Sarah RothBusiness Management Specialist

Penn State University

Dairy Alliance is a Cooperative Extension initiative

Contracting Fundamentals

Presentation Overview

Advantages to

having contracts

Types of contracts

Contract contents

Advantages

• Clear description of each party’s responsibilities

• Form of protection in the unfortunate case of a lawsuit

Types of Contracts(heifer raising)

Full Contract

Daily Charge (per head per day)

Per Pound of Gain

Feed Plus Yardage

Sell/Buy Back

Types of Contracts(forage harvesting)

Per chopper head hour

Per ton harvested

Per hour

Types of Contracts(manure hauling)

Hourly (2-3 loads per hour)

Per ton

Per load

Contract Contents

Contract Contents

Time Period Billing and Payment Responsibilities Amendments,

renegotiations, and renewal

Termination

Time Period

• Determine when work will be performed– Seasonally– Set length of time

• Dictated by:– Skills– Facilities/Equipment– Producer needs

Billing and Payment

Payment Calculation

• Explain how charges are calculated

To pay the following fees as billed within 30 days of billing date:

a. $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.

Example (heifer raising):

To pay the following fees as billed within 30 days of billing date:

a. $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.

Example (heifer raising):

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.

Example (manure hauling):

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

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?

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.

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

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.

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.

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.

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.

Example:

Responsibilities(All custom operators)

• Performance/Quality Standards

• Monitoring & Reporting

• Insurance & Liability• Reassignment of

duties

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

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

ResponsibilitiesInsurance

Who’s insurance covers:

• Loss of animals• Damage to buildings,

roads• Spills• Accidents

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.

ResponsibilitiesReassignment of duties

• Is there a plan should something happen to you?

• Is it acceptable for someone to take over your duties?

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 Exporter’s management policies with respect to the herd are followed.

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 Exporter’s management policies with respect to the herd are followed.

Heifer Grower Responsibilities

• Entrance Requirements

• Health Practices• Breeding

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

performance

Heifer Grower Responsibilities

Entrance Requirements

• Health status• Vaccination history• Pervious performance

Heifer Grower Responsibilities

Health Practices

• Whose veterinarian?

• Standard health protocol?

• What procedures are covered by the contract fee and what would incur additional charges?

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.

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.

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.

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.

Example:

Heifer Grower Responsibilities

Breeding

• Whose responsibility?• AI or natural service?• How is semen chosen?• How many times will

heifers be inseminated?

Example:

Heifers, which are open, will be bred at the owner’s 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.

Example:

Heifers, which are open, will be bred at the owner’s 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.

Example:

Heifers, which are open, will be bred at the owner’s 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.

Heifer Grower Responsibilities

Death Losses

• Who incurs the loss?

Heifer Grower Responsibilities

Transportation

• How often?

• Who will transport to and from the grower?

• Is cost of transportation included?

Heifer Grower Responsibilities

Animal Identification

• How?– Ear tags, collars

• Who will supply identification?

Heifer Grower Responsibilities

Animal Nonperformance

• Who determines satisfactory performance?

• Who determines removal from the herd?

• If heifer is sold, how are proceeds distributed?

______ (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.

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.

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.

Example:

Forage Harvester Responsibilities

• Equipment maintenance

• Supplies• Labor & Equipment• Scheduling• Delays

Forage Harvester Responsibilities

Equipment maintenance

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

Forage Harvester Responsibilities

Supplies

• Who provides needed supplies?– Baler twine, ag bags,

inoculants, etc.

• Who pays for supplies?– Included in fee– Additional charge

Forage Harvester Responsibilities

Labor & Equipment

• What combination of forage harvester’s and producer’s labor & equipment is being used?

• Who supplies additional labor if needed?

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?

September1 2 3 4 5 6 7

8 9 10 11 12 13 14

15 16 17 18 19 20 21

22 / 29

23 / 30

24 25 26 27 28

Forage Harvester Responsibilities

Delays

• If client work has to be delayed, how is it handled?– Reschedule– Partial refund

• Dependent on reason for delay

Manure Hauler Responsibilities

• Environmental Stewardship

• Equipment & Labor

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 producer’s nutrient management plan

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 Exporter’s (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.

Example:

Proper biosecurity protocol must be adhered to at all times and Hauler agrees to follow Exporter’s (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 Exporter’s farm.

Example:

Manure Hauler Responsibilities

Equipment & Labor

• Who provides equipment?– Pump, tractor, spreader

• Who supplies additional labor if needed?

Amendments, renegotiations, and renewal

Arbitration

• When does a dispute go to arbitration?

• How are arbitrators chosen?

• How long will it last?

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.

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.

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.

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.

Example:

Amendments, renegotiations, and renewal

Renegotiation

• How often will the contract be renegotiated?

• What starts the renegotiation process?

Amendments, renegotiations, and renewal

Contract renewal

• When does the contract start and end?

• When will renewal talks take place?

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.

Example:

Termination

• When does notice have to be given?

• What happens with any work still in progress?

• Refer to procedure for last payments

You’reFired!

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.

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.

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.

Example:

Example:

Exporter (Dairy producer) may cancel the agreement with forty-five (45) days prior written notice for Hauler’s 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.

Example:

Exporter (Dairy producer) may cancel the agreement with forty-five (45) days prior written notice for Hauler’s 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.

Example:

Exporter (Dairy producer) may cancel the agreement with forty-five (45) days prior written notice for Hauler’s 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.

Summary

• Contracts are a form of protection and risk management

• Everyone’s responsibilities are known

Sarah RothPenn State UniversityFarm Business ManagementDairy Alliance

Visit us online:http://farmmanagement.aers.psu.edu

orhttp://dairyalliance.org

Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce