September 2005 | Commentary | Fine Print

‘Model Contracts’ Not the Right Model

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William J. Augello, Esq. is an adjunct professor at the University of Arizona's College of Law and author of Transportation, Logistics and the Law.

During the past few years, "model contracts" drafted by organizations representing shippers, carriers, and brokers have become common. Such agreements, however, are not in shippers' best interests because, in drafting them, organizations bargain away some of shippers' rights and remedies without their input.

Recently, the American Trucking Associations (ATA)—which represented truckers during model shipper/trucker contract negotiations with the National Industrial Transportation League (NITL)—expressed its opposition to a broker/carrier agreement between NITL and the Transportation Intermediaries Association (TIA).

The contract "could impose terms and conditions on motor carriers that should be left open to negotiation," said ATA.

Your Rights and Remedies

That is precisely the reason ATA should not have negotiated its model shipper/carrier agreement—transportation organizations are not attorneys, and they should never negotiate model contracts for their members.

Once lost, the rights shippers give up in a model contract are nearly impossible to get back in an individual negotiation because these models are offered as the industry standard.

Only attorneys, who are bound to represent their clients' best interests, should draft transportation contracts. An organization's counsel cannot draft a contract in the best interest of hundreds of members, even with the admonition that the model should be used only as a beginning for negotiations.

It is too late to begin negotiations after the association has given away rights and remedies.

The latest draft of the TIA/ATA model contract for truckers and brokers, for example, waives all sections of the Interstate Commerce Act. This includes a section that gives any person the right to sue a carrier, forwarder, or broker for damages and attorney fees when that party violates any provision of the Act or its regulations.

The parties in the TIA/ATA contract are also bound to mediate and arbitrate all disputes before the American Arbitration Association, a costly process under which the arbitrators are not bound to follow the law governing a dispute. All parties using this contract, therefore, waive their right to litigate any dispute in the courts and apply the prevailing law on that issue.

Another model contract incorporates the latest version of the Carmack Amendment as the law governing carrier liability. The courts have interpreted this amendment to permit carriers to bury low liability limitations in unfiled tariffs without shippers' consent.

It also states that carriers are not required to furnish a copy of their tariffs unless shippers request one.

As a result, most shippers are surprised when the carrier pays a relatively small amount of its claim. This section of Carmack should be stricken from any shipper's contract with a trucker or broker, and shippers should not permit their brokers to enter into an agreement containing that provision.

Standard Charges

By listing all the accessorial charges truckers publish in their unfiled tariffs, a model contract leads shippers to believe these accessorial charges are standard for every contracting party.

Brokers, therefore, have a difficult time getting such charges waived when negotiating a contract with a carrier, because its organization has already agreed to list the charges in the model agreement.

Though model contracts aim to reduce the transactional costs associated with individually negotiated contracts, these model agreements can result in substantial losses if those drafting them do not anticipate transportation disputes or recurring problems in clients' distribution systems. It takes years of experience working on such disputes to be able to anticipate these problems.

Those drafting contracts should also be able to suggest workable solutions for their clients. Every model contract drafted, for example, requires carriers to furnish a Certificate of Insurance.

These certificates are wholly inadequate because they do not state exclusions in cargo policies. Furthermore, Certificates of Insurance do not obligate insurers to notify the certificate holder of a cancellation or any modification to the policy.

These and other flaws in model contracts should be addressed when drafting the contract, not after negotiations by trade associations with only general knowledge of the industry.

Special provisions must be used in broker/trucker contracts, for instance, for cargo liability and cargo insurance, contingent cargo liability policies, indemnification, shippers' protection against carriers' claims for freight charge "double payments," penalties for late payment, and back solicitation, among others. "Standard" clauses that protect every party to such agreements do not exist.

In addition, the recent rash of lawsuits filed against brokers on behalf of those injured or killed in truck accidents should signal a warning. Brokers may be held liable for alleged "careless hiring of carriers" if they are not properly protected by a contract that limits their role to independent contractor.

It is not enough for brokers or other parties to the contract to merely state that they are independent contractors, however. The contract should carefully describe each party's respective responsibilities in accordance with the law governing each party.

Liability will be determined by what each party does, not by self-serving declarations in the contract that describe what each party thinks it is.

Contracts Drawn with Care

Model contracts cannot adequately meet industry shifts such as this increase in lawsuits. Parties to these contracts may become complacent because they believe their interests are fully protected by their organizations' model contracts.

In this deregulated environment, every party must protect its own interests. That objective is best achieved with individual contracts that are strictly administered, constantly monitored, and carefully drawn by experienced professionals who are bound to protect their clients' best interests.

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