Agreement for Contract Hire
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Provisions that Should be Included in a Contract for the Exclusive Use of a Vehicle : How Costs Should be Computed .
BEFORE me is a letter from a reader who states that he is a newcomer to the haulage industry. He has been invited to enter into a contract of hire and wishes me to indicate to him the form of contract which will apply in his case.. He specifically wishes to know "the figure to ask" and if it will be possible to obtain a revision of the contract when certain items of expense have grown since the commencement of the agreement.
He is also clearly worried about the continuity of the job, as he inquires What he should do to avoid the risk of being held to the contract during -periods when business is not so good and he finds that, because there are no loads to carry, his earnings fall below the economic level. In that connection he raises the question of the possibility of specifying, in the agreement, that he shall then continue to be paid a minimum amount, although the work available may not directly merit it.
His letter cannot be answered by another letter, because the subject is too big to be dealt with in that way. I am therefore going to deal with the question in a general way, indicating what should be covered by the agreement and how the form of the document should be shaped.
I have tackled this matter before in several ways, but the most recent article dealing with it was published so long ago that I cannot expect this inquirer to have a copy, particularly as he says in his letter that he is a newcomer to the haulage industry.
As a preliminary, I should perhaps state that this inquiry does not relate to the use of a C Hiring agreement, it is a bona fide case of providing a vehicle to suit the needs of the customer, who wishes to have control of the haulage which his firm requires but without having to be responsible for the many intricacies of running commercial motoi vehicles.
Basic Requirements
First, let me make it quite clear that I am giving the information as to what should be included in the agreement; the actual wording of the document must be written by a lawyer. I will not otherwise be responsible for any slip which the legal-minded might seize upon but which would pass unnoticed by me.
The deed opens with the usual preamble giving the date of commencement of the contract. In that paragraph the two parties to the agreement are specified, one being the contractor, the other the hirer: the first is the correspondent who has asked for this information; the other is the customer.
'The opening paragraph of the agreement states that the contractor will hire to the hirer a specified vehicle or vehicles which are to be used solely on behalf of the hirer.
Actually, although this clause must be included, it is safe to say' that without it the Licensing Authority would not grant the licence to operate the vehicle or vehicles nor would he do so unless he were satisfied that that condition would be observed.
In the same Clause it is provided that the date of commencement of the contract shall be specified, the period of hire laid down and provision made for cessation of the contract by one of the parties concerned by giving three months' notice in writing.
Next comes what is called the schedule, which affords details of the vehicles to be provided under the contract, B24
also the price to be paid. Included in the schedule is a stipulation that none of the vehicles shall be overloaded: that is usually interpreted as meaning that the load capacities mentioned in it must, not be exceeded.
It is usual to provide, in the nex(clause for payment by monthly instalments, of the fees for hiring. In the same paragraph it is laid down that unless payment has been made the contractor shall be at liberty to discontinue 'the contract. This may be done without prejudice to any claim against the hirer and besides insisting on payment of his just dues, the contractor may also claim damages for this breach of the contract.
It is usually agreed that the vehicles to be used shall be painted and lettered to the requirements of the hirer, but in some cases, when special designs, fittings, etc., are rather more than are normally required then the hirer shall stand the extra cost.
There must be a clause in the agreement stating how many hours shall be worked. In most cases the basic week comprises 44 hours, calculated to include the time and mileage involved in travelling to and from the headquarters of the hirer. In the same clause it is provided that the hirer shall pay extra for all overtime, night work, Sunday work or holiday work. That payment is to be additional to the amount agreed as the basis of the contract and specified in the schedule.
Until now it might have been thought that this agreement falls heavily on to the shoulders of the hirer. However, the next two clauses have a bearing in the opposite direction, the onus being laid on the contractor. Actually, this clause indicates the fundamental basis of the work the contractor is called upon to do under the terms of the contract. He must provide the vehicles, taxed and insured, driver, petrol (or oil fuel), lubricants, tyres, etc., to maintain the vehicles in good running order.
If at any time a vehicle must be taken off the road on account of damage resulting from an accident, for repair or any other similar cause, the contractor must provide pro tern, a vehicle suitably equipped, to do the work specified in the contract.
Other duties which fall upon the contractor are: washing and cleaning the vehicle; carrying out running repairs; taking care of the machine and making such adjustments as are usually carried out by the owner of the vehicle in order that it shall always be suitable for the purpose for which it is hired.
Insurance by Contractor
lhe question of insurance comes next. It is the responsibility of the contractor to effect a policy of insurance which will indemnify the hirer against all claims by third parties, etc., while the vehicle or vehicles are under the control of the contractor's drivers, or the hirer's drivers if the latter provides them.
Provision must be made in the agreement for assessing the mileage covered by the vehicle, that having a direct bearing on the payments to' be made for hire. As a rule, the contractor is called upon to fit to each vehicle a suitable mileage recorder. Daily readings of this recorder should be made, noted and used to assess the charges the contractor can make according to the preliminary part of this agreement as laid down in the schedule. Daily records of the work done by the vehicle .should he kept and these will serve as proof in the event of the mileage recorder failing.
Other points which should have reference in the agreement are: The driver employed; his qualifications, if he is
supplied by the contractor; precautions to be taken, when the hirer provides the driver, to ensure that the man is acceptable to the contractor, even to the extent of the driver being called upon to pass a special test prescribed by the contractor.
The contractor assumes the responsibility for claims for accidental death or injury to his servants, unless it can be shown that such death or injury be caused by the negligence of the hirer or his servants.
A particularly important matter to be included in the agreement relates to goods carried by the vehicle. Having in mind the prevalence of pilfering, this clause must be carefully drawn. In it the contractor states that he will not be responsible for loss of goods or monies which may he stolen or suffer damage. The hirer takes that blame and is presumed to insure against it. Further, the hirer agrees not to use the vehicle for carrying goods liable to selfignition or explosion or for any other dangerous purpose, without the written consent of the contractor.
it is agreed that the hirer must not instruct the driver of the vehicle, whether he is in the employment of the contractor or hirer, to do anything which, if carried out, would break any regulations in force regarding the running of the vehicle and the work of the driver, such, for example, as avoiding the restrictions on drivers' hours of work, etc.
Provision for Higher Wages I lere is orfe of the important measures which should be included in the agreement: it is one which is, indirectly, designed to do as this inquirer wishes. It provides that, in the event of any increase of wages taking place during the period of the hire the hirer shall make good the difference by agreeing that a corresponding increase in the rate paid for the hire shall take effect. He also agrees to pay for any increase in cost of fuel, licence, tax, ,or any material required for the operation of the vehicle.
Now comes a clause which is of outstanding importance at any time, particularly so in any such agreement as this, namely, that it shall come into effect only if an appropriate licence be granted by the Licensing Authority.
There also should be a clause to provide that in the event of any disagreement arising during the period of the contract, then the matter be referred to arbitration.
Now I have cleared up every point raised in the letter of inquiry except that relating to the cost which is to fall upon the hirer in fulfilling 'such a contract as this one.
How much should the contractor ask? In his letter he mentions two vehicles, one of 2-tons capacity and the other of five. He says that I have, somewhere in one of my articles, stated that it is Useless to enter into a contract of this kind unless the weekly mileage exceeds 400 per week. I cannot trace the reference and 1 feel quite sure in my own mind that I have never laid down such a condition in respect of any contract of haulage. The question of the weekly mileage does inevitably enter into the discussion, but not in that way. If the haulier can obtain a proper return on his outgoings in respect of the work he is doing, the actual mileage may be as little as one per week.
Let us consider this question of cost of operation and the prospect of making a return sufficiently high as to enable establishment costs to be covered and leave not less than 20 per cent. profit. It does undoubtedly depend on the weekly mileage and the hours of work.
I will deal first with the smaller of the two vehicles. The costs of operation will be something very near to the following:
Fixed Costs
First the fixed costs, those which are not materially affected by the mileage the vehicle covers. They are, approximately as follows: Licence, 125.; wages, including payments for National Insurance, premiums on account of the Workman's Compensation Act (guarding against liabilities under common law) and holidays with pay, £6 12s. per week. Then there are rent and rates for the garage, 8s.; vehicle insurance, 13s.; interest on first cost, 10s. and establishment costs, £1 10s. The total per week being £10 5s.
The running costs, reckoning on an average of about 300 miles per week, are likely to be as follows: Petrol, 3.33d., lubricants, 0.13d., tyres, 0.96d., maintenance, 1.43d., depreciation, 2.31d. The total comes to 8.16d. per mile.
Now if the vehicle is called upon to do 300 miles per week, the total cost to the haulier should be; the fixed costs, from above, namely £10 5s., plus the running costs, 300 times 8.16d, which amounts to £10 4s. The overall cost is thus £20 9s. The profit margin should be not less than 20 per cent, so that the quotation should be at least £24 10s.
There will be, naturally, some provision for payment when the mileage run is in excess of 300 per week. The running cost. per mile has been shown to be 8.16d. and every mile above 300 per week which is covered by the vehicle in running off this contract, costs the operator just this 8.16d. He should not, however, keep to that figure for his charges, he must take a profit on the net cost and that excess should not be less than 25 per cent. The charge for excess mileage, according to that method of reckoning, must be 10d.
There should not be any provision for a reduction in the charge if the weekly mileage falls below 300. The contract is based and the rate calculated on that basic mileage of 300 per week and any interference with that figure would justify a complete review of the provision.
The corresponding figures for the 5-tonner arc as follows: Licence, 12s., wages, etc., £6 12s.; rent, and rates of garage, 9s. 6d.; vehicle insurance, 16s.; interest, Its. 6d.; establishment costs, £2 10s. Total, £11 Ils. per week.
For running costs: Petrol, 3.85d.; lubricants, 0.18d.; tyres, 1.33d.; maintenance, 2.00d, and depreciation, 2.45d. The total is 9.18d. per mile. For a 300-mile week the running costs are £12 5s. 3d.
The total costs, fixed charges plus running costs, amount to £23 I6s. 3d. Adding 20 per cent. for profit will make the charge not less than £28 lls. 6d. per week (about £1,485 per year). Excess mileage should be at the above 9.81d. plus about 25 per cent. making Is. Old. per mile. S.T.R.