The Legal Side: Are a subscriber's own contracts too risky?

Legal Side columnist Ken Kirschenbaum addresses whether it's risky for security firm to sign a customer's contract


QUESTION:

Every year we lose -- or I should say refuse -- tens of thousands of dollars worth of contracts from larger building management companies and larger corporations. The reason is that they insist that we sign their contract or purchase order instead of them signing our contract. Their contracts inevitably have the same contract language and clauses that ours have in ours regarding indemnification, liability, etc.

I know that we're doing the right thing as a company to protect our business, but what I can't understand is if many or most other companies regularly sign customer-supplied contracts. I'm not talking about trunk slammers; I'm talking about mid-size and national companies.

Why can't we as an industry drive the contract issue by all agreeing to not sign anyone's PO or contract but to insist that they sign ours? If we all banded together as an industry, then customers would have no choice but to sign our contracts that afford us the protection we all deserve.

I've been in this industry for over 30 years and I've yet to find a solution to this problem. No matter how many horror stories that you post, there's always someone willing to risk their business for a high-profile customer.

Am I the only one frustrated at losing customers over this? It certainly seems so from where I sit.

ANSWER:

It's tough to pass up a lucrative job, especially when you know one of your competitors is going to pick it up. Governments, institutions and large corporations with fancy house counsel are often going to present contract problems. The problem is invariably that they want you to sign their contract, not yours, or work off their purchase order.

Often these contract forms are designed for general construction, or are sometimes designed for even more generic business with the customer, like selling equipment. These homemade contracts and purchase orders not only don't have the essential protective provisions you have in your security contracts (like you would find if you are using my contracts) but they usually contain provisions that require you to answer for your perceived negligence and to indemnify the customer.

Can you take a chance and work without your contract or sign the customers? To consider taking the job you must have E&O insurance; otherwise you risk too much. Then you need to be sure your E&O policy does not exclude your contractual indemnity, because you don't want to have to provide indemnity if your carrier isn't going to provide it as part of your policy. Check with your broker or carrier.

The protective provisions of the security contracts are the most important, but they are not the only terms you need to consider. Keep in mind that once you don't use your contracts you are giving up the recurring revenue under contract, so there is no clear added value to your business, if you were to sell it. There would also be no long-term contract. The customer's contract or PO might also limit your right to recovery in the event the customer elects to cancel your job at any time, during or after installation.

You don't need counsel to review your contract when you are signing up a subscriber on your own contracts because it's your contract and you should know its contents. When you work off your customer's contract or PO you should get advice from counsel so you know what you're getting into, unless of course you have decided to take the job and accept the risk no matter what. If that is the case, then you may as well put your head back under the sand and do the job without getting any legal advice, and continue on your blissful (and risky) way.