Overview of the Updated UCT Laws
Businesses in construction and infrastructure must now take greater care to ensure their standard form contracts do not contain unfair terms under the Australian Consumer Law. These terms are now illegal, with significant penalties for breaches.
What’s Changed Under the UCT Regime?
The regime has been significantly expanded and now covers more businesses, particularly those that meet the broader definition of a small business.
A small business is defined as one that:
- Employs fewer than 100 people; or
- Has an annual turnover of under $10 million.
Potentially unfair terms include:
- One-sided indemnities
- Disproportionate liability limits
- Unreasonable time bars
The UCT laws apply to:
- Standard form contracts entered into or amended on or after 9 November 2023; and
- Contracts involving small businesses or individuals.
Each contract must be assessed individually to determine if it is a standard form.
What is a Standard Form Contract?
A standard form contract is typically one that is prepared by one party, with the other party having little or no real opportunity to negotiate its terms. In the construction industry, most contracts are presumed to be standard form unless proven otherwise and are therefore subject to the unfair contract terms laws.
How Are Unfair Terms Identified?
To determine if a term is unfair, the courts will consider:
- Imbalance of rights between the parties;
- Whether the term protects a legitimate interest; and
- If the term causes financial or other harm when enforced.
What Rights Do Small Businesses and Consumers Have?
Under the regime, they can:
- Request courts to declare unfair terms void and unenforceable
- Refer offending businesses to the ACCC, which may prosecute and penalise those using UCTs
International Contracts Still Count
The regime applies beyond Australian borders. Even contracts under foreign law may breach the regime if the company operates in Australia.
Penalties and Commercial Consequences
Courts may:
- Invalidate or modify contracts containing UCTs;
- Ban future use of similar terms; and/or
- Apply changes to multiple contracts across a business.
The ACCC can impose civil penalties for each unfair term, even if it was never enforced.
Maximum penalties per breach:
- Corporations: The greater of $50 million, 3x the benefit gained, or if the benefit cannot be determined 30% of adjusted turnover during the breach turnover period
- Individuals: Up to $2.5 million
Each UCT is considered a separate contravention, increasing potential exposure.
Reducing the Risk of a UCT Breach
To mitigate risk, businesses should:
- Allow and document opportunities for negotiation
- Provide a clear business justification for each clause
- Avoid using the same templates for all counterparties
- Keep records of contracting processes and rationale
Why the Construction Industry Is Especially Affected
With 80–85% of work subcontracted, construction has one of the highest rates of small business involvement:
- Over 97% of Australian businesses have fewer than 20 employees
- Most construction counterparties — subcontractors, suppliers, consultants — will meet the definition of a small business
These changes affect all tiers of the supply chain, from developers to sole traders.
What Your Business Should Do Now
To stay compliant:
- Review your standard form contracts for UCTs
- Tailor templates based on counterparty size and structure
- Offer opportunities for genuine negotiation
- Document your processes to help defend against UCT claims
A proactive review now could prevent costly penalties and legal disputes down the track.
If you require any assistance regarding your contracts, please do not hesitate to contact our office.
