Contracts to provide transport or logistics services are vital to business success, but if not well negotiated, can have serious or even fatal consequences for the transport or logistics provider.
Here are some of the common high risk mistakes we often see in transport and logistics contracts:
We often see fixed term contracts such as for periods of three years or five years. Fixed terms are critical to provide you with the certainty of tenure that you need. However, we often see that “fixed term” contracts have termination clauses which include termination without cause, typically on one month’s notice. Whilst it is hard to avoid that fixed terms can be brought to an end for cause ie. breach of contract, agreeing that a contract can be brought to an end “without cause” completely erodes the fixed term that is otherwise granted. Unfortunately, in most cases, termination without cause overrides the supposed fixed term.
- Fixed prices
Whilst it is desirable to get a contract for a fixed term of say three years, it is very risky to agree that the prices are fixed for the same period (unless the upfront price takes into account expected increases in costs over the next few years). Pricing should be subject to regular reviews, typically annual. Such reviews should take into account reasonable increases in costs of providing the services, using CPI as the usual mechanism to try and take into account such increases. Typically, as well as CPI increases, because of the wide fluctuations in fuel, a fuel cost or fuel levy should be separately dealt with by reference to a relevant fuel price index and should be more frequent, eg monthly.
- Allocation of Risk
Allocation of risk is generally dealt with through liability, indemnity or even release clauses. The most critical thing is that liability should follow the cause. You should not agree to be liable for, or indemnify, or release the other party for damages for problems that are not of your making.
It is not unreasonable to expect that you should be liable for the reasonable consequences of your wrongful acts or omissions, but you should never accept responsibility for causes not of your making or not within your control.
You should always try and exclude liability for consequential or indirect loss and damage.
- Intellectual Property
You should never give away your intellectual property as doing so may prevent you from providing your services to other people. This refers to both assigning or transferring your intellectual property or granting an exclusive licence.
You should always maintain ownership of your existing intellectual property and only licence it to the other party for the purposes of the particular contract.
- Immediate Termination
As above, it is reasonable to expect the other party to have the right to terminate your contract for a material breach. However, you should never accept immediate termination without the opportunity to rectify the breach. The right to terminate for breach should always be subject to you failing to rectify the break within a reasonable time of receiving a written warning notice.
- Force Majeure
You should always request a Force Majeure clause ie. a clause that excuses your failure to perform for reasons beyond your control eg. acts of God (storm, natural disaster etc), war, terrorism, strikes or industrial action. It would be unusual for you to have a complete suspension of obligations for any industrial action such as strikes by your own workforce, but you should press for an excuse where the strikes are of a national, state-wide or even industrywide nature.
You should never enter into a business contract without a proper review of the terms. We are ready to assist as required.