Preparing Contracts
Page 69
Page 70
If you've noticed an error in this article please click here to report it so we can fix it.
PLANNING
FOR PROFIT
kS requests for appropriate information reveal, there is a continuing and growing interest in the hiring
• out of commercial vehicles on long-term contract oth by the potential suppliers and customers.
The basic reason for this trend is that whilst traders and idustrialists wish to retain greater control of the distribu on of the goods carried than would be possible by the iort term hire of general haulage vehicles, they also wish ) shed as much responsibility as possible on the technical de of running vehicles. In addition they may also be in le position to make better use of the capital which would therwise be used in purchasing their own fleet of vehicles.
Such requests for information on contract hire are not zstricted to traders who have not yet acquired their own ehicles and are in the process of getting all the informaon they can before making any decision one way or the thet. In some cases, in fact, they have been already operang their own vehicles and possibly have come to the confusion that they initially underestimated the amount of dministrative time and ability that would be diverted away rom the main objective, namely the successful prosecution .1 their particular business. Moreover such a decision light be reached even though their fleet of vehicles was
■ eing operated reasonably efficiently and economically. .
In probably the greater number of cases, however, the esire to change from ownership to hiring of vehicles is IroMpted by the unpalatable fact that their inexperience in be running of a fleet of vehicles is catching up on them by iigh costs or reduced availability of vehicles for service, a' more likely both.
But even when such a situation is reached there are many rades wheredistribution and sales problems are so closely nterconnected that it is virtually essential that the driver if the vehicle making the ultimate delivery to the customer nust be an employee of the trader. Fortunately, this equirement and the inability to run a fleet of vehicles :fficiently does not present an impasse.
It is fortunate for traders and industrialists finding themelves in such a situation that transport operation as a Vhole can be conveniently separated into two departments —engineering and traffic. Used in this context the term ' engineering" indicates responsibility for collection, pur:hase and maintenance of the vehicles, whilst the traffic lepartment would then be responsible for their useful ,mployment. In the larger transport organizations, departnents are in fact so named but though in smaller corn)anies their size does not justify this procedure, the same mderlying principles apply. Correspondingly this division of function still applies uhere vehicles are hired on long-term contract although he contract hire specialist owns the vehicles and not the ictual user.
Having considered all relevant information as to the idvantages of either owning or hiring commercial vehicles ,
and come to a decision in favour of the latter, it would then be necessary for a contract to be drawn up to the mutual satisfaction of both supplier and user. Whilst admittedly no such written agreements are normally necessary or entered into by the parties concerned in connection with the substantial quantities of general haulage traffic ; which are moved daily, often on the basis of nothing more than a telephoned request, there is this distinction.
Even if a general haulier is unfortunate enough to enter . into a bad bargain relative to a particular consignment of general haulage, he has at least got the consolation that it is one consignment only. But in the case of a long-term hire contract both parties may be committing themselves over a considerable period, so that both must necessarily take greater pains in examining in detail all possible points which should be included in the agreement.
EXCLUSIVE USE
Relativeto the legal aspects as they apply under the goods vehicle licensing regulations, if a customer requires the exclusive use of a vehicle, with the haulier or contract hire specialist supplying the driver, then the hire contract must be for a minimum period of 12 months before the appropriate contract A licence can be granted.
Apart from this licensing aspect, and whether or not it is intended that the hire vehicle would in fact operate under a contract A licence, or alternatively a C licence with the user then providing the driver, there is also the commercial aspect to be considered. if a vehicle is to be supplied exclusively to one customer and possibly purchased with a particular type of body and livery restricting it to use for that particular purpose, it would obviously be prudent, and indeed virtually essential, for the supplier of the vehicle to have a written guarantee of the amount of work offered and the period involved.
Particularly when a specialized type of vehicle is to be supplied, the legal minimum period of 12 months as applies to contract A vehicles might be insufficient to justify the outlay involved, and periods of, say, two to five years might be more appropriate.
Some of the items which should be included in contract hire agreements are now commented on, with the reservation that any potential supplier of vehicles on hire who has not previously been engaged on this type of work is advised to obtain the professional advice of a solicitor when formulating the actual terms of the agreement.
As is common with agreements of this nature the two parties should be named in the opening paragraph, the haulier or supplier of the vehicle probably being designated "the contractor" and the user of the vehicle "the hirer ". There would then follow a statement as to the period of time to which the hire relates, including, of course, a statement as to the date of commencement.
But both parties must realize and accept the fact that any hire contract of this nature is dependent upon the granting of a carrier's licence. Whilst both parties might have every reason to believe that the necessary licence would be granted, it will nevertheless be necessary to include a clause to the effect that that agreement would be null and void should the granting of a licence be refused. It will be appreciated that if such a provision were not made, the unfortunate supplier of the vehicle might find himself contracting to hire out a vehicle for which legal permission has been refused.
Despite every good intent of both parties at the time of the contract being drawn up, when put into effect unforeseen circumstances could arise which would make it impossible for one, or even both parties, to continue to carry out his part of the bargain. It would therefore be necessary to agree beforehand what the minimum period of notice should be in such circumstances, and insert a clause in the agreement accordingly. Correspondingly, and in more favourable circumstances, a clause should determine the amount of notice needed to extend the contract.
THE VEHICLES
There would then follow a general statement as to the vehicles which the contractor is going to provide for the hirer's use. Sufficient information will be given here as to the number, size and type but in practice it will probably be found more convenient to omit minor details from the contract agreement proper. These details could relate to such items as colour and lettering which could be set out on a separate schedule to be attached to the agreement. This arrangement would have the advantage of permitting variations of these and similar details should the occasion arise, -without having to incur further legal expense in a redrafting of the main agreement.
Many of the clauses in the contract hire agreement would be equally applicable whether the vehicle were subsequently to be operated under either contract A licence or C hiring margin. But obviously differences would have to be allowed for in connection with the driver, which in the former case would be the employee of the contractor and in the latter case of the hirer.
When the vehicle is to be operated under a contract A licence the agreement must give recognition to this fact by stating that the contractor is responsible for the provision of the driver and the conditions under which he is to be employed. Whilst this would not apply when operating under C licence, a clause in the agreement should provide that even then the contractor is permitted to indicate whether or not the hirer's driver would be acceptable. This would be a reasonable provision bearing in mind that the contractor would be providing a vehicle at a fixed charge and the contractor's actual operating cost could increase substantially if an inexpert driver were to be engaged by the hirer, whose employee he will be.
In fairness, a clause providing for a reversed set of conditions could also be included. This would apply where a vehicle was operated under contract A licence and the
contractor had satisfied himself as to the employee's drivin ability. Nevertheless a particular driver's conduct wit customers might be such that he would -be unacceptabl to the hirer.
A further point arises when a vehicle is hired out uncle contract A licence. Not only would the contractor thei be responsible for providing the provision of the drivel but he would also be liable for the legal action of his drive relative to the several Acts and regulations which govert road transport and road traffic. It would therefore have ti be set out in the agreement that the hirer must not direct': instruct, encourage or condone the contractor's driver h contravene the law.
Such a clause should also provide that if, in fact, th■ contractor's driver did receive instructions of this natur from the hirer he would be at liberty to modify then so as to bring them within the law or, if this were no possible, to refuse to carry them out altogether. As distinc from isolated incidents of this nature, if the hirer persistec in adopting such an attitude this clause should provide tha the contractor would then be at liberty to terminate th( agreement on this account, if he thought fit to do so.
As with the number and type of vehicle to be supplied the clause relating to the amount of charge to be made, th( procedure by which it would vary according to the vehicle': use, and the actual conditions of payment would obvious13 be of vital importance to both parties.
A contract hire agreement, whether involving vehicles or contract A or C licence, invariably refersto a specific set of conditions under which the vehicle will operate, i.e. the traffic they will carry and the journeys they will make In consequence, more detailed costing can be undertaker than applies in general haulage. But the underlying prin. ciples of the division of total operating costs intc standing costs and running costs is of particular importance Where a vehicle is supplied for the exclusive use of a hirer it is obviously essential that the contractor should be assured, through the method of charging, that any underemployment of the vehicle would not be his liability Conversely, where an agreement provides for the standard charged to be assessed on the basis of the quantity of loads carried, the mileage or time incurred or a combination oi two or more such items, provision should also be made in the agreement so that both parties are in no doubt as to the amount and method of charging for any additional work over and above that already agreed.
An apparently minor point in this connection relates to dead mileage. Where the vehicles supplied are not housed overnight on the hirer's premises but are sent daily from the contractor's garage, prior agreement should be reached as to who is responsible for the cost of that journey. Although the mileage of the single trip might be trivial, over a year it could obviously involve an appreciable expenditure.
Further aspects to be considered when drawing up a contract hire agreement will be considered next week.
S.B.