Works or services contract risks to beware

Contract risks are still risks to be considered

Part of my core service offering is Contract Reviews - I can read any contract you're asked to sign before you sign it, so I can make sure you're not signing your life away or accepting undue or unfair risks.

That's part of why I always say that you should think about risk not insurance products - it's better to avoid risks entirely than to accept them and try to cover the gaps with insurances.

Read the words not the numbers

The sad thing is that most insurance people merely look at the dollar numbers marked against insurance products when reading works contracts. I think that's a waste of time - anyone can compare the $10,000,000 public liability requirement against the $20,000,000 that you hold - there's no value-add in that review!

Instead, your risk adviser should be explaining (in plain English) what the contract requires of you, and what you're giving up in return for the contract fee. And if the risk isn't in line with the reward, I will help you adjust the contract and negotiate with your principal to make the matter fair for everyone involved.

So here's a quick précis on the most common issues we come across, and why each one is important:

1. Schedule and Services to match occupation

Firstly, the description of the works to be undertaken (or services to be provided) needs to match what you actually do!

• If the principal is overstating your service offering (e.g. calling you a "design and construct professional" when all you're actually doing is building to the plans provided), you'll be blamed for any error in the works outside your control.
• Or if the project describes you as "provision of temporary employees" when in fact you're subcontracting personally, you could run into problems with the principal trying to poach your staff.
• And lastly, your insurances won't be valid for the project, since you're insured for your actual occupation, not what you've been described as being.

2. Professional tradesman-like service, not perfection

Secondly, I check to make sure that the contract isn't requiring absolute perfection in your work. Australian courts have long recognised that quality is ephemeral and difficult to gauge. It would be unfair to expect absolute perfection in service or product delivery if you're not paying top-dollar for that service!

• No-one wants to think that they deliver anything short of excellence, but there can be disputes around side issues such as "cleanliness of work area post delivery".
• The topic of "professional tradesman-like service" can also be an issue for advisory or design services. At what point are you able to hand the project back to the principal for their decision? If your terms of engagement aren't clear, you could be disputed over not providing a turnkey solution.

3. Force Majeure

Thirdly, do you have an escape clause if you can't fulfil the contract for reasons outside your control?

• Without a broad force majeure clause, you might have to pay liquidated damages penalties to the principal, or engage third-party contractors to complete the work on your behalf.
• Contractors I might add who didn't win the project themselves in the first place - so now you're stuck with their higher rates and sloppier work, and you're on hook for all of their defects too.

4. Indemnity and your responsibility

Are you being made liable for matters outside your reasonable control?

5. Any other clauses that are weird, non-standard, or perilous?

I've seen some shockers over the years, hidden in the contract fine print:

• The principal sent a worker with a broken finger on an emergency RFDS flight to hospital, rather than bandage it up and wait the 6 hours for the regular charter plane. The client was liable to the principal for the $5,000 bill.
• The principal wanted to retain the right to poach the contractor's staff without financial consideration.
• The principal wanted the right to inspect a builder's books for profit-margins post completion of the work, and wanted to claw back any profits made above a certain level.
• The contractor had to agree to prohibit employees from social media discussions of the principal, and failure would be met by financial penalties.

So get expert advice and help

Realistically, you're probably not going to read every line of your next hire agreement, services contract, purchase order or terms and conditions. Most people don't! But the consequences of signing something can expose you to liabilities you hadn't considered or prepared to deal with.

So outsource it to me!

I offer obligation-free risk consulting to business and not-for-profit groups alike. I genuinely enjoy translating contract legalese into plain English and helping you manage your risks. You're not making the principal's life hard - you're proving that you're a savvy business person who cares about the quality of your own work and reputation. I'm here to enhance your professionalism and help make your life easier.