Gone are the days when a handshake was enough to seal a deal. Getting the contractual details right from day one is paramount to the success of any catering operation. And producing a contract isn't nearly as daunting as it might at first seem.
There are four key areas that must be examined:
The operations details come first.
You need a clear brief - what elements will be supplied by the client and what is expected from you.
For example, who will provide the crockery and the food; who banks the money; who is responsible for deep cleaning?
You need to understand the dynamics of the site, including how many people are there and how many are likely to be looking to use your service.
Are there peaks and troughs during the period of the contract, for instance?
Next you need to consider legislation and how this might impact on the contract.
Top of the list is health and safety. If a key piece of equipment breaks down, which could have health and safety implications, who is responsible? What period of time is given for a repair to take place?
Then there is employment legislation. Existing staff might come over to you under TUPE. If there are redundancy payments, whose responsibility are they?
Then what happens if there are any legislative changes such as an increase in the minimum wage during the life of the contract? At that point the contract should be renegotiable.
It is important get these aspects right, as they may cost you money further down the road.
Last, but by no means least, are the financial arrangements. It is essential from the outset to establish the nature of the contract.
Different types of contract
The simplest type of contract is known as a management fee, where the client pays all service costs. You agree the specification with the client and guarantee delivery. If the client asks for extras periodically, then that is an additional item for which the client must pay.
However, increasingly clients are moving to commercial contracts where, essentially, the supplier lives out of the till. And, sometimes, the client expects a return. In this situation you need to extract some guarantees of minimum business.
For example, if it's the local football club and the management states there are gates of 10,000 for all home matches and they want £1,000 a time from your profits, what happens if the gates average 7,500? Do you still pay £1,000 to the club, or has that been scaled back? At what point does it become unprofitable, and does the club then pay you? On the other hand, there may be a win-win situation where the gates are 12,500, so the client will certainly want a bigger share.
Then there is the capital input, such as equipment - and who pays if the contract is terminated if the site closes unexpectedly?
That brings us neatly to termination clauses. There might be a breakdown in the relationship or, indeed, the client's facility might close. Who then pays for the remainder of your contract? After all, you will have made an investment in staff and equipment, and you need to ensure you are covered for even the most unlikely contingencies.
On a happier note, contracts can be extended. Particularly in the public sector, where contracts have to be seen to have a finite life and then retendered, it is not uncommon to have a period contract with extensions built in if each side feels the relationship is going well.
Daunting? Not really, but essential to get it right. In this age when many catering contracts are driven by a procurement specialist, it is possible the client will offer you a contract rather than the other way around. But read it carefully. There may be 24 points, of which you are content with 20 and unhappy with four. It is essential to sort these out before signing.
Finally, remember that professional advice from a specialist lawyer may prove to be a sound start-up investment for your business.
Thanks to Sodexho Scotland for providing these tips.