The Hows, Whys and Substance of Service Contracts

You don’t have to be a doctor to take care of your health, and you don’t have be an attorney to utilize legal instruments to the best advantage of your business.

Anyone who has been in this business for a while has run into the client from hell for which they have diligently completed all services requested, only to find out that this client expects more and more. This is one reason that you should have all of your accounts under contract.

The short definition of a contract is: “A definite agreement between two or more competent parties, based on lawful consideration, to do (or not to do) some lawful thing”.

Because the term “contract” can sound a bit ominous, some people prefer the term “agreement.” I prefer the term “contract,” because it means one or more agreements within the contract while the singular term “agreement” sounds as though only one agreement was made. Whether you call it an agreement or a contract, it is a contract under the law when properly written.

Will it stand up in court?

The usual question regarding contracts is: “Will it stand up in court?” This is probably not the most important question here. This industry is not as litigious as some, primarily because it’s a cash business, employing movable assets. The principal value of the location agreement is the client’s commitment to a long-term relationship and the clear delineation of who does what, how and when.

If we can get out in front of the selling process, beyond merely responding to bid specifications, contractual arrangements can be established which are less one sided and have more of a joint venture flavor.

Accounts are not covered under location contracts for a few reasons; the vendor never asked for one, the vendor went about getting one in the wrong way, or the client refused to sign.

Make every possible effort to get a location contract whenever a new account is sold. Always include a completed draft contract (not a fill-in-the-blanks sample contract) with your proposal. Include this straightforward statement on your Website and in all sales materials: “XYZ Vending requires a service agreement that provides our clients with a host of benefits.” It is important to focus on the rewards of a contractual relationship, for the client.

Regarding your existing accounts not under contract (every company has a few), asking the client to sign a contract is risky. This may seem like a reasonable request from your prospective, however, it will almost certainly result in your client “checking the market.” If you’re willing to take the risk, go for it. Just understand that before it’s over, you may wish you had left it alone.

Here is a tip for gaining a contract in your existing accounts: couple your request with equipment upgrades or other service enhancements.

Two words never to use

First rule, wherever possible, stay away from these two words: NEVER and ALWAYS. Sure, you want to have the autonomy to run your accounts any way you want to, but keep in mind that everywhere you do business you are a guest on someone’s property. Everything you do or don’t do has an effect on the people there.

Most decisions you make regarding the scope of services at your locations will require the concurrence of your host. That’s not going to change; get used to it.

Despite your best efforts, you are going to run into people who just won’t sign. If it’s a good account, the investment minimal, and it doesn’t require holding receivables, take the business anyway. (I would not have said that 10 years ago)

Location contracts vary significantly, but there are common elements used in all of them. Two of the most important are the automatic renewal feature (evergreen) and the cure period preceding termination. Both of these clauses facilitate long-term account retention.

Two Common clauses