BY ADRIAN BURTON
Often when we review clients costs, it quickly becomes apparent that headline rates offered to entice were purely a bit like fishing bait the sole purpose was to get the client on the hook.
- Once you have been hooked and signed how much time did you spend reading the contract?
- What are you now committed to?
- What might it mean for the total cost to your company over the life of the agreement?
Contracts are referred to as small print for a good reason, they are hiding things that may well come back and bite your company in the long run. When a supplier is vying to win business this is the time to read their terms and conditions and get things altered that make it a fairer contract for you. Suppliers will often say they cannot change terms and conditions, but most will provide an addendum or letter to alter clauses you are not happy with.
However, once you have signed a contract it is too late so pay careful attention to the terms and conditions before signing anything. Over the next few editions of this newsletter, we aim to highlight some of the ‘gotchas’ we have seen in suppliers’ contracts so that you can be warned and look out for them. In this edition, we have selected a real waste contractors agreement and highlight below some of the clauses we have seen that have come back to bite, and the consequences this had.
These terms shall apply to the services. The terms shall bind the customer immediately upon the start date.
Now, with this particular supplier, whenever we see a copy agreement, it never appears to have a start date, so in essence it does not appear to have any cooling off period.
Now bearing in mind we never see a start date for a contract, below is the termination clause:
If the customer does not want the Services to be provided beyond the Contract Period then the customer must provide written notice expiring on the exact date on which the contract period expires. This notice must be received by the supplier not less than 3 months and not more than 5 months before the precise date on which the contract period expires. If this agreement is not terminated …. Then it shall roll over on the same terms for a period of 36 months.
Now if the contract does not have a start date, then it is impossible to know when you should give notice. In essence, what the supplier is trying to create here is a contract in perpetuity a bit like the Eagle’s song – Hotel California: “You can check out anytime, but you can never leave.”
Assuming you have got a start date from the supplier, given the very odd termination window being offered, what process have you put in place to ensure you do not miss this termination window?
We have even seen a client who thought they entered a 12-month agreement only to be caught out as notice was not served under the above terms and so the supplier based on the above was claiming a 36-month contract was then in existence.
The above we do believe is extremely dubious, but it carries a lesson particularly related to waste, whenever a waste company asks you to sign anything it could just be a waste note, ask the question what you are being asked to sign and does it carry any contractual changes. If the answer is yes then you want a copy and you want something on the document that provides a date for when the service starts. We did have a situation with this provider where every time the client requested an additional bin at a site their shop staff believed they were signing for receipt of a new bin. However, the supplier claimed that the new bin was a change in circumstances and thus started a new agreement covering all bins on site.
We like agreements to be fair to both parties but consider the following:
‘’Time shall not be of the essence in respect of services, A failure by the supplier to make collection on a particular day shall not be a breach of this agreement nor shall it constitute negligence. If the customer alleges that the supplier has missed a collection, the burden shall be on the customer to prove, by way of contemporaneous documentary evidence, that the collection was missed’’.
Now we do not know of many clients who have employees sitting around waiting for waste companies to fail in their duties to then gather evidence. Throughout this contract there are no circumstances which allow for a breach by the supplier. When we look at the cost of the service, we will see why this becomes important.
Prices quoted by the supplier are based on a maximum eight per container per lift. If a container exceeds this weight, then the supplier shall retain the right to charge reasonable additional sums to the customer in respect of additional waste.
Next just check what is the container weight that you are contracting to. If you are operating with 1100 bins as an example most company’s offer a lift price at 65 to 70kg. However, with this particular contactor their lift price is based on 55kg. If you go over, then each kilo will attract a pence per kilo penalty. So always check this, as you may find that you are not comparing like for like.
The supplier shall be entitled to vary the price payable for the services so long as (i) there are no more than 3 price variations in any one calendar year, and (ii) the aggregate of any price variations in a calendar year do not increase the price by more than 45% from the contracted collection rate.
So here we have the real sting in the tail for those that did not pay attention. One of our clients thought they had a good deal paying just over £12 when they signed. Just over 2 years later the figures had risen to over £21 a lift when taking into account overweight bins and increased lift charges. So, it is important to check whether the agreement sets out how future price increases will be calculated. If you are signing up for more than 1 year, do year 2 and 3 look as attractive once price increases have been considered?
In the event the supplier terminates this agreement for a reason which is not the suppliers fault the customer shall pay to the supplier, by way of liquidated damages, a sum equivalent to 42% of the total charges payable to the supplier between the date of termination and the next date on which the agreement could lawfully have been brought to an end on notice by the customer.
Just in case you thought of ending the service early, then it carries very punitive costs. This part of the contract gets even more ridiculous:
If the supplier terminates this agreement without ever having started waste collection services, the period for which the supplier shall be entitled to be compensated shall be 36 calendar months.
This is getting more underhand so we know the moment you sign you are committed; this carries no cooling off period, but should you have second thoughts you are going to have to pay for the 3 full year service whether you use it or not. Now clearly such clauses can be argued and overturned but this involves time, stress and possibly cost to get solicitors involved.
The supplier will not accept any correspondence from and shall not deal at all with any third party other than the customer in respect of the services and this agreement. This means the supplier shall not deal with the customer’s agent if the customer decided to appoint one.
So, the contract makes it clear – do not appoint a solicitor as they will not speak with them. This clause is interesting as clearly this supplier will have engaged a third party to help them create this agreement, but they would deny any customer following a similar process. All the clauses above have come out of one waste contractor’s agreement, not all suppliers will carry such one-sided contracts. However, be on your guard if approached by a new waste contractor offering a great price.
Summary of issues to consider:
- What is the term on offer and what date does it start?
- Are the termination requirements clear?
- Does the agreement set out how future prices increases will be handled?
- What is the maximum lift weight you are committing to?
- What are the charges to be incurred if a bin is overweight?
- Not covered above but is the price being offered including bin rental.
- Have you asked what other costs you may incur during the life of the agreement?
- Did you read the contract?
Remember: CAVEAT EMPTOR (let the Buyer Beware)
If the prospect of looking at waste still horrifies you, then get in touch with Auditel.
N.B – Auditel are not trained lawyers and the above are opinions from a commercial standpoint not legal, if in doubt always speak with your legal representative.