Category Archives: Business 101

Business 101… Understanding “Contract Speak”

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Understanding every aspect of your contract is Important.

There is Always light at the end of the tunnel
There is Always light at the end of the tunnel

 

It is never a bad thing to ask questions about contract sections should they not be clear to you. Over the past couple weeks I have received from several different areas of the country a section of contract that reflects some rather, IMHO lopsided agreements. Now in all fairness to everyone, and since this section seems to be very common in what I refer to Lop-sided contracts favoring the National Asset management Companies (NAMC), this is not a dig at any one company in particular, as I do believe that all the respondents that sent this in have different clients…I’m just kinda poking all of them with a stick today…

Now if you remember from The Video Series from Aladay LLC Media Productions called Understanding Your Contract, one of the key elements in a contract is;

“Mutuality of Agreement” the definition of which is;

Mutuality of agreement is a legal principle that provides that unless both parties to a contract are bound to perform, neither party is bound to perform, i.e., the contract is void.

What this means is that you are at liberty to make what is called an “addendum”, or ask for a mutually agreeable section of your contract. Now I know what many of you are thinking, “they won’t listen”. However, if you deliver and present your issue correctly you should be able to negotiate contract terms that are fair to both sides.

That said let us examine the following section of a contract and discuss how you can go about creating an amicable agreement for your organization.

 By Signing below I hereby acknowledge that I understand the following:

  •       All discounts have been taken out of the prices listed. They reflect the final payment to vendor per job type.

Pretty straightforward so far. Whatever price you see listed is what you will be paid.

  •       These prices should only be used as a guide and prices are subject to change without notice.

Now we have a problem…change without notice???? As in the middle of the job? There is no real guideline spelled out for the change. There is also nothing in writing protecting both parties from “open to interpretation” liabilities.

Now here is how you can create an addendum to counter this section..remember regardless of what most think contracts can and should be negotiated, never be afraid to make a counter offer.

ABC Service Provider agrees to accept pricing changes ONLY on future projects, assignments. ABC Service provider will only complete work orders with pre-agreed upon pricing and pricing on issued and accepted work orders is not and will not be subjected to this provision. In addition ABC service Provider will not accept any changes to pricing or fees on bids that have not been approved without negotiations of said bid.

  •       All vendors are required to complete work issued from every client and may not reject any work order within their coverage area.

This is becoming the norm and actually has been a standard of practice for as long as I can remember in the industry.

RECOMMENDATION…Make sure you can cover the area you commit to covering. If you canot cover 12, 000 sq.mi without hardships you had better not commit to doing so. In addition you had better know all the service specs for the clients your client, (the NAMC), is requiring you to service.

  •       All vendors are required to complete every work order issued within their assigned coverage area

You get a $25 work order 300 miles away. This does and will create a serious dichotomy for a company. This is why I have always recommended “no windshield time” to successfully cover an area you have to have the proper infrastructure for your company. As a company you have to have the right Field Supervisors and Inspectors in place so you can make adjustments on the fly.

Example; we cover a large area of dirt. We are located a minimum 25 miles from every residential community. When developing our company we took this into consideration and made the correct hiring’s. We have at least one responsible employee everywhere so we do not have to spend fuel and labor traveling three hours for $25, we have someone 15 minute away from the area.

This is an area of a contract that can and usually does presents serious issues for the “mom&pop” type companies that have bitten off more than they can chew. Remember if you need assistance with understanding your break even points or break even analysis on services we have the tools to assist you.

In addition this is an EXTREMELY VITAL  area of your contract that will depend on excellent communication between you and your client.

  •       Any vendor in violation of these terms will be subject to immediate deactivation and will be reviewed for permanent deactivation

We all know that the term “Deactivation” in the PPI means you’re fired…depending on your negotiation skills will depend if you’re temporally laid off or permanently fired…

I do hope this helps everyone on both sides of this contract section. If you like to review the Aladay LLC Media Production series of videos on Understanding Your Contract, contact us and if there is enough interest I’ll speak to the powers to be and we’ll get them on the Aladay LLC You Tube Station.

 

Written By: Aaron Aveiro

Photograph: Aaron Aveiro