A contract can be anything from a formal written document to a verbal promise. Learn about written, verbal, standard form and period contracts, and things to be aware of before you make an agreement.
A contract can be anything from a formal written document to a simple handshake deal to do a job (where the only thing in writing is a quote on the back of an envelope). Whatever its form, if you agree to provide a service to a hirer for money, you have entered into a contract. You’re promising to do a job for the hirer and the hirer is promising to pay you for it. The agreement may be enforced in court.
Written contracts Written contracts provide more certainty for both parties than verbal contracts. They clearly set out the details of what was agreed. Matters that can be set out in a contract include:
a procedure to follow in the event of a dispute.
It’s much safer to have something in writing than to rely on someone's word. A written contract will give you more certainty and minimise your business risks by making the agreement clear from the outset.
Benefits of a written contract A written contract can:
provide proof of what was agreed between you and the hirer
help prevent misunderstandings or disputes by making the agreement clear from the outset
give you security and peace of mind by knowing you have work, for how long and what you will be paid
clarify your status as an contractor- external site by stating that the contract is a 'services contract' and not an 'employment contract' — this will not override a 'sham' contract, but a court will take the statement into account if there is any uncertainty about the nature of the relationship
reduce the risk of a dispute by detailing payments, time frames and work to be performed under the contract
set out how a dispute over payments or services provided will be resolved
set out how the contract can be varied
serve as a record of what was agreed
specify how either party can end the contract before the work is completed.
Risks of not having a written contract When a contract is not in writing, you are exposing yourself and your business to a number of risks including the risk that:
you or the hirer misunderstood an important part of the agreement, such as how much was to be paid for the job or what work was to be carried out
you will have a dispute with the hirer over what was agreed because you are both relying on memory
a court will not enforce the contract because you may not be able to prove the existence of the contract or its terms.
Get advice before you sign Before you sign a contract, it is a good idea to seek advice from your industry association, lawyer, business adviser or union.
When a written contract is essential It's always better to have your contract in writing, no matter how small the job is. Any contract with a hirer that involves a significant risk to your business should always be carefully considered and put in writing. This is advisable even if it means delaying the start of the work. A written contract is essential:
when the contract price is large enough to make or break your business if you don't get paid
where there are quality requirements, specifications or specific materials that must be used
where there is some doubt that the hirer has enough money to pay you
when you must have certain types of insurance for the type of work you are doing
where the contract contains essential terms, such as a critical date for the completion of the work before payment can be made
where you or the hirer need to keep certain information confidential
when it is required by your insurance company for professional indemnity purposes
where there is a legal obligation to have a written contract (eg. trade contracts for building work in Queensland).
Verbal contracts Many contracting arrangements use verbal contracts, which only work well if there are no disputes. A handshake agreement may still be a contract and may (though often with difficulty) be enforced by a court. However, verbal contracts can lead to uncertainty about each party's rights and obligations. A dispute may arise if you have nothing in writing explaining what you both agreed to do.
Part verbal, part written contracts Some agreements may be only partly verbal. For example, there may be supporting paperwork such as a quote or a list of specifications that also forms part of the contract. At the very least, you should write down the main points that you agreed with the hirer to avoid relying on memory. Keep any paperwork associated with the contract. The paperwork can be used later in discussions with the hirer to try to resolve a problem. If the dispute becomes serious, it may be used as evidence in court. The most important thing is that each party clearly understands what work will be done, when it will be completed and how much will be paid for the work. Examples of paperwork that may support a verbal contract:
quotes with relevant details
lists of specifications and materials
notes about your discussion — for example, the basics of your contract written on the back of an envelope (whether signed by both of you or not).
If the contract is only partly written or the terms of the work are set out in a number of separate documents (email, quote etc.), it is to your benefit to make sure that any formal agreement you’re being asked to sign refers to or incorporates those documents. At the very least, make sure the contract doesn’t suggest that the formal document is the entire agreement.
Standard form contracts A standard form contract is a pre-prepared contract where:
most of the terms are set in advance
little or no negotiation between the parties occurs.
Often, these are printed with a few blank spaces for filling in information such as names, dates and signatures.
Standard form contracts often include a lot of legal 'fine print' and terms that you may not understand. They tend to be one-sided documents that mostly benefit the person who prepared the contract (for example, by shifting as much risk as possible to the contractor). If you don't understand the fine print or any other part of the contract, you should get advice. If you sign the contract, you will be required to comply with the fine print, even if you didn't actually read it.
Tips for standard form contracts Read every word before you sign Read the fine print carefully and get advice about any terms you don't understand before you sign. Once you sign a contract you are bound by all of its terms. If there is an indemnity clause, don't sign until you understand the risks you’re agreeing to if something goes wrong.
Cross out any blank spaces Don't leave any spaces blank. If you don't need to fill in a blank space, always cross it out so the contract can't be changed after you sign it.
Negotiate You have the right to negotiate any contract before signing, including a standard form contract. But remember that both parties must agree to any changes and record them in the contract you sign. Your union, industry association or a lawyer can help you prepare for negotiations.
Keep a copy You should always have a copy of any contract you sign. It’s best if you and the hirer sign 2 copies of the contract, so that you can both keep an original. If this isn't possible, ask for a photocopy and check that it is an exact copy. Remember to keep your copy somewhere safe for future reference.
Get advice A lawyer, your union or industry association might be able to provide you with information about some common standard terms used in contracts in your industry. They may also be able to provide you with a standard form contract for you to use.
Period contracts Some independent contractors and hirers use a 'period contract'. This is a contract template that sets out the terms for a business relationship where the contractor is engaged to work from time to time. In the building and construction industry, these contracts are called 'period trade contracts'.
The contract template applies each time the hirer offers work to the contractor and the contractor accepts it. This can occur when either the:
contractor provides a quote and receives a work order from the hirer
parties sign an addendum (an addition to the contract) that sets out the specific work to be done or the final outcome.
Once the work starts, the contract template and the work order or addendum will form the total contract for the specific work.
Check the terms each time Period contracts can work well for both parties. They allow the flexibility to do intermittent work over an agreed period. However, you should check the terms of the agreement for each new job. Are they the same as those set out in the original contract template? Any term or condition that is different for a particular job, may change the terms of the original contract template. If you are unsure about anything related to a period contract, get advice before you sign or agree to new work, even if you have performed work for that hirer previously.