Most contracts we’re asked to fix don’t fail because of the wording. The clauses are usually fine. They fail because the wrong company signed, or nobody thought about what happens if the supplier goes broke halfway through, or the two businesses had quite different ideas about what they’d agreed to.
That’s the part most “how to write a contract” guides skip, and it’s where we spend most of our time.
Below is the process we use, in roughly the order we use it. It will help you write a simple contract yourself, or at least understand what your lawyer should be doing when they write one for you.
One caveat up front: This is general information, not advice on your particular deal. What a contract needs depends heavily on the industry, the value involved and who is on the other side, so treat this as a framework rather than a checklist that covers everything.
What makes a contract legally binding in Australia?
A contract is legally binding when it has these elements:
- Offer and acceptance: one party makes an offer and the other accepts it on the same terms.
- Consideration: each party gives something of value (money, goods, services or a promise).
- Intention to create legal relations: the parties mean to be legally bound. This is presumed in commercial dealings.
- Certainty: the essential terms are clear enough for a court to work out what was agreed.
- Capacity: each party is legally able to enter the contract (for example, it is an adult or a properly registered company).
Most commercial contracts don’t have to be in writing to be binding. Some do, such as contracts for the sale of land and certain guarantees, depending on the state. Even where writing isn’t required, a written contract is far easier to prove and enforce if something goes wrong.
Contracts are governed by the common law and by legislation. The most important statute for most businesses is the Australian Consumer Law, which is Schedule 2 to the Competition and Consumer Act 2010 (Cth).
The 10 steps to writing a contract
You’ll notice that the first five steps involve very little writing. That’s deliberate. In our experience, the thinking you do before drafting decides whether the contract holds up, far more than the drafting itself.
Step 1: Research the law and the industry
You need more than a general understanding of contract law. You need to understand the context the contract will operate in. If you start cold, you’ll miss the details that turn an average contract into a good one.
Before you put pen to paper, we would suggest:
- Checking the legislation (Commonwealth and State): that applies to the industry, the goods or services, or the parties. For example, an employment contract has to sit alongside the Fair Work Act 2009 (Cth) and the relevant modern award. All Australian legislation is available online for free.
- Talking to people who do this work: Colleagues or other businesses in your space can tell you where deals usually go wrong and how the transaction actually works in practice, with the contract put to one side.
- Reading industry papers and articles: These are often the quickest way to understand the main risks and opportunities in a particular sector.
Useful places to start:
- AustLII (free access to Australian cases and legislation)
- Federal Register of Legislation (Commonwealth legislation)
- Queensland Legislation (each state and territory has its own equivalent)
- ASIC on unfair contract terms (for financial products and services) and the ACCC for other goods and services
Step 2: Choose the right contract format
Picking the right format at the start saves you from reinventing the wheel, and in some cases it decides whether the document is enforceable at all.
Industry standard form contracts
Many industries have “standard form” contracts developed by industry bodies after a lot of consultation. Construction is the best-known example, with the Australian Standards suite of contracts. You can usually buy the base terms for a few hundred dollars and then tailor them with special conditions.
Our one warning: don’t go against the spirit of the standard form. These documents are generally designed to balance risk fairly between the parties. We’ve seen law firms take a standard form and amend it so heavily that they may as well have written a new contract. That isn’t how they’re meant to be used, and it undoes the balance the form was built to achieve.
A note on unfair contract terms
If you deal with consumers or small businesses on a “take it or leave it” basis, your contract is probably a standard form contract under the Australian Consumer Law, and the unfair contract terms regime applies.
Since 9 November 2023 the stakes are much higher. Unfair terms in these contracts are now illegal, not just void, and companies can face penalties of up to the greater of $50 million, three times the benefit obtained, or 30% of adjusted turnover during the breach period. The regime protects small businesses that employ fewer than 100 people or have annual turnover under $10 million.
A term is likely to be unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations under the contract;
- is not reasonably necessary to protect the legitimate interests of the party that benefits from it; and
- would cause detriment (financial or otherwise) to the other party if it were applied or relied on.
Whether a particular term crosses the line depends on the contract as a whole, so this is an area where it’s worth getting advice. You can read more in our guide to the unfair contract terms regime.
Using a deed instead of a contract
We have written in detail about the difference between a deed and a contract, but here’s the key point: if one party is making a promise and nothing is being given in return (no “consideration”), use a deed. Releases, guarantees and some variations are common examples.
Deeds have their own signing requirements. For companies, section 127(3) of the Corporations Act 2001 (Cth) applies. For individuals, the rules (including whether a witness is needed) vary between states. Get this wrong, and the document may not be enforceable as a deed.
Master agreements
A master agreement sets out the standard terms that apply to all future transactions between two parties. It’s particularly useful when your business regularly supplies the same kind of goods or services to the same customer.
Instead of signing a long contract every time, the parties sign the master agreement once (often for a set period, such as one year). Each new order is then placed by purchase order, or an email in an agreed format, and is governed by the master terms.
Step 3: Brainstorm the risks
A big part of writing an effective contract involves no writing at all. Put the pen down and walk through the deal in your head, from the moment the parties agree, through preparation and delivery, to payment. At each stage, ask what could go wrong. Keep in mind what matters most to each party.
Once you’ve done that, write your thoughts down as guiding principles rather than clauses. They might look something like this:
- The client is concerned about the tax treatment of the transaction.
- My business wants it to be easy to get paid extra if it provides extra goods or services.
- My business wants the right to reuse what it develops and sell it to other clients.
- My business is concerned about the client’s financial viability.
- The client wants to be able to appoint someone else quickly if we can’t deliver.
- The client wants someone of substance standing behind us, such as an insurer or a parent company.
Each of those principles points to clauses you’ll need: payment and variation clauses, intellectual property, security or guarantees, step-in rights, insurance. For more complex deals, it can help to agree a terms sheet with the other side first, setting out these principles before anyone starts drafting.
Step 4: Identify the contracting parties correctly
If the parties aren’t correctly identified, the contract may not be worth the paper it’s written on. We see this all the time. The deal is accurately recorded, but the wrong entity is named, so the contract doesn’t bind the business you actually meant to deal with. Under the rule of privity, generally only the parties named in a contract can enforce it or be bound by it.
For example, we once reviewed an agreement that named a director personally even though the work was being performed and invoiced by the director’s company. When payment became disputed, the parties first had to resolve who was actually bound before they could address the underlying claim. Correcting the arrangement required a replacement agreement and additional legal work that could have been avoided by checking the entity details at the outset.
To get the parties right:
- Use the full legal name: If the other party is a company, use its registered name including “Pty Ltd”, not a trading name and not the names of the people signing.
- Check the details: Look up the ABN and run an ASIC search to confirm the entity exists and the ACN is right. You can also check the entity named on their certificate of currency for insurance.
- Watch for trusts: Many Australian businesses operate through a trust. A trust can’t contract in its own right, so the contract should name the trustee, for example “ABC Pty Ltd as trustee for the ABC Family Trust”.
Every written contract should also include:
- ABNs for both parties. You’ll need these for GST and PAYG withholding purposes.
- ACNs for any companies. Companies must show their ACN on documents they sign (or an ABN that contains the ACN as its last nine digits).
- A statement about contractor status, if relevant. If the arrangement is a genuine contracting relationship, say so. Be aware that this label isn’t conclusive. Courts and the Fair Work Ombudsman look at how the relationship works in practice, not just what the contract calls it.
- Signatures of the signatories and any witnesses. If it’s a deed, follow the deed signing rules mentioned in Step 2.
Step 5: Understand what each party actually wants
This step builds on brainstorming the risks. During negotiations, a party will sometimes get stuck on a clause for no obvious reason. If you understand the outcome they’re really after, you can often:
- suggest an alternative that works for both sides, without arguing over exact wording; or
- uncover a real misunderstanding between the parties before it becomes a dispute.
Contracts rarely fall over because lawyers couldn’t agree on the precise wording of a clause. They fall over because the commercial basis the parties thought they were contracting on turned out to be wrong. Writing the contract is the easy part. Getting the foundations right is the hard part.
Step 6: Set the contract period
Every contract should say how long it lasts and how it ends. If it doesn’t, you’re inviting an argument. A court may decide the contract can be ended on “reasonable notice”, and the two parties may have very different views on what that means.
You don’t always need fixed dates. For a one-off job, the contract can run until the goods or services have been delivered and paid for. For a master agreement or other ongoing relationship, we generally recommend a fixed start and end date, with an option to extend.
Step 7: Define key terms
Definitions do a lot of quiet work in a contract. When you define a term, the defined meaning overrides its ordinary meaning, so it needs to be right. Here’s what to keep in mind:
- Make the definition fit how the term is used: Read every clause that uses the defined term and check the definition works in each one. Be concise and informative.
- Don’t hide obligations in definitions: If a definition adds rights, conditions or warranties, it can conflict with the operative clauses and create ambiguity. Define the term and do no more than that.
- Define narrowly, add context in the clause: A tight definition is safer. If a particular clause needs more, add it in that clause.
- You can use defined terms inside definitions: Just use the capitalised term. There’s no need to say where it’s defined.
- Avoid “for the avoidance of doubt”: It signals there was doubt in the first place. Use “includes” and “excludes” to make the boundaries clear instead.
- Plan for what you don’t know: If a definition refers to legislation, include a general clause saying references to legislation include that legislation as amended or replaced. Otherwise a mid-contract law change can leave you with a definition that no longer works.
A simple example:
“Goods” means the products listed in Schedule 1, including any changes to that list agreed in writing by both parties.
Step 8: Number and organise your clauses
Plenty of people never read their contracts. Write yours on the assumption that it will one day be the centre of a dispute, and that a judge will read every word. Your job is to make that reader’s life easy, with clear headings, a consistent numbering system and a logical order.
Clause numbering usually looks like this:
1. NUMBERED HEADING
1.1 Clause related to the heading
(a) Sub-clause
(i) Sub-sub-clause
A typical commercial contract is structured in this order:
- Parties: names, ABN or ACN, and addresses.
- Recitals: the background to the agreement (why the contract exists).
- Definitions and interpretation.
- Operative clauses: the rights and obligations, including payment, risk, liability, dispute resolution and termination.
- Signing clause.
- Schedules: detail such as the scope of goods or services and the fees.
Step 9: Write clearly and concisely
Clear contract writing takes practice. After your first draft, step back and ask yourself:
- Can I say the same thing in fewer words?
- If I’d never seen this before, could I understand the whole deal from the contract alone?
- Should someone else read it? As the writer, you’ll have tunnel vision.
Use plain English, short sentences and the same word for the same thing every time. Changing words for variety is good writing in an essay, but in a contract it suggests you mean something different.
Step 10: Use the right signing clause
If the other party is a company, we recommend a signing clause that requires execution under section 127 of the Corporations Act 2001 (Cth). If a company signs this way (for example, by two directors, or a director and company secretary), you are generally entitled to assume the document was properly signed under the “indoor management rule” in sections 128 and 129. You don’t have to investigate whether the people signing actually had internal authority.
A standard signing clause might read:
Executed by ABC Pty Ltd (ACN 123 456 789) in accordance with section 127 of the Corporations Act 2001 (Cth).
When should you get a lawyer to write or review your contract?
A simple, low-value contract with a business you know well is often something you can write yourself using the steps above. It’s worth getting a lawyer involved when:
- the contract is high-value, long-term or hard to get out of;
- you’re using standard terms with consumers or small businesses, where unfair contract terms penalties apply;
- intellectual property, guarantees, security or personal liability are involved;
- you need a deed, or the other party is a trust or overseas entity; or
- the other side’s lawyer drafted the contract and you’re being asked to sign it.
In our experience, getting a contract reviewed before signing costs far less than unwinding a bad one afterwards.
If you’d like help drafting or reviewing a contract, contact Prosper Law and we can talk through what your deal needs.
Frequently asked questions
Can I write my own contract in Australia?
Yes. There’s no rule that a lawyer has to prepare a contract. If it has the essential elements (offer, acceptance, consideration, intention to be bound and certain terms), it can be binding. The risk is in what you leave out, or in terms that don’t say what you think they say.
Is a verbal agreement legally binding in Australia?
Often, yes. A verbal agreement can be binding if it has the essential elements of a contract. The problem is proving what was agreed. Some contracts, such as those for the sale of land, must be in writing or evidenced in writing. If the deal matters, put it in writing, even if it’s a short email both parties confirm.
Can I use a contract template from the internet?
You can, but be careful. Many free templates are written for other countries, don’t reflect Australian law (including the unfair contract terms regime), and won’t reflect the risks in your particular deal. A template is a starting point, not a finished contract.
Can contracts be signed electronically in Australia?
Generally, yes. The Commonwealth and state electronic transactions laws allow most contracts to be signed electronically, and companies can sign electronically under section 127 of the Corporations Act. Some documents, such as certain deeds and land documents, have extra requirements that vary between states.
What happens if the other party breaches the contract?
It depends on the contract and how serious the breach is. Common remedies include damages (compensation for your loss), termination (if the breach is serious enough or the contract allows it) and, in some cases, a court order requiring the other party to perform. Check your contract’s dispute resolution clause first, as it may require negotiation or mediation before court.
Last updated: October 2026.
About the Author
Farrah Motley
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