Evaluating Laundry Customer Contracts (Part 1)

Other Institution Laundry: Frank Zacchigna, U.S. Department of Veterans Affairs, Hines, Ill.

First, you should consider if the contract you have in place is still meeting your needs. Have your requirements changed? Have your needs increased?

Do you need to specifically address enhanced cleaning standards due to COVID? Are you considering requiring vaccinations for all laundry plant staff?

All these issues can be addressed in your contract. Any changes in contract terms and conditions can have far-reaching consequences, so be careful what you wish for.

Second, please consider how new/changing requirements will impact your costs. Higher operating costs will generally result in having to raise prices for your service.

Are there other parts of your operation that can be operated more efficiently to offset your increased costs? Do you need new equipment? Does your service maintenance need to be updated due to COVID?

Lastly, the full implications of the pandemic on laundry plant operations will be seen for years to come, so this is all a work in progress. The only constant is change, and you need to anticipate what you want your laundry operations to accomplish in the future based on changing conditions.

Contracts are a good way to address these changing conditions and need to evolve as your operations require.

Consulting Services: David Graham, Performance Matters, Fort Mill, S.C.

Happy spring to all ALN readers! I would first like to say that we need to re-evaluate the word “contract.” Contracts have 1) a negative connotation, and 2) we assume there is a negotiation that needs to occur to “hammer out” terms to move forward.

Also, let us remove the word “renewal” from our lexicon. Renew intimates something new. Let us think about the word “extension” instead. Extension connotes the “continuation of an existing relationship,” which is what this is all about! The language is not only softer, but it allows us to move forward rather than stopping and hemming and hawing.

Why are service agreements and extensions so vital? Six reasons:

1. A client’s commitment (signed extension) allows you to invest in that client with a more assured return.
2. A client’s written commitment allows you to plan and budget with assured volume that is “committed” for years.
3. A client under agreement adds exponentially to the value of the organization (up to 30 to 1 perhaps).
4. Negotiating with an existing service agreement allows you to be in the driver’s seat.
5. Lost business and price decreases should be practically nil when agreements are properly extended.
6. Great opportunity to conduct a needs analysis and provide current customers with the entire product offering.

We now see the “whats” and “whys”; now the “hows”:

1. Assess the quality of verbiage in the current service agreement. Understand what your competitors have written into their service agreement language so you differentiate yourself, where needed, from that competition. Your service agreement verbiage can help you minimize potential liabilities.
2. Set length of agreement of renewal/extension parameters.
3. Define an expired (out-of-date and not enforceable) and an exposed (current agreement set to expire in the next 12 or 18 months) service agreement.
4. Reconcile, if needed, all current paper agreements to route-accounting software for accuracy and determine percent expired and exposed.
5. Define an authorized signature.
6. Prioritize expired and exposed accounts in the order that you wish to attack.
7. Assign person/persons to execute agreement extensions.
8. Contemplate a reward system for renewal execution (capped payouts or not capped).
9. Make results visible by posting and creating a competitive environment to excel.
10. Always consult with your attorney for proper verbiage and liability when making any changes to your service agreement.

Ideas on compensations to those involved:

1. Five-year agreements/extensions. Minimum two years.
2. Account must have 24 months or less remaining on the term when extending.
3. No price decreases.
4. No reissue of garments/no new specialty linen to achieve an extension.
5. Authorized signature—imperative.

Service agreements are the backbone of our success or failure as an industry. Find the right ingredients that work for you and love them and live them.

Equipment Manufacturing: Charles Spencer, G.A. Braun Inc., Syracuse, N.Y.

Let’s start with the five key ingredients of a contract, and they will help us determine if our contracts are up to date.

First of all, there is an Offer, generally followed by Acceptance and Consideration (payment).

The final two are where disputes often arise, so make sure your contracts are clear in defining the first three ingredients.

Competency is demonstrated by your ability to perform the agreed-upon service or deliver the agreed-upon products, and Legal Intent holds them all together.

Failure to account for any of these in a contract can cause disputes.

To avoid the gray areas, make sure that your contract clearly states what the Offer consists of—in short, what products or services are you going to do and/or provide?

If the customer accepts, then this should be documented in writing and verified by responsible officers from both parties. Generally, owners, CEOs and/or presidents should be signing contracts, and those are the signatures you need to ask for when tendering your offer.

The Consideration is the price you are offering and they are accepting.

Competency is that you are able to perform this service at a generally accepted standard. (This one is prone to legal gray area in disputes.)

Legal Intent is both parties demonstrating their willingness to honor the agreement, and signed signatures are always the best way to insure this; however, you can have a legally binding agreement without a signed contract.

The contents of the contract are important, but I’d argue that even more important than the contract itself is the management of the contract.

If you have a significant number of contracts, you may want to purchase contract management software, or at least build your own Excel spreadsheet that carries things like pricing, annual increase adjustment dates, start and finish dates, evergreen clauses (auto-renewals), and any special items that need to be tracked for billing purposes.

If you aren’t doing this, you are likely to be under-billing or missing opportunities to get what your contact allows!

Remember that, in time, a customer will measure your integrity by the candidness of your contract and negotiation. This is what leads to extensions and renewals.

Hidden or hard-to-understand language and pricing are generally what leads to disputes and puts you at a disadvantage come renewal time.

Check back tomorrow for thoughts from chemicals supply and textiles experts.

Have a question or comment? E-mail our editor Matt Poe at [email protected].