A Customer Wants You To Sign Their Contract Instead Of Yours - What Should You Check?

When you're taking on a new customer, it's pretty standard to have a contract in place covering the work you'll be doing, payment and what both parties can expect. But what happens when the customer sends through their own contract and asks you to sign that instead?

This isn't unusual, particularly when working with larger businesses that have their own standard agreements. However, their contract might include conditions you haven't factored into your pricing or responsibilities you weren't expecting to take on. While there's nothing wrong with a customer wanting to use their own terms, it's important to make sure they work for your business too.

Do You Have To Sign The Customer's Contract To Win The Work?

It's understandable to worry about losing a potential customer, especially if you've already spent time preparing a proposal or discussing the project. When they send through their own contract, you might feel that signing it is simply part of securing the job.

However, you're generally not legally required to accept a prospective customer's contract just because they've asked you to sign it.

A customer can make using their standard agreement a condition of doing business with them, but you're also entitled to raise concerns, suggest changes or decide whether the arrangement works for you.

Of course, there's a commercial side to this. Larger businesses may have procurement processes requiring suppliers to use approved contracts, and they might not be willing to change every provision.

It's also important to consider whether you've already entered into a legally binding agreement. Depending on what's been communicated and accepted, a quote, email exchange or the parties' conduct can sometimes establish a contract before a formal document is signed.

If an agreement is already in place, the customer sending through new terms doesn't necessarily mean you're required to accept them.

What Happens To The Terms You've Already Sent?

Say you've provided a customer with a proposal for a $5,000 project, with half payable upfront and the balance due on completion.

The customer agrees to the price but then sends through their standard agreement, which says payment will only be made 60 days after they've approved the final work.

That's quite a difference, especially if you've planned your cash flow around receiving an upfront payment.

Your original terms don't automatically disappear because the customer sends another contract. Equally, you shouldn't assume they'll continue to apply if you sign the new agreement.

Much depends on what's already been agreed and how the documents interact.

For example, an entire agreement clause may state that the signed contract represents the complete agreement between the parties, while an order of precedence clause may establish which document takes priority if there's an inconsistency.

Where businesses exchange competing sets of terms, questions can also arise about which terms were actually accepted. This is sometimes called the battle of the forms.

It's also worth being careful about starting work while the terms are still being discussed. Depending on the circumstances, beginning the project, delivering goods or accepting payment could contribute to an argument that a contract has already been formed, even if neither party has signed the latest document.

If there are important differences between the agreements, it's generally better to resolve them before work begins.

Does The Customer's Contract Change What You've Agreed To Deliver?

One of the biggest things to look out for is whether the customer's contract asks you to do more than you originally agreed.

For example, imagine you run a marketing agency and have quoted for a campaign involving three social media advertisements, two rounds of revisions and a final report.

The customer sends through a contract that requires unlimited revisions, weekly reporting and ongoing support after the campaign finishes.

At first glance, it might look like a standard services agreement. However, those additional requirements could significantly increase the time and resources needed to complete the project.

It's worth comparing the customer's contract against your original proposal to see whether the scope, deliverables, deadlines and responsibilities still match.

You should also consider what's expected of the customer. If you're relying on them to provide information, approve designs or give access to their systems, the agreement should reflect those dependencies.

Otherwise, you could find yourself responsible for delays that weren't entirely within your control.

Are You Taking On Risks Your Business Wouldn't Normally Accept?

The work itself might be straightforward, but some contractual obligations can create risks that go well beyond the value of the project.

For example, a customer's agreement might require your business to compensate them for a broad range of losses arising from the services you provide. This could be particularly concerning if the clause isn't limited to losses connected to your conduct.

Other agreements might require you to transfer ownership of intellectual property that your business normally reuses across different projects.

For a software developer, this could mean a customer seeking ownership of existing code libraries or development tools, rather than just the software created specifically for them.

These provisions aren't necessarily inappropriate. Customers have legitimate reasons for wanting protection, especially where suppliers handle confidential information or develop valuable intellectual property.

The question is whether your business understands the obligations, can realistically meet them and knows what the consequences could be if something goes wrong.

It's also worth checking whether the agreement requires insurance your business doesn't currently hold or exposes you to liabilities that exceed your coverage.

Can Unfair Contract Terms Laws Protect Your Business?

If a larger customer provides a standard contract with little room for negotiation, you might wonder whether they're allowed to include terms that heavily favour their own business.

In Australia, the Australian Consumer Law (ACL) protects consumers and qualifying small businesses against unfair terms in certain standard form contracts.

Importantly, these protections can apply even when the smaller business is supplying goods or services to a larger customer, rather than purchasing something from them.

Under changes that took effect on 9 November 2023, the protections generally cover qualifying standard form small business contracts where at least one party has fewer than 100 employees or annual turnover below $10 million.

A standard form contract is generally one prepared by one party with little meaningful opportunity for the other party to negotiate its terms. However, this depends on the circumstances, and being able to negotiate some provisions doesn't automatically mean the contract falls outside the protections.

What Makes A Contract Term Unfair?

A contract term may be unfair if it creates a significant imbalance between the parties' rights and obligations, isn't reasonably necessary to protect the legitimate interests of the party benefiting from it, and would cause financial or other detriment if relied upon.

For example, a customer might include a provision allowing them to terminate the agreement at any time without consequences, while requiring your business to pay a substantial penalty if you do the same.

Another example might be a provision allowing the customer to change important requirements without your agreement, even where those changes could significantly increase your costs.

However, not every one-sided or commercially difficult clause is legally unfair. Whether a term is unfair depends on the circumstances, including the contract as a whole. Certain terms, such as those defining the main subject matter or upfront price of the contract, are generally excluded from the unfairness assessment.

Only a court can make a binding determination that a term is unfair. If a term is declared unfair, it is void and cannot be enforced, although the remainder of the contract can generally continue if it can operate without that term.

The November 2023 changes also introduced prohibitions and substantial potential penalties for proposing, using or relying on unfair terms in covered contracts. These changes generally apply to standard form contracts made or renewed on or after 9 November 2023, and to terms varied or added on or after that date.

You can learn more about the rules through the ACCC's guidance on unfair contract terms.

If you're concerned about potentially unfair provisions in a customer's agreement, having the contract reviewed can help you understand whether these protections may apply and what changes might be appropriate.

Can You Ask The Customer To Change Their Contract?

Absolutely. Just because a customer has sent you their standard agreement doesn't mean every term is necessarily set in stone.

You also don't need to reject the entire contract because one or two provisions don't work for your business.

For example, if the customer's agreement requires unlimited revisions, you could explain that your original quote includes two rounds of changes and ask for the agreement to reflect that scope.

Similarly, if the customer wants ownership of all intellectual property used in the project, you might propose wording that gives them ownership of the finished deliverables while allowing your business to retain its existing tools, templates and systems.

The aim isn't necessarily to convince the customer to accept all your usual terms. It's to identify which changes matter most and see whether both parties can agree on an arrangement that works.

Of course, some customers may have strict procurement requirements and refuse to change particular clauses.

If that happens, you'll need to consider whether the project is still worthwhile under the proposed terms.

For example, a $10,000 services agreement may not be particularly attractive if accepting it exposes your business to potentially substantial liabilities that aren't covered by insurance.

Depending on the situation, you might consider adjusting the scope or price, proposing alternative wording, checking your insurance arrangements or deciding not to proceed.

What's important is that you understand the risks before committing, rather than discovering them when a problem arises.

Getting The Agreement Right Before You Sign

Using a customer's contract isn't necessarily a problem, but it's worth checking that the terms reflect the work you've agreed to do and don't expose your business to obligations you weren't expecting.

If you're unsure about the wording, having your contract reviewed can help you understand the risks and identify changes you may want to put forward.

If you'd like to discuss your contracts, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.