CHECKING CONTRACT TERMS
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BECAUSE the hire of a commercial vehicle on contract can be arranged to meet precisely the needs of the user it follows that there can be a wide variety as to the scope and type of service provided in each case. Accordingly, this is all to the good when an appropriate agreement is drawn up in that it follows the pattern of flexibility which has been a key factor in the outstanding success of the road transport industry in the UK.
For the same reason, however, it does make it all the more necessary for both the contractor, who is to provide the vehicle, and the hirer, who is to operate it, to be agreed as to exactly what service is to be provided and who will be responsible for what, both in execution and subsequent payment.
Some of the aspects which need to be considered and agreed on have already been discussed in previous articles in this series. Such consideration between the two parties would be prior to the actual drawing up of an agreement, which it is again recommended should be entrusted to a solicitor.
An aspect which should not be overlooked in connection with the drawing up of agreements appertaining to transport operations is the accumulative effect of the relatively high mileage covered by cortimercial vehicles, particularly when supplied on long-term contract. As a result, failure to provide for what initially might seem a trivial item ultimately could result in a considerable amount being in dispute as to responsibility.
Thus in the previous articles it was pointed out that responsibility for such items as washing, servicing and possibly minor maintenance .could vary according to the proximity or remoteness of the contractor's base from that of the hirer, in addition to other reasons. It is important, therefore, that just what services are being provided by each party should be clearly laid down.
In this context, and apart from the problem of maintenance, the dead mileage involved in a vehicle running from the contractor's base to the hirer's premises (when it is not garaged overnight at the latter) should be provided for, as obviously over the course of, say, a year the total involved could be substantial even though the two bases were relatively near.
An advantage of a contract-hire agreement is that both parties should be more fully acquainted with the particular details of the work to be undertaken than might apply in the case of general haulage. But even with the best intentions and because of the rapid changes that are daily taking place in the structure of trade and industry generally, it could be that before the period of a long-term contract is completed the type of operation originally envisaged no longer applies. Accordingly, a clause should be included in the agreement giving recognition to the possibility and the steps to be taken should it arise.
Changed Conditions
Obviously, if the agreement has been working satisfactorily before the change of conditions apply, then both partners presumably will wish for a readjustment of the agreement to be amicably arranged. But in fairness to the contractor, his original estimate as to his likely operating costs—and therefore the charge he made to his customer—would be based on the original operational conditions. Where they have subsequently altered substantially the agreement should give him the right to make appropriate adjustments to his charges.
In addition to the type and number of vehicles to be supplied and the charge to be raised, another major factor in any contract-hire agreement is the period of hire, or minimum period of hire, for which the agreement is to run. In the case of a vehicle supplied under a Contract A licence arrangement the period must be for a minimum of 12 months as laid down in Section 174 of the Road Traffic Act, 1960. But whilst in other cases there could be no legal requirement to be met, there is always the economic aspect to be considered.
Even when the versatile platform vehicle is being provided some regard will have to be paid to the cost of having to inscribe on the vehicle the customer's own livery. Obviously, if at the conclusion of the initial contract period the contract was not renewed and the vehicle was subsequently put to other use, then repainting, possibly prematurely on purely economic grounds, will be necessary.
Of more serious implication would be the supply on contract of a specialized type of vehicle for which there was little or no use other than for the purpose of meeting the needs of one individual customer. In that event either the level of charges raised or the length of the period of hire or a combination of both should be such as to recompense adequately the contractor in his capital outlay of such a vehicle.
Even when the two parties—the contractor and the hirer .ecognize the need to provide for all reasonable contingeni a contract-hire agreement, it is not always easy for them assured that this has in fact been done. As regards the five financial responsibility of the two parties, however, it iseful exercise to run through the ten items of operating set out in the COMMERCIAL MOTOR Tables of Operating to ensure that there is no misunderstanding as to what bution is being made by each party.
is there is the major division of operating costs into the two s of standing costs and running costs. Dealing first with ng costs these consist of five items—licensing, wages, rent des, insurance and interest.
the licence duty has to be paid before a vehicle can be put road this invariably will be the responsibility of the con who provides the vehicle. But to safeguard the contrac[nterests it would be advisable to include in the schedules ring the type and number of vehicles to be supplied the ai weight of the vehicle (in the case of a goods vehicle) or ating capacity when a passenger vehicle was involved. This ause the amount of licence duty payable is determined by factors, and if subsequently for any reason the hirer wished re a vehicle altered in such a way that the amount of duty le was increased, then obviously the contractor should have an to amend his charges if he thought necessary.
rs' Wages
vers' wages have been very much in the news lately and have he subject of official reports. Therefore, in addition to virtuinnual increases in the basic minimum remuneration as [mended by the Road Haulage Wages Council, it seems ble that there could be even more fundamental changes in latively near future. So it will be more than ever necessary novision is made in a contract-hire agreement when the ictor is responsible for providing the driver as applies under itract A licence, that he should have the right to adjust his z...s if national wages awards are made after the agreement :en signed.
ditionally it will be necessary to agree as to payment for me working and the extent to which this is likely to be ed. Apart from the aspect of the actual amount of wages paid, overtime working could also bear on the contractor's own arrangement for maintaining the vehicle when not in use by the hirer. Indeed, the increasing shortage of skilled maintenance staff is already a major problem for contract-hire specialists so that the economic scheduling of vehicle maintenance is of paramount importance in the cost of operating vehicles and consequently the charge made to customers. The periods, therefore, when the contractor has the right to expect vehicles to be available for maintenance should accordingly be set out in the agreement.
Garaging of the vehicle, as already mentioned, can vary according to individual circumstances and should be provided for in the written agreement.
In any agreement of this nature the item of insurance is specially important and there should be no misunderstanding as to the responsibilities in this respect of both parties. In the case of transport operation there is not only the financial liability to be considered but also the legal requirement in meeting statutory regulations as applied under the Road Traffic Act, 1960, to provide minimum third-party cover.
At the other end of the scale it would be as well for both parties to exchange information as to any overall goods-in-transit insurance cover they each might already provide so as to avoid possible unnecessary duplication of such cover.
As the supply of the vehicle itself is the contractor's responsibility and indeed the prime purpose of the exercise, then the fifth item of standing costs—interest on capital outlay—likewise must be the contractor's sole responsibility.
Fuel supplies will again be dependent on individual circumstances but the precise responsibility should then be clearly set out in the agreement and the same would apply to the provision of lubrication oil. Vehicle and tyre maintenance usually will be the contractor's responsibility with possibly some minor adjustments where it is more convenient for the hirer to be responsible for washing and routine servicing.
The final items of running costs—depreciation—will also be the contractor's responsibility but both parties should reach prior agreement as to when vehicles are to be replaced if a longterm contract is envisaged. Likewise the extent to which spare vehicles are to be provided to replace service vehicles undergoing maintenance, either routine or as a result of an accident, should be laid down in the contract-hire agreement.