CONTRACT-HIRE AGREEMENTS
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E hiring of commercial vehicles is receiving increasing attention and some of the underlying reasons for their use have been examined in recent articles in this series. Relevant factors include the need for direct control of the driver without the added responsibility of actually operating and maintaining a vehicle. Lack of expertise in transport management is often another salient factor, but even when this is available the relatively small number of vehicles required may still make the setting up of one's own transport department an uneconomic proposition. When for one or more of these reasons it is decided to hire vehicles, then it is prudent and in the interest of both parties to draw up and agree beforehand the terms to be included in the contract. Justifiably it might be pointed out by those not previously experienced in contract-hire work that a large volume of traffic is moved daily by general haulage with apparently little need for lengthy agreements signed by the respective parties. A large quantity of such haulage, however, is virtually "spot" hire work and to some extent the success of road transport has been its ability to meet such urgent requests and at the same time give and adhere to "spot" quotations.
In such circumstances it might be that even experienced operators occasionally misjudge the situation and accordingly make a loss on the deal. But at least it is usually limited to one movement of goods with no further repercussions. But by definition contract-hire work falls into a different category for which reason every care must be taken to ensure that both parties know precisely what service is being provided and the rate and method of charging.
As to the drawing up of the actual agreement, the haulier will be well advised to obtain the services of a solicitor to do the drafting and the comments now given are for the purpose of suggesting the terms that should be included together with the underlying reasons that give rise to them.
Although an apparent formality, the first clause in the agreement should set out the names of the two parties. In the case of this particular type of agreement the haulier would probably thereafter be referred to as "the contractor", while the ultimate user would be termed "the hirer".
If in fact the agreement is drawn up on legal advice then in the interests of saving expense it would be advisable to avoid the need for subsequent amendment at too early a date. But because road transport is such a flexible service, then even with the best intent of both parties subsequent amendments at least in detail may become necessary from time to time. This can be anticipated by excluding from the main agreement and including in appended schedules reference to items which might reasonably be expected to be changed.
Schedule examples In this category comes the statement as to both the starting date of the agreement and the length of its duration. Once again. despite the best intentions, the actual date of delivery of a vehicle and associated factors probably will be outside the control of the contractor, while correspondingly the traffic to be moved by the hirer—which, incidentally, may not necessarily be his own property—might be under the control of a third party. Accordingly, it is advisable to include reference to the date of commencement and period of hire in an appended schedule. This permits the easy renewal of the agreement without further ado.
A contract-hire agreement in respect of a commercial vehicle can differ from one in respect of a private car because of the effect of the law relating to carriers' licences. Although both contractor and hirer may wish to go forward with any agreement, obviously this must be dependent upon the granting of the necessary carrier's licence.
While this should present no difficulty when application is being made for either a Contract A licence or an addition to a C hiring margin, nevertheless it is advisable to include in the agreement the qualification that completion of the agreement will be dependent upon the granting of the necessary licence. If this were not provided for, then in an admittedly extreme case a contractor might find himself legally bound to supply a vehicle for which a Licensing Authority had refused a carrier's licence.
Apart from the granting of carrier's licences there could arise other circumstances completely outside the jurisdiction of either party—for example, the declaration of a state of national emergency—which made it impossible for one or both parties to carry out the agreement. This should be recognized by a suitable clause in the agreement together with an equitable attempt to prescribe the circumstances in which invalidation of the agreement justifiably could arise.
Specification of the type and number of vehicles to be supplied obviously would be of major importance. While this could be stated in general terms in the agreement again it would be advisable to enter specific details in an appended schedule. Particularly would this apply where the contract was renewed year by year and the hirer wished to change, for example, the livery of the vehicle or some other modification of bodywork design.
As already mentioned, carriers' licensing will have a bearing on a contract-hire agreement. In the case of a vehicle supplied under a Contract A licence, the driver also will be supplied by the contractor. But under a C-hiring arrangement the driver would be the hirer's own employee and in either event the position as to the employment of the driver should clearly be set out so that there is no misunderstanding on this score.
Anticipating beforehand possible differences of opinion as between the contractor and the hirer as to the suitability of a driver should be recognized in the agreement by a statement as to how this problem is to be resolved.
In the case of a vehicle being supplied on Contract A licence, with the driver therefore being an employee of the contractor, the latter may be satisfied as to his driver's ability as regards the control of his vehicle. But particularly where the type of work brings the driver into contact with the hirer's customers his ability to deal with documentation and possibly handle money might reveal shortcomings. Alternatively, his manner towards customers may not meet with the hirer's approval.
Responsibility for drivers
In reverse, when a vehicle is supplied on contract under a Chiring arrangement and the hirer selects and employs the driver, then here again there could be differences of interest. The hirer might well look upon such drivers as primarily salesmen and therefore select them mainly on that count alone. But bearing in mind that the vehicle and its subsequent maintenance remains the contractor's responsibility, some drivers selected in this manner may not prove satisfactory to the contractor.
Therefore, whatever the type of licence under which the vehicle is to operate, it must not only be stated who is to provide and pay the driver, but some recognition of the other party's right in respect of a driver should be written into the agreement.
As distinct from, say, the supply of equipment for use within a factory, the supply of a conunercial vehicle must in the great majority of cases also imply its use on the public highway. This in turn results in both the driver and the vehicle being subject to a whole host of regulations governing the driver's employment and operation of the vehicle.
In functional terms transport operation conveniently can be segregated into the two departments of engineering and traffic. In this context, the term engineering is used to imply the acquisition, operating and maintaining of the vehicle, while the traffic department is responsible for obtaining profitable business to justify the vehicle's operation and to subsequently ensure that such traffic is moved to the customer's satisfaction.
This functional division, when properly applied, is basically the reason for much of the successful contract-hire work, but when, as is inevitable, some overlapping of function occurs then a contract-hire agreement again must anticipate this and make prior provision to meet the situation. Thus in the case of a vehicle supplied under Contract A licence with the driver being in the employ of the contractor, then the contractor and his driver are responsible for complying with the many regulations which govern road transport operation. However, in this particular case, the hirer in all probability will be giving instructions to the driver as to the load he will carry.
If such instructions inadvertently or otherwise seem likely to result in either the contractor or his driver contravening the law of the land, then it should be stated clearly in the agreement that the driver should draw the attention of the hirer to the situation with the additional proviso that if the hirer still persists with such an instruction the driver has the right to refuse to carry out the work involved.
Under a C-hiring arrangement with the driver being the hirer's employee, it is fair to provide some protection for the contractor against possible abuse of his vehicle by way of overloading, speeding or other detrimental practices.
The charges to be raised for the supply of vehicles on contract hire will constitute a major section of the agreement. Correct costing of vehicle operation is obviously important at all times, but where vehicles are being provided under a long-term agreement this is doubly important since any shortcomings obviously must accumulate over an extended period.
Because the types of work undertaken can vary so substantially, there can be no standard pattern of charges for vehicles supplied on contract hire. But the basic principles of costing remain—namely, the division as between standing and running costs with the corresponding opportunity for charging on a combination of time and mileage, or alternatively, a combined overall operating cost whether in terms of mileage or in relation to the unit of traffic moved—for example, per ton, per gallon, and so on.
Costing of contract-hire agreements, however, has the advantage over the corresponding exercise for general haulage in that most operational details will be known in advance and therefore can form the basis for an accurate estimate of likely operating costs. But where the vehicle is being provided exclusively for the use of one customer then the contractor must be protected against the under-employment of his vehicles and resulting loss on the contract.
Further aspects of contract-hire agreements will be considered in this series next week.