Contracts – some basics, liability & indemnities

Who are you contracting with?

  • Legal Entity

    • 1 or more individuals
    • 1 or more individual t/as … registered business name
    • incorporated association
    • company
    • company t/ as …registered business name
  • Business Name – is not a legal entity but registered to an owner – individual, individuals (might be a partnership) or corporate body

    If business name not registered – there will be issues enforcing agreement

  • Company – ACN and/or ABN

  • Free ASIC business & company name search – use company number, company name or the business name

    https://connectonline.asic.gov.au

  • ABN confirmation often important for GST and financial process purposes

  • Free ABN search

    ABN Lookup – http://abn.business.gov.au/

    Always confirm name, individual, corporate entity & ACN/ABN – before you contract

Essential terms and certainty

  • Offer (e.g. To provide services/advice/product for valuable consideration)

  • Acceptance

  • Consideration – price or other ‘valuable’ consideration e.g. Money/publicity/international acknowledgement

  • Certainty – agreement to set out the terms clearly or can be void

Other terms and certainty

  • Background useful for context – particularly if a 3rd party later needs to interpret intentions

  • Commencement date

  • Length of contract (the term), termination date useful

  • Termination details/process

  • Include relevant legislative obligations and liabilities

  • Payment terms – negotiate realistic time

  • Confidentiality

  • Worker screening – Blue card; Yellow card; police checks

  • Intellectual property – ownership, sharing, licensing

  • Insurance requirements

  • Indemnities

  • Dispute resolution process – agree while friendly

  • Jurisdiction e.g. Queensland

Liability & Indemnity clauses

Clearly state the liabilities/responsibilities of each party:

  • specific legislative requirements e.g. if workers are to   hold blue cards &/or yellow (disability positive notice) cards

  • matters where you rely on their expertise

  • matters over which you have no control e.g.  3rd party fundraiser responsible for event registrations

  • quality of services / goods

  • confidentiality & consequences where relevant

  • include indemnity & insurance requirements re matters for which other party is responsible

  • particularly if your organisation remains liable through contract, legal liability (including duty of care responsibilities) or legislative requirements

Legal liability is as set out by legislation and common law (that is court decided case law principles)

Liability insurance policies are contracts with the insurer that subject to its terms and conditions, cover you for your legal liability.

Existence of insurance policy does not mean automatic cover – may be exclusions / carve outs from legal liability. Know your policies

Liability insurance policies

  • public/property

  • professional indemnity

Will not cover you for things you do not control and/or for which you are not legally liable e.g. A fundraising event run by member of the public – even though your NFP is beneficiary; employment service clients on work placement

Unless you have arranged relevant endorsements with your insurer – for specific circumstances. May cost more (increased premium) & insurer may still limit extra cover

Contractual Indemnity” clauses – unfair (inequitable), seek to extend contractual liability past a party’s legal liability

Do not agree if a clause:

  • extends liability further than your legal liability, or

  • extends your liability to matters over which you have no control

Unless you have made a conscious commercial decision to do so – having applied your board approved risk assessment process or obtained express board approval where required

Each party should remain responsible for their own negligent acts & omissions and that of their employees, contractors (and agents)

Always require your contractors / subcontractors to:

  • indemnify you for their negligent acts & omissions

  • provide current certificates of currency signed by their insurer

Insurance

Insurance policies cover only legal liability unless you have made special arrangements

  • Do you have specific insurance requirements of the other party – list them e.g. Public & products liability, professional indemnity, workers compensation

  • Your insurer probably requires you to do so – check with your broker

  • Avoid clauses that require other party’s approval of your insurer – you probably already have one – change so the clause acknowledges that your insurer is acceptable

  • Obtain the other’s certificates of currency before commencement of the contract – check they are current and signed by insurer!

Noted as an ‘interested party’ not effective

Rather,

  • Arrange for a policy endorsement specifying the contract and where  žyour NFP is the principal in the contract – required that your organisation is noted on the other party’s policy as a principal for that contract

  • Where the other party is the principal for the contract arrange for them to be specified for that contract on your insurance policy

  • Talk to your insurance brokers before entering agreements – keep them in the loop, use them – they are there to help you

Insurance & government contracts

  • Government grants or service agreements may have insurance requirements outside legal liability & outside standard insurance contract cover

  • The Terms & Conditions of the grant or agreement is usually available before you submit your proposal so you are for warned

  • Find the insurance requirements – send them to your broker – ask if your policy complies / covers

  • Before tendering/applying – know if you need to: —seek further insurance cover

  • Is it available?

  • What will it cost? Or do you need to negotiate, make the tender/application on terms that do not breach your insurance policy (insurance contract)?

  • Do you need to allow for extra costs in your price?

  • Failure to comply with insurance requirements breach of the contract? May result in termination of it and other Dept contracts

  • Therefore breaches that affect other govt contracts mean a lot of income may be affected

  • Grants / agreements may require declarations of compliance

  • Providing false declarations – fraud, potential criminal consequences

Additional Resources