Managing Contract Risks

Join Webber Insurance and Legaleze as we discuss the importance of contracts in business, nuances of verbal and performance contracts, risk allocation, and the critical role of insurance in managing contractual risks.

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Good morning, everybody.

And thank you very much for joining us today for our session on managing contract risks.

We’re very fortunate to have some special guests with us today. We’ve got Chris Webber, Managing Director, and Sean McCarthy as well. I’ll give him a formal introduction shortly.

A little bit of housekeeping: we’ll go through the presentation and leave plenty of time at the end for questions. So, put them in the chat box, and we’ll either go through them as we go through the presentation or we’ll hold them until the end. Feel free to chuck them in there. We’ve got a couple of polls as well, so we’ll try to keep it as interactive as possible.

The format of the presentation: we’re not going to talk down your throat too much, if we can help it. We’re going to try and keep it pretty collaborative between the three of us, and sort of pitch in and try to keep it nice and flowing so you’re not listening to me bang on for an hour.

So, we’ll get started.

Like I said before, there are three of us here today: Chris, myself, and Sean. Chris is the managing director of Webber Insurance.

I’m a director. I’m sure a lot of you have either spoken to me, emailed me, or seen me throughout the presentations in the past. We’re very lucky to have Sean McCarthy join us as well.

Background of the Special Guests

He’s a full-time construction, commercial, and contracts lawyer. He operates his own practice out of Melbourne, the company being called LegalEze. He specializes in front-end contract advice, negotiations, and drafting contract terms for a range of clients. His experience spans working with the government, Commonwealth, private practice, and includes three years in litigation.

Prior to law, Sean was actually a builder and project manager, so he holds multiple qualifications and degrees, making him by far the most qualified person in this session. Yes, he’s the only one with any qualifications from a tertiary environment. So, we’re very lucky to have him. He has a wealth of experience in the construction industry, working with contractors, engineers, councils, goods, and service providers. He’s been involved in plenty of contract disputes and is trained in the Harvard negotiation model. He’s very keen to teach and educate. So, like I said, we’re very lucky to have him join us today.

It wouldn’t be a good session from a solicitor or an insurance broker if we didn’t have a couple of disclaimers. So, the information provided is generic. While Chris and I are qualified insurance brokers and can give insurance advice, and Sean is a lawyer capable of providing legal advice, in this sort of setting, everything is generalized. Obviously, consider your own personal circumstances before acting on anything.

Summary and Agenda

Quick summary.

This is a bit of an overview, if we don’t get too bogged down, but this is what we’d like to go through in a quick summary:

  • What are we talking about?
  • What’s a contract?
  • Some fun facts.
  • Some common contracts you’re going to come across, you know, why use them? What are the issues?
  • What can you do about it?
  • And some of the risks that you face.

So, Sean, I might get you to kick it off with the burning question: What is a contract?

“Yeah, thank you, Daniel, and thank you, Chris. Really pleased to be here. And thanks for the stellar introduction. Those tertiary qualifications aren’t necessarily all they’re cracked up to be, but, I guess, it allows me to come and talk to you about contracts. So, yeah, thanks.”

“Yeah. So, it’s a good question because if you really think about a contract in its simplest form—and you’ve put up a definition there—really, essentially, a contract is an agreement, a binding agreement that is usually between two parties. So, we can have, you know, more complex agreements, like tripartite or three-way agreements, but essentially what it is, is just a reflection that two parties have had what we call in the old days, a ‘meeting of the minds’, around what they’re going to do together, how they’re going to do it, and maybe what the repercussions are if they don’t do it.”

Poll on Attitudes Towards Contracts

So, we’ve got a bit of a poll, while everybody’s thinking about contracts and lawyers and things like that. How do we feel about it?

And don’t hold back. Go for your first instinct on what it is and how your view of contracts is. Are they, you know, a necessary evil? We do them grudgingly. Really not for me, maybe for the bigger business, but not for small operators. They’re a pain in the backside, take too much time, and I avoid them wherever I can.

You know, love them, always use them, great for allocating risk. Or I know they’re beneficial and I should use them, but you can insert any reason as to why you might not want to use contracts.

Verbal and Performance Contracts

So, I’ll keep that open for a few more moments, and then we’ll share the results.

It’s good to see plenty of avid contract fans, which is great, Sean.

“That’s amazing. Yeah. We know some answers are probably slightly better than another, but we don’t want to bias the result.”

“That’s exactly right.”

In a few more moments, and then…

“Yeah, I was just thinking, Daniel, going back to your first question, which is a great one about what a contract is. I mean, you can actually think of them pretty succinctly. Sometimes, I like to say to people, if you think of ‘who does what when,’ that’s a really lovely, simple description of a contract. And, I guess, from that, it’s nice to think of them as having almost two distinct components. They’re a bit more complicated than that, but if you think about a contract, the first thing is an obligation. So, you know, ‘I will do some work for you, Daniel, and hopefully, you might pay me to do that work.’ Before that work, there’s an obligation. So, we think of contracts having obligations, but at the same time, we then think of them having remedies. So, if I don’t do the work for you or I do it badly, the contract will outline the repercussions. That’s always a useful little breakdown of the contract.”

There we go. Look at that.

“Yeah. So, we’re sharing the results there, which is good. It’s positive to see. Obviously, we’re big supporters of contracts, and hopefully, after seeing this presentation, you’ll agree and see, look, I understand sometimes they’re a necessary evil, but, you know, it’s good to be using them. And look, sometimes they are very painful and very time-consuming.”

Formal Execution and Verbal Agreements

“That is also a fact, and they can all be true. So, Sean, I think one of the other misconceptions and a little fun fact here: you have to have a written agreement. It has to be signed and executed by both parties. Is that correct?”

“Well, yeah. Again, that’s right and I’m really glad you brought it up because, ideally, and what we’d love to say to all your clients out there is, yes, a lovely way to go about contracting, one that gives the most clarity, is to have formal execution. So, Chris signs, I sign, from that day forward, not retrospectively. We’ve got the terms that sit in front of us, and we’ve got absolute clarity. But believe it or not, it happens all the time in the world that there are binding verbal agreements. We’ve got tons of case law, over years and years, that attest to the fact that if a party goes through an offer, there is acceptance, intention to be bound, they have exchanged something of value, which can be a promise or a promise not to do something, or a dollar, or a peppercorn. And then, finally, they have capacity, that is, we’re of sound mind and we’re not minors, then we can have a binding verbal agreement. And does it happen all the time? And do I have to help clients that have got some form of verbal agreement? Yes, unfortunately, at times.”

“The problem here is the ‘he said, she said’ arrangements. But the third one, Daniel, that surprises people a lot of the time, is a contract can come into existence by what we call performance. Now, typically, a really good example of that would be, I say, ‘Yeah, Daniel, we’ve spoken about everything, and we’re good to go, but let’s get the contract drafted down the track, when those nasty lawyers get involved.”

“But here’s the key to the gate, and with my knowledge that you go and actually do some work, maybe start digging a pool or something. That’d be nice. But then, you know, the problem with that is we also have the situation of, you know, how do you know you’re going to get paid? What do I think the price is? Who’s got responsibility for occupational health and safety? They’re almost as bad as a verbal contract. So, yes, people are sometimes surprised that contracts can come into existence in a number of ways. And two of them are dangerous.”

“One of them is quite good. Although, please don’t think I’m a delusional lawyer because I’m not. To say every time you’re going to do work, you’ve got to get a formally executed contract. There are ways and means if you can’t do that simply because someone is away or you’re dealing with a big government authority that takes ages. You can mitigate your risk by execution of documents that might be interim documents, but that’s not for today. That would be a separate discussion. So, yeah, it’s a bit scary, isn’t it? A verbal contract and a performance contract?”

“Yeah. It’s a question that we get all the time. So, yeah, I’m sure we could probably just do a session on that. I’m sure you’ve got plenty of horror stories that we’d be able to go through.”

“Where do I start?”

Types of Contracts

“It starts. So, I mean, we’re going to focus today largely on terms of business and any engagement agreements, that sort of stuff. But what other contracts might SMEs or small businesses come across in their day-to-day?”

“Yeah. Well, when you think about it, it’s actually kind of an intriguing thought, really. Isn’t it? Because, you know, it’s surprising, even if we just for one second, Daniel, step outside of our commercial existence. You know, if we think about contracts, boy, we’re just surrounded by them. We’re in them all the time.”

“You know, some of your clients today might have driven and parked in a public car park. Well, guess what? There’s terms and conditions. You go on public transport, there are terms and conditions. We’re in a contract. I mean, you know, we go to work. We’ve got an employment contract. We have a phone, you know, where we get Spotify. Do we read the eighty pages of terms? Sadly, I probably do, but not everybody else does. So, we’re in contracts all the time.”

“There are so many types of contracts, goods or service contracts. You know, Webber Insurance Services buying stationary for the office. I mean, that’s a perfect example of a simple purchase order. Terms of business, engagement agreements, you know, I use Webber to support my clients with insurance support services. And that could go direct client, or that could be me and you coming up with an arrangement.”

“Lease property arrangements, they’re big documents. I drafted those for three years with the Commonwealth government. Buy and sell agreements, of course. That could be a business, could be land. I mean, some contracts have to be in a certain format. So, you can’t have a verbal contract, for example, for the sale of land; that’s just a statutory requirement. But certainly, tons of buy and sell agreements.”

“Think of all those transactions we did during COVID over the internet when we bought our new gym equipment and our exercise bikes, and all those things. I’m sure there were terms of engagement that, when it was faulty, we maybe had to have a look at.”

“Employment agreements, classic agreements. And when you think about those, you start to think about some of the wording as well, don’t you? Like in employment, together, Daniel, I will ask you to use your reasonable endeavors and do things that, you know, within the confines of that, or to do whatever is reasonably requested of you. So, we start to get language.”

“Shareholder agreements, of course, subcontractor agreements, and the other big one there that probably freaks a lot of your clients out as well are construction agreements or subcontract agreements. I mean, there’s just tons of them, so many around.”

“But scary when you think about everything you do from day to day. You pick up your phone; well, you’re connected to a telecommunications company, you’ve got a contract, you’ve got an agreement, you’ve got terms and conditions.”

“Yeah, we could probably save all that for another hour and a half.”

“Well, we could.”

Benefits of Using Contracts

“You know, even things like—I mean, it’s an interesting thought, maybe we should have done a poll, you know. You go to the coffee shop, perhaps, before this session today. You order your latte, and they serve it to you and it’s lukewarm. You could say, ‘Well, mate, I think this maybe it’s a breach of contract.’ Well, I don’t know. Good luck with that argument, but we arguably do have some form of agreement. So, it’s quite amusing to think about it.

So, we know most people here are using them, which is great. And we know that we’re encountering them, but, you know, why should we use them? Like, tell us a bit more. Like, I know we have to have them. I know generally what’s in them, but from where you see, why do we have these contracts?


Okay, that’s a great question. By the way, sorry, just let me go back a couple of steps, Daniel, as well. Just to say, the result on that poll was actually really pleasing. That was actually really good. I thought we were going to have a much bigger number that said, you know, ‘What a pain in the backside.’ But, you know, the two answers at nearly eighty percent cumulatively, that they were good and that we do them and that we like them, perhaps we should hand out some Mars bars, prizes or something like that. No.

We’re running a session on risk management, and if you’re not managing by signing a contract, you’re probably not going to come to the webinar. Alright? Thank you.

We’re preaching to the converted. I love it.

Hopefully, we’re preaching to the converted. That’s exactly right.

Yeah. So, look, that’s right. Why would you use a contract? And your comment is really relevant because there’s a lot of cynicism, isn’t there, about contracts. So you say, I mean, even I get cynical occasionally. Now, I say, ‘Gee, they’re big, they’re painful. They can be difficult things to understand.’ I mean, I was reading an indemnity clause for a client this morning, for example, that relates to what you guys do because it was mentioning insurance and things like that.

And, you know, I probably had to read it four times before I fully understood it. I had to go and wait and make a cup of coffee and come back and read it. So, they can be complicated. They’re big documents. Maybe they’re the ‘necessary evil’ that people said in the poll.

But really, when you think about a contract, the beauty of it, the benefit of a contract is, you know, the first thing is that we get agreement on the rules of engagement. So, a great example of that would be, we’re in contract together. I think we have a dispute that we can’t seem to resolve. Let’s just look at clause X, whatever it is. Just dispute resolution process, and it articulates nicely and succinctly, hopefully, what we do: send a notice to one another, have a meeting within seven days; if that doesn’t work, see you in court or get a mediator.”

Certainty and Flexibility in Contracts

They do to the extent that they can, give certainty around, what it is we’re meant to do. So for those of your clients that are in sort of technical services or engineering or, construction, for example. A great example of certainty is a clear and concise scope. They do give flexibility.

They exactly right. You know, any good contract should have some malleability in it, and that is, a variation clause, that is the ability to be able to increase scope that is the ability to be able to extend your contract by mutual consent to terminate to do. So they do give flexibility And on flexibility, I should say, they also allow you to if you think of them from a contract management point of view, they often allow you to turn up the gas if you like. That sounds terrible, but the to turn up the heat, if your first approach is not working, you can start to issue things like and your construction clients will know this to show cause notice or dispute clause, and you can actually say, that approach didn’t work before.

Clarity and Deliverables in Contracts

Let’s go to the more assertive approach. So they are flexible. They give clarity. They give deliverables.

They, as I said at the beginning, they outline who will do what when.

So I will deliver training for your org organization, and hopefully a month later, you might pay me to do that training there. You know, there’s an obligation And they have a remedy, you know, if the tree if you like to do the work or I don’t turn up to do the training, there’ll be a remedy clause in there as well. Agreed limits. I mean, this is so relevant to what, you know, you guys do and advise on as well, isn’t it in the sense that, you know, it might be that I say to a client, look, you know, I’ve looked at or I’ve spoken to the insurance guys, and you’ve got a, you’ve got a PI policy that covers you for a million dollars, why don’t we just cap the liability in the contract at a million dollars? You know, and that’s great, sensible contracting.

The Escalation Mechanism in Contracts

The escalation mechanism I think of spoken about already, they do allow you to alter and change according to circumstances. And then ultimately, of course, yes, look, what does a contract do?

You know, is risk allocation, which obviously is what you guys specialize in and, what you’re good at doing. But, you know, if you think about risk, I mean, all contracts have risk. I think, you know, this, friend of mine actually gave me an article a couple of weeks ago to look at that, was titled, drafting a watertight contract. And I said to him, first thing you had to do is change the title because you are delusional.

All contracts have risks. But but risk is, you know, more what you guys do than I advise on it, but you guys help manage it, I guess. But, you know, when you think about risk, you give it to the party best able to control it. You know, if you’re doing the digging on-site, Daniel, you’re probably better and more okay with managing occupational health in safety. And hopefully, if you’re a savvy contractor, you price for it, whereas I don’t know anything about it, if I’m the hiring homeowner. So risk is one of the key benefits of, sorry, risk allocation is one of the key benefits of a contract for sure.

Visualising Risk Allocation

Chris, I’m going to throw to you in a minute. We’ve got a great question in there, which, is so perfectly timed. It’s almost as if it was set up. So, thanks for that Scott.

That ties in really nicely with what we’re going to talk about here, which is is risk allocation, as Sean mentioned before.

I wanted to provide a visualization because it’s often complex, and if you’re a client, you’re a principal like whose terms are you agreed on? Am I giving you my engagement agreement to sign? Are we working on my terms or am I signing yours?

And the arrow there is just a really clear way of of getting an idea of where that risk and that liability is being transferred.

So if you’re using a contractor, the contractor’s agreement and the principal signing it, then you are pushing liability and transferring some risk onto that party versus the other way around when you’re signing other people’s contracts, then the risk is putting back onto you. So that’s when you need to start considering some of your exposures, and spending more time on the contract whether using yours or theirs or both, and this is this is the part where the question comes in, Chris, which you’ll talk about. That bottom picture there You might have three parties, you might have twenty parties, and each of them with their own terms, they might not be in your favor.

So that bottom diagram, if the subcontractor is signing the contractor’s agreement, who has signed principles agreement and they’re offering back to back, and guess what? The subcontract is in hot water for everything that goes to the right of them. Similarly, if a contractor is signing a subcontractors agreement and the principal, then they’re the meat in the middle of the sandwich, they’re getting it from both ends.

So you can push and move risk allocation, but the question that Scott’s asked, which is a wonderful one, that we get asked all the time, about contracting and who you should and shouldn’t engage. Chris, do you wanna talk talk a bit about that?

Engaging Specialist Contractors and Risk Considerations

Yeah. So the question that’s been asked has been, hi, guys. I’m interested in what you have to say on including the services of specialist contractors as part of our fee service. Consultant services such as energy, detail survey, soil test, and potentially town planning.

We would charge a margin on top of subcontractor fees, but there is an element of risk. Most building designers and small architects have the clients engaged all of these directly. However, when you include engineers, certifiers, and council fees, many clients can feel overwhelmed signing engagement forms and paying invoices.

So, I mean, from a, a contract point of view, Sean, or the engagement of these people, do we wanna talk about the the risk involved of, doing it all under the one banner first?

The Contractor’s Role in Subcontractor Appointments

I think so. Yeah.

So if you want us, if you want us, then I can talk about the some deliverability options.

Okay. So So, that is where the contractor appoints all the subcontractors. Is there?

Yeah. Yeah.

Principal, principal designer or something like that.

They’re going to get the structural engineering soil testing. Yeah.

Yeah. Yeah. That’s right. So so what you guys have said is is absolutely right. So generally under we would refer to as a head contract or a main contract that goes from the principal to the contractor.

There will often be a clause in that arrangement that says, for example, in a lot of Australian standard contracts that will say, new subcontract all the different services. However, you might need to get our approval to subcontract. That’s one thing that you gotta be conscious of. The but second second the secondary thing it will say will be, however, even when you subcontract, you still wear, the primary liability for it. So that’s known as privity contract where, you know, only the parties to a contract have rights and remedies. So then the contractor, obviously, with their one or their twenty seven different subcontracts that are sitting under them, is then taking on, the responsibility and the liability of the subcontractor, and for things that they will do, you know, if they default, if they do, you know, if they don’t complete the work on time, those sorts of things is all going to sit with the primary contractor.

Now those things can be, and I’m sure you guys will talk to this more.

Managing Liability and Subcontractor Agreements

Those things can be can be managed, from the perspective of making sure that if you are doing that, that first of all, you’ve got a sub act in place as in, some sort of written agreement. And secondary, secondary, secondly that you have, you know, that you’ve managed and addressed the respective liability. So, you know, do you want to have your, you know, your main subcontractors, the ones doing, you know, really big lots of work. For example, carry similar terms, as Daniel said, in the head contract.

That’s called upstream or downstream or, you know, head contract, liability. So it can be done providing your good and your diligent at your, how you set up your hierarchy of contracts. But, yes, you, what, you sit with primary liability for the fault, and the problems that your subcontractors cause you. It’s so common in construction.

Is this is the model that we deliver on. So all people deliver on.

We we get claims for, for this exact situation all the time, I’m sure Chris will echo the sentiments, but it’s the reason that you do get them to engage directly is to remove yourself from that liability loop.

Two claims last year, we had designers where they engaged structural engineers and guess what, the job on the principle was to to bring them back in. Chris, do you want to talk to that a bit more?

Probably more so in regards to the the engagement and the the feeling of overwhelm, but that’s been feedback that we’ve had for for many years. We do or provide engagement agreements for some of our design members, and there’s been pushback or feedback that these documents, are long winded really up until they have an issue that the agreement does address. So probably more so talking to, understanding and identifying the complexities with your customer around the engagement and simplifying wherever possible.

So mean, we work obviously from a different point of view. That’s everything that we have is forms and documents and you know, we have to get so many things signed and executed throughout the insurance process. So we spend a lot of time working through how to simplify that.

Simplifying Document Signing and Engagement Processes

For our customers, like, really having the customers in mind. So, one thing that we’ve introduced this year that’s been working fantastically, is DocuSign.

And for those of you that use it, know that it’s very simple and that you just effectively upload your documents, whatever documents they are, you can put multiple documents together, and then you can have them digitally signed, and you have the compliance with everything being tracked. Now it it can be difficult when you have multiple contractors or multiple multiple engagement agreements, but just having a thing through from your customer’s point of how best to to demystify it and really provide them with the information they need to simplify that process.

I agree with that, Chris, because one of the common things that we see with this model, is that the contractor says pay, I’ve got a head contract. And as you rightly say, it’s two hundred pages long, and they say, I’ll just pass it to my three different subcontractors, and you guys need to be complying with that particular contract. Well, you know, that’s nice if they’re trying to dissipate all risk from themselves, really, But but we certainly in the business that I’m in, you know, one of the things that we do is we assist contractors to say, well, actually, an easier way to do it is if you’re appointing a designer or you’re appointing a structural engineer, is that they’re a much simpler and more straightforward templates that you can use such as, you know, a five page contract or a ten page contract or an Australian standard consulting agreement.

Simpler Contract Templates for Subcontractors

And that does help you manage it. Doesn’t mean you can’t pass down liabilities, but it does actually help you, manage it. But I I get it that people, yeah, sometimes you know, it’s a difficult thing managing all those subcontractors. I just had a case, just worked on a couple of weeks ago, where under an Australian standard contract, There’s an ability of the principle to nominate, they they do a thing called nominated subcontractors, and they nominate a particular subcontractor And the contractor is now coming back and saying, well, they were nominated, therefore, we have no liability for them. We didn’t, you know, we we just don’t the the principle where is all that liability and I’d like to go through, unfortunately, and show them that under that particular nomination clause, it says, even though they’re nominated, you’re still carrying your primary, liability. So that was a difficult conversation.

But So I think To, to summarize, you can do it either way, but if you are going to act as the principle there, you just need to go in it with your eyes open.

You need to understand that your risk is significantly increased. So make sure that you’re being compensated for it and making sure that you’ve got the right documentation and the right insurance because that’s something that, you know, the insurer wants to know what are you subcontracting, but it’s doable either way.

Like Shawna Chris said, it’s it’s risk versus reward and that’s that’s kind of going to be a theme, a theme throughout You wanna jump to the other pole first?

Yeah. Let’s go back to the other pole.

Let’s go back to the other pole.

I’ll launch that one.

We got a couple of other questions that it comes through. We might leave them for the end.

Yeah. That’s okay? Yeah. So is a here’s something to, exactly what we’ve been talking about using contracts.

Understanding the Binding Terms and Conditions in Contracts

Use yours, use theirs, mix them both, or, don’t use it.

Daniel, I might just jump in quickly if that’s okay, just on this particular point there, you know, which turn because really what you’re doing here is just sort of saying, you know, which terms are we engaged on? And I was just gonna share very quickly a a story from old, some old case law. You know, we lawyers love case law. We’re from a law country, so case law is important.

There was a case, and I’ve just forgotten a year, but it was called Butler Machine Company versus Xcelo Court, back in the late eighties. Two parties engaging in a pre contractual discussion about the delivery of a particular type of machine.

They had exchange of, the purchaser sent air terms and conditions to sell or sent air terms and conditions. The purchaser sent air terms and conditions back again. And the contract then got performed. The I think it was a lathe or something got delivered to the the, the party that had ordered it.

And they had a dispute, actually, over, one party thought it was payment terms on forty five days. The other part party thought it was payment in thirty days. So they took it as you did in those days all the way through to the high court of Australia. And I love this case because the judge used lovely adverse area language, and this interests some of your clients.

The judge said, in the absence or lack of clarity, over who has the binding terms and conditions, which is also known as a battle of the forms, the party that fired the last shot over the bow before the contract began has the binding terms and conditions. So You know, just light globe moment for your clients that if you’re engaged in this stuff, you know, just, I’m not saying don’t use anyone else’s terms because that would be crazy. You, you know, you you have to in our business.

But, just be careful. If you’ve got that banter going back and forth, you know, maybe have a think about an email that gives clarity as to as to whose terms bind you while you’re still settling the negotiation.

Yeah. One is Sean, just quickly before we move on, there was a question that came through. Sean, is the nominated subcontractor example you gave? In AS four thousand?

That’s a question that I probably take on notice. I I think so, look, I deal with a lot of Australian standard contracts on a day to day basis. Two one two four four thousand forty three hundred. I feel pretty confident, but I should actually clarify perhaps after the presentation that I’m I’m quite confident two one two four and four thousand both have a nominated subcontractor clause.

You’re alright, Sean. You can say what you want because you got a disclaimer at the front.

There’s another Please remember this course is not single advice.

It’s okay. Sure.

We’ll take that one offline and and and get back to you on that one.

Good to say, you know, using a contract means you’re invested time and time and effort into into your agreement.

Like Sean said, there’s no issue using others because that’s just part of doing business, but you need to go into it with your with your eyes open.

Look, we’ve had a few horror stories, sure we all have.

Common Problems in Contractual Agreements

Sean, can you talk to us a little bit about some of the common problems that that you see?


For sure.

Yeah. Look, we are consistently advising, you know, contractors, engineers, you know, lots of different parties on, on common contractual issues. And and, you know, they are common.

Look, you know, I guess the ones that I see are, you know, no contracts starting to work without a, without a contract. So we just say, look, got a great relationship. We know each other. Or, I had a matter in VECAT, probably six months ago where we were arguing over an email being, insufficient for, evidencing a contract.

And, actually, I had to take the argument before BECAT that, the words good to go in an email were sufficient to show that they were, there was acceptance. That was a funny case, actually, because the judge who’s who’s old and two years before a time and said to me on the day, he said, I’m greatly troubled by this modern vernacular. What do the works good to go mean? And so that did my hitting, but my argument was that that indicated a contract.

But look, I see a lot of parties engaging with with no contract. They say we’ll be fine know, no worries. A handshake is is fine. Not reading the contract, I’ve worked on matters where parties have said look, why would I be bound to the terms when I didn’t read them?

Misconceptions About Contracts

And even if I read them, I wouldn’t have understood them. Well, sorry, contract law over years has developed a very real principle that, once you sign an arduous terms or difficult terms, we’ll be we we’ll be binding.

No consideration for the turns.

You know, what I mean by that is, yeah, that you looked at them and you you just thought, well, What can I do? You know, there’s there’s, you know, there’s there’s not a lot of room in it, which plays into the next point. The belief that terms can be agreed must be agreed to, can we remove that myth, please, right here, and now that I’m dealing with a big tier one contractor or, you know, that I must sign their terms. What, you know, they I mean, they usually say no when you go for the first round, negotiation anyway.

Misconceptions About Contracts

But it’s a myth. What we should tell your clients is that, thinking I can’t shape because I’m dealing with the big m or the big big l or whoever it may be, is is is not correct. The only thing I would say there is that the your ability to negotiate is assisted by the, by the amount of time you give yourself. So try to negotiate terms six months ahead of the project. Has a bigger propensity to get be successful than than negotiating the night before. They give you the key to the gate. So, so, yeah, signing back to back terms.

Someone says, look, Daniel, you know, I’ve got twenty million dollars. I’ve got fifty million dollars of upstream liability there for even though you’re only doing a thousand dollars worth of work, then you need to sign to those terms. I see people signing to owner as back back to back turns.

Contract Misdemeanors

I look, I see a lot of contract misdemeanors need fixing, and and look, I could share any number of stories and cases I’m working on. One at the moment is a very big steel manufacturing client of mine, that was suffering from delays through COVID with, supply chain issues and lack of labor. They were working for a big tier one contractor. They had conversations on-site with the tier one contractor.

So look, we’re delayed. And the other side said, yeah, we understand. That’s no problems. Yeah.

We’re all in the same boat. We’ll never, you know, we’d never chase you down for that stuff. Two years later, they come back to me to say, can you help me for a hundred and eighty thousand dollars of liquidated damages. The first thing I said to them, Daniel, was show me the extensions of time notices that you issued following those conversations, and they said, well, what do you mean?

You know, we didn’t. We thought the conversation was enough, and you kind of just bang your head and think, that’s a little bit frustrating. So that’s, you know, those sorts of things. Unwillingness to compromise a sale.

I mean, that’s a point, that’s a really good one that you guys brought up before as well.

I don’t advise on that very much, but I did have one only a couple of weeks ago where where a client asked me and said, what do you think after six months trying to negotiate a contract, and I said, look, given what I can see as your commercial return against the huge risk that we just have not been able to negotiate out of. I question whether it’s worth going through. So that’s a difficult one. That’s always a really difficult one.

Decision-Making on Contracts

Not seeking advice. I mean, look, you know, I have learned a lot in the last couple of years, particularly with, you know, you guys and the likes of you guys that look, leaning on your expertise, is really helpful. And sometimes I will, you know, say, look, I don’t get the insurance clause, could could you guys please have a look? You know, have we got compliance? So, you know, not seeking the relevant advice when it’s is so easy to get, you know, with a phone call or an email.

And I guess, the other thing is, you know, unsuitable insurance. Look, but, you know, that’s more for you guys to talk to then for me. But I’ve got a client at the moment doing some work on what they call a southern, rail loop down here in Victoria, there are there are, a fire engineer providing some advice, but not a huge, substantial portion advice.

Issues with Insurance

And the contract fee for them is actually quite small for this limited initial component of work. And yet they’ve they’ve been told that there’s now not twenty million dollars of PI liability, but fifty million dollars of PI liability.

And we’re kinda saying, you know, where did fifty come from? You know, we we have got a lesser amount in place, but, they’re now being sort of lent over, and and, having a party say to them you want the work, you need to demonstrate this greater, the greater limit, and look, frankly, subject to further advise this client just doesn’t have that level of cover.

Yeah. The, the unstable insurance is Look, it’s something that we obviously come across and, you know, sometimes limited in the in the advice of the scope that we can give not being solicitors. I wanted to, visualize this again for everyone. You can tell I like my nice flow charts and pretty colors and graphs, but The blue circle, that’s your business risk, right? You start a business, you go into it. Okay. These are some of the things I’m facing.

Understanding Contractual Risks

You’ve got insured risks and uninsured risks and then in the middle, you’ve got contractual risks. Contractual risk there they can be insured.

But the reason I’ve listed them there is because often often they’re excluded.

If you read ninety nine percent of professional indemnity and and public liability policies in particular, they will have a clause in there that says, we exclude contractual liability that exists, or that otherwise would not have existed in the absence of the contract. Meaning, if you sign a contract that increases the risk, over and above what your policy says I’ll pay for, there is no cover for that component.

So if you think about what’s insured, you know, you you can take insurance for, you know, property damage, third party property damage, breach professional duty, early injuries, injuries to workers. So we’re talking PIPL workers comp, all that sort of stuff. But when you sign a contract, that’s when they’re gonna say, Hey, hold harmless.

We we acknowledge that throughout the the course of doing business, we actually might contribute a little bit to a loss, but we want you to sign this document that says even if we stuff up a little bit, you’re not allowed to come after us, and your insurance companies are not allowed to come after us. And that is obviously, goes against what, I’m sure Sean will say common more principles, right, each been bearing their own liability.

Exclusions in Insurance Policies

Waiver subrogation, same sort of thing, meaning that your insurer can’t pay a claim and then go in recover the cost from a potentially negligent party.

Principles in Domino’s, we get this all the time. The contract says you need to name the principal as an insured party, I can tell you right now that very few insurers will agree to list other parties on your policy because that would give you give them the same cover and rights under your insurance policy that you have, and by the way, that you pay for, and they should have their own cover. So that’s the difference between, say, a principal interested party where we’re just noting their interests. We’re saying, Hey, look, they’ve got an interest. They’re not an insured party, but they do have some interest in the project.

Such common request as well, Daniel, in the contracts.

We’re we’re always looking at the waiver of subrogation and those sorts of things and Exactly.

And liquidated damages any pecuniary penalties fines. It’s just not covered by insurance. That’s contract performance nine times out of ten, there will be a specific exclusion for liquidated damages. So you know, you sign up to say we’re going to deliver on this time and and through factors outside of your own doing, you can’t deliver on it and you’re up for LDs, it’s not an insurable event. Nine times out of ten.

Limitations of Insurance Coverage

Yeah. The the other one, just as an interesting story for yourselves and for, your clients as well. Daniel, is that, we recently I was recently helping your client with, their renewal under, New South Wales legislation for renewal of, engineers under that particular legislation up there. Yeah.

And we’ve seen through, certificates of of cover and stuff. And, and we said, look, you know, we can we can provide you with, you know, direct liability, but we, you know, we remove any liability consequential loss. And they said, well, that means we can’t register you. You know, you have to, cover for all losses.

And I said, but Hang on. You know, we’ve got insurance here where insurance specifically doesn’t cover us for consequential loss. And they said, what what what do you mean? You know, Everybody else, that’s registered, covers us for consequential loss.

And I said, are you sure about that? I think you and this is to a New South Wales government authority, and I’m not their lawyer. But I said, I wonder whether that’s worth checking into. Anyway, I guess what happened about a week later They actually rang me.

And, they said, thank you for your, thank you for your advice, Sean, and for your alert. Yeah. Yeah. We’ve just gone through and realized that nine out of ten of our fire engineers that are registered actually do have an exclusion listed in their policy, for consequential loss.

Yeah? And so, you know, gee, a shame. That was a free advisor. Could have billed them for it, but anyway.

Exclusion of Consequential Loss

And look, that’s that’s a wonderful example of of of theory and ideal word versus reality because consequential loss in particular is something that insurers often based on sector are shying away from Sean mentioned fire engineers. That’s a classic example. Anybody dealing with utilities, with rail, with geot tentacle or areas that have historically large exposures for consequential losses the insurers, particularly from a professional indemnity and public liability point of view, are trying to limit that.

So they’ll put a they’ll put a a cap on it, so they’ll say, look, you’ve got a limit of five million dollars, but for consequential loss, it’s three hundred and fifty thousand, or they’ll explode it completely. And this is where it’s important that you understand that, okay, I might not be insured for consequential loss, but what does my contract say? And dealing with, you know, mines and utilities and things, they’re generally pretty clued into what the insurance market is doing and what is actually commercially available.

Contractual vs. Insurance Coverage

That’s right. Yeah.

We’re seeing it a lot more common now that things like consequential loss is actually written out of the contract. Saying, Hey, we understand you’re not liable for consequential loss.

But but it’s just being aware of, okay, what is insurance policy give me versus what’s my contract saying. And look, they’re never going to be exactly because that’s just not realistic. It doesn’t really exist, but how close can you get them? And how are you able to analyze and understand where your gaps are and what else can you do to manage those risks other than taking an insurance policy.

And and just to top that off, for those of you that might like a little bit of legal theory, I mean, what this session be without a bit of legal theory is that why do we push back on consequential laws? Well, because it’s it’s undefined in Australian law, and it’s, you know, it’s what we call unassertained loss. And, leaning on a very old case from the eighteen hundreds called Hadley versus Maxendale, believe it or not.

It what it is is, loss that was not contemplated, not reasonably contemplated by the party to the contract. So we remove it, because it’s, you know, to use Donald Grumsfeld language, it’s an it’s an unknown, an unknown. So why would we agree to that?


So hopefully you’re sufficiently scared or you’ve you know, go back and review all your contracts. And I’m also mindful of time to keep some for questions at the end.

Steps for Better Contract Management

What are some easy steps shown that that our clients can do sort of right now? What should they be doing when it comes to contracts?


Okay. There’s a couple of things, and and just picking up on what you said. Hopefully, we haven’t scared everybody away from contracts. Hopefully, that this is a light globe session where they go, oh, well, you know, that hopefully they’re not saying, oh, those contracts, what have not meant, but they’re saying, Well, I just need to get a little bit more diligent.

Look, the first thing that you need to do is just read your contract. You know, if a contract comes through, from a provider, you just one of my clients likes to call it siloing the time. They set aside the time in the quiet of the day, to just go through it and actually look your, look at your contract. You start to formulate some sort of diligent review approach.

Oh, okay. I now know about consequential loss. So let’s formulate a table or a guideline within my business to say that my business going forward would pro would prefer not to do that. Here’s the wording that I’ve got for negotiating.

Have some template contracts. I mean, this a great simple me mechanism. You know, going back to the example before Daniel Chris of the con the principal to the contractor, to the subcontract, Can you just set up a simple subcontract agreement? That that’s great.

Negotiate. Look, contracts are negotiable providing your nice and your polite and you leave yourself an time, parties are negotiable. And as you said, Daniel, parties often get it. You’d say, I can’t agree to consequential loss because you yourself have, contracted out of it or the further clause down, like, that, you know, they understand if you’re good about it.

Make sure we keep good records as well around, you know, your versions of tables of departures. The draft, documents going back and forth. Emails, believe it or not. Really important.

Yes. We did agree to delete that clause.

You know, and and look, really, I mean, what can I say? You seek professional help. It’s just not difficult. You know, we we are Chris and Daniel are in the business of advising you guys around, you know, suitable coverage for the business, what can and can’t be acquired, I guess, in the in the market. We advise clients on, you know, yes, I would agree to that. No. I probably wouldn’t agree to that yet, but, you know, this is what I would do in your contract.

You know, and just ask questions. Why? Why? You know, and and sometimes those questions are holistic, Daniel, as well to say, How I feel about what’s the feeling in this contract?

Is it just awful and onerous? You get that tone within the first couple of pages or Does it sound a bit conciliatory? Does it sound well balanced? And if so, then let’s keep sort of pushing on.

So I think just kind of yeah, ask the question. But I just noted before we did the presentation, I just said down the bottom here, you know, in summary, you have allies. So use your allies because, we need a help, to be honest.

The process is not hard, but it can be risky if it don’t do it well.

Assessing Client Behaviour Through Contracts

Yeah. And the and the final the final bit in red at the bottom, I mean, how you how your client is through the contract negotiation process is a fair indication.

Of what they’ll be like to deal with if something goes wrong.


So if you are, you know, if there is no compromise, if there is no willingness to meet you halfway or or whatever, you have to go into that knowing, well, I know how they feel about it, you know, am I going to get, you know, every single lawyer on my back if something goes wrong? Comes down to trusting your instincts, trusting your guts, selecting your clients and realising that some contracts may not be worth doing.

Commercial Decision-Making

I think that’s right. You know, that’s a commercial decision.

But that’s right. You know, provide fifty million dollars worth of PI for a, you know, for a hundred and fifty dollar contract. Well, you know, I think the balance is probably slightly right. But I I think that’s right.

Two choose your choose your partners. You know, I had someone rang me for some legal advice the other day, on a federal. I gave them a bit of initial advice. He was happy to then tell me that I was wrong, and I asked him why I was wrong, and he said because he googled it.

That was a feeling prompt decision for me, Daniel, to say, probably not a client that I would elect to work with. So, we moved on.


Chris, do you wanna answer questions or do you wanna go through these last couple and then go back to questions?

I think maybe If we do the next slide, questions, and then we can just So, yeah, everybody’s probably thinking this is a lot of information, working again more help, we have heaps and heaps and heaps of information about contractual liability, understanding insurance clauses on our website, When we send out the follow-up email, and thank you for for attending, we’ll include a link to that.

As part of of what we do, we do have facilities to offer contractual, reviews, depending on the size complexity, all that sort of stuff, free of charge for for the most part just depending on, volume and stuff. I don’t wanna go out until, you know, hundred people, we’ve got free contract reviews and we get a thousand next five minutes.

That’s probably not, not commercial on that part, but I might use that as well.

So just keep that in mind that it is it is available to you.

And finally, just before we go back to, the questions, legalese, Sean, give us a quick thirty second plug, Sean. What what are you all about?

Oh, okay. Thanks for allowing me to do a bit of sprucing. That’s that’s very nice.

Who is Legaleze

Look, what we are we’re we came into existence because I thought there was a need in the market for a practical, sort of pragmatic law firm, not driven by billable units. We’re a small firm, myself, and two others. We specialize in mostly the front end stuff, contract review, and advice drafting, setting up templates for clients, you know, one thing we do do is we like you guys, I think that we’ve got a very similar approach. We understand our clients really well before we do a deep dive into giving them, legal advice.

You know, I like I still like the odd dispute here and there, so I don’t want a bit of dispute resolution. We do security of payment advise, and we like doing training like this as well. So that’s us in a nutshell.

More than happy to help. And, you know, we’re not a firm that’s driven by billable units. I’ve had enough of that, really, but yeah, we just like working with clients we enjoy. So thanks, Daniel.


Chris, just before we, we wrap up. We’re gonna go through these questions now, Chris. Do you wanna kick us off? Yeah.


So if anyone’s got any questions, to ask will be fairly concise. We’ve got a few to get through, but put them into the q and a, and, we’ll ask Sean or Daniel myself fun, to hopefully get you an answer for them.

Alright. So we’ll start off. I’m interested to know the process of suspending works and the implications for both parties involved. We’re a painting company, and would like to know the process of such, are there specific clauses or conditions that should be included in contracts to address the suspension of works.

Yes. And this is where we need to be a bit careful to say We can’t give specific legal advice, and I’m gonna give you one of those horrible legal answers, which starts with the word depends.

And people are gonna say, lawyers wanted to give you a straight answer. Good question. It does depend on what the contract says.

So you just look for a suspension clause. Pretty similar, pretty common to have, a suspension clause, in, construction contracts. So that’s where you would go to.

No worries. So same client for a painter is the BIF act twenty seventeen relevant for commercial projects in construction and painting and in the event that a customer confirms that he shares the resident owner is the BIF Act still applicable.

That’s a question that would be subject to separate legal advice. There are seven different security of payment pieces of legislation throughout Australia and keeping up with them is difficult. I think what your client is referring to is the one that’s in Queensland called the Building Industry Finance Act.

Without giving specific advice, that would be subject to notice, but most of those acts apply to commercial work and rarely to residential work. That would be you would need to get someone to check that for you under that specific legislation.

Well done on the spot. Okay.

How should a painting company handle sending breach notices to clients, particularly in situations where there’s been a delay in progress, payments, or court?

Quality issues. So that would be relevant across most industries. So if you wanna answer that broadly.


Be careful with issuing breach notices. That’s the first thing I’d say because what you’re doing or intimating is that you might be moving towards termination, you need to get legal advice if you can terminate, an agreement.

Again, it’s funny. Actually, Chris, because I’ve done a lot of work for a major coatings company throughout, throughout Australia, and I’m starting to get worried that, there’s a few more issues there than what I know about. But anyway, bridge, so and and the other thing on that is a game, it depends. And I’m sorry to give you such a, a woeful legal answer.

You’ve got to look through, that particular contract to to determine, precisely that a non payment is a breach. We would argue generally that would be considered a substantial breach. But if you’re gonna issue breach notices, probably get a bit of advice. Not I’m not selling from me, from me or some it could be from me or others.

Alright. So we’ve got a different person, similar along the lines of, payments, because obviously the construction industry is suffering Australian wide at the moment. So it’s a hot topic.

Hi guys, thanks for arranging this great discussion. What is the best way to reimburse an overdue payment from a client? As a construction company, dispute resolution seems not to be doing the work. Are we only left to go for legal advice? Is there any insurance cover for us as constructed?

Construction builders to reimburse an overdue payment from a construction project client. So if I can just jump in first from the insurance point of view, from a non payment, there is a cover available called trade credit insurance.

It’s generally in the SME space, not really a viable cover due to the cost involved and then the process to undertake to seek recovery from the moneys. And and then on top of that, their appetite for working within the construction space, would be very, very minimal at the moment. So Whilst the technical answer is yes, you can potentially get the cover for most in the SME space, especially in the construction space, not generally viable option.

Would you agree Daniel on that at the moment?

Yeah. Definitely. The the underwriting process is such that they have to know all the details about every one of your creditors. So they’re not just going to give you carte blanche, cover, hey, here’s, if if anyone doesn’t pay you, it’ll be okay.

How much credit do you give and who are you giving it to, and they will underwrite based on that company, their solvency, all that sort of stuff. So, yeah, we found the process of recovering money is incredibly time consuming. You have to allocate them to do it. When they recover it, they only if they can do it, it’s it’s eighty cents on the dollar as the insured amount.

And it’s generally probably five, six months after. So if you have say sixty day credit terms, then you have to wait the sixty day credit terms, then you have to wait another sixty day credit terms before they get involved.

And then they go through the payment recovery process after that, which could be another, you know, two, three, four, five months premiums in the thousands as well, not not the hundreds.

So it would be more common to see, you know, ten thousand plus premiums rather than you know, one or two.

So Sean from your side is probably the generalised question around, pain and disputes.

But I think so. Yeah. Because I’m not sure I fully understand the situation that your client was describing. So let’s just talk about it in general terms Some contracts will allow what they call a stepping, procedure where if a secondary subcontract hasn’t been paid, you may be able to step in and pay them. If and I’m not sure that’s the scenario that we’re talking about. Let’s just, to deal with it more broadly.

There are ways and means contractually and legislatively these days to help parties in construction contracts, secure their payment in a more timely fashion, and that is using a thing called security payment legislation, marking it on your invoices, and then being able to exercise rights if you don’t get paid in time. Via that legislation as well as via the contract. So there are ways that get a bit of legal advice on it, and you know, it it can help you a lot.

Very good. Last one, more in regards to, subcontractor or engagement type agreements.

So I’m going to the first one. I’m a builder that utilizes subcontractor agreements on all of our projects. We utilize a standard form agreement prepare for us by our legal team. Should we be looking at redrafting these for each project to ensure they align exactly with the contract we hold with the principal?

Insane that we already provide all specifics of the project through annexures.

I guess the question I’m asking is how often should we review and update the standard contract laws.


Good question.

You should review them. I was gonna periodically. That’s a terrible answer, isn’t it? You should review them, reasonably often.

And and the reason I say that is because legislation is changing quite quickly. So we should now have agreements that, incorporate, for example, you know, modern slavery. That’s just one quick example. For, you know, proportional liability, those sorts of things security of payment.

Look, I think it’s good to review them. I give you a definitive time frame, you know, once a year, once every, two years? Going back to your question about altering them for each and every project, I think the contract already does that by, the an extra that you fill out or the project sort of idiosyncrasies.

Look, you can amend the agreement via a think special conditions so that if you’ve got a special change to your limit of liability or your PI cover or whatever it might be, you do that via Eura Nixa, but If you’ve had it set up for your organization, it should cover most projects without need, without needing substantial amendments, I think.

Perfect. Thank you, Sean. We’ve got a couple more questions. If anyone else has, well, last last questions, put them in, otherwise we’ll wrap it up up these last two.

As part of the process, I engaged an engineer to design some structural components. I invoice the client for the engineering fee. Is it possible to have a clause in the design agreement which negates my responsibility for an engineer’s mistake? If that should happen.

It is possible to do it.

So that would be, it is possible to do it.

It’s not easy to do it, but it is possible to do it. Yes.

Very good. As a principal designer who has an engagement agreement with the client owner, can I have a singular contract with my subcontractor, IE structural engineer?

So as we are clear on the responsibility for all their particular service and the potential of errors and emissions, Absolutely.

It’s a good idea.

That’s a subcontractor agreement that we work that we were talking about, which kinda ties into the next question.

Makes makes perfect sense. You have a subcontract for your hydraulic, a subcontract for your buyer subcontract be, you know, structural. So it makes makes sense to me.

In in the design space, just some fun facts.

Three of the largest and most risky engineering disciplines are fire structure and geotechnical.

So if you’re outsourcing those, they’re the ones that tend to have the biggest claims most issues.

Yes, they are. That’s right.

Designing your subcontract energy rating, that’s a significantly different risk profile to to structure or to change the law file.

And then we do see with the claims that come back through us where it’s respondent one, respondent two, respondent three, respondent four, respondent five, a building designer, respondent six, for a larger issue that everyone, and then you start having your proportional liability.

You do. Yeah. As well. Yes. Well, as an ex, as an ex litigation lawyer, Chris, with the carries a bit of baggage from it, then, you know, what we often say about that is that when you’re in a, a claim is not necessarily an indication of liability. A claim is, an indication that a lawyer is looking to a portion liability, and they’re looking for all parties that might have contributed to a loss. I mean, a classic case was you know, La Cross apartments here in, Melbourne with, I what was probably you guys know more than I, but I think of thirteen parties joined in the proceeding, you know, there’s two percent, five percent, thirteen percent, thirty percent all the way through.

Well, it’s still going under, well, under appeal, there was an appeal, and the appeal didn’t change too much, but I’m not sure whether there’s been a subsequent appeal down. Down the track. But, yeah, that’s just a sign that, you know, parties get joined in a claim. It’s not necessarily an indication that you’re liable, you know, but, We were talking about it before Daniel, actually, when we’d sign that the first thing that happens in a claim is that, you know, guess what? The party put their hand up and say, please provide us with a copy of the contract and you haven’t got one. It’s not gonna be sensational.



Well, look, thanks everyone for for tuning in and those that that watch it, on the recorder version. It’s it’s really good that you’ve given us an hour of your time and really taken an interest in in what we’re talking about today.

Hopefully this has delivered some benefit. We’re going to run a survey after when you finish this. So if there’s any great ideas, that you have for future correspondence or whatever, more presentations, please please put it in there.

Thank you to Sean. I mean, amazing that he’s he’s given us his time today. Like I said, he’s he’s more than, more than accomplished to to talk to us today and where incredibly, incredibly lucky and and thankful for his time. So, personally, Sean from Chris and I on behalf of all our clients, thank you very much for today.

Yeah. You’re welcome. Guys, and can I just say, you know, well done? I think it’s great that you’ve done it. And, frankly, Daniel, I can’t think of anything more exciting to talk about hour on a Thursday anyway in conference.

Thanks, anyway.

Wonderful. Alright, guys. Thank you, thanks a lot for tuning in, and, sure we’ll speak to you all soon.


Summary of Key Points

  1. Importance of Contracts: Contracts are essential for defining the obligations and remedies between two parties, ensuring clarity on deliverables and responsibilities.
  2. Verbal and Performance Contracts: Contracts can be binding even if they are verbal or based on performance, highlighting the importance of clarity and documentation in agreements.
  3. Formal Execution vs. Verbal Agreements: While formal, written contracts are ideal for clarity, verbal agreements and contracts established through performance are legally binding, though they come with risks.
  4. Types of Contracts: Businesses encounter various contracts daily, including terms of business, engagement agreements, lease agreements, and subcontractor agreements, among others.
  5. Benefits of Using Contracts: Contracts provide agreement on rules, certainty, flexibility, clarity on deliverables, agreed limits on liability, and a mechanism for risk allocation.
  6. Risk Allocation in Contracts: Effective contracts allocate risks to the party best able to control or manage the risk, which is a crucial aspect of contract management.
  7. Visualising Risk Allocation: Understanding how risk and liability are transferred in contracts helps in managing contractual risks effectively.
  8. Engaging Specialist Contractors: Including services of specialist contractors can introduce elements of risk, and how you engage them (directly or indirectly) affects your risk profile.
  9. Contractual vs. Insurance Coverage: Insurance policies often exclude contractual liabilities that wouldn’t exist in the absence of the contract, emphasising the need to align contracts with insurance coverage.
  10. Limitations of Insurance Coverage: Insurance may not cover contractual liabilities, consequential losses, or penalties, underscoring the importance of understanding your policy’s scope.
  11. Handling Breach Notices and Disputes: Properly issuing breach notices and understanding the implications are critical for managing contractual disputes effectively.
  12. Reimbursement for Overdue Payments: Trade credit insurance might offer a solution for recovering overdue payments, though it’s not always practical for small businesses or certain industries.
  13. Reviewing and Updating Standard Contracts: Regularly reviewing and updating standard contracts ensures they remain relevant and compliant with current laws and business practices.
  14. Responsibility for Engineering Mistakes: It’s possible to draft clauses that limit your liability for mistakes made by subcontractors, such as engineers, but this requires careful legal drafting.
  15. Subcontractor Agreements: Utilising clear subcontractor agreements helps in delineating responsibilities and managing risks associated with subcontracted work.
  16. Negotiating Contracts: Contracts are negotiable, and businesses should not hesitate to negotiate terms, especially with larger entities, to manage risks better.
  17. Mitigating Risks in Contracts: Identifying and mitigating risks through careful contract review and negotiation is crucial for protecting your business interests.
  18. Legal and Insurance Advice: Seeking professional advice from lawyers and insurance brokers can help navigate the complexities of contracts and insurance policies.
  19. Contract Management Practices: Implementing good contract management practices, such as keeping detailed records and using template contracts, can streamline the process and reduce risks.
  20. Choosing Business Partners Wisely: The negotiation process can reveal much about a potential partner’s approach to business, and choosing partners who are willing to negotiate and compromise can lead to better outcomes.

Actionable Steps

  1. Contract Review: Allocate time to thoroughly review all contracts before signing. Look for clauses related to risk allocation, liability limits, and insurance requirements.
  2. Use Template Contracts: Develop and use template contracts for common business transactions, adjusting them as necessary for specific projects or partnerships.
  3. Negotiate Terms: Don’t hesitate to negotiate contract terms. Aim for agreements that fairly distribute risks and responsibilities between parties.
  4. Align Contracts with Insurance: Ensure your contracts do not impose liabilities that your insurance policies exclude. Work with your insurance broker to understand your coverage limits and exclusions.
  5. Professional Consultations: Regularly consult with legal and insurance professionals to review your contracts and insurance policies, ensuring they meet current legal standards and adequately protect your business.
  6. Educate Your Team: Ensure that key team members understand the importance of contracts and are aware of the company’s procedures for reviewing, negotiating, and managing them.

Seam McCarthy from Legaleze, our esteemed presenter, is available for any queries on:

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Contractual Liability Essentials

Based on feedback from the webinar, we are considering avenues where we can provide further resources and education on this topic. In the meantime, to view more information on Contractual Liability and Insurance Clauses, visit our webpage.

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