Logistics Contracts Explained (Part 1): Contract Types and Key Risks

It will be the experience of many logistics providers that the competitive nature of the marketplace in which they operate often puts large customers into the drivers’ seat when it comes to setting the terms of the contract on which services will be provided. This is the first of two articles which will look at typical types of contract and will explore key contract issues which providers of logistics services should be aware of in negotiating contracts in cases where there is an opportunity to negotiate or, where they are contracting on terms dictated by their customer as the only contract available, assessing the legal and commercial risks which attach to that.

Typical types of contract

Informal

In order for there to be a contract as a matter of law, there needs to be an offer (for example, an offer to provide services in response to a customer request), acceptance of that offer (this can be done relatively informally, for example over a phone call or by email) and consideration (usually the obligation on the one hand to provide the services and the obligation on the other hand to pay for them). In such a case, the contract will be based on what the parties have said they will do and the agreed price. The general law will imply an obligation for each party to undertake its obligations within a reasonable time (if no timescale was agreed) and for services to be provided using reasonable care and skill into a contract made in this way.

Standard terms offered by one party

The next level up is a situation where there is no specific written agreement signed by the parties but one of the parties has introduced its own standard terms in the process of contract discussion and formation. This would typically be done by including references to those terms in exchanges of emails prior to the work being agreed. Many logistics providers operating on this basis will use industry standard terms (for example, RHA, UKWA or BIFA) and simply refer in email footers to their contracting on those terms. In general, provided that references to the relevant standard terms are clear and are introduced prior to the work being agreed, this method will be effective to introduce those terms into a business to business contract. The standard terms will underpin the specific agreement between the parties about what goods are to be moved, where they are to be moved from and to and the price payable for the work.

Standard terms offered by both parties-the battle of the forms

The next scenario arises where there is no specific written agreement and both parties seek to introduce their own standard terms into the contract. In the case of the logistics provider, these would be its standard terms of service. In the case of the customer, the terms offered would typically be its standard terms of purchase. In such a case, it can be difficult to be certain as to whose terms apply to the contract. The answer to this will partly depend on the terms themselves, but the question is often decided by who puts forward their terms nearest to the point in time at which the contract was formed by acceptance of an offer.

Specific written agreement

The last situation that we’ll look at is where the contract is in a written form put forward to a logistics provider by its customer. This may come about in a variety of circumstances, but common examples are the customer’s usual practice (for example, a shipping line where receiving any work is conditional on signing up to the line’s contract) and tenders, where the customer is looking for a single provider or a small panel of providers via a tender process with the contract forming part of the terms of the tender.

In the next article, we’ll look at how these various scenarios influence or dictate the terms of the contract and what they typically mean in terms of key areas such as contract length, timing and manner of performance, pricing and price reviews, KPI’s, rights to terminate and the possible application of TUPE.

Contact us

If you are a logistics provider dealing with customer-led contracts, standard terms or complex commercial risk, Ian Waine, Senior Partner at Prettys, provides specialist legal advice on logistics contracts and commercial agreements. You can contact Ian at iwaine@prettys.co.uk to discuss how your contract arrangements can be reviewed, strengthened or renegotiated to better protect your business.

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