Consulting contracts are essential to protect your business in industries like engineering, architecture, and project management. However, many consultants unknowingly accept unfair risk, leaving themselves exposed to legal disputes, payment issues, or intellectual property loss.
This guide, prepared by our consultancy lawyers, explains the most common risks in Australian consulting contracts and how to avoid them – whether you’re reviewing a client’s terms or issuing your own agreement.
Key Takeaways
Define your scope clearly to avoid scope creep and unpaid work.
Limit indemnity and liability to what’s fair and insurable.
Match insurance obligations to your actual coverage to avoid contract breaches.
Secure payment terms and variation rights to protect your revenue.
Protect your IP by transferring ownership only after full payment.
Common Risks in Consulting Contracts and How to Avoid Them
Below is an expanded breakdown of the most frequent risks we see consultant’s facing and practical ways to manage or negotiate them.
1. Unclear Scope of Services (Scope Creep)
Vague or poorly defined deliverables can lead to clients expecting additional work (without paying extra).
You may also be exposed to unintended “fit for purpose” obligations, where the client assumes your work must achieve a guaranteed outcome, rather than meet a professional standard of care.
How to avoid scope creep:
- Provide a detailed scope of services, including what is not included
- Clearly state that you are not providing a guarantee of results, only services to a reasonable professional standard
- Add a clause requiring written approval and pricing for any additional services
- Use variation forms or documentation to track and approve scope changes
- Exclude or carefully define any “fit for purpose” warranties that may be implied or inserted by the client (that are in addition to statutory consumer rights and guarantees)
- If using standard terms, include a schedule outlining deliverables, timelines, and any limitations on liability
Note: “Fit for purpose” clauses are risky in professional services. Unless expressly agreed, consultants are generally held to a duty of due care and skill – not to guarantee an outcome.
If you’re not sure how to avoid scope creep in consulting contracts, reach out to us for a free consultation.
2. Unfair Indemnity Clauses
You may be required to cover losses not caused by your own actions, including those of third parties or the client.
How to avoid unfair indemnities:
Limit indemnity to direct losses caused by your own negligence
Exclude liability for consequential or indirect losses
Ensure the clause aligns with your professional indemnity insurance coverage
Example: A client may try to include broad terms like “all losses arising from the project.” This is risky, we recommend narrowing the wording wherever possible.
Learn more about key terms to include in consulting contracts in our article.
3. Mismatch Between Contract Insurance Requirements and Actual Coverage
Agreeing to maintain higher levels or types of insurance than your business holds can lead to an immediate breach of contract.
How to avoid this:
Cross-check contract insurance clauses with your current policy documents
Avoid agreeing to “as required by the client” insurance without specifics
Negotiate for reasonable limits that reflect industry norms
Tip: Common types include professional indemnity, public liability, and workers’ compensation but coverage limits vary widely.
4. Unclear or Unfavourable Payment Terms
Without clear invoicing and payment provisions, consultants face delays in payment or complete non-payment – especially for variations.
How to avoid unfavourable payment terms:
Set payment milestones tied to deliverables
Include interest clauses for late payments
Add strict variation claim procedures and approval steps
Important: Always send written notice of variations and ensure clients acknowledge them before proceeding with any additional work.
5. Variation Clauses That Don’t Protect You
If your contract doesn’t allow for changes in scope, you may be forced to do additional work at no extra cost.
How to avoid variation pitfalls:
Include a clear variation clause outlining:
What qualifies as a variation
How to submit claims
Time limits for approval
Insist that all variations be agreed in writing
Key watch out: Some contracts include “time bar” clauses, which means if you don’t claim within a certain time, you lose your right to be paid. These should be negotiated or removed.
6. Loss of Intellectual Property (IP) Rights
You could unintentionally transfer ownership of your intellectual property (even before getting paid).
How to avoid this:
Specify that IP transfers only upon full payment
Retain background IP (tools, templates, methods developed before the contract)
Consider granting clients a non-exclusive licence instead of full ownership
Common examples of IP include design drawings, technical reports, and methodology frameworks.
7. Unreasonable Termination Clauses
The client may reserve the right to terminate the agreement at will, leaving you with sunk costs and unpaid work.
How to avoid unfavourable termination clauses:
Negotiate for reasonable notice periods (e.g. 14–30 days)
Include a right to recover costs incurred up to termination
Request a termination fee or minimum payment for early exit
Look out for non-mutual ‘termination for convenience‘ clauses.
8. No Dispute Resolution Mechanism
Without a dispute resolution clause, parties may head straight to court, increasing costs and time to resolve conflicts.
How to avoid this:
Include a tiered process (e.g. negotiation, mediation, arbitration)
Specify jurisdiction and governing law
Choose a dispute resolution body (e.g. Resolution Institute)
9. No Cap on Liability
Some contracts require unlimited liability, exposing your business to losses far beyond the value of the contract.
How to avoid this:
Propose a liability cap equal to the value of the contract or your insurance limit.
Exclude indirect and consequential losses explicitly
This is common in Australian consulting contracts and should always be negotiated before signing.
Learn more about limitation of liability carve outs in our article.
Real-World Example: Limiting Indemnity to Negligence
A Melbourne-based engineering firm was presented with a contract that required them to indemnify the client for all project-related losses, including those caused by subcontractors.
By negotiating the clause to apply only to losses arising from their own negligence, the firm aligned the contract with their insurance and protected their business from excessive liability.
Frequently Asked Questions
What’s the biggest legal risk in a consulting contract?
Indemnity clauses and vague scopes of work – both can lead to unpaid work or liability for things outside your control.
Can I refuse to sign a contract with unfair terms?
Yes. You should always seek legal advice and negotiate unfair contract terms to ensure that they align with legal obligations, as well as your business and professional requirements.
How can I protect my IP as a consultant?
Transfer ownership only after payment and retain ownership of all pre-existing materials and templates.
Is a verbal agreement enforceable in consulting work?
Possibly, but it’s much harder to prove scope, payment terms, or variations. A written contract is always safer.
What should I check before signing a consulting contract?
Review all clauses, ensure insurance obligations are achievable, confirm payment terms are clear, and negotiate any unfair terms before signing.
