12 Crucial Clauses Suppliers Need in Any Contract of Services

The leadup to a service contract is often a fast, high-stakes endeavour, and in the rush to commence work important contractual issues can be overlooked. This guide sets out the 12 clauses suppliers should check in any contract of services, so that scope, payment, liability and risk allocation are addressed before problems arise, not after.

The leadup to a service contract is often a fast, high-stakes endeavour. Because of the rush to commence work, important contractual issues can sometimes be overlooked, which can create large costs and fallout for both parties. ContractProbe can speed up this process, while reducing the chance of errors.

Issue 1Why does a supplier need a clear description of scope in a contract of services?

Without clearly defining the scope of services to be provided, both parties are in the dark regarding the very nature of the contract. A thorough and unequivocal definition of the scope will always be required to ensure the parties' expectations are aligned. In this way, the provider will not need to do more than what they agreed, and the customer will not be disappointed if the services are not as assumed.

All deliverables and exclusions should be present, along with measurable objectives and milestones.

Key points

• Define the scope thoroughly and unequivocally so both parties' expectations are aligned.
• Include all deliverables and exclusions, along with measurable objectives and milestones.
• List anything you need the customer to provide in order for you to perform the services.

Issue 2Why should payment provisions be unconditional in a supply contract?

The right to payment by the customer should be unconditional. It is unreasonable to expect a supplier to perform their side of the contract, but still risk the prospect of not being paid for their work. Rights to payment should accrue upon performance. Restrictions such as "pay when paid" clauses generally create an unreasonable risk for suppliers to take.

Key points

• The right to payment should be unconditional and accrue upon performance.
• Avoid "pay when paid" clauses, which shift an unreasonable risk onto the supplier.
• Keep the right to render an invoice as objective as possible.

Issue 3Should suppliers charge interest on unpaid amounts?

When an amount is paid late, the supplier will miss out on any profits they could have made through interest and investments, while also being potentially liable to other debtors who they would pay with the customer's payment. For this reason, the customer should be liable to compensate the supplier for any late payments, with a reasonable rate of interest.

Key points

• Late payment costs a supplier lost interest, lost investment opportunities, and can create liability to its own debtors.
• The customer should compensate the supplier for late payments at a reasonable interest rate.
• Interest should apply even to amounts the customer is disputing.

Issue 4What should a supplier check in a force majeure clause?

The force majeure clauses are often tucked away at the back of a contract and given scant regard during negotiation. In supply contracts, they are far too important to be treated in that way. Supply contracts are often disrupted by unforeseeable events like natural disasters or even global health pandemics. When these disruptive events occur, parties become unable to perform their obligations. The contract becomes "frustrated", and automatically comes to an end.

A force majeure clause will list a range of potentially frustrating events and the consequences of them occurring. For example, an airline, or shipping company may have force majeure clauses which limit their liability in the event of a hurricane. Instead of the contract automatically ending, performance of a contract may also be merely suspended temporarily, and parties may decide for themselves who bears the risk of a particular event occurring.

Force majeure provisions typically operate for the benefit of the supplier in a contract, and that party needs to check first that one is present and secondly that, if it is present, its terms are appropriate for that contract and not just boilerplate generic language.

Force majeure clauses often contain a provision requiring the affected party to give notice to the other party of the occurrence of the force majeure event. This provision is of critical importance. If you are the customer under a supply contract, make sure that giving notice within a set number of days is a condition precedent to the protection afforded by the force majeure provision. If you are the supplier, avoid the condition precedent language and ensure the requirement to give notice is stated as a separate obligation, so that failure to give notice as required does not necessarily prevent you from taking advantage of the force majeure provision.

What to check

• Confirm a force majeure clause is present, and that its terms are tailored to the contract rather than generic boilerplate.
• Understand whether a force majeure event ends the contract automatically or merely suspends performance.
• As supplier, ensure the notice requirement is a separate obligation, not a condition precedent to protection.
• Check the definition of "force majeure event" starts with "includes" rather than "means".

Issue 5How can suppliers build a fast dispute resolution mechanism into a contract?

Contractual disputes are common when doing business in modern times. Planning for such disputes is critical to reducing both parties' risk.

Alternative dispute resolution methods should be exhausted before any issue is referred to a court of law. This way, the parties can ensure that large legal fees are avoided and amounts in dispute get resolved and paid quickly.

Practical approaches

• Require alternative dispute resolution to be exhausted before court proceedings are commenced.
• Name the body that will appoint a mediator, and specify the rules that will govern the process.
• Close off ambiguity that a customer could otherwise use to protract resolution, and payment.

Issue 6How should a supplier cap its limitation of liability?

A party's contractual and tortious liability can sometimes be unpredictable and beyond what was envisioned while entering contracts. For this reason, the amount the supplier is liable for should always be limited to some specific amount. Major companies have gone broke because the losses on a particular contract far exceeded their ability to pay. Ideally the maximum amount for which a supplier may be liable under a particular contract should not exceed the total amount they should be paid under that contract.

Key points

• Cap total liability at a specific amount, ideally no more than the total fees payable under the contract.
• Word the cap as "aggregate" or "total" liability, not liability per individual breach.
• In long-term contracts, tie the cap to fees paid in the last 12 months, not the full contract term.

Issue 7How should suppliers exclude indirect and consequential losses?

The losses that a party suffers from breach of contract are referred to at law as being either "direct" and "indirect". A direct loss is typically the value which was lost as a result of incomplete performance of an obligation. For example, a car manufacturer who contracts to have 10 tonnes of steel delivered, but receives only 7, may sue for the cost of the 3 tonnes which were not delivered.

"Indirect" (also known as "consequential") losses are losses beyond a party's direct loss. This may include loss of profit on subsequent transactions. For example, if insufficient steel was delivered, the car manufacturer's inability to meet pre-orders may cause them further losses in cancelled orders, lost customers, and wasted parts. The amount of indirect losses is much harder to predict in advance and can include factors over which the supplier has no control.

It is normally in the supplier's interests to exclude indirect losses totally from the contract. The wording of such exclusions is very important. Contrary to popular belief, a clause which merely excludes "consequential loss" will not necessarily exclude liability for loss of profits. Lost profits should therefore be expressly referred to as something which is excluded, even if the profits are later found by a Court to be a direct loss at law. Consequential losses are only recoverable if they are not too "remote". This means it must have been reasonable for the parties to have contemplated the losses at the date of contract. Nevertheless, what a court considers as a contemplatable loss may still be extremely expensive, hence the need to ensure you limit your liability with an exclusion of consequential loss clause.

Key points

• Exclude indirect and consequential losses from the contract wherever possible.
• Expressly exclude lost profits in their own right, not merely as part of "consequential loss".
• Watch for a separate cap on consequential losses, and never accept unlimited recovery of consequential loss.

Issue 8What warranty language should suppliers avoid?

Wherever warranties are included in a contract for services, they should always refer to objectively measurable representations and promises.

Some specific warrantees such as to use "best practices" or to perform the services to the "highest standard" are difficult to quantify and result in uncertainty for the supplier. Any warranty that services will be "fit for purpose" must also include a clear definition of the relevant purpose.

Where possible, you should also use an "entire agreement" clause to remove verbal warranties or promises which may be ambiguous and uncertain in scope.

If this can be considered a consumer contract, you must also be mindful of the application of the Australian Consumer Law ("ACL"). Provisions which conflict with ACL requirements are void to the extent of the conflict and may even be considered misleading and deceptive conduct: sometimes resulting in multi-million-dollar penalties. A consumer contract includes contracts in a commercial setting where the price of particular goods or services is less than $100,000.

Key points

• Use warranties that refer to objectively measurable representations and promises.
• Avoid vague standards such as "best practices" or "highest standard"; define "fit for purpose" clearly if used.
• Use an entire agreement clause to remove ambiguous verbal warranties.
• Remember the Australian Consumer Law can apply to commercial contracts under $100,000, and reject "merchantable quality" or "fitness for purpose" wording.

Issue 9How should suppliers approach indemnities in a contract of services?

Some services naturally include significant risks to the supplier which only the customer can prevent, and vice versa. For example, if the supplier is operating on customer premises, the customer has a responsibility to ensuring that such premises are safe for supplier personnel.

Where such a risk is present, it is fair that the party responsible is also obliged to bear the financial risk of this. Indemnities require the other party to pay for any loss incurred from a certain cause and are an effective tool for shifting the allocation of risk.

However, be sure to ensure that indemnities contained in the contract do not cause you to take on risks which are beyond what is reasonable. Indemnities should never cover losses which arise from the customer's own actions or could not have been prevented by the supplier. Some insurance policies may also deny a claim if a party has assumed more risks than are applicable at law.

Key points

• Indemnities should sit with the party best placed to prevent the risk they cover.
• Never accept an indemnity that covers losses caused by the customer's own actions or that the supplier could not have prevented.
• Check insurance may not respond where more risk has been assumed than applies at law.
• Reject an indemnity for breach of contract, since damages already provide the customer's remedy.

Issue 10Why does proportionate liability legislation matter for suppliers?

Depending on which State laws governs the agreement, there are different legislative provisions which allocate liability for loss, according to the proportion each wrongdoer contributed to such loss. The provisions can generally be contracted out of, explicitly or impliedly, and if this happens you should be aware of the agreed new allocation of liability.

It is generally in the supplier's interest to maintain the application of proportionate liability legislation. This is because the legislation will generally protect the supplier from being liable beyond the proportion they contributed. If the legislation is excluded then the supplier may be liable for the full extent of any loss even if they only contributed to a small part of it. Contracting out of proportionate liability legislation may also reduce the wrongdoer's ability to claim for loss on insurance, as they have assumed liability beyond that at law.

A supplier should also be aware that in some specific cases, proportionate liability legislation can reduce their protection. For example, if several parties including the customer contribute to a loss by the supplier, but only the customer has the funds to pay, the supplier cannot elect to claim the full amount from the customer, but can only claim from the customer the percentage for which the customer is to blame.

Key points

• Proportionate liability legislation allocates loss according to each wrongdoer's actual contribution, and varies by State.
• It is generally in a supplier's interest to keep this legislation in place rather than contract out of it.
• Excluding it can mean full exposure for a loss the supplier only partly caused, and can affect insurance recovery.
• It can also work against a supplier where only the customer can pay, since the supplier can then only claim the customer's proportionate share.

Issue 11What insurance obligations should suppliers accept?

Many contracts will mandate that a party enters into insurance agreements. These ensure that a party can pay for losses it is liable for. While having your own insurance arrangements is generally a good idea, ensure that the contract does not oblige you to procure insurance beyond what is reasonable. Otherwise, you will be paying premiums which are not in your interest.

Specifically, ensure that the type of insurance covers losses which you are likely to incur while performing the services. For example, public liability insurance may be required if the services include extensive construction work but would not be so applicable if activities only include consultation or professional services.

If there is any possibility that the other party may be required to pay damages beyond their means, ensure that they are obliged to procure and maintain insurance which will cover such loss.

Key points

• Match insurance obligations to the losses actually likely to arise from the services being performed.
• Don't accept an obligation to procure insurance beyond what is reasonable for the contract.
• Where the customer might owe damages beyond its means, require it to carry its own insurance.
• Avoid clauses requiring insurance to cover all liability under the contract, particularly alongside indemnities.

Issue 12What should suppliers require in their payment terms?

The exact amount to be paid should always be specified, along with the time at which this payment should be made. Provisions which allow for delayed payment are especially onerous for suppliers and can result in significantly reduced cashflow. Ensure that the customer is obliged to pay the supplier on well-defined milestones or dates.

Also note that for construction contracts, most States have additional requirements regarding prompt payment terms under security of payment legislation.

Key points

• Specify the exact amount payable and the exact time payment is due.
• Tie payment to well-defined milestones or dates, not open-ended timing.
• Check State-based security of payment legislation for construction contracts.
• Avoid "properly issued invoice" wording, which can delay payment over technicalities or partial disputes.

Frequently asked questions

Why does the definition of a "force majeure event" matter for suppliers?

The definition should start with the word "includes" rather than "means". This allows a supplier to argue that something is still a force majeure event even if it is not expressly referred to in the definition, giving broader protection than a closed list would.

How should a supplier word a cap on liability?

The cap should refer to the supplier's "aggregate" or "total" liability under the contract, not liability for each individual breach, otherwise the supplier remains exposed if there are multiple breaches. In a long-term contract, the cap should also be tied to fees paid in the last 12 months of the contract, so liability does not simply keep increasing as the contract continues.

Does excluding "consequential loss" also exclude lost profits?

Not necessarily. A clause that only excludes "consequential loss" will not necessarily exclude liability for loss of profits, because a court may still find profits to be a direct loss in some circumstances. Lost profits should be expressly excluded in their own right, separately from the general exclusion of indirect or consequential losses.

What is a consumer contract under the Australian Consumer Law, and why does it matter for warranties?

A consumer contract can include contracts in a commercial setting where the price of the goods or services is less than $100,000. Provisions that conflict with Australian Consumer Law requirements are void to the extent of the conflict, and may even be considered misleading and deceptive conduct, which can result in significant penalties.

Should a supplier accept an indemnity for breach of contract?

Generally, no. If a supplier breaches the contract, the customer already has its remedy in damages and should not also be given the broader payment protection an indemnity provides. Indemnities are best reserved for specific, identified risks that only one party can control, rather than being extended to cover breach of contract generally.

Why does proportionate liability legislation matter for suppliers?

Proportionate liability legislation generally protects a supplier from being liable beyond the proportion of loss it actually contributed to. If a supplier excludes or contracts out of this legislation, it may become liable for the full extent of a loss even where it only contributed a small part, and may also reduce its ability to claim on insurance.

This publication is general information only and does not constitute legal advice. © 2026 ContractProbe Pty Ltd.

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