The following is a list of some of the legal issues which may come up in discussions with a client or potential client using a public pa warehouse, prior to the time that the actual contract is negotiated. Along with each of these issues is a brief statement of our position on the issue. In some cases, we included some of the rationale for our position. The purpose of this is to give you sufficient information so that if the issues arises, you will be able to advise the customer as to how we approach that issue with our customers. Our contract concepts are the industry standard for outsourced logistics.
Liability For Lost Or Damaged Product in a pa warehouse. Common requests of Customers are: to increase our standard of care; to have us responsible for the retail price of their products if lost or damaged; to use their inventory management system; or to insure their products.
Standard of Care. Our standard of care (to use such care as a reasonably careful person would use in similar circumstances) is set by the laws of each state (the Uniform Commercial Code) and must not be changed, even in what may seem to be a minor way. We risk voiding our insurance coverage.
Value of Product. If we increase our financial responsibility for a Customer’s Product we risk losing our insurance protections. Our maximum limit of liability depends on a variety of factors, however, in no event can we agree to pay retail or wholesale costs. If it is not already in the agreement, an increase in valuation (in excess of the public contract form) will also make it necessary to include a Shrinkage Allowance so that we are not exposed to the first-dollar value of lost or damaged Products. Consult with Legal if the customer wishes to increase this valuation or adjust the Shrinkage Allowance.
Inventory Systems. Warehouseman must have exclusive care, custody and control of the Customer’s Product. In addition to physical possession of the goods, Warehouseman must have exclusive control of the inventory management system which tracks inventory. Except for a few rare exceptions, if we use the customer’s system, we should not be responsible for inventory shortage (although we would still be liable for product damage caused by our negligence). Recent experiences reinforce the need for this point.
Insurance. Our Customers are responsible for insuring their Products against fire and other casualty. Customers usually are under the mistaken impression that we insure their goods.
Performance Metrics / Promises re: Perfect Performance. We must fully understand the Customer’s operations and the Products before agreeing to high performance metrics. We cannot agree to “100%” metrics or other unreasonable measures of performance at the beginning of most relationships. Metrics are guaranteed minimum standards of performance, not merely goals for us to work toward.
Legal Involvement. Generally, the larger the customer, the longer a contract will take to complete. (This is true even in situations where our business with that customer may not be very large.) Please arrange for us to speak directly to the customer’s legal department as soon as possible after the awarding of the business. Feel free to consult with us whenever the issues in this memo come up and provide us with information on the products, scope of operations, facilities, pricing, etc. as soon as possible in the process so that we can more quickly negotiate an accurate contract.
Penalties for Errors / Substandard Performance. Our contracts address these concepts by allowing the Customer to terminate the contract easily (“without cause”) if they are not satisfied with our performance. This provides the strongest of business incentives for a warehouseman to do an exceptional job. We will not reimburse or pay Customers for lost profits, downtime, penalties imposed by their customers, punitive damages or other consequential losses. We also do not agree to fixed or arbitrary penalties for failing to satisfy a service metric or deadline. Shift the focus to incentives for exceeding their expectations.
Termination Provisions and Payments. A Customer’s right to terminate the Contract “for cause” and any payments which either party would have to make to the other on termination must be reviewed by Legal.