Contracting Fundamentals

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 party’s 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. 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):

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. Performance/Quality Standards Monitoring & Reporting Insurance & Liability Reassignment of duties Responsibilities(All custom operators)

23. Heifer Growers Age Weight Structural growth Body condition Reproductive status Forage Harvesters Moisture level Length of cut Time taken to harvest Inoculant application ResponsibilitiesPerformance/Quality Standards • Manure Haulers • Nutrient analysis • Proper application

24. 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 ResponsibilitiesMonitoring & Reporting • 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 Who’s 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 Exporter’s 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 Exporter’s management policies with respect to the herd are followed.

30. Entrance Requirements Health Practices Breeding Death Losses Transportation Animal Identification Animal Non-performance Heifer Grower Responsibilities

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 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.

39. 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.

40. 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.

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