James F. Mahoney, Attorney

July 2014

What's in Your (Transportation) Contract

Here’s a list of terms for that contract that you simply must not forget to include

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Every company has to survive in the wild and woolly world of the marketplace.

Just about every business has a (transportation) relationship that is ultimately (or should be) put into a formal contract.

Whether you’re a shipper, freight broker, transport intermediary, motor carrier, third-party logistics provider, freight forwarder or some other variation, here’s a list of terms for that contract that you simply must not forget to include. The clauses are not always identified specifically as these, but inclusion of the terms is absolutely crucial.

Billing and Payment. Contract language should discuss the issues of when payment is due, penalties for late payment, including interest, costs of collections and suit and attorney fees.

Certifications, Warranties and Guarantees. You should never promise the total accuracy of anything, e.g., pickup or on-time delivery, 100% satisfaction, or complete compliance with all possible controls. If faced with such high expectations, you should try to substitute contract language that reduces that promise to a reasonable expectation.

Consequential Damages. You should be sure to include a waiver of consequential damages. These include indirect loss, such as loss of profits, or shut down of the customer's manufacturing process. Such damage claims are only remotely connected to the services you’re rendering unless specifically detailed in the contract.

Safety. Your contract should include a clause on safety that makes it clear the responsibility for job safety remains with the person or entity performing the specific task. For example, if you are a motor carrier and your driver slips on oil on the shipper’s dock while counting the piece loading, should you immediately accept responsibility for an unsafe work condition over which you have zero control?

Limitation of Liability. Look to include a limitation of liability clause, which is an agreement between you and your customer that establishes a maximum amount of liability exposure you will be responsible for in the event of a claim arising out of the services rendered.

Alternative Dispute Resolution – Mediation. Mediation is an informal approach to dispute resolution. Your contract should make mediation the first step in settling disputes with your customer. Mediation has a very remarkable track record, especially when used early in the dispute. The American Arbitration Association reports an 85% success rate. There are several less expensive alternatives to Triple A.

Scope of Services. One of the most important clauses is the detailed description of each and every service you will provide to your customer, and offer those you’d be happy to provide for additional charges. Detailed checklists or menu items in addenda can help avoid possible controversies later.

Standard of Care. You should affirmatively define the standard of care to which you will perform. Nowhere in the land of contract terminology is the word "perfection" used.

Termination. You should have a termination clause that defines the circumstances under which you or your customer may end the legal relationship. As much as we’d like for all our positive contracts to go on forever, so-called “evergreen” contracts that never expire will eventually become quite stale and cause some trouble. Renewals at specific intervals, even if by email confirmation, are best.

Third-Party Beneficiaries. The contract should address the potential for third-party claims, i.e., those of entities or persons outside the contractual relationship. You can establish ground rules that will be used by mediators or courts in guiding interpretation. Be cautious around the indemnity language - some forms are banned / void.

Rubber Stamps. Don’t ask a transportation lawyer to “quickly look this over” and approve it because you commenced work on the deal last month. Your leverage and eventual well-being are best served by having your lawyer involved in early drafting - and you'll cut down on aspirin purchases.