Chris Della Pietra of Potters & Della Pietra LLP led an informative session today titled “Waste Industry Contracts: Practical Advice in Uncertain Times.” Della Pietra went in depth on a range of issues related to successfully crafting and negotiating waste contracts to ensure that both parties are satisfied and protected.
Della Pietra began by emphasizing the importance of considering all aspects of a contract before going into negotiation. “Leverage is best at the outset of a relationship,” he said. All contracts are governed by the universal commercial code. As a general admonition Della Pietra pointed out, “The bigger the contract, the bigger the risk, and the longer the contract, the longer the risk.” Still, he added, “If you’ve got volume, you’ve got leverage.”
From a practical standpoint, Della Pietra recommended that haulers keep contracts to one page (to avoid confusion and prevent complications like a second page being lost through FAX, etc.). After outlining the different types of contracts, Della Pietra noted that it is important to know all the parties involved in a contract, as sometimes the affiliates and subsidiaries involved may not be readily apparent.
A large section of the presentation was devoted to the commercial terms covered in a contract. These were broken out into scope of services and performance obligations, prices and fees, price adjustments, and payment terms. In general, Della Pietra urged that these elements be as specific as possible. Among the tips offered:
• If comments are invited (even before a bid has been accepted), “give yourself a place-holder” in the contract to make necessary changes later.
• Don’t fix rates for more than one or two years.
• Note whether prices in the contract include taxes, fees, etc. Include provisions that allow for flexibility in the event of a substantial rise in fuel prices, new taxes, etc.
• “Cash flow is king.” Net 30 to 45 day payments. Avoid anything over 60 days.
• Consider offering an “early-pay discount” as an incentive.
• If providing services for a municipality, see if they are willing to handle billing. That’s one less headache for your firm.
Next, Della Pietra broke down specific contract provisions, including term of renewal, representations and warranties, indemnification and insurance, damages, non-competition and non-solicitation clauses, environmental provisions and title to waste, and contract termination. Some tips here:
• When setting an effective date with a new business, include a qualifier like “provided it’s no later than” to protect against delay in the business coming online.
• Certain municipalities do not allow contracts longer than one year.
• Haulers should get representations and warranties from the landfill they will be using, lest unforeseen variables place an undue burden on the hauler or its clients.
• A contract should indemnify the other party for your negligence and vice versa. Mutuality should be a given here.
• Non-competition clauses are a fact of life and you may have to live with them, but make sure they are reasonable (e.g., no clause insisting on lifelong non-competition).
• The recession is producing a wider range of force majeure claims, with wild fluctuations in fuel costs and other economic pressures being cited as “acts of God” and justification for vacating or renegotiating a contract — sometimes successfully.