What Is a Bilateral Agreement?

If you run a business, chances are you enter into agreements all the time - with customers, suppliers, contractors, landlords, and sometimes even other businesses you collaborate with.

But not every agreement works the same way. One of the most common types you’ll come across is a bilateral agreement, and understanding how it works can make it much easier to spot risks (and negotiate better terms) before you commit.

In this guide, we’ll break down what a bilateral agreement is, how it differs from other agreement types, where Australian businesses typically use them, and what you should look out for before you sign.

In simple terms, a bilateral agreement is an agreement where both parties make promises to each other, and both parties have obligations they must perform.

This is one of the most common contract structures in everyday business. Usually, one party promises to provide something (like goods, services, payment, access, or licensing rights) and the other party promises something in return.

For example:

You promise to deliver a service by a deadline, and your customer promises to pay your invoice.
A supplier promises to provide products that meet certain specifications, and you promise to pay and accept delivery under agreed terms.
A software provider promises to grant access to a platform, and you promise to pay a subscription fee and follow usage rules.

In many cases, a bilateral agreement will amount to a contract (meaning it can be legally enforceable). Whether it’s enforceable depends on factors like offer and acceptance, intention to create legal relations, consideration, and whether the terms are sufficiently certain. If you want a clearer view of how those elements fit together, it helps to understand offer and acceptance in practice.

Why Bilateral Agreements Matter For Small Businesses

As a small business owner, bilateral agreements are often the “engine room” of your operations. They set expectations about:

what each party must do
when it must be done
what happens if something goes wrong
how you get paid (or what you can do if you’re not)

When these agreements are clear and properly drafted, they reduce misunderstandings and help you resolve disputes quickly. When they’re unclear (or missing key terms), they can leave you exposed to late payment, scope creep, quality issues, and costly disagreements.

How Is A Bilateral Agreement Different From Other Agreement Types?

Understanding what makes a bilateral agreement unique is easier if we compare it to other common agreement structures you might hear about.

Bilateral Vs Unilateral Agreements

A unilateral agreement is where only one party makes a promise, and the other party “accepts” by performing an act rather than making a return promise.

A classic example outside of business is a reward offer: “We’ll pay $1,000 to anyone who finds our lost item.” Only the person offering the reward is making a promise upfront.

In contrast, with a bilateral agreement, both parties are making promises from the start - and both can generally enforce the agreement if the other doesn’t perform.

Bilateral Agreements And “Simple” Business Deals

Many business owners assume that only long-form contracts can be bilateral agreements. In reality, bilateral agreements can be formed in lots of ways, including:

signed contracts
accepted quotes with standard terms
email exchanges confirming price and deliverables
online sign-ups with terms and conditions

This is why it’s important to treat even “simple” deals as potentially legally binding, especially if they clearly set out mutual promises. If you’re using quotes regularly, it’s worth getting clarity on whether a quotation is legally binding and what terms should sit behind it.

Bilateral Agreements Vs Memorandums Of Understanding (MOUs)

Sometimes businesses use a memorandum of understanding (MOU) or heads of agreement early in negotiations. These documents can be helpful, but they may be:

fully binding,
partly binding (for example, confidentiality is binding but commercial terms are not), or
non-binding.

A bilateral agreement, by contrast, is usually intended to be binding once agreed - so you’ll generally want clearer drafting and stronger risk controls.

Common Examples Of Bilateral Agreements In Australian Business

You’ll see bilateral agreements across almost every industry. Here are some common examples that show up for Australian small businesses.

Customer Contracts And Terms

If you provide services (consulting, trades, creative services, marketing, IT, coaching, etc.), your customer contract is typically bilateral: you promise to provide the services, and the customer promises to pay and meet any requirements (like providing access, approvals, or information).

Even if you don’t use a formal “contract”, your standard terms and conditions can create a bilateral agreement once accepted by the customer.

Supplier And Procurement Agreements

When you buy stock, raw materials, or business-critical inputs, you’re often relying on a bilateral agreement that sets expectations around:

order quantities
delivery timeframes
quality standards
returns and defects
price changes

If you’re scaling, supplier agreements become even more important because they affect your ability to meet your own customer promises.

Employment And Contractor Agreements

Employment arrangements are typically bilateral agreements too: the employee agrees to perform work under certain conditions, and you agree to pay wages and meet legal obligations.

Having a properly drafted Employment Contract helps you set expectations around duties, hours, confidentiality, and termination - which is where many disputes arise.

Similarly, contractor agreements are bilateral: the contractor promises to deliver services, and you promise to pay, provide access, and (often) supply information or tools.

Leases And Commercial Arrangements

Commercial leases (including retail leases) are classic bilateral agreements. The landlord promises to grant use of the premises, and you promise to pay rent and comply with conditions (like maintenance responsibilities and permitted use).

Because lease terms can have long-term financial impact, it’s common to have a lawyer review them before signing.

IP Licensing And Collaborations

If you license your brand, content, software, or other intellectual property, you’ll typically use a bilateral agreement. For example, you grant a licence to use your IP, and the other party promises to pay licence fees and comply with restrictions.

These agreements often include confidentiality and ownership clauses - and getting these wrong can create major headaches later.

What Makes A Bilateral Agreement Legally Binding In Australia?

Just because two parties “agree” on something doesn’t automatically mean it’s enforceable. In Australia, whether a bilateral agreement is legally binding usually depends on the core principles of contract law.

While every situation is different, common elements include:

Offer: one party proposes terms (price, scope, timing).
Acceptance: the other party clearly agrees to those terms.
Consideration: each party gives something of value (often money in exchange for goods/services).
Intention: both parties intended the agreement to have legal effect (typically assumed in business settings).
Certainty: the key terms are clear enough to be understood and enforced.

In practice, small businesses run into problems when certainty is missing - for example, when the scope is vague, the timeline is unclear, or price changes aren’t handled properly.

Do Bilateral Agreements Need To Be In Writing?

Not always. Many bilateral agreements can be formed orally or through conduct (what the parties do), and they may still be enforceable (subject to any legal requirements that apply in specific situations).

However, from a business risk perspective, writing things down is usually the safer option. A written agreement helps you:

prove what was agreed
set clear performance standards
reduce disputes about “who said what”
build in payment protections and remedies

It’s also worth remembering that even informal communications can create binding obligations. If you’re negotiating by email, it’s helpful to understand whether an email is legally binding depending on how it’s written and what it confirms.

Key Clauses To Include In A Bilateral Agreement (And Why They Matter)

Because bilateral agreements involve mutual obligations, the most important drafting goal is to make those obligations crystal clear and to define what happens if one party doesn’t do what they promised.

Here are clauses Australian businesses commonly include (or should consider) in a bilateral agreement.

Scope Of Work / Deliverables

This sets out exactly what is being provided. It should cover:

what is included (and what is not)
standards or specifications
dependencies (what you need from the other party to do your job)

Clear scope is one of the best ways to prevent scope creep and disputes.

Fees, Payment Terms, And Late Payment

Don’t rely on “we’ll sort it out later.” Payment clauses typically cover:

pricing (fixed, hourly, milestone-based)
when invoices are issued
when payment is due
late fees or interest (if applicable)
what happens if payment is overdue (pause work, suspend access, debt recovery steps)

For many small businesses, cash flow is the difference between stability and stress - so it’s worth getting payment drafting right.

Timeframes And Milestones

If deadlines matter, specify them. Where timing is flexible, set expectations (for example, “within 5 business days of receiving approval”).

You can also include milestones tied to progress payments, which helps reduce the risk of delivering everything before you get paid.

Warranties And Liability Allocation

Most business owners want to include liability clauses, but they need to be drafted carefully so they’re realistic and enforceable.

This is where concepts like caps on liability, excluded losses, and responsibility for third-party issues often appear. If you’re considering these clauses, it’s helpful to understand the basics of limitation of liability clauses and how they can work in Australian contracts.

Termination And Exit Rights

A good bilateral agreement should clearly explain how the relationship ends, including:

termination for convenience (ending without fault, often with notice)
termination for breach (ending because the other party did something wrong)
what happens on termination (final payments, return of materials, handover obligations)

Even if you start a business relationship on great terms, having a clean exit pathway can prevent expensive disputes later.

Confidentiality

If you’re sharing pricing, strategies, customer lists, product plans, or other sensitive information, confidentiality clauses are essential.

They help you protect your commercial position and reduce the risk of information being used outside the relationship.

Dispute Resolution

Dispute resolution clauses can require negotiation (and sometimes mediation) before court proceedings. This can save time, legal fees, and relationships - especially where you want to keep working with the other party if the issue can be fixed quickly.

Practical Tips Before You Sign A Bilateral Agreement

When you’re busy running a business, it’s tempting to sign quickly - especially if you’re keen to win the deal or start work.

Before you sign a bilateral agreement, it helps to slow down and check a few practical points.

1. Make Sure The “Deal” Matches The Document

One common issue is where the parties negotiated one thing, but the written agreement says another (sometimes because it’s a template, or the “standard terms” were never updated).

Check that the pricing, scope, timeframes and key promises actually match what you agreed during negotiations.

2. Clarify Who The Parties Are

Are you contracting as a sole trader, company, or partnership? Is the other party signing in their correct legal entity?

Getting this wrong can make enforcement harder, especially if there’s a dispute about who actually owes money or must perform obligations.

3. Watch Out For One-Sided Risk Terms

Some agreements look fine on the surface, but shift a lot of risk onto you through:

unlimited indemnities
broad “you are responsible for everything” clauses
unrealistic service standards with heavy penalties
automatic renewals without clear opt-out rights

It’s not that risk clauses are always “bad” - but they should reflect what you can reasonably control.

4. Think About What Happens If Things Change

Businesses evolve quickly. It’s worth asking:

Can the scope be changed, and how?
Can prices be reviewed, and when?
What happens if delivery is delayed due to factors outside your control?
What happens if the other party doesn’t respond or approve work?

These “what if” clauses often make the difference between a workable agreement and a stressful one.

5. Keep Consumer Law And Fair Trading In Mind

If your bilateral agreement is with customers (especially if you sell goods or services to individuals), you’ll want to ensure the terms align with the Australian Consumer Law (ACL). Some consumer guarantees can’t be excluded, and you need to be careful with how you describe refunds, warranties, and guarantees.

Depending on the contract, you may also need to consider the ACL’s unfair contract terms (UCT) regime, which can apply to certain standard form consumer and small business contracts. If a term is unfair, it may be void and can create real compliance risk - so it’s important that your contract terms and your marketing language are consistent with what you actually deliver.

Key Takeaways

A bilateral agreement is an agreement where both parties make promises to each other, creating mutual obligations.
Bilateral agreements are common in day-to-day business, including customer contracts, supplier agreements, employment arrangements, leases, and IP licences.
A bilateral agreement can be legally binding even if it’s formed through emails, quotes, or conduct - not just a signed formal document.
Clear drafting around scope, payment terms, timeframes, liability, and termination helps prevent disputes and protects your cash flow.
Before signing, check the deal matches the document, confirm the correct parties are listed, and look out for one-sided risk clauses.
If you’re unsure, getting advice early can help you negotiate better terms and avoid costly mistakes later.

Note: This article provides general information only and does not constitute legal advice. For advice about your specific situation, speak to a lawyer.

If you’d like help reviewing or drafting a bilateral agreement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

What Is a Bilateral Agreement? A Guide for Australian Businesses