Sarah Roth

1
Contracting Fundamentals

• Sarah Roth
• Business Management Specialist
• Penn State University

Dairy Alliance is a Cooperative Extension
initiative
2
Presentation Overview

• Advantages to having contracts
• Types of contracts
• Contract contents

3
Advantages

• Clear description of each partys
  responsibilities
• Form of protection in the unfortunate case of a
  lawsuit

4
Types of Contracts(heifer raising)

• Full Contract

Daily Charge (per head per day)
Per Pound of Gain
Feed Plus Yardage
Sell/Buy Back
5
Types of Contracts(forage harvesting)

• Per chopper head hour

Per ton harvested
Per hour
6
Types of Contracts(manure hauling)

• Hourly (2-3 loads per hour)

Per ton
Per load
7
Contract Contents
8
Contract Contents

• Time Period
• Billing and Payment
• Responsibilities
• Amendments, renegotiations, and renewal
• Termination

9
Time Period

• Determine when work will be performed
• Seasonally
• Set length of time
• Dictated by
• Skills
• Facilities/Equipment
• Producer needs

10
Billing and Payment

• Payment Calculation
• Explain how charges are calculated

11
Example (heifer raising)

• To pay the following fees as billed within 30
  days of billing date
• 15 per head admission fee for each heifer
  admitted into this program. This is a one time
  only fee for each heifer.
• b. To pay 1.00 per lb. of body weight gain for
  heifers weighting up to 500 lbs.
• c. To pay 0.80 per lb. of body weight gain for
  heifers weighing between 501 and 900 lbs.
• d. To pay 0.85 per lb. of body weight gain for
  heifers weighing between 901 and 1300 lbs.
• e. To pay 2.50 per day of care for dry cows.
  All dry cows must be picked up within two weeks
  of projected due date, or within three days after
  notification by _____ (Heifer Grower Business)
  that birth is impending.

12
Example (heifer raising)

• To pay the following fees as billed within 30
  days of billing date
• 15 per head admission fee for each heifer
  admitted into this program. This is a one time
  only fee for each heifer.
• b. To pay 1.00 per lb. of body weight gain for
  heifers weighting up to 500 lbs.
• c. To pay 0.80 per lb. of body weight gain for
  heifers weighing between 501 and 900 lbs.
• d. To pay 0.85 per lb. of body weight gain for
  heifers weighing between 901 and 1300 lbs.
• e. To pay 2.50 per day of care for dry cows.
  All dry cows must be picked up within two weeks
  of projected due date, or within three days after
  notification by _____ (Heifer Grower Business)
  that birth is impending.

13
Example (manure hauling)

• The payment will be ___, based upon hauling ___
  gallons per year. Invoices will include
  location, loads/volume, and dates hauled (i.e.
  Manure Hauling Records). Any volume over ___
  gallons will be charged at ___ per gallon. Any
  manure hauling over 30 miles one way will be
  renegotiated at a per gallon price.

14
Billing and Payment

• Payment Method Timing
• How when payments will be made?
• Cash
• Check
• Barter
• Weekly
• Monthly
• Half up front, half at completion
• Analyze expected costs and cash flow

15
Billing and Payment

• Non-payment
• Period without penalty?
• Penalty charge incorporated in fee structure?
• Assume ownership in lieu of payment? (heifer
  growers)
• Collection agency?
• Stop work?

16
Example

• If payments are not received by the Hauler
  according to the above payment terms, Hauler
  shall have the right to cease all manure hauling.

17
Billing and Payment

• Last payment
• Determine a procedure
• Hold number of animals that value last payment?
• Other?
• Date on which last payment is due if contract is
  terminated

18
Example
All fees for admission must be paid on date of
arrival. Monthly weight gain or daily fee will
be billed by statement on the first day of each
month following the month gain was recorded.
Payment will be due and payable by the end of
each month. All terms are Net 30 Days with no
discounts applicable. Overdue accounts will be
subject to standard terms and conditions shown on
the back of all _____ (Heifer Grower Business)
invoices (see attached). All accounts must be
current before heifers/cows will be released to
return to owners. If accounts become 120 days or
greater overdue, owner agrees to provide heifers
as collateral toward the payment of such fees,
and surrender ownership of heifers of equivalent
value until such bills are paid.
19
Example
All fees for admission must be paid on date of
arrival. Monthly weight gain or daily fee will
be billed by statement on the first day of each
month following the month gain was recorded.
Payment will be due and payable by the end of
each month. All terms are Net 30 Days with no
discounts applicable. Overdue accounts will be
subject to standard terms and conditions shown on
the back of all _____ (Heifer Grower Business)
invoices (see attached). All accounts must be
current before heifers/cows will be released to
return to owners. If accounts become 120 days or
greater overdue, owner agrees to provide heifers
as collateral toward the payment of such fees,
and surrender ownership of heifers of equivalent
value until such bills are paid.
20
Example
All fees for admission must be paid on date of
arrival. Monthly weight gain or daily fee will
be billed by statement on the first day of each
month following the month gain was recorded.
Payment will be due and payable by the end of
each month. All terms are Net 30 Days with no
discounts applicable. Overdue accounts will be
subject to standard terms and conditions shown on
the back of all _____ (Heifer Grower Business)
invoices (see attached). All accounts must be
current before heifers/cows will be released to
return to owners. If accounts become 120 days or
greater overdue, owner agrees to provide heifers
as collateral toward the payment of such fees,
and surrender ownership of heifers of equivalent
value until such bills are paid.
21
Example
All fees for admission must be paid on date of
arrival. Monthly weight gain or daily fee will
be billed by statement on the first day of each
month following the month gain was recorded.
Payment will be due and payable by the end of
each month. All terms are Net 30 Days with no
discounts applicable. Overdue accounts will be
subject to standard terms and conditions shown on
the back of all _____ (Heifer Grower Business)
invoices (see attached). All accounts must be
current before heifers/cows will be released to
return to owners. If accounts become 120 days or
greater overdue, owner agrees to provide heifers
as collateral toward the payment of such fees,
and surrender ownership of heifers of equivalent
value until such bills are paid.
22
Responsibilities(All custom operators)

• Performance/Quality Standards
• Monitoring Reporting

• Insurance Liability
• Reassignment of duties

23
ResponsibilitiesPerformance/Quality Standards

• Heifer Growers
• Age
• Weight
• Structural growth
• Body condition
• Reproductive status

• Forage Harvesters
• Moisture level
• Length of cut
• Time taken to harvest
• Inoculant application

• Manure Haulers
• Nutrient analysis
• Proper application

24
ResponsibilitiesMonitoring Reporting

• Heifer Growers
• Weigh measure monthly?
• What to include?
• Death loss
• Veterinary procedures
• Report format?
• Phone call
• Email
• Detailed report
• When to report?
• Quarterly
• Monthly

• Forage Harvesters
• What to include?
• Moisture levels
• Amounts harvested
• Each field, total
• Report format?
• Phone call
• Email
• Detailed report/spreadsheet
• When to report?
• Throughout harvest
• Upon completion

• Manure Haulers
• What to include?
• Nutrient analysis
• Spread location and amounts
• Report format?
• Phone call
• Email
• Detailed report/spreadsheet
• When to report?
• After each job
• Annually
• Quarterly

25
ResponsibilitiesInsurance

• Whos insurance covers
• Loss of animals
• Damage to buildings, roads
• Spills
• Accidents

26
Example

• The parties hereto agree that Exporter (dairy
  producer) shall not be liable to the Hauler and
  Hauler shall hold Exporter harmless from any and
  all damages and claims for any losses or damage
  resulting from any manure handling, hauling and
  application or related activities under this
  agreement.

27
ResponsibilitiesReassignment of duties

• Is there a plan should something happen to you?
• Is it acceptable for someone to take over your
  duties?

28
Example

• Hauler shall operate as an independent
  contractor and is not an employee of the Exporter
  (dairy producer). Hauler shall render his
  services at times and in the manner determined by
  him, and through his own labor of such employees
  or agents as he may independently select, without
  control by Exporter, provided that Exporters
  management policies with respect to the herd are
  followed.

29
Example

• Hauler shall operate as an independent
  contractor and is not an employee of the Exporter
  (dairy producer). Hauler shall render his
  services at times and in the manner determined by
  him, and through his own labor of such employees
  or agents as he may independently select, without
  control by Exporter, provided that Exporters
  management policies with respect to the herd are
  followed.

30
Heifer Grower Responsibilities

• Death Losses
• Transportation
• Animal Identification
• Animal Non-performance

• Entrance Requirements
• Health Practices
• Breeding

31
Heifer Grower Responsibilities

• Entrance Requirements
• Health status
• Vaccination history
• Pervious performance

32
Heifer Grower Responsibilities

• Health Practices
• Whose veterinarian?
• Standard health protocol?
• What procedures are covered by the contract fee
  and what would incur additional charges?

33
Example
Heifers will be vaccinated when received, and
each fall thereafter for IBR, BVD, PI3, Lepto,
and Haemophilus. In addition each heifer will
receive one vaccination for rabies.
34
Example
Heifers will be vaccinated when received, and
each fall thereafter for IBR, BVD, PI3, Lepto,
and Haemophilus. In addition each heifer will
receive one vaccination for rabies.
35
Example
To pay all AI and veterinarian expenses
associated with synchronizing, breeding, and
checking animals for pregnancy. Such expenses
will be limited to actual charges made by Dr.
_____, his employee, or another veterinarian of
_____ (Heifer Grower Business) choosing. These
bills will be presented on a monthly basis.
36
Example
To pay all AI and veterinarian expenses
associated with synchronizing, breeding, and
checking animals for pregnancy. Such expenses
will be limited to actual charges made by Dr.
_____, his employee, or another veterinarian of
_____ (Heifer Grower Business) choosing. These
bills will be presented on a monthly basis.
37
Heifer Grower Responsibilities

• Breeding
• Whose responsibility?
• AI or natural service?
• How is semen chosen?
• How many times will heifers be inseminated?

38
Example
Heifers, which are open, will be bred at the
owners expense to a bull of the owners choosing
from Genex, Sire Power, or another mutually
agreed upon bull stud. Pregnancy exams,
synchronizing shots, and implants given specific
animals will be billed at cost to the owner of
the heifer.
39
Example
Heifers, which are open, will be bred at the
owners expense to a bull of the owners choosing
from Genex, Sire Power, or another mutually
agreed upon bull stud. Pregnancy exams,
synchronizing shots, and implants given specific
animals will be billed at cost to the owner of
the heifer.
40
Example
Heifers, which are open, will be bred at the
owners expense to a bull of the owners choosing
from Genex, Sire Power, or another mutually
agreed upon bull stud. Pregnancy exams,
synchronizing shots, and implants given specific
animals will be billed at cost to the owner of
the heifer.
41
Heifer Grower Responsibilities

• Death Losses
• Who incurs the loss?

42
Heifer Grower Responsibilities

• Transportation
• How often?
• Who will transport to and from the grower?
• Is cost of transportation included?

43
Heifer Grower Responsibilities

• Animal Identification
• How?
• Ear tags, collars
• Who will supply identification?

44
Heifer Grower Responsibilities

• Animal Nonperformance
• Who determines satisfactory performance?
• Who determines removal from the herd?
• If heifer is sold, how are proceeds distributed?

45
Example
______ (Heifer Grower Business) will provide the
best care possible, but does not warrant that
each heifer will become pregnant. In addition we
accept no liability for animals which become
injured or must be culled for other reasons. If
an animal is culled, the owner will receive the
cull sales value as determined by sale at auction
of said animal less cost of trucking, auction
costs, and veterinarian costs associated with
treatment of said animal.
46
Example
______ (Heifer Grower Business) will provide the
best care possible, but does not warrant that
each heifer will become pregnant. In addition we
accept no liability for animals which become
injured or must be culled for other reasons. If
an animal is culled, the owner will receive the
cull sales value as determined by sale at auction
of said animal less cost of trucking, auction
costs, and veterinarian costs associated with
treatment of said animal.
47
Example
______ (Heifer Grower Business) will provide the
best care possible, but does not warrant that
each heifer will become pregnant. In addition we
accept no liability for animals which become
injured or must be culled for other reasons. If
an animal is culled, the owner will receive the
cull sales value as determined by sale at auction
of said animal less cost of trucking, auction
costs, and veterinarian costs associated with
treatment of said animal.
48
Forage Harvester Responsibilities

• Equipment maintenance
• Supplies
• Labor Equipment
• Scheduling
• Delays

49
Forage Harvester Responsibilities

• Equipment maintenance
• If breakdowns or damage occurs during work, who
  pays for repairs and/or parts?

50
Forage Harvester Responsibilities

• Supplies
• Who provides needed supplies?
• Baler twine, ag bags, inoculants, etc.
• Who pays for supplies?
• Included in fee
• Additional charge

51
Forage Harvester Responsibilities

• Labor Equipment
• What combination of forage harvesters and
  producers labor equipment is being used?
• Who supplies additional labor if needed?

52
Forage Harvester Responsibilities

• Scheduling
• How will work be scheduled among clients?
• Who determines when work will take place?
• Harvester
• Producer
• What lines of communication will be used?

53
Forage Harvester Responsibilities

• Delays
• If client work has to be delayed, how is it
  handled?
• Reschedule
• Partial refund
• Dependent on reason for delay

54
Manure Hauler Responsibilities

• Environmental Stewardship
• Equipment Labor

55
Manure Hauler Responsibilities

• Environmental Stewardship
• Where will manure be spread?
• When will manure be spread?
• Throughout the year
• Specific times
• Who notifies neighbors?
• Note Should have knowledge of each producers
  nutrient management plan

56
Example

• Hauler will not haul manure on Saturdays and
  Sundays, as a general rule however realizing that
  atmospheric indicators may alter this general
  rule, Saturday hauling exceptions may be obtained
  directly from Exporters (dairy producer) farm
  manager after consultation with the Nutrient
  Compliance Specialist for the farm.
• Manure hauling and application is not permitted
  to ground under snow cover, frozen or already
  saturated.
• Manure hauling is not permitted on holidays or
  the day prior to a holiday.
• Manure application must not occur within 100 feet
  of wells, streams, sinkholes, residential
  dwellings and state/township road(s).
• All manure hauling must be conducted in a manner
  consistent with the current Nutrient Management
  Act regulations (these are included in the
  attached Manure Hauling Policy).
• The manure hauler is requested to notify
  adjoining landowners of anticipated manure
  application two days prior to the proposed land
  application therefore able to inform and address
  neighbor concerns.

57
Example
Proper biosecurity protocol must be adhered to at
all times and Hauler agrees to follow Exporters
(Dairy Producer) environmental and biosecurity
programs. This includes individuals and
equipment. When hauling manure, it is expected
that the manure truck/equipment will be clean and
free of other manure material. It is expected
that each vehicle and tractor used to haul manure
from other farms be completely sanitized prior to
use and entering the Exporters farm.
58
Manure Hauler Responsibilities

• Equipment Labor
• Who provides equipment?
• Pump, tractor, spreader
• Who supplies additional labor if needed?

59
Amendments, renegotiations, and renewal

• Arbitration
• When does a dispute go to arbitration?
• How are arbitrators chosen?
• How long will it last?

60
Example
CLAUSE IV ARBITRATION Any dispute arising
under the terms of this contract may be referred
by the parties hereto to an arbitrator, or if one
person cannot be found who is acceptable to both
parties, then each shall choose an arbitrator and
the two chosen shall select a third. The
majority decision of the arbitrator(s) shall be
presented to both parties in writing. The
arbitrator(s) shall have the power to make an
award or determination on any issue which arises
out of the contract and it shall be binding on
both parties. The expense of the arbitrator(s)
shall be divided equally between the parties.
Pending final decision of a dispute hereunder,
the parties hereto shall proceed diligently with
the performance of the contract.
61
Example
CLAUSE IV ARBITRATION Any dispute arising
under the terms of this contract may be referred
by the parties hereto to an arbitrator, or if one
person cannot be found who is acceptable to both
parties, then each shall choose an arbitrator and
the two chosen shall select a third. The
majority decision of the arbitrator(s) shall be
presented to both parties in writing. The
arbitrator(s) shall have the power to make an
award or determination on any issue which arises
out of the contract and it shall be binding on
both parties. The expense of the arbitrator(s)
shall be divided equally between the parties.
Pending final decision of a dispute hereunder,
the parties hereto shall proceed diligently with
the performance of the contract.
62
Example
CLAUSE IV ARBITRATION Any dispute arising
under the terms of this contract may be referred
by the parties hereto to an arbitrator, or if one
person cannot be found who is acceptable to both
parties, then each shall choose an arbitrator and
the two chosen shall select a third. The
majority decision of the arbitrator(s) shall be
presented to both parties in writing. The
arbitrator(s) shall have the power to make an
award or determination on any issue which arises
out of the contract and it shall be binding on
both parties. The expense of the arbitrator(s)
shall be divided equally between the parties.
Pending final decision of a dispute hereunder,
the parties hereto shall proceed diligently with
the performance of the contract.
63
Example
CLAUSE IV ARBITRATION Any dispute arising
under the terms of this contract may be referred
by the parties hereto to an arbitrator, or if one
person cannot be found who is acceptable to both
parties, then each shall choose an arbitrator and
the two chosen shall select a third. The
majority decision of the arbitrator(s) shall be
presented to both parties in writing. The
arbitrator(s) shall have the power to make an
award or determination on any issue which arises
out of the contract and it shall be binding on
both parties. The expense of the arbitrator(s)
shall be divided equally between the parties.
Pending final decision of a dispute hereunder,
the parties hereto shall proceed diligently with
the performance of the contract.
64
Amendments, renegotiations, and renewal

• Renegotiation
• How often will the contract be renegotiated?
• What starts the renegotiation process?

65
Amendments, renegotiations, and renewal

• Contract renewal
• When does the contract start and end?
• When will renewal talks take place?

66
Example
CLAUSE II TERM OF CONTRACT The term of this
contract shall be from the ______ day of ______,
20____, to the _______ day of ______, 20____, and
shall be automatically renewed from year to year
unless otherwise terminated in accordance with
the provisions herein or amended in writing as
mutually agree upon.
67
Termination
Youre Fired!

• When does notice have to be given?
• What happens with any work still in progress?
• Refer to procedure for last payments

68
Example
CLAUSE III TERMINATION OF CONTRACT This
contract may be terminated at any time by mutual
agreement in writing or by at least three months
written notice from either party prior to the
annual renewal date. The animals on hand will be
finished out or disposed of by the written terms
in the contract.
69
Example
CLAUSE III TERMINATION OF CONTRACT This
contract may be terminated at any time by mutual
agreement in writing or by at least three months
written notice from either party prior to the
annual renewal date. The animals on hand will be
finished out or disposed of by the written terms
in the contract.
70
Example
CLAUSE III TERMINATION OF CONTRACT This
contract may be terminated at any time by mutual
agreement in writing or by at least three months
written notice from either party prior to the
annual renewal date. The animals on hand will be
finished out or disposed of by the written terms
in the contract.
71
Example
Exporter (Dairy producer) may cancel the
agreement with forty-five (45) days prior written
notice for Haulers failure to acceptably perform
its responsibilities under this agreement and in
accordance with acceptable practices outlined in
the attached Manure Hauling Policy and all
regulatory requirements.
72
Example
Exporter (Dairy producer) may cancel the
agreement with forty-five (45) days prior written
notice for Haulers failure to acceptably perform
its responsibilities under this agreement and in
accordance with acceptable practices outlined in
the attached Manure Hauling Policy and all
regulatory requirements.
73
Example
Exporter (Dairy producer) may cancel the
agreement with forty-five (45) days prior written
notice for Haulers failure to acceptably perform
its responsibilities under this agreement and in
accordance with acceptable practices outlined in
the attached Manure Hauling Policy and all
regulatory requirements.
74
Summary

• Contracts are a form of protection and risk
  management
• Everyones responsibilities are known

75
Thank You!

• Sarah Roth
• Penn State University
• Farm Business Management
• Dairy Alliance
• Visit us online
• http//farmmanagement.aers.psu.edu
• or
• http//dairyalliance.org

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