'Umbrella Agreements' and Multiple Transactions

Whether as a paper reduction measure or a matter of pure commercial convenience, it’s become common place to reach agreement on a standard set of business terms that govern ongoing transactions. Usually, it’s a case of agree-once-use-many-times. If this is how you are handling your business dealings, it might be important for you to take note of an important distinction between what we’ll call a Standing Offer Arrangement (SOA) and a Master Services Agreement (MSA). Let's try to outline a distinction that exists, when the terms are used correctly.

Standing Offer Agreement

An SOA is just that. It is an offer only. It stands there, by agreement of the parties, waiting to be accepted. No contract for the supply of your services is formed until the offer is accepted. An SOA is capable of giving rise to many separate contracts – each of which stands alone though incorporating the governing terms of the SOA. A typical clause that you might see in a SOA runs something like this:

'Each acceptance of an offer to supply or acquire services under this SOA gives rise to a separate contract incorporating the terms of this SOA and any other terms that the Parties may agree.'

Master Services Agreement

An MSA, on the other hand, does create an immediate contract. The parties agree that all their future dealings will be conducted under the MSA – even though variations and additional terms may be agreed on a transaction-by-transaction basis. It’s like a sort of umbrella contract that covers every transaction conducted under it. The individual transactions do not stand alone; they're dependent upon the MSA or “Master Contract”. A typical clause that you might see in a MSA runs something like this:

'These terms of business, once accepted, constitute an overarching contract for the supply of services under them for the duration its term.'

So, let's try to summarize –

• SOA = one standing offer giving rise to lots of separate agreements.
• MSA = one contract supporting lots of transactions under it.

Why does it matter?

You can see the difference. So, is it important?

It might be vitally important in any case, where the value of the contract/s that is/are formed is relevant to deciding whether the contract is a consumer contract under the Australian Consumer Law (ACL). That's because, where services are supplied to a consumer, there may be a statutory guarantee that:

• the services will be supplied with due care and skill;
• the services will be fit for purpose and reasonably expected to achieve a stated result; and
• the services will be supplied within a reasonable time).

What’s more, you cannot exclude, restrict or modify the statutory guarantees; and an attempt to do so may land you in hot water!

Value Thresholds

'Consumer'

Now don’t be fooled by the expression, consumer. In many cases another business (perhaps one of your clients) will be treated under the ACL as a consumer. That will happen if the value of the services that you are supplying under your contract is $100,000 or less. Think about it, how often would your placement fee be $100,000 or less? How often would your fee on, say, a three to six month assignment be $100,000 or less?

'Small Business'

The unfair terms in small business standard form contracts provisions that came into effect on 12 November 2016 have an even higher upfront price threshold. For contracts with a duration of up to 12 months it’s currently $300,000; if the duration is more than 12 months, it’s $1 million. However, that will change in November this year, when the upfront price threshold will be removed.

So, the value of your contract could have a direct bearing on whether your services attract the statutory guarantees or not. And that, in turn, may depend upon whether you have made lots of little contracts under an SOA – in which case the guarantees may apply; or one big contract under an MSA – in which case they may not.

Cases in Point

This point can be driven home by a comparison of the outcomes of two Victorian cases.

Many small contracts (SOA)

In Deutz Australia Pty Ltd v Skilled Engineering Ltd [2001] VSC 194, Skilled supplied labour-hire services to Deutz. It was alleged that Skilled’s on-hire employee handled a forklift negligently causing damage to Deutz’ property. Deutz sued for damages relying, in part, on what was then the Trade Practices Act equivalent of ACL sect. 60. If the contract for the supply of the services was a consumer contract, a term would have been implied that would have required Skilled to supply its services with due care and skill extending to “exercising due care and skill in selecting and assigning to Deutz a qualified and reasonably competent forklift driver“.

The Victorian Supreme Court found that the contract was a consumer contract and that the due care and skill term was implied. This is what the Court said about the transaction that led it to that conclusion:

"The evidence showed that the [Skilled] from time-to-time entered into agreements with [Deutz] for the provision of skilled labour. Those agreements were separate one from the other. They could not be aggregated for the purposes of calculating a price for services in the case of the agreement in performance of which [the employee] was supplied to the plaintiff. …the evidence is clear that the duration of provision of services was very likely to be quite short; and that the price of such services was likely to be much less than the prescribed amount."

As it turned out, the Court held that Skilled did not breach that term, though it was found to have been liable on other grounds and ordered to pay in excess of $300,000 in damages. But the relevant point for our discussion is that the implied term was found to exist because the value of the (disaggregated) contract was less than the prescribed amount.

One big contract (MSA)

Compare that with what happened in APS Group (Transport) Pty Ltd v Glen Cameron Nominees Pty Ltd (Civil) [2015] VMC 37. Note :the value threshold in this case was $40,000.

APS Group supplied labour-hire services to Cameron Nominees under a Supplier Agreement. Camerons refused to pay APS’ fees when the on-hired employee caused damage to its prime mover, crashing it into a fence and tree whilst driving it to his home without Camerons’ authority. He was adjusting the radio at the time. When APS sued to recover its fee, Camerons counter-claimed relying on a statutory guarantee that services furnished to it by APS under the supplier agreement would be rendered with due care and skill.

Once again, the Court had to consider whether the Supplier Agreement was a consumer contract. However, this time, APS was able to argue that it and Camerons conducted their affairs according to an ‘overarching agreement for the supply of labour’ and not by reference to a series of separate agreements entered from time to time and only in relation to each relevant driver. The Court accepted that argument, saying:

"The evidence I have is of one Supplier Agreement and not a series of agreements entered into ‘from time-to-time.’ Certainly no other agreements were relied on by Camerons. Furthermore, and unlike the situation in Deutz, where the evidence was ‘clear that the duration of the provision of services was very likely to be quite short,’ I had no satisfactory evidence on point at all.

…

The evidence I had before me was that the amount of $40,000 for the ‘Services’ would be reached and exceeded during the second week of any calculation of the revenue derived by the supply of labour by APS to Camerons, and in order for amounts to be excluded from calculation so as not to exceed $40,000, a period of about a week would be the required period and such a time period is entirely arbitrary…. and the evidence relied on by APS included records maintained of the ‘total Glenn Cameron Spend’. As far as I was made aware revenue was earned by reason of the primary Supplier Agreement and not a series of separate agreements between it and Camerons. …Therefore, I am satisfied that Camerons is not a ‘consumer’ for the purposes of the ACL…"

Conclusion

So, there you have it – two cases, very similar on their facts, but distinguished on the basis of the way in which the parties structured their supply arrangement. In one case – lots of small contracts attracting the guarantees; in the other – one large contract avoiding the guarantees.

So, would it be worthwhile going back and having a look at your own terms of business to see how you have structured your supply arrangements? We think it would.

ACW