Act.

In our earlier submissions regarding the same legislation, the AMCA highlighted that the high labour intensity and capital costs associated with commercial building activities mean that turnover is not indicative of a business’s size, profitability, legal capacity, or negotiating power.  

In fact, the hypercompetitive nature of commercial building projects, whereby projects are typically awarded via a competitive tendering process, has resulted in the ‘commodification’ of specialist subcontractors with two crucial implications for the fair negotiation of contractual arrangements.

Firstly, it serves to erode the negotiating power of specialist contractors who can be replaced with another bidder should they seek to push back against unfair contract terms.

Secondly, it serves as a disincentive for specialist contractors to engage expensive legal advice due to the material impact on price competitiveness and overall project profitability.

With this in mind, the AMCA submission encouraged the government to raise the annual turnover threshold to $50 million, citing the recent JobKeeper legislation as a comparative example.