Long Term Contracts - How do they end?

Discussion in 'Lawn Mowing' started by DFW Area Landscaper, Aug 3, 2004.

  1. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    There are two ways I can think of writing a long term contract:

    1.) If the contract duration is 12 months, their service will automatically continue at a slightly higher rate, like 15% more or so, on a month to month basis at the end of the term. This would cause customers to realize their contract is expired when they get the higher bill at the end of the duration. It would essentially remind them that it's time to put the contract out for bid again. But it would also give them incentive to siqn a new 12 month contract with you.

    2.) If the contract duration is 12 months, the rate stays the same at the end of the duration and requires 120 days advance notice of intent to cancel. Inflationary rate increases are covered by an automatic 3 to 4% rate increase once per year.This way, the customer is never reminded that it's time to put the contract out for bid again. The downside is, you can get blindsided with that cancellation notice at any time. But 120 days is 1/3 of a year, so it's not a complete and total blindside.

    Any other intelligent ideas for handing the end of the long term contract?

    My gut feeling tells me that option number one is the smart move. Isn't that the way apartment complexes handle this issue in their lease agreements?

    Later,
    DFW Area Landscaper
     
  2. BCSteel

    BCSteel LawnSite Senior Member
    Posts: 876

    For my 12 month contracts, I will send them a new contract and a cover letter explaining any changes in the work and/or pricing on the 10 month. With any 8-10 month contracts (they all start in March) I will send out a new contract with a cover letter in October.
     
  3. mtdman

    mtdman LawnSite Gold Member
    Posts: 3,137

    How about self-renewing contracts? The contract automatically renews unless you send a new one with a higher price, or the customer quits at the end of the contract. Give a 15 day quit window before the original expires. If they don't quit, the contract automatically renews with the same terms, for the next 12 months? Seems like the simplest answer to me, especially if you aren't raising rates.

    :D
     
  4. BCSteel

    BCSteel LawnSite Senior Member
    Posts: 876

    I raise my rates every year. Could just do it as a percentage to go along with the auto renewing contracts though.
     
  5. mtdman

    mtdman LawnSite Gold Member
    Posts: 3,137


    Yep, that would work too.
     
  6. Precision

    Precision LawnSite Silver Member
    Posts: 2,995

    I have written into my commercial contracts that it is an auto renewing contract unless I recieve 30 days written notice after the 12 month anniversary. I also have a 3% or CPI index plus 1% increase added in on a yearly basis. My thought on the auto raise is that it is a lot easier than having to rebid. Saves us both time and effort. Besides on a $5000 contract that is only $150 per year. But it is much better than no raise for 3 or 4 years cause your scared to loose the business.

    Personally I have better luck with the CPI plus 1%. It will usually be bigger, but people think otherwise. They usually insist on that.

    I write out in detail from where and how the CPI will be calculated. It was an idea I got from my first commercial account negotiation, and for some reason when I offer 3% and they balk, they go for the more complictated one. Who knew.
     
  7. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    Precision,

    That's exactly what my attorney/best friend recommended too. That's what I think I'll do with this. They have to have their ducks in a row to get rid of you that way, as there is only a 30 day period each year to fire you.

    Later,
    DFW Area Landscaper
     

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