Clock is ticking on Rio Tinto’s ‘unfair’ contracts

Jean-Sebastien Jacques, chief executive officer of copper and coal at Rio Tinto Group, poses for a photograph in Sydney, Australia, on Thursday, Nov. 26, 2015. The era of the diversified mining company with a global suite of disparate assets and commodities looks to have outlived its usefulness, according to Jacques. Photographer: Brendon Thorne/Bloomberg *** Local Caption *** Jean-Sebastien Jacques

One of the first tasks of the Rio Tinto’s incoming chief executive Jean-Sébastien Jacques will be to front the head of the Australian Competition and Consumer Commission, Rod Sims.

This follows Rio Tinto’s outrageous decision to suddenly delay paying its suppliers. In fairness to Jean-Sébastien Jacques, the poor decision was made by Sam Walsh, the current CEO.

There is nothing the ACCC can do to prevent Rio Tinto from changing the terms of its contracts with small suppliers until November. Then it will be action time, and it’s only seven months away.

In November 2016, Australia’s unfair contracts legislation comes into force and almost all the Rio Tinto contracts worth less than $300,000 a year with suppliers employing less than 20 people will be void. Yes, void.

All the confidentiality protection and similar clauses will simply be ashes in the Rio Tinto London fire place.

The Australian Parliament passed the historic unfair contracts legislation on November 12, 2015 in order to stop large companies like Rio Tinto from writing standard contracts that give them rights over smaller suppliers which don’t apply to the smaller suppliers themselves.

As readers know, I have written about this legislation extensively. But just in case the Rio Tinto lawyers need help, I have provided links to a couple of recent articles.

(A wake-up call for big business, January 4 and

How Parliament has revolutionised the rules of contracting, December 2.)

If the contract is longer than one year, then a $1 million dollar cap comes into play. Companies and government organisations were given one year’s grace. The ACCC will police the new legislation.

Five months have passed since the legislation was passed, so Rio Tinto’s lawyers have just seven months to rewrite a vast sway of Rio Tinto contracts so that they comply with the act. Of course, if the company actually sits down and negotiates each contract — which is what it actually should have done — then the legislation does not apply.

I am confident that Rio Tinto did not negotiate because no supplier would agree to Rio Tinto being able to unilaterally delay payment from 45 to 60 days (large contracts have been extended to 90 days). Changes like that send people broke. Rio Tinto will have simply issued a standard contract and small suppliers were forced to sign it ‘or else’.

WA Premier Colin Barnett was right in giving Rio Tinto a full blast for its unfair actions, but there is little he can do about it.

Thankfully, back in September 2015, our wonderful Senate crossbenchers combined with the ALP and the Greens to amend the government’s unfair contracts legislation lifting the limit of contracts covered from $100,000 to $300,000.

The Abbott cabinet had done a side deal with big employers and restricted the contract limit to $100,000 so it would be useless legislation but a 2013 election promise could be said to have been honoured (Small business will be furious with Billson’s broken promises, June 3).

That Senate amendment vote occurred on the morning of September 14. On the afternoon of the same day, the government said it would abandon legislation, but on the evening of September 14, Malcolm Turnbull became prime minister and in the next 48 hours contacted all the crossbenchers. They asked him to accept the Senate amendments and he agreed. The historic legislation was passed on November 12.

I think it is highly likely BHP, which made similar payment changes to its contracts, will find that most its contracts with small suppliers valued at under $300,000 will be void in November. BHP”s lawyers and corporate negotiators will also have to work hard.

Both BHP and Rio Tinto use big legal firms which have specialised in writing ‘unfair’ standard contracts. Those same legal firms will be under enormous pressure as all their big clients, including government organisations, rush them to make the contracts comply with the act.

We are talking about hundreds of thousands of contracts and each one will have to be made fair. Many of the contracts involve valuable intellectual property that, come November, will no longer be protected by any contractual undertaking because the contracts will be void.

Rio Tinto has revealed why such legislation is vital for the nation. In a world where entrepreneurialism and innovation from small enterprises will be a key to national success, Australia is going to be a much better and more productive place.

Sam Walsh has been a great chief executive for Rio Tinto, but stumbled at the last hurdle. Jean-Sébastien Jacques has a lot of Australian repair work to do when he takes over in July.