This is the third installment of a three-part blog. The first article guided purchasing decision-makers on putting together an overhead crane specification, and the second helped them compare bids, this one covers contract negotiation once a supplier has been chosen.
The incentive to write this article was to positively influence even one more overhead crane purchaser to give due attention to negotiating contract terms with their chosen supplier or manufacturer. Too many take a standard document from their legal department or outside counsel and the same piece of paper is used to buy anything from paperclips to cranes. This can be a recipe for disaster.
Here are six key areas to look at:
1. Deadlines
This isn’t as simple as picking a date when the crane needs to be installed to fit an expansion project or production schedule. If, for example, an automation company has a new facility scheduled to start production on 1 September, with stock, staff, and orders aligned accordingly, it would be unwise to build the crane package around completion on 31 August. Imagine the chaos if everything runs two weeks late.
Instead, work to getting the crane in place in early August and get the necessary training completed when the pressure of production isn’t on. Further, set targets throughout the installation process to keep everything on schedule. Upon signing a contract, it might be beneficial if the crane provider is committed to returning drawings in, say, two weeks. It’ll be a good barometer by which to measure their chances of keeping everything else on track if they can honor an initial timeframe. Granted, for larger, high CMAA class cranes, this might not be possible but the point is to tailor contract negotiation for the application.
Constantly keep in mind the difference between a paperclip and a crane, if it helps.
2. Liquidated damages
Put simply, liquidated damages are put into a contract as a punitive measure; the injured party will collect compensation upon a specific breach of the agreement. This can turn into a legal minefield and colossal fees for all parties involved. Often, it’s impossible to measure what the damage actually is, thus, the crane buyer and supplier clash.
If change orders (work that is added or deleted from the original scope) are not managed correctly, both parties will disagree on what actually constitutes an adjustment to the agreed terms. Nobody wants a crane purchasing process to descend into the calamity of haggling and liens with no satisfactory outcome for anyone involved.
Turnaround time is also an important consideration. If the buyer sits on approval drawings or change order requests for more than a few days, the process is slowed significantly. It should be agreed in the contracts that all parties will ensure prompt responses to correspondence to keep the wheels turning.
In essence, a non-litigious approach centered on ongoing dialog, site visits and periodic targets will serve crane purchaser and provider well.
3. “Man up” clause
It’s referred to as many different things in the crane industry and other sectors, but what I mean by a “man up” clause is a stipulation in contracts whereby the service provider puts more personnel resources into a job to make up time or keep a job on schedule. In terms of bricklaying, it’s simple because if it takes a team of 10 a week to lay a certain number of bricks, it’s probably safe to calculate that 20 men can lay twice as many in the same time.
It’s not as straightforward when installing lifting equipment so such clauses are irrelevant and unhelpful. If there are five people working on an overhead crane, the workspace is full and it wouldn’t make the process any more efficient by doubling the team. Think of the intricacies involved with electrics, runways, hoists, wire rope, etc.; it would be a classic case of too many cooks.
“Manning up” and / or rushing to compensate for shortcomings in the contract negotiation or early installation phases can lead to unnecessary stress and accidents.
4. Ready worksite
I’ve seen many overhead crane installations delayed by poor planning, which can be addressed during contract negotiation. If other workforces (electricians, builders, etc.) are onsite, it’s difficult and sometimes impossible to install a crane. Even the seemingly obvious can get overlooked. If there’s no electricity, doors are locked or entranceways are blocked, how can the crane company get to work?
I’ve seen trailers turn up at a site, with crane girders on board, that have had to turn around and go back to where they came from because other trades were hanging pipes or finalizing electrical installations. If the electricians are going to be delayed by a day, inform everyone in advance and don’t compound the problem by having the cranes delivered 24 hours before it’s safe to start unloading. It might be prudent to build such flexibility into the contract.
There has to be a clause in the contract that outlines what both parties agree is a ready worksite for installation and communicate throughout the process accordingly.
5. Payment terms
It’s worth referencing “pay-if-paid” and “pay-when-paid” clauses. The first means the crane contractor may not get paid. It’s not looked upon favorably by courts in some states and, thus, should be removed from contracts if at all possible. The second allows a general contractor to pay out upon receiving funds from the owner. These are usually completely legal but frustrating for the crane builder.
Reviewing a pro forma contract in advance of the bidding process will help all parties realize what the terms are and price the project accordingly. This means a selling price that adequately covers material, labor, overhead, profit, and financing the carrying costs after the project is delivered but the final payment hasn’t been made.
6. Insurance
It’s a good idea upfront to state insurance requirements and get certificates of insurance for all contractors and sub-contractors. If Carlos Cranes LLC has won the tender, the buyer should make sure any sub-contractors they intend to use, at least those taking on over 10% of the work, are named and listed in the project documentation. If possible, they should be called onto site, asked to agree to the terms of the other parties and commit to the same timetable.
We’ve explored over this series how much goes into the diligent purchase of an overhead crane and it’s important to retain the same levels of care and attention through contract negotiation to ensure smooth installation, commission and eventual operation.
Thank you for reading.
Tad Dunville
Director of Corporate Development, Ace World Companies
Membership Committee Chairman and Board of Directors, Crane Certification Association of America
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