Listen to this column in your favorite format

iTunes or MP3

We talked last week about what is not in a contract and the premise that in the eyes of the law in most places, if money has exchanged hands you have a contract.

This week I wanted to take a higher level look at what one might want to include in a contract. And, we'll further simplify it by focusing on a contract that is of the "time and material" variety. Next week we will talk about a performance-based contract.

All contracts, regardless of type, should start with some general language involving safety, confidentiality, insurance requirements and so forth.

If you have safety training, make sure it is made a requirement of the contract. And, further, when you do the safety training, have a responsible manager available to monitor it. I was recently at an outage at a US mill where safety training was a joke. The session was conducted in the guard house, where everyone watched what I call a "lawyer video," supervised by some contract employee guards that I don't think were old enough to drink beer yet. People were talking, checking their phones and so forth while the video droned on for fifteen or twenty minutes. If anyone got hurt on that site, the first thing their lawyer should do is subpoena the guards and anyone else who was witness to the safety training and trash it. It was pathetic. But, I digress.

****

Listen to industry news on Pulp & Paper Radio International!

****

Confidentiality and insurance requirements should be spelled out and met according to your company policies.

Who provides hand tools, PPE (Personal Protective Equipment) and other small items should be clearly spelled out. If the contract employees will be driving motive equipment, what is your requirement for training and licensing to do this?

If it is truly a time and material contract, that's about it until you get to the payment terms. For essentially, in a time and material contract, the contractor employees show up, look at you and say, "What do you want me to do today, boss?" Your choice is to carefully manage them or fire them and ask for replacements if you don't like their work.

In other words, there is no performance guarantee in a time and material contract. You are hiring labor--it may be muscle labor or intellectual labor, but that's it. Performance is not promised and it is up to you to manage to your performance requirements.

Accounting for time needs to be spelled out in your contract. After all, this is a time and material contract, so some sort of time sheet backup for invoicing should be required. It may be by the hour, by the shift, by the day or whatever, but there needs to be an accounting. The rate schedule can be as sophisticated or simple as the conditions of contract dictate.

****

So, how do you feel about the US presidential election so far? Brexit? Check out the latest edition of Strategic & Financial Arguments.

****
Payment terms and eligibility for payment (an invoice, backup needed and so forth) needs to be spelled out. As for terms, here's a special note to you large companies who think you have gotten clever in recent years and extended terms to 60, 90 or 120 days. Do you realize how stupid this is? Nearly everyone is jacking up their rates to accommodate your terms. You are not saving your company any money, in fact you are costing it money--your treasury department is borrowing money at the lowest rates since World War II and you are asking for extended terms that are costing you as if we were in the 1980's and the prime was 21%. Want proof of what this is costing you? Ask for pricing for your favored 120 days. Also ask for pricing for payment in 5 days. Of course, you may have a problem with the 5-day request because your suppliers won't believe you will live within these terms. However, if you can convince them that you will (by voluntarily imposing a stiff penalty on yourself for not meeting them), you will be surprised at the bargains you can receive.

Finally, make sure you spell out clearly under what conditions of non-performance you will not pay. This is fairly limited in a time and material contract, but I am sure you can think of a few.

There are other matters to spell out, such as dispute settlement provisions, legal jurisdiction for adjudication and so forth. You should already have standard language for this.

Please take our quiz this week as we continue to explore procurement this month. You may take it here.

As for safety, I am serious about these safety videos and safety training that I see taking place to get on mill sites. Most of it is a joke designed by lawyers. Doubt me? Look at all the injuries and accidents we report here at Paperitalo Publications. They often involve contractors and they never stop.

Be safe and we will talk next week.

You can own your Nip Impressions Library by ordering "Raising EBITDA ... the lessons of Nip Impressions."