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As a logistics company, properly-drafted contracts are essential to your business successfully carrying out its work. Since logistics can be a complex industry, knowing what details you must include in your contracts will help in smoothing ventures and avoiding expensive disputes. This article will take you through the essential elements of a contract and cover what details you need to include in your logistics contracts.
Contract Basics
Definition of a Contract
A contract is an agreement that is legally enforceable. If you make a contractual agreement, you must fulfil the contract’s terms unless it is impossible for you to do so. In that case, you may need to compensate the other party.
A contract generally consists of specific terms that set out what you and the other party must do. Examples of specific terms that are generally included in contracts are:
- payment terms;
- liability, and
- conditions for ending the contract.
The Essential Ingredients of a Valid Contract
A valid contract will include a few essential components:
- Offer and acceptance: For a contract to exist, one party must have made an offer to engage in the contract to the other party, which must then have accepted the offer.
- Intention: Both parties must clearly intend to enter into the legally binding agreement. This can be inferred from the parties’ conduct and written statements and from the nature of the relationship and context under which the contract was made.
- Consideration: You and the other party must make an exchange of value. Things like money, goods or services can count as consideration that has been exchanged. For example, your logistics and transport services would typically be counted as consideration, while the other party’s payment would be their exchanged value.
Financial Matters
Your contracts should specify the amount the other party will pay for your logistics services. Including a term that specifies an exact figure or defined cost structure will allow you to avoid disputes with your customers about compensation. This is important, as such disagreements can delay payment reception and, depending on the seriousness of the dispute, may incur legal costs.
Similarly, the contract should specify which party will bear certain costs, such as duties or tolls. Including these financial matters in your contract will allow you and your customer to identify any concerns related to fees and payment early on, preventing future disputes.
Liability
Including a liability clause in your logistics contracts is essential. Liability clauses determine the scope of the risk both your company and your customer are assuming. As a logistics company, you will often transport and manage other people’s property. It is essential to create a clear outline of liability in such cases. Where a risk results in a poor outcome, such as your customer’s goods being damaged or lost, a strict liability clause allows you to determine who will bear the costs and responsibility. In the absence of such a clause, you may be involved in costly disputes over liability that could cost more than you anticipated.
Duration and Termination
Duration
An obvious inclusion in any thoroughly drafted contract is the duration of the agreement between you and the other party. As a logistics business, you may be juggling multiple clients. As such, it is likely you would place importance on proper time and resource management. An explicitly drafted statement of the length of your contractual engagement will enable you to better plan for the future and effectively manage all of your clients.
Termination
There will be times when, for whatever reason, you will need to end a contract. Changes in circumstance, unsustainable business environments or insolvency can create situations where you simply cannot fulfil your contractual obligations. Further, your clients may also feel it is necessary to include a clause allowing them to opt out of your contract if you fail to meet expectations. A clearly drafted termination clause will make you and your client more comfortable entering a contract. It will ensure that problematic situations are not exacerbated by being tied up in a contract. You and your client should carefully negotiate the eligibility conditions for termination so that neither of you is surprised or inconvenienced when the other elects to end your contractual relationship.
Force Majeure
A force majeure clause limits the liability of a party or both parties in the event of an unprecedented incident or issue. These unprecedented issues can include an significant event that is out of your control, such as war or changes to government policy that affect your business.
For example, consider the COVID-19 pandemic. As a logistics company, it may have profoundly affected your business operations. The pandemic saw massive shutdowns for transportation and shipping, which would have prevented many logistics contracts from being fulfilled. Australian law does not automatically give the benefit of force majeure to businesses or individuals, so you must include a force majeure clause in your contracts to protect you in the event of an incident such as the COVID-19 pandemic.
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Key Takeaways
For your logistics company, you should take care to properly draft contracts as you would any important legal documents. Therefore, your contracts should always include several vital clauses, including:
- clauses specifying financial matters;
- clauses identifying liability;
- clauses that note the contract’s duration and the conditions for termination; and
- force majeure clauses.
If you would like assistance drafting your logistics contract, contact LegalVision’s contracts lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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