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.