Contract Intact

Crafting a service agreement that will protect your firm

Carefully Prepared contracts or customer service agreements are an important risk management strategy for preventing financial losses, but too many companies enter into business transactions contractually unprepared. Surprisingly, many waste companies entirely overlook service agreements with customers.

Without a solid customer service agreement, waste companies may be leaving themselves open to risks over which they have no control. Such situations also result in business disputes that often are sent to court to be handled, tying up a company's time and financial resources, not to mention the risk of an unfavorable judgment.

Consider a waste firm that rents roll-offs or dumpsters. In one claims example, a customer built a ramp to a dumpster which he rented from a local waste company. The customer's employee fell off the ramp and sued the waste company for his injuries, even though the waste firm had no hand in building the ramp to its dumpster.

A well-crafted and signed service agreement may have prevented such a claim. Typically, service agreements have a “hold harmless” clause that stipulates a customer's responsibilities as soon as the dumpster is accepted. Such a clause may read: “Customer expressly agrees to defend, indemnify and hold harmless (Waste Company) from and against any and all claims for loss of or damage to property, or injury to or death of person or persons, resulting from or arising in any manner out of Customer's use, operation or possession of any equipment furnished under this Agreement.”

Beyond protection, contracts play an important role in managing customer relationships and expectations of the services delivered. A company should take precautions regarding the language used so that it does not find itself liable for something it did not intend to provide or a quality of service it could not possibly deliver. This preparation should include contract review training as part of a waste firm's overall risk management program.

If a waste firm doesn't already have a standard agreement form, there are several sources of sample contracts and contract language available from industry associations. A waste firm's insurance broker or carrier also can offer important guidance. Whatever form the firm arrives at, it should also be carefully reviewed by an attorney.

Even if a waste firm has a standard form, some clients may require the use of their own contract form. Client-generated contracts need to be examined closely because they sometimes contain clauses that can cause more problems than a verbal agreement. For example, many client-generated contracts contain a broad-form indemnification clause that requires a firm to indemnify the client for their own negligence.

Whether your company decides to develop its own contract form or use a standard contract, it's important to note that to be considered binding, a contract must include several elements:

  • Agreement

    The parties to the contract must come to a “meeting of the minds” whereby one party will provide goods or services and the other party accepts the goods or services for a fee or consideration.

  • Fee or Consideration

    Something of value must be exchanged between the two parties, be it a certain dollar amount, an in-kind service or goods.

  • Legal Enforceability

    The conditions of the contract must be legally enforceable in the jurisdiction where the contract is applicable. For example, in some states, indemnification language is not enforceable due to anti-indemnity statutes.

  • Competent Parties

    The signatories must be mentally competent and not impaired by insanity or intoxication. The signatories also must be specifically authorized to sign contracts by their respective companies.

  • Legal Purpose

    The contract must govern a legal transaction.

Without the benefit of a solid contract, you leave your company vulnerable to financial losses as well as loss of time used to settle a contract dispute.

Kate McGinn XL Specialty Insurance Company