Increasingly, customers are insisting that transport companies use their Transport Services Agreement, rather than the transport operator’s own terms and conditions. These customers will have undoubtedly allocated significant risks away from them to you, their service provider. Some key areas to check are:
- Rates: If your bid for the work assumes a minimum volume, ensure that your customer commits to that, or else give yourself a right to increase rates or to terminate. If you don’t have those rights, you’ll be taking the risk! It’s important to stipulate that rates are regularly reviewed, including if the transport services change (eg. new routes) and that there is an objective process (preferably, a formula) that covers off on cost increases you are exposed to. If new charges or taxes are introduced, the contract should allow you to pass these through to your customer. Finally, beware of ‘most favoured nation’ clauses – these work in the customer’s favour and can be very difficult to manage with a range of customers once the contract is on foot.
- Exclusivity/minimum purchases/early termination: If you are not the exclusive provider (or don’t have a minimum purchase commitment), or your customer can terminate without cause, how will you recoup the capital expenditure (new trucks, trailers and depot works) that you have bought or leased to service the contract? If you are incurring significant capex, aim to secure from the customer a mixture of exclusivity, minimum volumes or a committed contract period. There is a similar issue for employees taken on to service a new contract.
- Liability management: We recommend a holistic approach to assessing your overall exposure and liability management. Some ‘tools’ available include:
- contractual protections to ensure you have a reasonable opportunity to rectify
- appropriate liability limitations and exclusions (e.g. of consequential loss)
- insurance – a specialist insurance broker who understands your business and the industry can add value
- contribution – ensure the contract only makes you liable for the losses you have caused.
- KPIs: These are increasingly common, with greater detail and more serious consequences if not met, including termination. KPIs should be objective and properly measurable. An appropriate cure regime should apply before triggering serious consequences.