This page has details for contractors and hirers to consider when they draft or review a contract.

  • A hirer (also known as a principal) is a person or business that engages a contractor.
  • A contractor includes people who are self-employed, consultants and subcontractors.

How to start a contract

A well-written contract helps both parties understand what to expect and protects their businesses.

You can:

  • write your own contract
  • get a lawyer to draft one
  • use a standard form contract – an industry or profession specific template sold by some industry associations, or one the hiring business uses.

This page is for contracting arrangements. For employment relationships, read how to create an employment contract.

Use plain English

Don’t use complicated language. Use simple and plain language so you both easily understand the contract. This can also help reduce disputes.

If you’re using a lawyer to draft the contract, ask them to use simple, plain language. Get them to explain anything that you don't understand.

Contracts, such as standard form contracts, often use language such as 'the principal' and 'the contractor' for convenience. Consider using the contractor and hirer's names instead.

Keep it simple

A short, simple contract may do for some jobs.

Simple contracts should include:

  • what work the contractor will do or results they will achieve
  • how much, when and how the hirer will pay
  • what conditions the contractor must fulfill for the hirer to consider the contract finished
  • how both parties will handle any disputes.

1. Include both parties’ details

All written contracts should have some basic details about each party to the contract.

Make sure you include at least these details:

  • Full legal names and business addresses. You’ll need to know this if you go to court for a dispute. It’ll also help you find information about the other party and assess the risks of signing the contract.
  • Australian business number (ABN) – include both parties ABNs (if needed).
  • Australian Company Number (ACN) – add this if a company's ACN is different from the last 9 digits of the company's ABN.
  • A statement that the person or business is a genuine contractor, not an employee. Sham contracting is illegal, and a court may consider this statement if the relationship status is in dispute. It shows what both parties intended when they signed the contract.
  • Signatures – both the contractor and hirer must sign the contract for it to be valid. Include the signatures of any witnesses (if needed).

2. Describe the work or results

Every contract should include:

  • a description of the work to do or result to achieve
  • when the work starts and ends (specific dates)
  • where the contractor will do the work, such as the hirer's business premises, contractor’s business premises or another location.

Contracts generally don’t say how to do the work, as this can indicate an employment relationship. But there are times where a contract may include some direction. For example, a builder constructs a house based on the drawings and specifications given by the client.

Examples of describing the work or result

Work

Clear description: Lee will give training sessions in Biz-Fast software (Version 3) to 15 staff from Rekall Ltd on 10 and 11 May. Each session will start at 9 am and last 3 hours. Lee will give the training in person at Rekall Ltd’s head office in Bigtown. The training service includes Lee giving each trainee a Biz-Fast software user manual and a one-page help sheet.

Unclear description: Lee will train Rekall Ltd employees in Biz-Fast software.

Results

State the result: Mary will clean the offices of Rekall Ltd each Saturday by 6 pm starting 12 March until 20 September.

Don’t write how to achieve that result: Mary will clean the offices of Rekall Ltd each Saturday by 6pm. Mary must only use cleaning equipment and products approved by the CEO of Rekall Ltd. Mary must clean each level in the order specified in writing by the CEO each Friday.

3. Set out payment details

Fixed fees and hourly or daily rates are the most widely used fee structures.

The contract should show:

  • the fee structure and calculations
  • if the fee includes goods and services tax (GST) or not – the Australian Taxation Office explains when to charge GST
  • the timing of payments.

These contracts pay according to the number of hours or days worked. Include in the contract:

  • how many hours and days make up a standard working day and week
  • the hourly or daily fee payable.

Some contracts pay a single, fixed fee for the entire job. If the contract is long term, consider including a clause to review the fee if business costs increase.

Example of a fixed fee review clause

Effie has a one-year contract with Rekall Ltd to distribute catalogues to residential homes for a fixed fee of $500 a week (including GST). Effie covers long distances to make these deliveries. Two months into the contract, petrol prices increase sharply, and the fixed fee no longer covers Effie's fuel costs each week.

Effie's contract has a clause that allows for a review of her fees during the contract period. Effie and Rekall agree to vary the contract to increase Effie's fee to $600 per week (including GST) to cover the increased cost of fuel.

Payment timing

The timing of payments depends on your contract type and fee structure. For example, there are several ways to set when a hirer pays in a fixed-fee contract.

These contracts often have monthly billing and payment cycles, but you can set this to whichever cycle works for you. For example, bill and pay every 2 weeks.

Contractors should carefully consider if this is right for their situation.

Things to consider:

  • Is the contract for a long-term job? This might mean no pay for some time.
  • Will the contractor need to pay for supplies and materials from their own funds in the meantime?

You can use this set up to cover start-up or one-off costs for the contract, such as buying materials.

The hirer makes a progress payment on an instalment date or when a contractor reaches a milestone or result.

Contracts should clearly state:

  • when payments are due
  • the instalment dates (if this is the trigger)
  • what milestone or result the contractor needs to complete (if this is the trigger) – for example, write a report
  • how much the contract pays at each stage
  • what counts as acceptable work – for example, no defects or errors.

This industry commonly uses stage (progress) payments in both fixed price and cost-plus contracts.

The hirer pays at the end of each construction stage. For example, at the ‘lock-up’ stage when the contractor has installed all external doors, windows and roof coverings.

Check the rules about stage payments with the relevant state or territory government building authority or industry association.

Example of a progress payment clause

The total fee for the services is $9,350 (GST included) and payable in the following instalments:

  • $4,400 (GST inclusive) on delivery of training sessions 1 and 2
  • $4,400 (GST inclusive) on delivery of training sessions 3 and 4
  • $550 (GST inclusive) after attending the final feedback meeting.

The hirer will pay no later than 7 working days from the date they receive a correct invoice from the contractor.

Invoicing and payment instructions

The contract should clearly explain how each party will handle payments. This helps avoid confusion and supports timely and accurate payments.

Include in the contract:

  • if the contractor needs to issue an invoice for the payment
  • when the payment is due (terms of payment) – for example, in 30 days of receiving a correct invoice
  • how to pay – for example, give bank account details and ask for a direct deposit.

The contract should specify which details to include on the invoice. For example:

  • invoice date
  • contractor’s business or company name and contact details
  • the hirer's business or company name
  • contractor’s ABN
  • contractor’s invoice number
  • description of services or milestone achieved
  • costs
  • payment amount
  • terms of payment.

Costs

Contracts can include costs such as meals, travel and photocopying. The contract should specify if the hirer will:

  • pay for the contractor’s costs during the contract
  • give the contractor supplies needed to do the work.

4. Assign intellectual property rights

Intellectual property (IP) ownership clauses in contracts are critical for working out who holds the rights to any IP created during a business relationship. For example, creating software programs, documents or house plans.

The owner of the IP rights can license or sell the creation and stop other people from making money out of it.

Under IP laws, the contractor automatically owns any IP they create. If the hirer wants to own the IP, the contract must state this. Contractors should get legal advice about any clauses that give IP rights to the hirer.

These are 2 common IP ownership scenarios:

  • The contractor owns the rights to anything they create. The hirer owns the rights to anything they create. Each person keeps the rights to their own work.
  • The hirer owns the rights to everything the contractor creates under the contract. If the hirer agrees, the contractor can use the work for free, but they can’t pass it on. The hirer can stop letting the contractor use the work at any time.

Example of IP rights

Lee has a contract with Rekall Ltd to develop a software program to manage their inventory.

The contract states that Rekall Ltd will own the IP rights of any material Lee develops under the contract. It also states that Lee has a licence to use the software for the purposes of the contract only.

Because Rekall Ltd own the software, if Lee tries to sell it to another company, he’ll be in breach of the contract’s IP clause.

5. Explain how to treat confidential information

Either party can include a confidentiality clause to protect and keep control over their confidential information, such as:

  • client lists
  • pricing information
  • trade secrets.

The contract should specify the type of information that is confidential so that both parties know exactly what needs protecting. For example, information about the contractor's profit margins.

Example of a confidentiality clause

The hirer will not disclose any confidential details of the contractor to a third party without written consent from the contractor. Confidential information includes profit margins and pricing information shown in this contract.

6. Identify who is liable for loss and damage

A contract can include an indemnity clause which shifts any risks from one party to the other. For example, a contractor may accept the risk of paying for any loss or damage the hirer suffers because of their work.

Contractors should carefully consider if the risk they’re agreeing to is something they can control. For example, if the indemnity also applies to work performed by their subcontractors.

Indemnity clauses are common when the advice and expertise of certain professions are central to the contract. For example, accountants, architects, lawyers or builders. It’s important that these contractors know exactly what responsibility an indemnity clause imposes on them.

If the contract contains an indemnity clause, consider getting professional advice and professional indemnity insurance.

Example of indemnity

Lee develops an inventory management software program for Rekall Ltd. However, the software is faulty and Rekall Ltd loses money when it doesn’t keep the correct information.

The contract had an indemnity clause, so Rekall Ltd may be able to recover those losses from Lee. Lee has professional indemnity insurance which may cover the losses.

7. Set out insurance obligations

The contract should clearly identify each parties’ insurance obligations.

Check that the insurance covers everything you might be liable for under the contract.

Contractors are often responsible for keeping their own insurances, such as:

  • professional indemnity
  • public liability
  • income protection.

8. Outline any subcontracting agreements

Contractors who need to engage a subcontractor to help them do the job should discuss this with the hirer and include it in the contract.

The hirer may want to set out what work the contractor can subcontract or add other limits to the contract.

The contractor is responsible for any work done by the subcontractor and enters into a separate contract with the subcontractor.

9. Check for exclusivity arrangements

One of the benefits of being a contractor is being able to work on multiple projects for different clients. An exclusivity clause restricts a contractor from signing contracts with other clients. Contractors should carefully consider these clauses and ask for fair compensation if they’re unable to take work elsewhere.

A court may not enforce an exclusivity clause that is too restrictive or unreasonable. The court will consider factors, such as:

  • if the clause protects only the genuine interest of the hirer
  • the period of exclusivity
  • the geographic area to which the clause applies.

It's best to make the contract clear so a court doesn’t need to interpret it.

Break free clauses

Consider adding a break free clause to contracts with an exclusivity clause. It lets a contractor recover costs or losses if the hirer cancels the job, either:

  • before the contract starts
  • after the contract starts but before the contractor completes the work.

Contractors who can’t get an exclusivity clause removed from a contract should consider negotiating this clause.

Break free clauses can specify different types of compensation:

  • Cost recovery is where the hirer reimburses the contractor for all reasonable costs they incur until that time.
  • Lump-sum payment is where the hirer agrees to pay the contractor a set amount to cover potential losses.

Contractors may need to give the hirer evidence of any costs or potential losses.

10. Check for restraint of trade clauses

Hirers can include a restraint of trade clause to stop a contractor taking their clients or competing with their business.

The restraint of trade can cover either:

  • the contract period
  • a set time after the contract ends
  • both.

As with exclusivity clauses, a court will not enforce a restraint of trade clause that is unreasonable.

11. Specify who is responsible for faulty or incomplete work

Defect liability clauses deal with faulty or incomplete work. They’re common in the building and construction industry, but contractors and hirers can add this clause to any contract if needed.

Include:

  • the faults or incomplete work the contractor and hirer are responsible for
  • the defect liability period, which is the time frame the contractor is responsible for fixing the work in scope
  • how the hirer will tell the contractor about work that needs fixing or finishing.

Hirers should give contractors a notice to remedy work. This gives the contractor a chance to fix the work before the hirer seeks any remedies for a breach of contract.

The notice should include:

  • details of what needs fixing or completing
  • a reasonable time to remedy the work
  • what will happen if they don’t remedy the work. For example, the hirer may take the contractor to court.

12. Include how to settle disputes

Disputes can happen over matters such as money, work performance or unfairness. It’s good practice to include a dispute clause in the contract. This can help you resolve disputes quickly, cheaply and in a way that lets you continue to do business with the other party.

You should try to resolve a dispute before taking legal action. Consider adding these details to the dispute resolution clause:

  • That the disputing party must give the other party written notice of the dispute.
  • That the other party will discuss the issue with the disputing party (or their representative) no later than 5 days of getting the written notice.
  • That you may refer the dispute to an alternative dispute resolution (ADR) practitioner for mediation, conciliation or arbitration.
  • The name of an organisation that will appoint a qualified and registered ADR practitioner if both parties can’t agree on one.
  • That both parties will split the costs of dispute resolution evenly.
  • Timeframes for a dispute resolution, to avoid the process dragging on.

If the dispute needs the opinion of an expert to help resolve it, the contract can also include an expert determination clause. Include similar details to the dispute resolution clause.

13. Document contract variations

A variation is a change to a contract that’s already in place. For example, a contractor may need to change a contract because the price of materials has increased.

Things to know about contract variations:

  • Contractors and hirers can make contract changes verbally, but it’s best to put them in writing and have both parties sign the document.
  • A court can enforce a contract variation that both parties have agreed to.
  • For building and construction work, check the relevant state or territory’s rules for contract variations.

Add a variation clause to the contract

A variation clause sets out when and how parties can change a contract.

Don’t agree to a variation clause that lets only one party change the work.

Understand the impact of any variation terms, as they can affect costs or the ability to complete the work on time.

Include in the clause:

  • what the parties can change – for example, outcomes, timelines, pricing or terms
  • that both parties must agree to the contract change
  • that variations must be in writing (even if initially agreed verbally)
  • how to propose a variation – for example, by email or letter
  • what details to include in a proposal – for example, what’s changing, the new date of effect and impact on the scope, cost and timeline
  • a time limit for responding to change requests – for example, no later than 5 business days
  • a way to resolve variation disputes, such as mediation.

Ways to document a contract variation

Write a new document and attach a copy to the existing contract.

Include these details in the document:

  • date of the original contract
  • names of the parties involved
  • agreed changes to the contract
  • any other important details from the original contract.

Make sure all parties sign and date the document.

Use handwritten changes for things like:

  • a change to an amount
  • including or deleting a few words.

All parties need to date and sign (or initial) the changes made on each copy of the contract.

Use emails or letters to document contract changes. These should detail:

  • what you’ve discussed with the other party about the changes
  • what changes the contract needs
  • a response that shows that you both agree to the contract variation.

Attach a copy of the emails and letters to the existing contract.

14. State if the contract can end early

There are different ways a contract can end. Adding a termination clause lets both parties break a contract and can help prevent disputes.

Include in the contract:

  • the situations the clause covers – for example, a breach of contract or ending by agreement
  • how much notice the parties need to give – for example, 30 days
  • how to give notice – for example, by email or letter
  • what money is payable if the contract ends – for example, penalties, refunds or compensation
  • what happens to other clauses and obligations – for example, confidentiality or intellectual property.
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