A Customer Wants You To Sign Their Contract Instead Of Yours - What Should You Check?

When you're taking on a new customer, it's pretty standard to have a contract in place covering the work you'll be doing, payment and what both parties can expect. But what happens when the customer sends through their own contract and asks you to sign that instead?

This isn't unusual, particularly when working with larger businesses that have their own standard agreements. However, their contract might include conditions you haven't factored into your pricing or responsibilities you weren't expecting to take on. While there's nothing wrong with a customer wanting to use their own terms, it's important to make sure they work for your business too.

Do You Have To Accept The Customer's Contract?

It's understandable to worry about losing a potential customer, especially if you've already spent time preparing a proposal or discussing the project. When they send through their own agreement, you might feel that signing it is simply part of securing the job.

However, you're generally not legally required to accept a prospective customer's contract just because they've asked you to sign it.

A customer can make using their agreement a condition of working together, but you can also raise concerns, suggest changes or decide whether the arrangement is right for your business.

Larger organisations often have procurement processes requiring suppliers to use their standard contracts. This doesn't necessarily mean every provision is non-negotiable, although some customers may have limited flexibility.

The important thing is understanding what you're being asked to accept before committing to the work.

What Happens To Your Original Quote Or Agreement?

Imagine you run a design agency and have quoted NZ$6,000 to develop a customer's website, with an upfront deposit and the remaining balance payable on completion.

The customer agrees to the price but then sends through their standard supplier agreement, which requires payment 60 days after they've approved the final work.

That's quite a difference, especially if you're relying on the deposit to cover project expenses.

Your original terms don't automatically disappear because the customer sends another contract. Equally, you shouldn't assume they'll continue to apply if you sign the new agreement.

Under New Zealand contract law, the position depends on what's already been agreed, whether a binding contract has formed and how the documents interact.

For example, an entire agreement clause may affect whether earlier arrangements form part of the agreement, while an order of precedence clause can establish which document takes priority if different terms conflict.

Where businesses exchange competing sets of terms, this can become a battle of the forms.

The same issue can arise when a customer sends a purchase order or asks you to accept supplier terms through an online portal. Depending on the circumstances, accepting terms electronically or starting work could contribute to a binding agreement, even without signing a traditional contract.

If there are important differences between the documents, it's generally better to resolve them before work begins.

Does The Customer's Contract Change What You've Agreed To Deliver?

Sometimes the biggest concern isn't the legal wording itself, but whether the customer's agreement accurately reflects the services you're providing.

For example, you might have quoted for a six-week consultancy project involving an initial assessment, a set of recommendations and a final report.

However, the customer's standard agreement also requires ongoing support, additional meetings and further revisions without providing for additional fees.

Those obligations could significantly increase the time and resources needed to complete the project.

It's worth comparing the agreement against your original proposal to see whether the scope, deliverables, deadlines and responsibilities still match.

You should also consider what's expected of the customer. If you're relying on them to provide information, approve designs or give access to their systems, the agreement should reflect those responsibilities too.

Payment arrangements can also make a difference. If payment depends on the customer approving the final work, does the contract explain what approval involves, when they must respond and what happens if they delay?

The aim is to make sure both parties understand what's actually being provided, rather than agreeing to obligations that weren't part of your original quote.

What Risks Are You Being Asked To Take On?

Even if the work itself hasn't changed, the customer's contract may allocate responsibility differently from your usual terms.

For example, it might require your business to compensate the customer for a broad range of losses connected with the services you provide. Depending on the wording, this could expose you to substantial financial liability if something goes wrong.

Intellectual property is another area worth checking.

Say you run a creative agency and regularly use your own templates, design resources and internal systems when producing work for customers.

The customer's agreement might contain a broad intellectual property clause that goes beyond the final deliverables and attempts to capture materials your business uses across other projects.

Under New Zealand's Copyright Act 1994, the person commissioning and paying, or agreeing to pay, for certain types of work, including computer programs, photographs and drawings, will generally be the first copyright owner of work created under that commission, unless the parties agree otherwise.

However, these rules don't automatically determine ownership of every pre-existing tool, template or other asset used during a project.

That's why it's worth checking exactly which materials the agreement covers and whether your business needs to retain ownership or usage rights over particular assets.

Insurance requirements may also be relevant. A larger customer might require professional indemnity or public liability insurance at levels your business doesn't currently hold.

None of these requirements is automatically unreasonable. However, it's important to understand whether your business can realistically meet the obligations and what the consequences could be if something goes wrong.

Can Unfair Contract Terms Laws Protect Your Business?

If a larger customer provides a standard agreement containing terms that heavily favour their business, you might wonder whether those conditions are legally enforceable.

In New Zealand, the Fair Trading Act 1986 provides protections against unfair terms in certain standard form contracts, including qualifying business-to-business agreements.

These are known as small trade contracts.

The protections generally cover standard form business-to-business contracts forming part of trading relationships with an actual or expected total value below NZ$250,000 in any 12-month period.

Importantly, the threshold relates to the trading relationship, rather than simply the value of one agreement. Multiple contracts between the same parties on the same or substantially similar terms can be relevant when determining whether the threshold is met.

This means the rules may protect your business even when you're supplying goods or services to a much larger customer.

A standard form contract is generally one prepared by one party with little meaningful opportunity for the other party to negotiate its terms. Whether an agreement qualifies depends on the circumstances, and the ability to negotiate some provisions doesn't automatically take a contract outside the protections.

What Makes A Contract Term Unfair?

Under the Fair Trading Act, a term may be unfair if it creates a significant imbalance between the parties' rights and obligations, isn't reasonably necessary to protect the legitimate interests of the party benefiting from it, and would cause financial or other detriment if relied upon.

For example, imagine a customer's standard agreement allows them to terminate the contract whenever they choose without consequences, while requiring your business to pay a substantial cancellation fee if you end the arrangement.

Depending on the circumstances, that kind of imbalance could raise concerns under the unfair contract terms rules.

However, not every one-sided or commercially difficult provision is legally unfair.

Whether a term is unfair depends on the contract as a whole. Certain provisions, including those defining the main subject matter or setting the upfront price where statutory requirements are met, are generally excluded from the unfairness assessment.

It's also important to understand how these protections are enforced.

For ordinary small trade contracts, only the Commerce Commission can apply to the court for a declaration that a term is unfair. If the court declares the term unfair, that provision isn't legally binding, and restrictions apply to its continued use or enforcement.

This doesn't mean a business can simply decide that a clause is unfair and ignore it.

You can read more about these protections in the Commerce Commission's guidance on unfair contract terms.

While the law can provide important protections, it's generally better to identify potentially problematic conditions before signing rather than assume they won't be enforceable later.

Can You Ask The Customer To Make Changes?

Yes. Receiving a customer's standard contract doesn't necessarily mean every provision is non-negotiable.

You might be comfortable with most of the agreement but find that a few conditions don't reflect the work you've discussed.

For example, if the contract requires unlimited revisions but your original quote includes two rounds of changes, you could ask for the scope to be clarified.

Similarly, if the customer wants ownership of all materials used in the project, you might propose wording that distinguishes the final deliverables from your existing tools and resources, taking account of the applicable copyright rules.

Sometimes, the person you've been dealing with won't have authority to approve changes. Larger organisations may require amendments to be reviewed by their procurement or legal teams, so it's worth finding out who can approve the wording and ensuring any agreed changes are included in the final contract.

Of course, the customer might not agree to everything you propose.

If that happens, the question becomes whether the project is still worthwhile on those terms. You may need to reconsider the scope, pricing or potential liabilities before deciding whether to proceed.

The goal isn't necessarily to convince the customer to use your usual contract. It's to reach an arrangement that both businesses understand and are comfortable accepting.

Getting The Agreement Right Before You Sign

Using a customer's contract isn't necessarily a problem. The important thing is making sure it reflects the work you've agreed to do and the responsibilities your business is prepared to take on.

If you're unsure about the terms, having your contract reviewed and redrafted can help identify potential risks and changes you may want to propose to the customer.

If you'd like to discuss your contracts, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.