You're in the business of keeping people safe and helping them avoid risk — but you also must protect yourself and your security company. Even if you boast a seasoned team capable of warding off any threat directed at a human or property asset, they'll be powerless in a courtroom where a judge rules against you.
A contract is at the heart of every business relationship, establishing expectations all parties agree to. Some contracts can be simply transactional — such as a buyer agreeing to pay X for a specific good or service. However, there are additional (and often complicated) considerations in the security industry, from the specifics of the security service to be provided, to liability insurance waivers, to whether technology and equipment will be included as part of that service.
With that in mind, we offer these ten tips to help you develop well-defined contracts that will protect your own business, as well as keep your customers safe.
- Create a good contract template for your business. This means using your contact whenever possible. Customer contracts are notoriously bad for the security industry. Having a solid template works as a baseline, so you don't have to start from the beginning with each customer. Understand, however, that you'll have to tweak it to conform to specific variables of each job. The contract should be written in simple language, yet contain all the details (including the rights and obligations of each party) you deem necessary. You don't want to have to haggle over something not clearly spelled out or, worse, have the dispute hashed out in court.
- Hire a lawyer that knows the industry. Having a lawyer review the contract is a must. Your attorney who helped you close the deal on your office space may not understand the risks or the challenges faced by guarding companies, which are particularly vulnerable to civil (and potentially criminal) litigation due to the nature of their work.
- Consider your exit strategy. If you're thinking of selling your business, you don't want the sale to be hung up because you're obligated to provide services scheduled after you plan to sell. In contracts, an assignment clause (sometimes accurately described as a "no assignment clause") means neither party can transfer the obligations to a new party. Avoiding the assignment clause will prevent unwanted delays when it's time to sell.
- Limit your liability. This is one of the essential parts of a contract, especially with a rise in lawsuits against private security companies. The industry standard is $1 million, or twice the annual revenue for the customer account. It's important to note that an insurance clause is separate from liability and indemnification. A loss over that amount could bankrupt your company.
- Exclude third parties from the contract. This will give you more protection if a third party is involved in an incident on your client's property. In one case, an intoxicated spectator assaulted another spectator at Yankee Stadium. The security guards at the stadium were not liable because they were hired only to protect the contracting party — the Yankees. Ensure your business is contracted to cover only your customer and avoid additional risk.
- Pay attention to the payment clause. You want to spend your time protecting your customers, not badgering them for payment. Ensure your payment terms are clearly defined. The industry standard is "net 30," a credit term requesting that customers make payment in full within 30 days of the invoice date. Some customers — larger accounts in particular — might have trouble paying you within the 30 days stated, so you can consider offering a small discount for timely payment. Some benefits of net 30 include more significant customer satisfaction and the ability to attract customers who would be unable to pay you at the time of service.
- Build in automatic annual price escalations. One of the more uncomfortable conversations to have with a customer is announcing a price increase for the same services. Rather than surprise your customer when it's time to renew, include the escalation in the contact. Being upfront about annual price increases helps both you and your customer plan — and makes for an easier conversation when renewal is being considered. Many industries base the increases on the Consumer Price Index (CPI). Take advantage of compounding: a slight increase each year will work more in your favor — in terms of your profit and customer expectations — than following a few years of frozen prices with a significant increase.
- Always have a 30-day cancellation clause. Your customer will more than likely want the right to cancel their contract, and you should, too. For example, if your labor costs go up tremendously and you can't get out of a contract, you could be losing a significant amount of money.
- Include collection language. Unfortunately, there is no guarantee that every customer will pay you on time. That's why you need your contracts to spell out — and have your customer agree to — what will happen if you must collect a debt, such as charging interest or transferring to the customer any costs related to collecting the debt.
- Remember that your customers are not lawyers. And neither are you. You want to maintain a good relationship with your customers, not squabble over legal details. Let your attorney and your customer's attorney — who are used to the rough-and-tumble world of negotiations — handle things.
You spend countless hours protecting your clients' businesses, but well-defined contracts — which you can achieve by following these tips — will protect your business.