Last month's column, “Forget the Handshake, Contracts are Critical,” drew the highest feedback response since “Losing Sleep Over Yelp,” which was published about one year ago. Clearly, contracts and Yelp are hot button topics for coffee service, vending and micro-market operators.
Everyone who contacted me seems to agree that contracts are critical. I was happy to assist several operators in getting their heads wrapped around the importance of contracts.
All contracts are not created equally and as an operator, it is extremely important that your contract contains certain key elements. Jonathan W. Evans, a Los Angeles-based attorney, www.stocklaw.com, has developed contracts and worked with operators on contract related matters for over 30 years. “When it comes to contracts, do it right,” said Evans. “Use a competent attorney who can work with you to put together a contract that will protect your investment.”
Essential Clauses
Evans points to several items that should be in every coffee service, vending or micro market contract.
1. Minimum monthly purchase - The client should have to spend a certain amount every month or incur automatic fees – rentals or service charges. If you provide a rent-free brewer, you should expect to be selling coffee and related supplies. If the employee count drops in a given department and the client still demands a brewer in that area, you should be compensated for that accommodation.
2. List scope of services covered under the agreement – List every category – coffee brewers, vending, water filtration and micro markets. Clients have changing needs. Your contract should give you the right to meet those changing needs. Example: Changing from vending to a micro market or back to vending from a micro market.
3. Exclusive rights to operate equipment and sell products listed in the agreement – Prepare a Schedule A – Product Categories Covered under the Agreement. This will clearly define your product expectations and rights; helpful when your client starts to buy coffee service products from Costco, or when a competing vending machine shows up in the premises.
4. Clearly defined term – The contract should state the term clearly in number of months, typically from the date of installation.
5. Automatic renewal with clear instructions regarding proper cancellation – In some states, automatic renewal clauses do not apply pertaining to consumer contracts specifically. Usually, no such provision exists for business contracts.
6. A non-performance clause – If your company goofs up (it happens), the client must notify you of the cancellation in writing and give you an opportunity to remedy the situation within a reasonable time. This clause eliminates calls that sound like this: “It’s Jane from XYZ Company. Your driver was messy today, left boxes all over the place. My boss is upset. I’m cancelling the service. Come pick up your equipment.” Slow down Jane. We can take care of this right away.
7. The right to increase prices – Prices go up and you need to be able to increase them. Put that in writing.
8. Protect your equipment – The client needs to accept responsibility for the safety of your equipment. Protect yourself from vandalism or theft.
9. Early termination – damages clause – Define the damages in the event of early termination, which is a breach of contract. Damages should equal monthly gross profit, multiplied by the number of months remaining on the agreement. If this “defining damages” clause stays in the agreement, that’s great. If the client insists on removing it, that’s fine too. You are entitled to damages in a breach of contract case, even if it is not defined in the contract.
10. Attorney’s fees – The prevailing party should be entitled to collect attorney’s fees from the other party. Chances are, you will never go to court. You may never even file a lawsuit. Having an attorney’s fees clause can motivate your client to come to their senses and do business within the terms and conditions of the contract.
11. Assumption clause – When your client sells their business, they are responsible to make sure that the buyer assumes the contract. If not, the seller is liable. So, when Google buys that hot little tech company you have been serving, you will either keep the business or get paid for losing the account. Or – you could just walk away. But why?
12. Credit terms – Make sure your client understands what your expectations are regarding payment. I have seen clients say “Net ten days? We pay in ninety days.” Good to know before you install your equipment.
Apparent Authority
Make sure that the person who signs the contract has “apparent authority” to do so. That is your obligation. Have them print their name and title. Get a business card for the file. One typical contract defense is to claim that the person who signed the contract did not have the authority to do so. “The person who signed this was just an administrative assistant and they have been gone for months,” says the new manager who wants to bring in a friend to service their vending. When you point out that their business card says “manager,” that usually mitigates the argument.
Protect Your Investment
The purpose of a contract is to protect your investment. You are not in business to sue people. You are in business to serve clients and function profitably. Contract enforcement should be designed to give you an opportunity to keep the account and make the client happy. It is not your fault if your client is unhappy, but not honest with you about their level of satisfaction. When that scenario results in a breach of contract, proper enforcement techniques can turn the situation around quickly.
The Art of Enforcement
Contract enforcement – done right - is an artform. While it is tempting to do a third column that focuses entirely on those strategies, I invite operators to contact me directly. I will be happy to discuss strategies that will enable you to protect your accounts, collect damages when there is no other option and most importantly, do it all in a manner that leaves bridges intact. Additionally, your clients will respect your businesslike approach and your professionalism.
If you do only one thing in 2018 to enhance the value of your business, get your contract situation under control.
- Bob
I welcome your feedback - Cell 818 261-1758 [email protected]
Visit the website www.tullioB2B.com
Over the last 37 years, Bob has sold video games, cigarette machines, cranes and juke boxes to bars and amusement centers, full line vending to public locations and office environments, pay telephones to retailers, coffee service to thousands of office locations and of course, micro-markets. He has a very successful track record as key strategist, sales trainer and media manager under the title, "Director of Business Development" for World Wide Vending and Gourmet Coffee Service.
