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New clout for contractors


9 February 2011

It's a common---and legitimate---sport for business people to complain about government being out of touch and obsessed with regulation. But occasionally governments do produce good things, like Small Business Minister Nick Sherry's new guide for small business contracts.

The guide, put together by the Department of Innovation, advises how to avoid being screwed over as an independent contractor, legitimising advice that has been offered by private organisations for years. When the information comes from the government people are more likely to take it as the truth. For too long, confronted with all sorts of evidence of unfair contracts, people have taken the view that this is simply a part of commerce---that you can't expect fairness. It's certainly the position many lawyers take when they write contracts which are totally one sided. These are designed to exclusively protect the interests of their clients at the expense of the other party. Small business people are prey to this. They become victims because they rarely have the financial muscle to afford countervailing legal advice.

This is where the new government contract guide is helpful and also possibly quite powerful. The new contract guide is the best I've seen---and I've seen plenty of similar advice. It's logically laid out and uses refreshingly clear, non-legalistic language. It also goes through all the basic items that a contract should sensibly contain, rather than providing a generic contract template.

For example, it covers descriptions of indemnity, intellectual property and confidentiality issues, payment and performance expectations, exclusivity and restraint of trade and---most importantly---contract termination and dispute resolution procedures. It looks at associated laws that the contract must be factored around, including workers compensation, taxation, superannuation, anti-discrimination and collective bargaining under the Trade Practices Act. It also gives a sensible description of Personal Services Income tax law.

The reason this guide is potentially so important to small businesses is the principle that 'knowledge is power'.

Small business people can often be confused by contracts or overawed by legal terms. They'll often take a job, ignore the contract risks and hope nothing goes wrong. But if people use the government guide they'll have reliable facts upon which to better judge contracts. They will be more confident and prepared to negotiate to change contracts so that the contracts are balanced and protect their interests.

Large businesses that use self-employed people for work should also take note. Sometimes the intent is to have contracts that give them all power---I could (but won't) name several companies that fall into this category. But many other large companies want a genuine fair balance of power in the contracts they use, and this guide will be equally helpful for them.

Hopefully government departments will also take heed---they are responsible for some of the worst contracts going around. The federal government recognised this last year, producing a new guide for their procurement officers that looked particularly at liability allocation with instructions on how to achieve a sensible balance. Fingers crossed departments will do what governments say they should.

On it's own the new contract guide could seem minor. But more broadly it helps foster a better overall business environment.


From the Business Spectator, February 2011.

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