The subcontractor pays the contractor a commission and he/she in turn pays a portion of the commission to the location owner. This begs the question, “What is the contractor’s profit?” “How much of the commission is he holding onto?” Answer: Actually, it’s none of anyone’s business. If the subcontractor becomes too curious about this, they may jeopardize the relationship.
Rarely is the commission from the subcontractor paid to the location owner as a straight pass through. In most cases, the contractor collects a fee off the top which can range anywhere from 5 percent to over 20 percent commission on net sales, with the remainder going to the location owner.
Another element of the contract is references, which reads as follows:
Sub-Contractor shall not voluntarily make it known that they provide vending services to the Location Owner or that they are a party to this Agreement in any written document, oral presentation or request for references.
Beware of too much secrecy. If the contractor is subcontracting the vending business without the knowledge of the location owner, this will result in complications.
Another element is the non-compete clause, which reads as follows:
During the term of this Agreement and for a period of three (3) years thereafter, the Sub-Contractor agrees not to solicit or accept solicitations, directly or indirectly, for vending services from the Location Owner.
This can be troublesome if the contractor loses the contract and the location owner issues a request for proposal, often known as RFP. Technically, the operator cannot respond.
The next key clause is prohibited conduct, which reads as follows:
Sub-Contractor is prohibited from “R” Factoring and agrees it will be liable for all legal fees, investigative costs and full restitution should any factoring of sales, or other unethical business practices be discovered.
The practices of a few have tarnished the reputation of many. Don’t be offended by this; it is a blanket precaution.
Customarily, there are negotiations on rates of commissions. However, in most cases, vending companies do not negotiate other contractual protections with the contract holder. The operator’s success in these negotiations will be proportionate to the value of the deliverables that they see in your services.
Do your homework
These subcontract agreements are often entered into without the usual “courting” period, but this is a mistake. The resulting failure to establish the tangible value in your ability to do something better than they can is a common mistake that leaves you in a poor negotiating position.
If you are a subcontractor for one of the large corporations, you can be reasonably comfortable that you will be treated fairly and as an important partner. Don’t mistake this for kindness; they drive a very hard bargain, and in many cases they are much more powerful than the local independent vending operator.
If the contractor decides to take over the job and gives you your walking papers (it does happen), in most cases you have no recourse. This is particularly disturbing when they specified that you purchase all new equipment for their location at the outset. They will maintain that your machines are moveable assets, and in reality, you do not suffer any real loss other than revenue. Obviously, you will have a different opinion; you may be able to protect yourself with the insertion of a termination for convenience clause.
The termination of convenience clause reads as follows:
Contractor may terminate this Agreement without cause upon sixty (60) days written notice. In the event Contractor elects to terminate the Agreement without cause the Contractor shall purchase the Sub-Contractor’s owned equipment installed in the named locations. The purchase price for the equipment will be the Sub-Contractor’s book value.
Then there is the right of first refusal. It is seldom used by traditional vending companies, but is widely used by other service providers where there is a substantial capital investment and financial return is the first priority.
The right of first refusal clause reads: