Laundry Contracts
Every laundry or linen manager should take the time to
study commercial and central laundry contracts. Sooner or later you will be
called upon to demonstrate your knowledge in this key area. What you have
learned through your study may help to keep your laundry open or secure you a
job with your current employer even if the laundry closes.
Long ago the words “Caveat Emptor - Let the buyer beware”
were developed to warn people about contracts. These words still apply to
contracts today and more specifically to the laundry industry. Contracts
provide unscrupulous laundries with many ways to hide their total charges. A
good contract will provide the framework for a solid on going working
relationship with another company.
Definition of a
Contract
In simplest terms a contract is a binding agreement.
Contracts arise out of agreements; hence a contract is often defined as “an
agreement creating an obligation.”The substance of the definition of a contract
is that by mutual agreement or assent the parties create a legally enforceable
duties or obligations that did not exist before. In order to be an enforceable
contract, there must be (1) an agreement, (2) between competent parties, (3)
based upon genuine assent of the parties, (4) supported by consideration, (5)
made for a lawful object, and (6) in the form required by law, if any.
Typical Contract Clauses
1. Identify Parties
Contracts are normally between two parties or organizations.
It is extremely important that the parties be correctly identified.
The following are some typical clauses used in laundry
contracts.
• THIS AGREEMENT made this February 1 day of 1981 between
Mickey Mouse Commercial Laundry (hereinafter called
“Provider”) and the undersigned (hereinafter called “Customer).
• THIS AGREEMENT entered into this 25th day of August, 1995,
by and between Quality Health Care Central Laundry, 105
Thoroughbred Trail, Madison, AR 72205 (hereafter referred as
“Provider”) And Bill Clinton Memorial Hospital, Little Rock, AR
72205 (hereafter referred to as “Customer”).
2. Services To be Supplied
This is the section of the contract that spells out what
services are included in the contract. It is important that this section
careful review here can avoid problems down the road.
• CUSTOMER shall rent from PROVIDER all the linen supplies
used in CUSTOMER’S business at the Hospital and PROVIDER shall use diligence to
provide an uninterrupted supply of linen sufficient to meet CUSTOMER’S
requirement.
PROVIDER to deliver all linens in sanitary plastic
packaging. Sheets are all bundled in individual packages of ten (10) to a
bundle; most other items are bundled ten (10) to a package. This system assures
excellent sanitary conditions and easy inventory control• Cut Rate Commercial
Laundry will provide linens used at Madison Hospital including all items set
forth in Addendum A. Madison Hospital will purchase all other items from such
vendors, as it deems appropriate. The items purchased by Madison Hospital will
be purchased in sufficient quantity to enable the laundry to operate on a
five-day-a -week basis. The parties shall consult from time to time regarding
the quantity of items necessary.
3. Exclusivity Clause
An exclusivity clause requires the purchaser to only use the
provider for all items covered under the contract. This is an extremely
important clause and should routinely be found in all laundry rental or
processing contracts. I did find one hospital during my career whose
linen-processing contract did not have this clause in it. They were able to
move 95% of their business to a different supplier without violating their
contract because this clause was missing!
• Customer will only allow Provider to service these items.
• CUSTOMER grants PROVIDER the exclusive right and privilege
to provide laundry and linen services to CUSTOMER under the following operating
conditions:
4. Pricing
A key element of any contract is the sections that deal with
pricing. It is very important that the price be clearly stated as a per piece,
per clean pound or per soiled pound basis.
• For all services performed by the Provider hereunder, the
Company shall pay to the Provider a rental fee for each item furnished at the
rate specified for such item in the Price List dated January 1980, a copy of
which is attached as Schedule “C”.
• Jimmy Hoffa Memorial shall pay to St. Nick’s $.368 per
pound of clean weight for all linen cleaned and delivered under paragraph 1 of
this agreement and $.0295 per pound clean weight for all linen cleaned and
delivered under Paragraph 7 of this Agreement. Payments shall be delivered to
St. Nick’s no later than thirty (30) days after the receipt of the statement
for services. Any sums not paid in a timely manner shall bear interest form the
date such payment is due until it is received at the rate of Twelve percent
(12%) per annum. The for going prices shall not change before July 1, 1994.
• The inclusive cost for all services provided by Cut Rate
Commercial Laundry under this Agreement, including without limitation provision
of linen items identified in Addendum, unless otherwise noted in this section,
and laundry services for items plus such other linen items as Madison Hospital
submits for laundering shall be determined on a per pound basis. The cost for
all services during the initial year shall be $.389 per pound. (Editors Note:
Since this clause does not specify clean or soiled weight the vendor is free to
charge on soiled weight, which he did.)
5. Terms of Payment
Many of us have learned to read credit card offers very
carefully to see what their billing cycle is and how long you have to pay after
receipt of the bill before interest applies. The “Terms of Payment” section of
the contract defines the frequency of billing, how long the customer has to
pay, whether interest will be charged and how much if it is not paid on time.
In an effort to improve cash flow many commercial laundries have gone to weekly
billings. This is likely to increase the cost associated with the handling of
the contract by the customer. Most contracts specify the uncontested bill must
be paid in 30 days. If your facility routinely averages more than 30 days then
change this section to reflect your normal bill payment time. (Many hospitals
routinely age bills and do not pay them until they are almost 60 days old.)
• Except as provided in Paragraph B below, all fees payable
by the Customer under this Agreement will be paid as follows:
The Provider will submit to the Customer, monthly a
statement of all fees due for service by the Provider during the period following
the last statement submitted. The Customer will pay the Provider all sums due
on each statement on or before the 30th day following the date of said
statement;
All such sums remaining unpaid after said thirty (30) day
period will be subject to a service charge at the rate of one and one half (1
1/2 %) percent per month or the maximum allowed by law, whichever is less,
until paid in full.
• PROVIDER shall bill CUSTOMER on a weekly basis. Invoices,
which are complete, correct and undisputed by CUSTOMER, shall be paid within 30
days of receipt. CUSTOMER shall notify PROVIDER within five (5) business days
of any dispute as to an invoice and pay the undisputed portion within 30 days.
A one- percent (1-%) per month carrying charge will be added to all balances
past due not to exceed the maximum permissible under applicable law.6. Price
Adjustments It is common practice for
multiple year contracts to have a clause that allows the price to be adjusted
during the life of the contract. Some clauses are very specific as to the
amount allowed while others are vague and subject to much interpretation.
• The parties agree that in event the Provider’s costs for
rendering the services to be provided by it hereunder increases during the term
of this agreement, or any extensions thereof, due to increased costs of labor,
energy, or textiles, the prices then being charged hereunder may at the option
of the Provider be revised at any time following the first year of the original
term hereof. However, in no event will prices be increased under this Paragraph
more than once during any year of this Agreement. The Customer shall be
notified of any such increase in writing at least sixty (60) days prior to the
effective date of said increase and shall have the right to terminate this
Agreement by giving written notice of termination to the Provider not less than
thirty (30) days prior to the effective date of said increase.
• Prices may be adjusted annually, but the total effective
adjustment percentage may not exceed the percentage change in the Consumer Price Index since date below.
7. Term of Agreement
This is the clause that specifies how long a period of time
the initial term of the contract covers. I do not recommend that the contract
be longer than three (3) years. Most laundry contracts are for a period of
three (3) to five (5) years. I feel the shorter three (3) year contract
provides more incentive for the supplier to maintain proper levels of service
and quality.
• This agreement shall commence on the date first above written
and shall continue for three years from the date on which the items to be
furnished hereunder are first installed at the Customer’s location(s).
• The initial term is 36 month’s from the date below.
8. Automatic Renewal Clause
This is a clause that I normally recommend not be accepted
in any contract. It allows a contract to be automatically renewed for an
additional period of time if the customer does not give notice to the supplier
of their intent to cancel the contract at the end of the initial term. I
believe it is to the advantage of the customer to enter into a new contract at
the end of the initial term.
• Either party may terminate this Agreement by giving
written notice to the other party at least sixty (60) days prior to the
expiration date of said three (3) year period. Unless so terminated, this
Agreement shall be automatically extended on a year to year basis, but either
party may terminate said Agreement effective at the end of any such year by
providing the other party with written notice of said termination at least
sixty (60) days prior to the end of such year.
• This agreement shall remain in full force and effect for
the period set out on the face of this agreement and thereafter for successive
like periods until such time as CUSTOMER notifies PROVIDER or SUPPLER notifies
CUSTOMER of an intention to cancel this agreement. Notice of intention to
cancel this agreement must be made in writing and must be given not less than
ninety (90) days prior to the expiration of the first or any succeeding periods
hereunder.
9. Loss and Replacement Charges
Some loss of linen is inevitable. The suppliers must protect
themselves from unusually high linen loss. For this reason this clause is found
in every linen rental contract. It is important to understand how linen loss
will be determined. How much is normal and when does it reach a level that an
extra charge is warranted. This is an area where many laundries find a way to
increase the total charges by routinely charging for lost linen.
• If any are unreturned or damaged (ordinary wear and tear
excepted), Customer will pay the current replacement charge.
• All linen supplies are furnished on a rental basis only
and remain the property of the PROVIDER, CUSTOMER shall not remove any of the
supplies from its place of business and except for ordinary wear, shall be
liable to PROVIDER for the cost value of any furnished supplies that are lost
or damaged, less five (5%) percent of gross sales for loss allowance. CUSTOMER
shall be responsible for damage by abuse, fire or theft from any other cause,
except normal wear for which PROVIDER is responsible and agrees to make
replacements. PROVIDER shall make all other replacements for the CUSTOMER at a
rate of $ 4.20 per negative variance poundage excluding established soil factor
and shall be due payable upon billing monthly by PROVIDER. The inventory
records of PROVIDER, with respect to the nature and amount of said linen, shall be controlling.
10. Disruption of Service
This section deals with what will happen to the customer if
the provider cannot deliver linen on time or not at all. If the contract does
not guarantee continuation of service in the advent of a problem at the
providers’ place of business the customer could be left high and dry.
• The Provider will use its best efforts to prevent delays
or postponements in service, however, the Provider shall not be liable for any
damages of any kind incurred by the Customer by reason of any postponement or
delay of service caused by an interruption in the Provider’s usual operations,
or if service herein provided for is delayed or postponed by reason of acts of
God, strikes, lockouts, or other industrial disturbances, wars, riots, arrests,
explosion, fires, damage to machinery or other cause not within the control of
the Provider.
• The PROVIDER agrees to provide laundry services customary
to the trade, subject to strike, lock out, acts of God or any other disruption
of production beyond the control of the PROVIDER.
11. Deliveries This section specifies the number of regular
deliveries per week included in the contract. Since many suppliers charge for
additional deliveries it is important to make sure that the number of
deliveries and soiled linen pick ups adequately meet your needs.
• There will be up to six day per week pickup and delivery
of CUSTOMER’S linen based on a mutually acceptable delivery schedule. Service
shall be provided on a dock-to-dock basis will all linen bagged properly for
transportation per appropriate requirements (OSHA, JACHO, & CDC). CUSTOMER
agrees to make reasonable effort to have all soiled linen in carts prior to
delivery time so the driver can load and unload without delay.
• Minimum delivery of linen shall be five (5) times a week
unless otherwise agreed to; additional deliveries shall be made based on
CUSTOMER’S needs. A two- (2) hour window plus/minus (+/-) will be used baring
any uncontrollable or unforeseen disasters. PROVIDER to deliver linen in the
latest style polyethylene carts directly to the laundry room. Delivery on all
holidays except new Years Day, Thanksgiving Day and Christmas Day.
12. Standards of Quality
How will the quality of the linen be judged? The hardest
thing for a large commercial laundry to do is to take over service when a small
in-house laundry was closed. The quality level of a small in-house laundry
almost always exceeds the quality level of a large laundry operation. It is the
cost factor rather than the quality level that normally closes these laundries.
This section normally defines how the quality level will be determined and what
remedy is available to the customer if they are not satisfied. As a general
rule it is very difficult to cancel a laundry rental or processing contract do
to poor quality.
• Provider guarantees the quality of our service. If customer
is not satisfied, he should notify Provider immediately. Customer may terminate
services for deficiencies of service by this procedure. Complaint must be made
in writing, stating the precise nature of any deficiencies. If correction is
inadequate by industry standards, Customer must so explain, in writing, giving
30 days notice before termination.
• PROVIDER shall launder linens in accordance with standards
published by Joint Commission on Accreditation of Hospitals;
Joint Committee on Healthcare Laundry Guidelines and
infection control guidelines shall meet accepted industry standards. The
CUSTOMER shall have the right to terminate this agreement in the event the
service provided does not meet the agreed standards of quality or service, upon
the condition that it give the company written notice specifying the
deficiencies in service. Should such deficiencies not be corrected within a
thirty- (30) day period, then said agreement may be terminated at the option of
the CUSTOMER. Differences in standards interpretation shall be arbitrated by
the parties.
13. Successors And Assigns
This contract clause is an attempt to adapt to the rapidly
changing market in the laundry industry. During the past five years we have
seen many consolidations and purchases on both the side of the provider and on
the customer. It is important to point out that the contract is legally binding
only upon the two parties or organizations that originally signed the contract.
One cannot obligate a yet unnamed third party to a contract that they did not
sign. If Hospital A purchases Hospital B it is not obligated to continue the
contract with the Linen Supplier of Hospital B.• This agreement shall be
binding and shall inure to the benefit of the personal representatives,
successors and assigns of each of the parties hereto.
• This Agreement shall be binding upon, and shall insure to
the benefit of, the parties hereto and their successors and permitted
assignees. This agreement may not be terminated by the sale or “privatization”
of Madison Hospital. This Agreement may be purchased for 20% of Projected
revenues on the remaining portion of the initial Agreement.
14. Completeness of Agreement
This clause basically says that the parties agree that the
contract represents the entire agreement between them and that neither party
has relied on any verbal promises that are not part of the contract. In short
if it is not in writing it doesn’t count.
• This agreement is entire and includes all understandings
and agreements of the parties, No waiver or statement by a representative of
either party shall be valid unless set forth herein or otherwise agreed to by
both parties in writing.
• This is the entire agreement between the parties, and each
has received a copy.
15. Termination
No one ever enters into a contract expecting they will have
to cancel it before its original term. Where a substantial front-end investment
in linens and carts is made the original term of the contract may not provide
the customer with a way to cancel the agreement. Some contracts provide for
liquidated damages if a contract is cancelled early, while others require
written notice to the provider of problems and a set period of time to correct
them or the contract can be cancelled. A customer should always avoid a
contract that does not give them a reasonable way to cancel the contract for
poor service or quality.
• PROVIDER or CUSTOMER, at eithers option, may terminate
this Agreement upon sixty (60) days written notice.
• In the event that the PROVIDER shall fail or refuse, except
for reasons beyond its control, to keep or perform any terms of this agreement,
and/or such failure shall remain uncorrected for a period of thirty (30) days
after written notice from CUSTOMER (sent by registered mail, return receipt
requested), such failure or refusal shall constitute a default and the CUSTOMER
shall have the right, at its option and discretion, to terminate this
agreement. In the event of an exercise of such option, the CUSTOMER shall give
thirty (30) days written notice to the PROVIDER (by registered mail, return
receipt requested), whereupon his agreement shall be terminated. At any time
that PROVIDER is unable to satisfy the CUSTOMER’S laundry needs for whatever
reasons, CUSTOMER may obtain temporary alternate service and CUSTOMER shall not
thereby be in default under this agreement.
16. Federal government Access
Clause required by federal law.
• This agreement is subject to the provisions of Section 952
of the Omnibus Reconciliation Act of 1980, Public Law 96-499 as such law may be
amended from time to time. Accordingly, the PROVIDER agrees to allow the
Secretary of Health Services and the Comptroller General access to certain
books, records and documents as required by such Law or the regulations issued
pursuant thereto.
• To the extent required by Section 1861 (v) (I) of the
Federal Social Security Act, PROVIDER will maintain records until the
expiration of four (4) years after the furnishing of services pursuant to the
Agreement, and PROVIDER shall make available, upon written request, to
CUSTOMER, the Secretary of Health and Human Services, or the Comptroller
General, or any of their duly authorized representatives, this Agreement, and
books, documents, records of PROVIDER that are necessary to certify the nature
and extent of the costs claimed to Medicare with respect to the services
provided under this Agreement.
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