Contract? What Contract?

Remain Vigilant

This week the Australian Trucking Association put out a contract checklist and unfair contracts information, and many in the industry will cry, ‘Contract? What Contract?’. There is plenty of good information in here about what to look out for in transport contracts, which could help the smaller operator, but how many have an opportunity to negotiate any contract?


This has been how the system has worked, historically, the owner of the freight or the primary transport contractor tells the small trucking operator what they want done and how much they are going to pay. Then there is a shake of the hand and the deal is done. The big firm has got a cheap service and the trucking operator is left with an insecure business contract and massive overheads to provide the service.


This is the reality many of us have worked in over the years. Trucking people have to be risk takers, by their very nature, because if anything goes wrong they are going to go bust, end of story. Which other sector would live with the same kind of set of business ethics? Well, the building industry for starters, but conditions and contracts have become tighter over the years to protect the consumer, the house buyer.


There has not been the same pressure on road transport supply chains. The big company doling out the work is also the entity with the most market power. If it wants to be unreasonable, it can be and there is not a lot anyone can do about it, apart from walk away from the work and put the smaller business in jeopardy.


There are pressures on these big players to do the right thing, the chain of responsibility. The introduction of this, over ten years ago, was greeted by a flurry of activity among the big boys. The lawyers were coming up with contracts, where there had been handshakes in the past. The idea was to insulate the corporates from the implications of COR, if someone down the chain messed up.


This first flush of COR was followed by the realisation the authorities were not capable of creating the nightmare scenario, for the big players, of a road death being followed all the way up the chain to a decision in a capital city boardroom. Again we reverted to type and small operators continue to get bullied in order to keep on working.


There is some hope the revised COR rules and the changes to contract law which come into effect in November will help.  The protections will apply to businesses with fewer than 20 employees which agree to standard form contracts where the upfront price does not exceed either $300,000, or $1 million if the contract is for more than 12 months.


Let’s hope this is the case. However, this is still not going to be the magic bullet, because the sheer dynamics of these kinds of contracts mean they are almost always bound to be unfair.


Many companies look at their freight task and work out the parts of it where they can make good money. These they service themselves. Then they pick out the components of the task on which it would be possible to make some kind of profit. These are offered to favoured and reliable suppliers who will often get a decent enough contract.


Then we come to the rest of the task, the work which needs to get done to fulfil the requirements of the entire contract. This is where minimal profits can be made and small operators pick up the odds and ends and try to make it work, often without a real contract.


Is this kind of situation likely to change? Not much in the short term and many would doubt it will ever change without a firm crackdown on the decision makers at the top.