What to Look For In a Contract
Written by Eric Petersen, CIC
As I was sitting at my desk sipping my coffee this morning, I couldn’t help but be thankful that I didn’t have any contracts to review this morning for our agency. Seriously, REALLY thankful!
Unfortunately, many tree service owners wake up with the exact opposite feeling, staring blankly at the six page contract that their local municipality just sent over for them to agree to before they even give a bid! And worse yet, once you do start to read them, the language that they use often leaves you scratching your head.
I wrote this article to highlight a few general provisions within common legal contracts that you will see within the tree care industry. Paying close attention to these provisions will give you the basic understanding of what the other party is asking of you within the contract and the amount of risk you are exposing your company to by agreeing to the terms. This simple analysis will give you the edge over other tree services who just sign it without reading, as you will understand where you can negotiate as well as when to walk away from an unreasonable situation.
And of course, please don’t take this article to be actual legal advice. Talk to your attorney with any specific questions that you have regarding contracts that you are contemplating entering into.
There are many different types of contracts that you will run into as a tree service owner, from lease agreements for your building and equipment, to subcontractor or work order contracts to purchase orders, the list goes on and on. Each of them will outline who is responsible for what. If you are ever unclear about what you are asked to do within a contract, make sure to clarify with the other party BEFORE signing it.
Who, What, Where, When and How Much? – Every contract must specifically address these five questions. If there is any confusion on any of these basics, they must be figured out before any work is done. These set up the terms for the entire project so be clear on the verbiage.
Cancellation – How does your responsibility change if you need to cancel the contract? Is there written notice that must be given in advance? What about if the other part cancels? Gain an understanding of how this contract will dissolve so you do not get caught doing tree work for free.
Insurance/Risk Transfer Provisions
Additional Insured – Many contracts ask to have one party be named as Additional Insured. If you are required to list another entity as Additional Insured, you must contact your insurance agent/company and physically change the policy to meet this requirement. Many times there are specific insurance forms that are necessary to fulfill this requirement. Listing another entity as Additional Insured gives the other entity coverage on your policy, so your insurance company is taking on another defendant in a lawsuit if something happens at that particular job/project. Send a copy of the contract to your insurance agent before you sign it to gain an understanding of the type of Additional Insured status they are asking for and to get an idea of how much this will cost you.
Loss Payee – If you are borrowing money for an equipment purchase, the lender will want to be listed as Loss Payee on your insurance policy. This guarantees that they will be paid first if the equipment is damaged or stolen.
Hold Harmless Agreements – Simply put, Hold Harmless Agreements are used to transfer the risk of something happening from one party to another. If a contract states that you will indemnify and hold harmless the other party, you are assuming to pay for anything that happens on that job site without help from that other party. This can be a very large exposure to your company that many tree service owners are unaware they agreed to. Again, send a copy of the contract to your insurance agent or attorney for review before agreeing to something that you do not understand.
Waivers of Subrogation – Similar to the Hold Harmless Agreement, a Waiver of Subrogation will remove the right for your insurance company to seek reimbursement for an accident/injury from the other party. Typically, the Waiver of Subrogation will be placed onto the Work Comp policy for a charge from your insurance company. With the already high work comp cost for arborists, losing the ability to get reimbursed for a workplace injury can cause an injury to financially affect your company more than it should.
Unfortunately, there is a lot that goes into a legal contract, however, paying attention to these contract provisions will help you quickly understand what you are being asked to agree to and can save your company from entering into a fatal contract. Remember to utilize your team; attorney, insurance agent, business coach and possibly your CPA to help you understand what the contract says before you sign it.
Still want help reviewing contract provisions? Contact the ArboRisk team today to learn more or check out our Thrive New Heights Package!