You've spent weeks negotiating a watertight services contract. Liability clauses, confidentiality provisions, payment terms, dispute resolution -- all carefully reviewed and signed off. Then work begins, and six months in, you and your supplier are at loggerheads over what was actually included in scope. Sound familiar? This situation plays out far more often than it should in Australian businesses, and the frustrating thing is that it's almost entirely avoidable. The culprit is usually not the legal terms -- it's the commercial terms that nobody got around to properly documenting.
What Are Commercial Terms, and Why Do They Matter?
Commercial terms are the practical details of a business arrangement: what is being delivered, by when, at what price, and to what standard. They sit alongside the legal framework of a contract and answer the questions that a business owner actually cares about most. Think of it this way -- the legal terms set the rules of the game, but the commercial terms define what game you're actually playing.
A Master Services Agreement (MSA) or similar head contract is designed to govern the overall relationship between two parties across multiple projects or engagements. It is not designed to specify every deliverable or fee for every piece of work. That's the job of accompanying documents like Statements of Work (SOW), Purchase Orders, Scopes of Services, or even a well-structured proposal. The head contract contemplates that these documents will follow -- but problems arise when they don't.
If your business regularly engages contractors or service providers, a well-drafted Master Services Agreement gives you the legal scaffolding you need. But the scaffolding only works if you fill in the commercial details each time a new project begins.
The Dangerous Habit of Sorting It Out Later
There's a very common pattern in small and medium-sized businesses: two parties are keen to get started, there's momentum, trust seems high, and so the commercial details get pushed to "later." The head contract might say something like, "we will pay $40,000 for the development of a software platform in accordance with a Statement of Work to be agreed." Everyone nods, assumes they're on the same page, and the work begins.
The problem is that "to be agreed" never gets agreed. Each party carries their own assumptions about what's included, what constitutes completion, and what would trigger additional fees. By the time a disagreement surfaces -- often well into the project -- a significant amount of work has already been delivered (or not delivered, depending on your perspective). Untangling what was in or out of scope at that point is genuinely difficult, and the goodwill that existed at the start of the relationship has often eroded.
This isn't just a problem for large corporates with complex procurement processes. It happens regularly between a founder and a web developer, a business owner and a marketing consultant, or a company and its outsourced IT provider. The scale differs, but the dynamic is the same.
Where Lawyers Fit In (and Where They Don't)
It's worth understanding the division of responsibility here, because a lot of business owners assume their lawyer has it covered when they don't.
Lawyers are well placed to draft and negotiate the legal framework of a contract -- the clauses that govern liability, intellectual property, termination, confidentiality, and so on. What lawyers are not equipped to advise on -- and in fact are professionally restricted from advising on -- is whether a particular price is commercially reasonable, or whether a given scope of services represents good value for your business. That's a commercial judgement that sits with you as the business owner or manager.
For repeat engagements, a lawyer will typically help draft a Statement of Work template that the business then uses on a project-by-project basis. They won't review every SOW that goes out the door. That means the responsibility for ensuring each SOW is completed, agreed, and signed before work begins rests squarely with your team -- not your legal advisers.
This isn't a criticism of lawyers. It's simply a reminder that the legal and commercial sides of a contract require different expertise, and both need attention.
What Happens When Commercial Terms Aren't Agreed Upfront
The consequences of skipping this step can range from uncomfortable to genuinely damaging.
At the milder end, you get disputes about scope, rework, and invoicing that strain the relationship and consume management time. At the more serious end, you're looking at formal disputes, mediation, or litigation -- all of which are costly and distracting for a growing business.
There's also a particular trap that business owners sometimes overlook: what happens when the service in question is essential to your operations and you can't easily switch providers? In that situation, even if you have a clear legal right to terminate the contract for breach, exercising that right may not be practical. Termination could disrupt your operations, trigger a search for a replacement provider (which takes time and money), and require onboarding someone new at the worst possible moment. If the service is specialised, finding a like-for-like replacement may be very difficult.
Even short of termination, simply issuing a formal notice of dispute can sour a working relationship quickly and put the ongoing provision of services at risk. You may find yourself in the uncomfortable position of having a legitimate grievance but no good options for resolving it without causing collateral damage to your own business.
The lesson here is that leverage matters, and the time to establish clarity is before the work begins -- not after things go wrong.
Practical Steps to Get Commercial Terms Right
The good news is that this is a straightforward problem to solve, and it doesn't require expensive legal work on every engagement. Here's a practical approach:
- Start with a solid head contract. A Master Services Agreement or a Contractor Agreement sets the legal framework for the relationship. Get this in place before any work starts.
- Use a Statement of Work or equivalent for every project. Document the specific deliverables, timelines, pricing, and acceptance criteria for each engagement. Even a well-structured email can serve this purpose for smaller jobs, though a signed document is always preferable.
- Don't start work until the commercial terms are agreed and documented. This sounds obvious, but it's the step that gets skipped most often. Build it into your internal processes as a non-negotiable checkpoint.
- Review your templates periodically. If your business grows or the nature of your engagements changes, make sure your SOW template reflects that. A document that worked for a $5,000 project may not be adequate for a $150,000 engagement.
- Make it someone's job. Assign clear internal responsibility for ensuring commercial terms are signed off before work commences. Don't assume it will happen automatically.
Lock It In Before the Work Begins
The central message here is simple: if you've invested time and money in negotiating a head contract, protect that investment by making sure the commercial terms it contemplates are actually documented and agreed before services or goods are delivered. Once significant work has been done or money has changed hands, the ability to negotiate is compromised. It's much harder to resolve a dispute about scope after the fact than to agree on it upfront.
This is one of those areas where a small amount of discipline and process at the start of an engagement pays dividends for the entire life of the relationship.
If you're setting up or reviewing your contracting arrangements, Mode.law's document library at /documents includes a range of templates designed for Australian founders and business owners, including a Master Services Agreement and a Contractor Agreement. Getting the right documents in place is the first step -- and making sure you use them properly is the second.