Types of contracts

It’s much safer to have your contract in writing than to rely on someone's word. Written contracts give certainty to both the contractor and hirer by setting out the details they have agreed to.

A written contract can include things such as:

• the timeframes for completing the work
• how much the payment is and when the hirer will pay
• specifications or materials to use
• what to do if there’s a dispute.

Before you sign a contract, it’s a good idea to get advice from an industry group, lawyer, business adviser or union.

Benefits of a written contract

A written contract:

• is proof of what a contractor and hirer agreed to
• helps prevent misunderstandings
• gives a contractor peace of mind by knowing how long they’ll be working for and how much they’ll be paid
• reduces the risk of a dispute, as both parties agree to the details when they sign the contract
• sets out how to resolve disputes and vary the contract
• specifies how each party can end the contract before the work is complete.

Risks of not having a written contract

When a contract is not written down, the contractor and hirer expose themself to risks, like:

• misunderstanding an important part of the agreement, such as how much the job costs or what work needs doing
• disputes over terms, because each party is relying on memory
• a court not enforcing the contract if neither party can prove the contract exists or its terms.

When a written contract is essential

Always put a contract that involves significant risk in writing. Do this even if it means delaying the start of the work.

A written contract is essential if:

• the contract price is large enough to threaten a business’s finances if it doesn't get paid
• the contractor must use specific materials or follow agreed standards or specifications
• there’s any doubt the hirer has enough money to pay the contractor
• a contractor needs specific insurance for the work they’re doing
• the contract contains non-negotiable terms, such as a critical date for completing the work
• either party needs to keep certain information confidential
• the contractor’s insurance company needs a written contract for professional indemnity purposes
• there’s a legal obligation to have a written contract, such as a trade contract for building work in Queensland.

Many contracting arrangements use verbal contracts. For example, hiring a cleaner or a gardener with an agreed payment.

Verbal contracts can work well if there are no disputes. However, a verbal contract 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.

If there is a dispute, a court may consider a verbal agreement a contract and enforce it.

Some contracts are both verbal and written. For example, a verbal agreement to do some electrical work may have supporting paperwork that forms part of the contract, such as a quote.

Other examples of paperwork that support a verbal contract are:

• emails
• lists of specifications or materials
• discussion notes, such as the basics of your contract written on the back of an envelope.

Write down the main points that you agree to with the other party to avoid relying on memory. Make sure each party clearly understands:

• what work or goods the contract covers
• the date the contractor will supply the goods or complete the work
• how much the work or goods cost.

Keep any paperwork associated with the contract. You can use this in later discussions with the other party if you need to resolve a problem. If the dispute becomes serious, you can use it as evidence in court.

A standard form contract is a pre-written contract a business offers on a 'take it or leave it' basis. There is little or no negotiation between the parties.

These contracts may have a blank space 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. You’ll need to comply with the fine print, even if you don't read it.

Laws protect consumers and small businesses from unfair terms in standard form contracts.

Some hirers use period contracts to engage a contractor for irregular work. The building and construction industry calls these 'period trade contracts'.

A contract template sets out the terms of the business relationship. The same contract template applies each time the hirer offers work to the contractor and the contractor accepts it. This occurs when either:

• the contractor gives a quote and receives a work order from the hirer
• both parties sign an addendum (an addition to the contract) that sets out the specific work the contractor needs to do or an outcome.

When the work starts, the contract template and the work order (or addendum) form the contract for the work.

Period contracts can work well for both parties. They allow the flexibility to do intermittent work over an agreed period.

Check the terms each time

For each new job, make sure the terms of the contract are the same as 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’re unsure about anything to do with a period contract, get advice before you sign or agree to new work. Do this even if you have worked with that business before.

Search our business advisory services to find free or low-cost legal advisory services in your state or territory. You can also find a lawyer through the law society or law institute in your state or territory.

If you're a First Nations person, you can contact the Aboriginal and Torres Strait Islander Legal Service in your state or territory.