Chris Della Pietra of Potters & Della Pietra LLP led an informative session today titled “Waste Industry Contracts: Practical Advice in Uncertain Times.” Della Pietra went in depth on a range of issues related to successfully crafting and negotiating waste contracts to ensure that both parties are satisfied and protected.

Della Pietra began by emphasizing the importance of considering all aspects of a contract before going into negotiation. “Leverage is best at the outset of a relationship,” he said. All contracts are governed by the universal commercial code. As a general admonition Della Pietra pointed out, “The bigger the contract, the bigger the risk, and the longer the contract, the longer the risk.” Still, he added, “If you’ve got volume, you’ve got leverage.”

From a practical standpoint, Della Pietra recommended that haulers keep contracts to one page (to avoid confusion and prevent complications like a second page being lost through FAX, etc.). After outlining the different types of contracts, Della Pietra noted that it is important to know all the parties involved in a contract, as sometimes the affiliates and subsidiaries involved may not be readily apparent.

A large section of the presentation was devoted to the commercial terms covered in a contract. These were broken out into scope of services and performance obligations, prices and fees, price adjustments, and payment terms. In general, Della Pietra urged that these elements be as specific as possible. Among the tips offered:

• If comments are invited (even before a bid has been accepted), “give yourself a place-holder” in the contract to make necessary changes later.

• Don’t fix rates for more than one or two years.

• Note whether prices in the contract include taxes, fees, etc. Include provisions that allow for flexibility in the event of a substantial rise in fuel prices, new taxes, etc.

• “Cash flow is king.” Net 30 to 45 day payments. Avoid anything over 60 days.

• Consider offering an “early-pay discount” as an incentive.

• If providing services for a municipality, see if they are willing to handle billing. That’s one less headache for your firm.

Next, Della Pietra broke down specific contract provisions, including term of renewal, representations and warranties, indemnification and insurance, damages, non-competition and non-solicitation clauses, environmental provisions and title to waste, and contract termination. Some tips here:

• When setting an effective date with a new business, include a qualifier like “provided it’s no later than” to protect against delay in the business coming online.

• Certain municipalities do not allow contracts longer than one year.

• Haulers should get representations and warranties from the landfill they will be using, lest unforeseen variables place an undue burden on the hauler or its clients.

• A contract should indemnify the other party for your negligence and vice versa. Mutuality should be a given here.

• Non-competition clauses are a fact of life and you may have to live with them, but make sure they are reasonable (e.g., no clause insisting on lifelong non-competition).

• The recession is producing a wider range of force majeure claims, with wild fluctuations in fuel costs and other economic pressures being cited as “acts of God” and justification for vacating or renegotiating a contract — sometimes successfully.

Although fuel prices declined during last fall and winter, they have been inching back upwards lately. Generally speaking, that trend can be expected to continue in the coming years.

That was a point driven home by Jamey Holland, a risk management consultant for Kansas City, Mo.-based FCStone Trading, during Tuesday’s “Take Charge of Fuel Prices: Effective Risk Management” conference session.

To illustrate his point, Holland cited studies predicting that global energy demand will increase by 44 percent over the next 20 years and that global oil demand will rise to 107 million barrels per day over the next two decades. Global demand is currently around 84 million barrels a day, he said.

Holland also noted that one study projects 2 billion cars to be on the road worldwide in 2030, up from 812 million automobiles just seven years ago.

Toss in the fact that the number of refineries in the United States is declining, and you have a climate ripe for soaring and volatile fuel prices, Holland said.

So, what’s a fleet to do? Hedge, Holland said.

For one thing, fleets should consider buying call options, which function very much like insurance policies, Holland said. “It’s like a policy against higher fuel prices,” he said.

The fleet pays a premium, and if fuel prices rise above a pre-determined level, the increase is covered by the call option. If prices decline, then the fleet purchases gas for a lower price, and there is no claim on the policy, Holland explained.

Other hedging options include purchasing heating oil futures or swaps, Holland added, with the hope that gains in those investments will help offset increased diesel fuel expenditures.